Scentre Group (SCG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Scentre Group 2023 Full Year Results Update. [Operator Instructions] Please note that this conference is being recorded today, Wednesday, the 21st of February 2024 at 9:00 a.m. Australian Eastern Daylight Time. I would now like to hand the conference over to Mr. Elliott Rusanow. Please go ahead.

Thank you, and good morning, everyone. Welcome to Scentre Group's 2023 Full Year Results Briefing. Before we begin, I would like to acknowledge the traditional custodians of the lands we are on this morning and pay my respects to their Elders past and present. I am joined today on the call by our Chief Financial Officer, Andrew Clarke; together with Lillian Fadel, Group Director of Customer, Community, and Destinations; John Papagiannis, Group Director of Businesses; and Stewart White, Director of Development, Design and Construction. And our focus on having more people spend their time with us has delivered strong operational and financial results for 2023. Funds from operations increased by 5.2%, at the upper end of our guidance. And distributions to our security holders of $0.166 per security was ahead of guidance. Funds from operations for the second 6 months of 2023 grew by 9.4%. This was as a result of strong operating metrics that were the outcome of our customer-focused strategy, together with our strategy of proactively managing our interest expense, that Andrew will discuss soon. The execution of our strategy has seen earnings grow in 2022 and 2023, and we are guiding today for earnings to continue to grow for the calendar year of 2024, something that is unique in our sector. Our net operating income increased by 8.8% to a record level for the Group. This performance was driven by our team's focus on creating the places and experiences that people choose to come more often and for longer. I would like to thank our team for their outstanding efforts in achieving these results. Our strategy saw customer visitations increase to 512 million people in 2023, up 6.7% from 2022, or 32 million more visitations for the year. Our 42 Westfield destinations located in close proximity to 20 million people across Australia and New Zealand are welcoming approximately 10 million visitors each week. And our customer visitations continues to grow. A driver of our increased customer visitation has been our unique approach to activations at our destinations. This is anchored by partnerships with leading brands including Disney, Live Nation and Netball Australia, together with extensive local and -- local community-based events. We are the places where businesses, brands and people want to connect with each other. As a result, our business partners achieved a record level of sales for the year, increasing to $28.4 billion, $1.7 billion more than in 2022, and $3.4 billion more than in 2019. Business partner sales have continued to grow in the early part of 2024. This has driven strong demand from businesses to partner with us in connecting with customers, with our occupancy increasing to 99.2%, specialty rent increasing by 7.5%, and new lease spreads increasing to 3.1% for the year. For the second half of 2023, new lease spreads increased to 3.6%. We finished the year with 247 holdovers, representing less than 2.5% of income. Average specialty leases have a term of 6.8 years and over 80% of our leases have annual escalations that are in excess of inflation. During the year, we continued to make progress on strategic customer initiatives, particularly our Westfield membership program. The program which launched 4 years ago now has over 3.8 million members. We believe this initiative will provide unique growth opportunities for the Group by creating a more direct relationship with customers and allowing for a better understanding of them. This helps us determine how we better activate our destinations, as well as how we evolve our destinations over time. A primary example of this is our development program. In November, we successfully opened the final stage of the $355 million investment at Westfield Knox in Melbourne, with customer visitations 14% higher than the comparable period. Works continue to progress as part of the Group's expansion of Westfield Sydney on the corner of Market and Castlereagh Streets in the heart of Sydney's CBD. We will introduce 6,000 square metres of luxury retail space over 5 levels, including the new Chanel boutique. Other brands to join the expanded Westfield Sydney include Moncler, Omega and Canada Goose. During 2023, we commenced the $50 million redevelopment at Westfield Mount Gravatt in Brisbane, introducing Uniqlo, Harris Scarfe, and a range of specialty stores to the previous department store space. These stores will open throughout 2024. At Westfield Tea Tree Plaza in Adelaide, the Group commenced a $27 million redevelopment which will introduce JB Hi-Fi, an expanded Timezone, and additional dining. We continue to progress works on our $4 billion pipeline of future retail development opportunities. Our destinations are located on more than 670 hectares of land holdings, making Scentre Group a significant land owner in high-density urban locations and growth regions across Australia and New Zealand. This could provide the Group with unique and long-term growth opportunities highly aligned to the macro thematics in both Australia and New Zealand. Operating as a responsible and sustainable business is an integral part of our strategy. Progress continues on our pathway to net zero by 2030 for Scope 1 and 2 emissions, with the recent completion of rooftop solar installations at Westfield Fountain Gate, Knox, Hornsby and Tuggerah. Together, these installations more than double the Group's solar generation capacity to 12.2 megawatt hours -- or megawatts, I apologize. We have entered into long-term energy agreements in New South Wales and Victoria, which together with our existing agreements in Queensland and New Zealand will assist us in achieving our net zero target by 2030. I will now hand over to Andrew to present the financials.

Thanks, Elliott, and good morning, everyone. Funds from operations for the 12 month period was $1,094 million or $0.2111 per security, which grew by 5.2% compared to the prior corresponding period. The Group announced an increase in the final distribution to $0.0835 per security, bringing the full year distribution to $0.166 per security or $861 million, representing 5.4% growth on the prior year and above guidance. Net operating income for the period was $1,951 million, this is an increase of 8.8% over 2022. As a result of delivering strong cash collections, this includes a $13 million release in the expected credit charge, this compares to a $14 million charge booked in 2022. Underlying net operating income, excluding the release of the expected credit charge grew by 7.2% for the period, which was primarily driven by inflationary-linked specialty annual rental escalations of 7.5%, positive leasing spreads of 3.1%, and an increase in occupancy from 98.9% to 99.2%. Operating and leasing capital was $149 million for the year. During the year, $2.7 billion of gross rent was collected. This is equivalent to a 103% of annual billings and represents an increase of $131 million compared to the prior corresponding period. As a result of the strong cash flow, net trade debtors after the expected credit charge at 31 December 2023, were $22 million. This represents a reduction of $62 million or 74% compared to 31 December 2022. The Group continues to proactively manage its funding and interest rate exposure. During the year, the Group extended and established new bank facilities totaling $3.1 billion and issued $400 million of domestic medium-term notes. The Group repaid bonds totaling $1.5 billion and redeemed a $162 million Westfield Southland property-linked note using existing bank facilities. In December, we completed the repurchase of USD 300 million of subordinated notes using existing senior bank facilities, which have significantly lower margin. This has resulted in a net benefit to the Group of approximately $100 million that will be realized over the remaining period of the notes. At the same time, we announced the activation of our Distribution Reinvestment Plan with effect from the February 2024 distribution. The DRP will add to the Group's various sources of capital. At year-end, the Group had $3.5 billion of available liquidity, which is sufficient to cover all debt maturities until the end of 2025. The weighted average interest rate for the 12 month period was 5.6% in line with forecasts. Included in this was an average base rate for the period of 2.6%. During the period, the Group executed additional hedging of $3.7 billion. This has increased hedge coverage to 92% at January 2024 at an average fixed rate of 2.65%. As a result of the refinancing initiatives that were executed during the year, the average margin on total bank, bond and hybrid notes reduced from 3.1% to 2.9%. Excluding the subordinated notes, the weighted average interest rate for the period was 4.7%. The weighted average interest rate for 2024 is expected to be approximately 5.8%. Statutory result was a profit of $175 million, which includes an unrealized property revaluation decrease of $1,017 million. Overall, property valuations decreased by 1.9% during the period, driven by an average 42 basis point softening of capitalization rates, which was largely offset by growth in net operating income. This includes the revaluation of Westfield Knox following the completion of the redevelopment. The weighted average capitalization rate for the period for the portfolio was 5.35% at December 2023 compared to 4.93% at December 2022. All properties were externally valued during the period. We have provided on Slide 27, a summary of the values by property. Thank you, and I will now pass you back to Elliott for closing remarks.

Thank you, Andrew. Our strategy to create extraordinary places and experiences where people choose to spend their time, enabling more businesses and brands to connect with more customers, is expected to continue to deliver growth in earnings and distributions. Our Westfield destinations, strategic land holdings and our unique brand provide significant long-term growth opportunities for the Group. Subject to no material change in conditions, the Group expects funds from operations to be in the range of $0.2175 to $0.2225 per security for 2024, representing 3% to 5.4% growth for that year. Distributions are expected to be at least $0.172 per security for 2024, representing at least 3.6% growth in distributions for the year. I will now open the call for questions. Thank you.

[Operator Instructions] Your first question comes from Richard Jones from JPMorgan.

Just wanted to get some more color. Obviously, you've done the first tranche of the buyback related to subordinated notes. Just interested in your strategy around further buybacks, and I guess your plans around what you're going to do with the expiring in 2026.

Thank you, Richard, and I'll shortly hand over to Andrew. But I think what you do highlight is our proactive approach to managing our interest exposure, but also the tailwinds that we see coming through, the potential tailwinds coming through with our interest expense related to the subordinated notes. It's interesting, I was reflecting overnight about the subordinated notes and if you recall at the time when we issued those, it was in effect to provide the Group with additional sources of capital during a period of uncertainty related to a pandemic. Sitting here today and looking back, we've -- I think we can all agree that the pandemic was a moment in time and our strategy of effectively renting capital in that form of subordinated note which provided some form of equity credit has placed the Group in a very good position with regards to relative earnings growth versus the alternative of issuing equity at that time. But I'll hand over to Andrew.

Richard, look, I don't really have much to add to that. I think that's pretty much what I would have said. I think you can see that we've been very proactive in terms of looking at the subordinated notes or looking at our overall weighted average cost of debt as an opportunity for the Group. You can see that the average margin that we had on all our bank, bond and hybrid facilities was 3.1% at the start of the year and then we've been able to bring that down to 2.9% at the end of this year -- at the end of 2023. And so, our strategy continues to look at opportunities, whether that's buyback -- buying back the subordinated notes or refinancing existing facilities and to continue to bring that margin down. So, we look at it as a long-term opportunity.

Okay. But more from a strategy of how you finance the buyback and the expiring 2026 of the first tranche. Just interested, I assume plan A is some form of asset sales to refinance those notes?

Yes. Look, we have a number of sources of capital as opportunities. I think what you've highlighted is a very obvious and natural strategy for us to look at over time. We've got 12 assets that we own 100% share of those assets. Those assets combined are worth around $19 billion. So, you can see, there's a significant pool of potential capital that we could recycle. We've also got really strong growing cash flows in our business, which is really important to maintain a single A credit rating. That's what we're focused on is, if we can maintain that single A credit or not -- I shouldn't say if, we will maintain the single A credit rating based on driving cash flows. And so, we'll continue to look at various sources of opportunities, but the potential joint venturing of assets is absolutely one of those.

And can you give us a feeling just around timing and whether you've started a process of looking for partnering at this point?

Well, I think we're always looking for sources of capital, but it's worth bearing in mind that 2026 is a little bit of time away and we have a bit of time on our hands in terms of that. But while there's probably a few logical sources of capital to refinance the first call option, I should say, with regards to that note, the first tranche of that note, one of those is what Andrew discussed, which is, or 2 of those, which is the potential joint venturing of assets, our strong cash flows which continue to grow through our operating strategy. But there's also the opportunity of refinancing those with a re-issuance of sub-notes probably at better terms than what we issued them at the time, or potentially even debt. So, I think that the opportunities to the Group are actually quite large. And the timing of that will be timed as we've seen as opportune to capture that tailwind that I started the answer to that question with.

Your next question comes from Lou Pirenc from Jarden.

Just a quick one on leasing. Clearly, re-leasing spreads are holding up well despite the slowdown in retail sales. Can I just ask what you were expecting or what's reflected in your guidance in terms of what happens to re-leasing spreads from here? And maybe just talk a little bit about just generally what's happening with negotiations with tenants.

Yes. Thanks, Lou. We would expect the conditions to remain. We've got strong demand for space. We actually have very little space available to lease, which means that demand has to compete for far more limited supply. And so, we would expect that conditions with regards to leasing will continue to remain robust. If you -- if we bear in mind that $28.4 billion, which is actually now $28.5 billion of MAT, that's a large pool of dollars that businesses are competing to try and get a piece of. And so, the -- I know that there's a lot of focus on year-on-year growth, but we've got to bear in mind that we are talking about significant dollars that are being consumed at our destinations, and businesses want to have a piece of that and they're prepared to pay an ever-increasing amount as reflected in our leasing spreads, reflected in our annual escalations, maintaining our standard lease structure in order to meet with what is a growing level of customer visitations, which ultimately is what's driving that stronger level of activity that those businesses are trying to compete for.

Your next question comes from Grant McCasker from UBS.

Elliott and Andrew, just a question on the leasing. It looks the expiry profile for 2024 does appear to be elevated and I think you talked to sort of low holdovers. Is there any sort of reason for that at sort of 19% of specialty leased area?

I think it might have to do with when we completed some developments, particularly there was Carousel that was completed in 2019, new market starts to come online in 2019. So, if they're 5 year leases on average when they're signed, obviously our lease duration is 6.8 years now, but that would explain part of the call it elevated increase. But around 20% of leases or specialty leases somewhere between 15% to 20% do get re-leased each year. If you saw in our slides that we leased over 3,200 new leasing deals during the year. So, we are very active in the leasing space. It was slightly down in the prior year, but yes, 3,000 is a lot of transactions to be doing each year.

Okay. And you made some -- a number of remarks in your commentary around strategic land parcels to drive value. Is there anything that you're doing or that we'll see that come to light in 2024 to be aware of?

Well, I think that we -- we're highlighting it because we look at it as a long-term opportunity. We will spend -- sorry, devote some more of our, call it mental or human resources to exploring what those opportunities are. But land is something we own. We've owned that land for a very long time. Most of that land is located -- well, it's located where our centres are, our destinations are, but which are located in urbanized, densely populated areas, close to infrastructure, key infrastructure. The macro thematic of Australia and New Zealand is increasing population. There's a lot of debate amongst policymakers about where all this increased population is going to be housed. The likelihood is that it's going to be housed in densification and our destinations are located in areas which are ripe or which are existing, have densification. And so, we have the opportunity through the land, through our destinations to what we see drive long-term growth opportunities through that potential. So, we're not calling out that this is a 2024 thing in and of itself, but a far broader long-term opportunity aligned to the broader long-term needs that exist in both Australia and New Zealand.

Okay. Great. And then just a quick one. I think, Andrew, you called out just from refinancing a saving of $100 million. Is that right? Can I just clarify comments you made in your prepared remarks?

Yes, that's right, Grant. So, when we bought back the USD 300 million of subordinated notes, the margin that we replaced that -- those hybrid notes with, the saving that we're generating from that will save $100 million over the remaining period of the notes to the reset dates. There was an upfront cost to the buyback, which was effectively we bought the bonds at a discount to the face value. We did have to break the cross-currency swaps associated with those bond -- those -- the hybrids. The net cost was around $20 million, and then the saving is $100 million, so $120 million, so it means it's a $100 million over time.

Your next question comes from Ben Brayshaw from Barrenjoey.

I was wondering if you could just -- and perhaps this is a question for Andrew as well, just discuss Westfield, Sydney, the plan $450 million spend. Just noting your comments, I think in the presentation that you scheduled to kick off in the fourth quarter of this calendar year. What percentages of the gross level area has been committed at this point? And how do you see that impacting funds from operations in FY '25? For example, are you already capitalizing the interest on this site? Could you just put a conversation around that, please?

Yes. So the -- where we're referring to the expansion of Westfield, Sydney is the previous men's David Jones store that you might recall was purchased in 2018. Half of that $450 million had already been expended in the acquisition of the-- of that site. So, the incremental spend is effectively what has actually been -- a lot of that's been spent already in fitting out that or de-fitting out the old menswear store. The facade has remained, but what's inside is completely different. It then builds up to a podium where we're building on behalf of Cbus as a third-party constructor contract, their office and their residential tower, which is not included in that $450 million. But in terms of that impact on FFO, there is no downtime or loss of income from out-of-production assets coming from Westfield, Sydney. From that, this is expansion space. It's 80% committed and we expect it to open from later this year. So we'll be adding to FFO into 2025. Obviously, we are not giving guidance for 2025, but we don't have lost income coming from that, if that makes -- hopefully that makes some sense.

Yes. And just on project income in that context, should we be thinking that the $17 million for the last 12 months is -- I mean, how are you, I guess -- I mean, how are you seeing that for the next 12 months in the context of Tea Tree and Mount Gravatt and, as you say, Westfield, Sydney?

Yes. Grant (sic) [ Ben ] Andrew here. Look, we'd expect our project income to be at similar levels in 2024. As Elliott said, we're not providing guidance for '25. And that's a range of those projects, some of them, which you mentioned in terms of where there's joint venture owners or we're doing the third-party work.

Your next question comes from Caleb Wheatley from Macquarie.

Just wanted to dig a little bit deeper into the 4Q sales, seems like the growth rate has picked up a little bit there. Just would be keen to get a sense for how that's trended sort of a month-by-month basis, just conscious that Black Friday is becoming a more important sales event for brick-and-mortar retail, please.

Yes, thank you. Yes, look, it's -- there has been -- and this is a function of what you're cycling from. So the fourth quarter did -- we provide that detail on Slide 26 and -- 25 and 26 compared to 2019 and 2020 -- 2022. It's fair to say that actually Boxing Day, I think, was a record Boxing Day. So there was a lot of talk about Black Friday. Black Friday was a very strong day. So was Boxing Day. So sales in December were quite good. Sales in October were okay. And so, we actually saw a pickup from actually the middle of October, stronger in November, and stronger in December and that momentum has continued in the early part of this year. So the sales momentum continues to grow, bearing in mind it's now cycling off some very high bases. So, as I said, what we're seeing is, in effect, potentially a disconnect between the demand for space and the growth in sales where we still see very, very strong demand for space and moderating sales growth, but coming off in an incredibly high base. And so, sales don't really need to grow all that much in order to generate incredible demand for space from businesses wanting to compete for those sales.

Great. And conscious of the strong level of sales sitting in there at the moment, but just in terms of sort of store-level profitability, if you will, cost pressures still seem to be coming through sort of more broadly. How are you sort of had discussions with tenants going from an overall EBIT level store profitability standpoint at the moment?

Well, a lot of the supply chain issues that were prevalent in 2022 and early 2023 have dissipated. And so, from a profitability standpoint, it still seems to be quite strong. So just to put some context around what I said about the supply chain, shipping costs, as an example, are 80% lower. And so, there are cost pressures on some of the line items. There is also cost de-pressures on other parts of the line item. And I think the best measure from our point of view is that businesses are prepared to pay more rent to access our space, which would suggest that they're quite comfortable with their level of profitability.

Great. A final question just around potential further development. Obviously, Westfield Sydney coming in now, but you're noticing that severe shortage of supply. How are you thinking about sort of medium to longer-term development opportunities across the portfolio?

Well, you can see on, actually, I have the slide in front of me, the slide number -- Slide 9, we highlighted a number of opportunities that primarily in our -- they're redevelopment opportunities in our existing assets. But what we're really doing is repurposing existing space to meet what the customer is actually choosing to spend their time and, in effect, their dollars on. And so, we would see that pipeline of opportunity continue, probably more akin to what we're doing at Mount Gravatt or at Tea Tree. And there are some opportunities, obviously, Booragoon is an opportunity, which is of a larger scale similar to what we did at Knox. But at Knox, we repurposed existing space. We actually added very little incremental new space, again, brought to life because of the departure of a department store. So, if we think about Knox, departure of a department store facilitated that redevelopment opportunity. Mount Gravatt, departure of a department store facilitated that redevelopment opportunity. Tea Tree, a downsize of a department store facilitated that development opportunity. Burwood, we're doing a similar thing with a downsize of David Jones. Southland will be doing a similar thing with the downsize of David Jones. So, these are opening up opportunities of taking back space, which is quite historic in terms of its economics to us from department stores, repurposing that to what the consumer is spending their time and money on. More entertainment, more lifestyle, more Mini Majors, which are taking that space. We also highlight on that page here, Bondi Junction, Bondi, David Jones will be downsizing the level of their store. That will facilitate us reconfiguring -- very excitingly reconfiguring the bottom level of David Jones -- sorry, of Bondi, which opens up the opportunity of completely rebooting the entertainment and lifestyle that we have on level 6, the top level of Bondi. And when we do that, Bondi will regain its position as being the best suburban asset destination in Sydney. And so, we're very committed to making that happen and making that a reality. So, that just gives you a highlight of some of the redevelopment opportunities that we do have in front of us from a retail perspective.

Your next question comes from James Druce from CLSA.

Just following on from Caleb's question around specialty sales. How are you seeing this year? Do you think you can hold around that 3% mark for specialties that you're hitting in the December quarter? Or do you think it will -- or how are you seeing it the next year?

Well, it's very hard to crystal ball gaze what business partner sales growth is going to be, because ultimately it's the business partners who generate that growth. What we are focused on, though, is generating more customer visitations. And so, we -- through that, we're providing businesses the opportunity through more people coming to convert that into a sale. So the parts that we are focused on is driving customer visitations. We've got very exciting activations planned with Disney, with Live Nation, with community activations, even far more enhanced than what we've delivered in 2023, which generated a lot of activity from a customer visitation standpoint. Growing our membership platform is part of that. And that provides businesses an opportunity to try and convert those people coming into a sale and to effectively a profit. And what we're seeing on the other side, which I've said before, is a very strong demand from businesses to try and come into our destinations in order to, in effect, compete or connect with those customers. And so, whether that number is going to be 3%, whether it's not going to be 3%, I don't think -- I don't know the answer to that. But what I do know is that we are very focused on growing customer visitations and we are seeing extremely strong demand for space. And so, that gives us a high degree of confidence, very high degree of confidence of being able to guide to FFO growth in 2024 of between 3% and 5.4%.

All right. That's clear. And I couldn't find the number for occupancy costs. And maybe just touching on some of your previous comments about tenant profitability, do those occupancy costs -- can you push those higher than what they have been on the long run average?

Yes. So, I think it is in the disclosure. I'm not sure exactly where, but the occupancy costs were 16.7%. So, as you know, that was 16%, so that has increased to 16.7%. And as we talked about previously, where we are given the high level of productivity that's being achieved, we do believe that the occupancy costs should continue to increase because with that high level of productivity, the profitability, the marginal profitability of that extra dollar in sale that a business partner is able to achieve because we're driving more people through, means that they're able to pay more of that revenue to us in accessing that customer. And so, we would expect occupancy costs over time to continue to increase back to higher levels.

Okay, fine. And one more for me, just the proportional cash flow was down a little bit over the year. Is there anything to call out? Is that still the catch-up from the prior year in terms of getting paid?

Yes, James. Andrew here. So, our net operating cash flow continued to be above FFO. So, I can't remember how many periods in a row that's been now, but I think it's been around 3 years that we've had cash flow above FFO. Highlighting the strength of that cash flow, I think I spoke about the $2.7 billion of gross rent cash collections and the fact that we've collected rental -- levels of rent that's equivalent to 103% of billings and that our debtors have come down to now to $22 million. I think it's the lowest from memory that we've had as a Group in terms of our level of debtors. So, the overall cash flow is very strong. You may be asking about -- were you asking about comparing cash flow compared to last year?

Yes.

The key reason that -- although gross rental cash flows are stronger, we're obviously in a higher interest rate environment. And so, the growth in interest expense that's coming through that cash flow is a gain as well.

Your next question comes from Sholto Maconochie from Jefferies.

Just on the -- I think you said on the call before you released $13 million provision, a lot of other retailers did similar. There was nothing in the first half from memory, is that correct, released?

Sholto, Andrew here. I think you're referring to the release of the expected credit charge. So, we did release [ $13 million ] for the year. From memory in the first half, we released $5 million.

What changes to the debtors were quite stronger than you expected? And you're not unique to this, everyone's had pretty good results from retail.

Yes, well, I think our cash flow, as I said just before, has been extremely strong. And then what that means is we are collecting debtors and debtors are now down to $22 million, where we continue to finalize and document negotiations relating to the pandemic period where we were mandated to provide rental support, and that's the outcome of the progress we made in 2023.

That's good. And then just on the, I think the WACD, you said x notes for this year was 4.7% and you're going to 5.8% cost of debt for '24. What is that number without the subordinated notes for FY '24, the cost of debt?

I think it'll be 4.9% for 2024, excluding the sub-notes.

Okay. And I may have missed this in the...

We will have to confirm that...

We'll have to confirm that, but that's a good estimate.

Okay. That's all right. And then just on the -- what was the comp NOI you did this year? I may have missed it in the prezo.

Yes, we spoke about underlying NOI growth, which was 7.2%, which is backing out the release of the expected credit charge. We've also had a bit of a drag from some of the development activity. And so, if we were to cut a comparable NOI number, it's probably sitting around 7.4%, so slightly higher than what we're referring to as underlying NOI. It's not really something that we focus on significantly, because overall it's about growing the overall earnings of the Group and growing the overall...

Yes, the 8.8% growth in net operating income is what we're laser-focused on.

And then what do you assume for '24? So, you've got inflation like running at 4% in December. What are you assuming on the -- on your inflation assumption spreads for this year?

Yes. So, we expect inflation for the rental escalations to sit around the 3.5% mark for 2024 on average. As Elliott highlighted, we continue to expect positive leasing spreads coming through as well. And Sholto, just before you leave, the weighted average cost of debt excluding the subordinated notes is 4.8%.

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

Well, thank you, everyone, for joining our call today and we look forward to seeing you in the next coming weeks, and have a great day. Thank you very much.

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