Stockland (SGP.AX) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Katherine Grace, Stockland's General Counsel and Company Secretary. Before the Chairman formally opens today's meetings for Stockland Trust and Stockland Corporation Limited, I would like to take you through some of the procedural matters associated with our meeting. Although we are holding this year's meeting virtually, we have designed the meeting to give security holders the opportunity to participate in the meeting in the best format that suits them. The Chairman will shortly open the meeting, and at that time, the polls will be formally opened to enable security holders and proxy holders to vote by clicking on the bar chart icon available on the online Lumi platform. As advised in our meeting notice, participants who have dialed into the meeting will be unable to vote using the teleconference facility. For those of you attending the meeting via the online Lumi platform, you are free to start sending in your questions now by clicking on the question icon on your screen. For security holders who have dialed into the meeting via the teleconference line, please follow the prompts, if you wish to ask a question. I will be moderating the questions from security holders during the meeting, and questions may be amalgamated if there are multiple questions on the same topic. Please note that only security holders may ask questions during the meeting. I confirm that we will address the questions during the formal business of the meeting as is our customary practice. While it may not be possible to respond to all questions during the meeting, we will endeavor to directly respond to any questions we don't get to as soon as practicable after the meeting closes. If you wish to view the meeting again after its conclusion, a recording will be available on the Stockland website after the meeting. I will repeat these instructions later in the meeting before we commence the formal business. Finally, as this is a virtual meeting, technical issues may arise. If we do encounter any issues, we will have regard to the impact on the security holders. And the Chairman may issue any instructions for resolving the issue and may continue the meeting if it is appropriate to do so. I'll now hand to the Chairman to formally open the meeting.

Thank you, Katherine, and good afternoon, ladies and gentlemen. Welcome, and thank you for joining us today and for participating in Stockland's First Annual General Meeting. Virtual Annual General Meeting. I would like to acknowledge the traditional owners of the land on which we broadcast to you today, the Gadigal people of the Eora Nation and pay my respects to their elders, both past and present. As a quorum is present, I would now like to formally declare Stockland's 63rd Annual General Meeting open, and confirm that voting on items 2 to 6 in the Notice of Meetings is now opened by the online Lumi platform. Please note the voting exclusions for items 5 and 6 are set out in the Notice of Meetings. Joining me here today, both at Stockland and virtually are my board colleagues, Mark Steinert, who has been Managing Director since January 2013; Melinda Conrad, who joined the Board in May 2018 and is the Chair of the People and Culture Committee and a member of the Sustainability Committee; Barry Neil, who was appointed to the Board in 2007. Barry is a member of the Audit Committee and the sustainability committee. Barry also chairs the Board of Stockland Capital Partners Limited, the responsible entity for our unlisted funds. Christine O'Reilly, who is appointed as a Director in 2018 and is the chair of our Risk Committee and a member of the Audit and Sustainability Committees. Kate McKenzie, who was appointed to the Board on 2 December 2019, and is also a member of our Audit Committee and sustainability committee. Kate is recommended for election at today's meeting, and I welcome her to her first AGM. Andrew Stevens, who was appointed to the Board in July 2017 and is also a member of our Risk Committee, People and Culture Committee and the Sustainability Committee. Andrew will be seeking reelection as a Director at today's meetings. Next is Stephen Newton. Stephen was appointed to the Board in June 2016. He is Chair of the Audit Committee and a member of the Risk Committee and Sustainability Committee. He is also the Chair of Stockland Capital Partners Audit and Risk Committee. Finally, we have Katherine Grace, who you have already met today. Katherine was appointed as Stockland's General Counsel and Company Secretary in August 2014. Also joining us for the meeting today is the Stockland executive team and our auditors, PWC. As you'll be aware, from the Notice of Meeting, there are 6 items of business to be discussed when we move the formal part of the meeting. We will provide an opportunity for discussion and any questions you might have when we deal with each of the formal agenda items. I encourage you to vote at or in advance of each resolution to ensure you have sufficient time to complete this during the meeting. Prior to the start of the formal meeting items, I'll make some general observations about the last 12 months, and then Mark will provide us with an update on our business operations and the execution of our strategy. Before I reflect on Stockland's performance and the resolutions before the meeting today, I want to recognize some of the significant challenges that Australians have faced over the last 12 months. Little did we know what lay ahead of us when we met at our AGM October last year. We approached the end of 2019 amid crippling drought and Australia's worst ever bushfire season. Yet in the midst of this devastation, we witnessed the remarkable strength and spirit of Australian communities. The resolve of the Australian people is being tested again by the COVID-19 pandemic. As we navigate the impacts of human tragedy and economic loss and contemplate the potential long-term consequences of this situation. As -- at Stockland, these events have required us to act swiftly and lean on the foundations that have endured for over 68 years, our commitment to create and support the thriving communities and businesses nationwide. I am particularly proud of our people, who, despite the challenging circumstances, continue to demonstrate their remarkable commitment to protecting the well-being of residents, customers, tenants and the broader communities in which we work. The Board has been proactive in its oversight of these events and has balanced decisions made for the immediate term with those that will strategically position Stockland to access future opportunities. Very early in the COVID-19 pandemic, we took decisive action to minimize the impact on our business and our people. We quickly adapted our business operations to comply with all the health requirements issued by the governments to minimize the spread of COVID-19. We deferred costs in a sustainable way that minimize the impact on jobs, including the Board and the executive team taking a voluntary reduction in fees and salaries for 2 months. We proactively engaged with government and industry regarding the implementation of a framework to support small and medium enterprise tenants that were negatively impacted by the pandemic. To maintain the strength of our capital position, we moved quickly to increase our long-term and short-term debt. This provided the group with liquidity of $2 billion at 30 June. With a pre-existing strong balance sheet, and this additional liquidity, we did not need to raise any equity. Both these factors ensured we were and are well placed to leverage future opportunities and actively participate in the recovery phase of the pandemic. The group has not applied for or received any funds from the federal government's job keeper scheme. Touching briefly on our FY '20 result. Our diversified portfolio has provided some resilience to the impact of the pandemic through the provision of essential services, our sub regional and non metropolitan retail exposure and the strengthening of our leading Communities business. Overall, our funds from operation were down 8% on FY '19 to [ $280.25 million ]. And our FFO per security was $0.347, down 7.2%. Our statutory loss of $14 million was largely due to net devaluations in commercial property, a reduction heavily influenced by the pandemic as well as net fair value declines in the retirement living business. We remain focused on the disciplined execution of our key strategic priorities as we continue to rebalance our portfolio to provide future growth and deliver stable long term earnings. Our full year distribution was $0.241 per security, with a distribution payout ratio of 70%. This was slightly below our target range but reflective of the impact of COVID-19 on our business in the second half of the financial year. We are mindful of the importance of this distribution to our security holders and have balanced this and our future capital needs to ensure our balance sheet is well positioned for the future recovery phase. The impact of the pandemic is extensive and has created significant and continuing uncertainty. We will continue to monitor the impacts and the implications for our business, while remaining agile in the execution of our strategic priorities, which Mark will speak to more shortly in a moment. Turning now to the resolutions for today's meetings. resolutions 2, 3 and 4 relate to the election or reelection of nonexecutive directors. In December last year, we announced the appointment of Kate McKenzie to the Board as part of our structured approach to Board succession. I look forward to introducing her shortly when we reach the resolution on her election. Andrew Stevens will stand for reelection today with unanimous support from the Board, and we'll hear from Andrew when we reach the resolution on his election. At today's meeting, I will also offer myself for reelection. I've been a proud member of the Stockland Board since 2014 and Chairman since 2016. I believe my experience as a senior finance executive and my substantial experience in the retailing and property sectors as well as supply chain and logistics, has positioned me well for this responsibility. As Chairman over the past 4 years, I have worked closely with my Board colleagues to oversee the implementation of the group's strategy. Should you support my reelection today, I look forward to serving on the Board for the next 3 years and continuing to oversee the delivery of Stockland strategy for the long-term benefit of our security holders. Resolutions 5 and 6 relate to remuneration. The Board recognizes the importance of aligning remuneration outcomes to business performance and that these outcomes be sensitive to the experiences and expectations of our many stakeholders, particularly in the light of this current pandemic. As flagged at last year's AGM, during the year, we conducted a review of our remuneration framework to ensure future suitability. Given the COVID-19 pandemic and associated uncertainty and the ongoing process of appointing a new Managing Director, we have made the decision to defer any updates to the framework until our FY '21 remuneration report. As you're know doubt aware, in June, after more than 7.5 years, our Managing Director and Chief Executive Officer, Mark, has announced his intention to retire from the group. I'd like to take a moment to recognize Mark's numerous achievements. Mark joined Stockland as Managing Director and CEO in 2013 and successfully implemented a capital and operational strategy, which delivered a compound annual earnings growth rate of around 8% prior to the pandemic. He has overseen the development of Australia's leading residential business, reshaped and expanded our workplace and logistics portfolio, repositioned our retail town center business, and sustainably reduced cost. During Mark's time as Managing Director. He has pursued greater risk-adjusted returns for security holders and fostered a strong culture driven by our purpose. That purpose, we believe there is a better way to live, is reflected in the projects that have come to life during Mark's tenure. Projects such as Cloverton and Victoria and Aura on the Sunshine Coast, will become home to more than 60,000 people. Thriving retail centers like Stockland Green Hills and Stockland Wetherill Park in New South Wales are now the rejuvenated heart of their communities. Mark has also achieved leadership in our sustainability ratings including large-scale renewable energy installations to position our assets for a low-carbon future. Under Mark's leadership, our digital and building innovation capabilities, have advanced, and he has taken pride in fostering a strong executive team and solidifying Stockland's position as a diverse employer of choice. Mark has laid the foundations for a forward-thinking and purpose-driven company that will continue to serve our customers, security holders and the community well into the future. Mark, on behalf of the Board, I want to thank you for your dedication and leadership over the past 7.5 years and for your contribution to Stockland. Our search for Stockland's New Managing Director is progressing well. We have appointed a leading international executive search firm and have commenced a process with both internal and external candidates. We look forward to announcing the appointment of our new Managing Director in due course. We are fortunate we have in place a strong executive team at Stockland, who will ensure that our business maintains momentum on delivering our strategic priorities and support a smooth leadership transition. And of course, Mark remains fully committed and motivated to the role during this time. Before handing over to Mark to present his final report, I want to thank my board colleagues and the executive team for their leadership throughout the year. I would also particularly like to thank our employees who have demonstrated great agility and dedication throughout these challenging times. And finally, thank you, our security holders, for your ongoing support. Your Managing Director and CEO, Mark Steinert, will now provide an update on our strategy execution. Thank you.

Thank you, Tom, and good afternoon, ladies and gentlemen. I'd also like to welcome and acknowledge the traditional custodians of the land in which we meet and which we operate across the country. I acknowledge their elders, past and present and welcome any first nation's people joining us today, and of course, everyone else who's joining. I'd like to start by thanking you, our security holders, for putting your trust in us to deliver livable, affordable and sustainable communities and workplaces across Australia, which we've been doing for 68 years. As Tom said, it's been a particularly challenging year for everyone. And I echo his earlier comments on the truly devastating impacts of the bushfires and the ongoing impact of the COVID-19 pandemic on economic, business and social conditions. Despite these challenges, we've remained focused. We've adapted our approach where necessary and executed on our strategic priorities. This, of course, would not be possible without the incredible efforts of over 1,600 Stockland employees around the country. I'm proud that our employee engagement score has remained high during the year. And that we've been able to preserve employee jobs during the last 12 months. When I joined Stockland in 2013, one of my first initiatives was to define how we interact with each other, our customers and the communities we operate in, setting the standards we hold ourselves and each other too. With the help of our employees, we agreed upon the values of community, accountability, respect and excellence, which are deeply embedded in how we operate every day. The first item on the agenda of every important internal meeting is a value share and today, I'd like to share an example of community with all of you. At a time when social distancing can be a challenge, and there has been an abundance of heartwarming deeds for our teams as they continue to support our tenants and help our communities stay connected with each other. This has been particularly important for the residents of our retirement villages. Our employees have gone beyond their day-to-day roles to deliver hundreds of home-cooked meals and care packages to residents, organized exercise classes and use social media to amplify important messages on mental health and well-being. Throughout the year, we've maintained a strong and dedicated focus on executing our strategy. We've been resolute in our efforts to grow asset returns, maintain capital strength, strengthen our customer proposition and deliver operational excellence across our diversified business. Our full year results, as Tom mentioned, reflect the benefits of this focus and diversification. Our Communities business performed well with our residential portfolio, delivering a strong profit result of $372 million, up 2.5% on FY '19. We achieved over 5,300 residential settlements, reflecting an increasing customer preference for affordable homes in master-planned communities and demand, driven by lower interest rates, pent-up demand, improved credit availability and government stimulus. In the first quarter of the new financial year, our net quarterly sales were the highest in over 3 years, further highlighting the strength of our market leading business. Throughout the year, we contracted to acquire 535 million of projects to strategically restock our residential pipeline. This included the purchase of the Gables for $415 million in the undersupplied Northwest Sydney market. Our leading market share of more than 3x our nearest competitor, and our reputation as Australia's leading community creator means we're well positioned to make further acquisitions and scale activity quickly to meet the strength in demand. Our Retirement Living portfolio has also benefited from increasing customer preferences for the support and well-being of village living. Retirement Living FFO was up 4.8% on FY '19 to $58 million, and we sold 860 units within the year, with an 11.3% improvement in established unit sales. And net sales in the first quarter of FY '21, excluding Victoria, showed a further increase of 15% compared to the same period last year, demonstrating the increasing value that customers place on the services and community connection within our villages. Looking ahead, I'm excited about the potential of our new business, Lendlease homes, which will also allow us to further diversify our retirement living offer. Lendlease will appeal to a new market segment with a range of affordable homes suitable for active retirees and will also improve returns in our Communities business. Turning now to our Commercial Property business. Prior to the onset of the pandemic, our Retail Town Center portfolio remixing strategy was showing good signs of success with 3% sales growth. This has positioned us well in the current market with over 70% of retail sales from nondiscretionary and low discretionary categories. Overall, our Retail Town Center results were significantly impacted by the pandemic with comparable FFO growth down minus 17% and negative revaluations. Comparable specialty sales in the fourth quarter of FY '20 declined 30%, offset by supermarket growth of 8%. In the first quarter, however, we saw a strong recovery with positive monthly comparable sales growth from July 2020. Foot traffic and store openings are now 99% and 97% of pre-COVID-19 levels, respectively, excluding Victoria and Wetherill Park. This has helped us progress our remixing strategy with strong backfill leasing deals despite the challenging market conditions. We've also made good progress on rental negotiations with small and medium enterprise tenants and have continued to operate within the federal government's commercial code of conduct. Our provision set aside at 30 June 2020, remains appropriate to cover any remaining rental income risk for the financial year '20 and as we finalize tenant negotiations and require payment of any balance owing for that year. We've now also executed $923 million of retail disposals over the past 24 months, in line with our noncore divestment strategy, and we are recycling this capital into our stronger performing logistics and workplace portfolio. Our workplace and logistics performance for FY '20 demonstrates this strength with both contributing comparable FFO growth of 1.7%. Occupancy remains high across the portfolio, with over 430,000 square meters of new leases executed in FY '20. While workplace leasing activity has reduced, reflecting ongoing uncertainty logistics tenant inquiry has remained strong, with an additional 77,000 square meters of new leases executed in the first quarter. The workplace and logistics portfolio is in a good position with limited rental relief granted under the code, low outstanding rental arrears and stable valuations reflecting the quality of the portfolio. Our workplace and logistics development pipeline more than doubled during the period to $5.6 billion. We continue to progress development approvals for our new major projects, Piccadilly and Walker Street in Sydney, which currently require minimal capital as we continue to monitor the market for the right time to proceed. Importantly, this provides us with adequate time to design the buildings to accommodate new ways of working and to secure significant pre commitments to derisk the projects. We are now one of the biggest logistics and business park owners and managers in Australia. And with our strong team, we are well positioned to continue to grow the portfolio. Our focus is on delivering our $3.1 billion logistics development pipeline, including [ M Park ] where we precommitted 60% of Stage 1 to Johnson & Johnson and another international tenant, [ Memory Road ] near the New Sydney Airport, and Melbourne Business Park. As we recycle capital from our Retail Town Center divestments into our workplace and logistics portfolio, we move closer to our balanced portfolio allocation target with 1/3 allocated to communities, 1/3 to workplace and logistics, and 1/3 to retail town centers. From these levels, we expect to improve our ability to optimize risk-adjusted returns through the cycle. Our capital and operational strength also supports our strategy execution. Our balance sheet, as Tom mentioned, continues to be supported by strong investment-grade credit ratings of A- and A3 with a stable outlook from S&P and Moody's, and a strong liquidity position of $1.7 billion after the payment of the distribution. The execution of our strategy has also been underpinned by the acceleration of our digital capabilities to deliver safe, efficient and customized experiences for our customers and big data analytics to underpin our investment decisions. In our Communities business, the virtual customer experience includes master planned sky tours, real-time builder availability and lot pricing, website live chat, manned by our sales professionals and digital contract signing. This fully virtual sales experience has produced promising results, generating approximately $50 million of revenue and $9 million of profits in FY '20. We're also leveraging our data science capabilities to optimize our retail portfolio and the shopper experience by using local customer trends to inform place making, marketing and leasing strategies. And to further support our retailers, we also launched omnichannel shopping experiences during the period. Our enhanced digital customer experience is supported by our new fully integrated core technology platform, capturing transactions from start to finish. Our focus on operational excellence extends the sustainability and how we deliver value for shareholders. The Stockland team is focused on developing and operating energy-efficient and climate-resilient assets and investing in the health and well-being of our local communities. Over the last 7.5 years, our commercial property emissions intensity reduced by 43%, saving over $17 million. In addition, our net carbon commitment has allowed us to broaden our sources of capital with a $75 million senior debt facility from the Clean Energy Finance Corporation. Over that time frame, we've also invested $45 million in local health well-being and education initiatives through our CARE Foundation, community grants and partnerships. Examples include 25,000 people participating in free exercise classes at our properties each year. And our residents consistently rating their well-being above the National Well-Being Index. We also believe diversity is essential to ensure strong customer understanding, high-quality decision-making and strategy execution. We're proud to have been recognized by the government's workplace gender equality agency, WGEA, as an employer of choice for 6 consecutive years. And I'm pleased with the progress that we've made to improve the quality beyond -- sorry, a quality beyond gender to physical abilities, sexual orientation and ethnicity. In recognition of our proactive approach,to these environmental and social issues, we hold leadership rankings on global sustainability investment indices and benchmarks. When I reflect on the last 7.5 years, I'm, of course, proud of our sustainability achievements and our many project launches across the country. However, it is the customer and community impact of our work that is the most satisfying. I've witnessed thousands of life-changing events for our customers, whether it's a sense of triumph for a first homebuyer, the overwhelming pride and hope that emanates from a flourishing small business or the security and happiness that comes from choosing to join at Stockland Village Community. Each one made possible because we've met and exceeded our customers' expectations. Years of listening to customer feedback has helped us shape some of Australia's most livable, sustainable and affordable communities and workplaces. Our brand is trusted and respected by thousands of Australians and consistently high customer satisfaction scores reflect the effort that has gone into identifying what really matters and embedding it in the design, development and activation of our properties. It is the most satisfying feeling when these elements come together to create a sense of belonging and a place that communities call their own. It's been a privilege to lead this great company, and I want to assure you that my continuing focus is on leading Stockland through the pandemic recovery period and ensuring a seamless leadership transition. Under the guidance of our strong and experienced executive team, we will continue to deliver on our priorities while closely monitoring the COVID-19 pandemic and the associated challenges. Finally, I'd like to thank the Board and my colleagues on the Executive Committee for their support, counsel and shared vision for Stockland. I'm confident that their guidance -- with their guidance, Stockland's positive legacy will endure as all components of our business are aligned to help create a positive future for a great company. I will now ask Katherine to reconfirm the procedural matters for participating in the meeting today. Thank you.

Thank you, Mark. As noted at the start of the meeting, for those security holders joining us today through the online Lumi platform, the polls are open to enable security holders and proxy holders to vote by clicking on the bar chart icon. You may submit any questions on the Lumi platform by clicking on the question icon on your screen. Security holders that have joined the meeting by phone have the option of asking questions using the phone line by following the prompts on the teleconference facility. As noted in our meeting notice, participants who have dialed into the meeting are not able to vote using the teleconference facility. I will be moderating the questions from security holders during the meeting. And questions may be amalgamated if there are multiple questions on the same topic. Please note that only security holders may ask questions during the meeting. I confirm that we will address the questions during the formal business of the meeting as is our customary practice. While it may not be possible to respond to all questions during the meeting, we will endeavor to directly respond to any questions we don't get to as soon as practicable after the meeting closes. Before the Chairman takes us through the various formal motions set out in the Notice of Meetings, I will also run through the voting procedure. Voting today on all motions will be by poll. As mentioned at the beginning of the meeting, the polls are open now in respect to motions 2 to 6 in the Notice of Meetings, and you may cast your votes at any time until the close of the polls. A representative of Computershare Investor Services will act as returning officer and determine the results of the polls. We will provide the meeting with details of the proxy votes for each item of business after members have had a reasonable time for questions but before we move on to the next item. The results of the polls will be provided to the ASX as soon as they are available, which I expect will be later this afternoon. If you need any assistance with voting, please refer to the instructions available in the online meeting guide available with your Notice of Meetings for help. A simple majority will be required to pass resolutions 2 to 6. Please note that open votes given to the Chairman will be voted in favor of all items of business. I will now hand over to the Chairman for the formal business of the meetings.

Thank you, Katherine. We now move to the first item on the Notice of the Meetings, consideration of the 2020 financial statements in the annual report. Section 317 of the Corporations Act requires that the financial report, the Director's report and the auditor's report for the year ended 30 June 2020, be laid before the meeting. Ladies and gentlemen, this is your opportunity to ask any questions you may have about the company's performance and outlook. No formal vote is required on this item. I confirm that questions about the election and the reelection of directors, the remuneration report and other matters contained in the notice of meeting be deferred until we get to those motions. Both Mark and Melinda as Chair of -- and Melinda is Chair of the People and Culture Committee are also on hand to assist with questions today. Katherine, can I ask that you now read out any questions received via the online Lumi platform and via the telephone facility, please?

Thank you, Chairman. Our first question in general business relates to this year's federal budget. The question is, can you comment on the impact of this year's federal budget on the Stockland business?

Thanks, Katherine. Just I'll hand this one over to Mark, and he will give you a detailed insight as to how it will impact our business. But the government support during this period of COVID has been fundamental to the confidence and support of the economy. The budget has continued to facilitate that support. And there's many items in the budget that are beneficial directly to Stockland. And I might ask Mark to take you through some of those items now. Thanks, Mark.

Thank you, Tom. Yes, the budget, as Tom mentioned, was certainly a stimulatory budget that was favorable for our business, and we believe favorable for the broader Australian economy. Probably the key things to call out, certainly, the homebuilder policy that was announced pre-budget has been very important as it relates to homebuilding, and we've reported that in the strength of demand. And of course, there's an economic multiplier of 3x for homebuilding and 1 million Austrians employed in that industry. So that's very important. We also saw during the budget, the extension and the addition of 10,000 places for the first homebuyer loan deposit scheme, which is also going to add to demand, particularly in affordable housing and for first time buyers and owner occupiers. We also saw the reduction in responsible lending requirements, removing the criminal liability for lending agencies, which we think will further improve the availability of credit, which going back to last year after the Royal Commission did become very constrained, and we saw that reading through to our business. The job creation schemes, we think, are very important, $100 billion to create 1 million jobs over 4 years in growth industries will not only see significant growth in employment for Australians, but also the skilled migrants and ultimately should help open up foreign students. These are very important for consumption more broadly, as are the tax cuts, that 11 million Australians will enjoy and the other depreciation and write-off allowances for businesses more broadly. So we see these things helping housing, reading into retirement living of course, the town center benefits as well, and importantly, it's not just in the capital cities, but it's also in the regions where we hold Retail Town Centers.

Thanks, Mike. Katherine? Second question.

Thank you, Chairman. The next question is, given the impact of COVID, could you please advise whether Stockland may need to redesign or retrofit its premises? Such as changes to building layout to allow greater social distancing and air conditioning to reduce the risk of COVID spread.

Thanks, Katherine. It's a very topical question. Really from, as you would have seen in my address or heard in my address, Stockland and the management team reacted very quickly to all the health requirements to minimize the spread of COVID right throughout our operations. That included, for example, in head office, where we facilitated everyone working from home in a very short period of time, virtually, which was really a terrific achievement considering the size of that relocation. Right through our operations, we have continued to put in place as required, the various health requirements right through our retail centers, through our Retirement Living villages and through our communities. Mark, do you want to add anything to those steps we took through?

Yes. It's a good summary, Tom. Perhaps in addition, I'd just note that fortunately, in workplace assets, particularly head office in Piccadilly, it was designed to facilitate incremental airflow. So we've been able to increase natural airflow, not only in Piccadilly, but more broadly, across the portfolio, which combined with physical distancing and sanitization, we think, helps ensure a safe environment. The increased costs of all of the different safety measures has had an impact, but that is incorporated into our budgets. And of course, there have been some offsetting cost reductions, certainly in areas like electricity with lower utilization resulting in lower use. And as it relates to the very significant Piccadilly and Walker Street redevelopments, the plan to start sometime after FY '23, we've got plenty of time to design those assets to ensure that they are pandemic-proof and future-proof, reflecting new ways of working that we believe will evolve from the pandemic impact as well as things like contactless entry and exit, increased ventilation and free airflow, potential disinfection through things like UVC light, and a whole range of other initiatives as well as [ well ratings ] and sustainability.

Thanks, Mike. Next question, Katherine.

Thank you, Chairman. The next question is also COVID related. What is the impact of Victoria's lockdown on FFO since 30 June?

Thanks, Katherine. I'll probably -- there are 2 things there. Mark will expand it, but we released our Q1 report this morning. So I encourage you to have a look at that, which has got the full details of how we've achieved our results in the first quarter. But Mark, do you want to add anything to that as an overview?

Yes. Thanks, Tom. So with the first quarter update, we haven't obviously provided specific financial numbers. But I'd point to a number of elements. So in terms of retail town centers, where the impact of restrictions have been most significant, they represent 12% of our portfolio. And looking at the 4 centers that comprise that 12%, 2 are in regional Victoria, which has opened up more quickly and 2 are in Melbourne. Importantly, the key tenants remained open for essential services, and we're now obviously starting to see reopening having been announced by the Premier over the weekend. As it relates to development activity, we're able to continue with several works in our Communities business with residential. Townhome construction did receive some mild delays, but nothing overly material, and the construction works that we're undertaking as it relates to logistics developments in Melbourne have also been relatively uninterrupted by the lockdown. Finally, I would note that with the digital initiatives, we have been able to continue to engage with our customers in Victoria right through the lockdown. And it's really encouraging to see inquiry levels for our residential business at pre-COVID levels in Melbourne. And we had 2 launches, one, a master-planned community at Katalia and the launch of a townhome project in North Altona. These are pure digital online launches, and both of those launches sold out on release. So we believe we've been able to navigate the crisis continuation in Victoria. And of course, we've maintained all the safety protocols to ensure that our customers and staff are able to remain safe in their workplace and visiting our assets.

Thanks, Mark. Any more questions, Katherine?

Chairman, our last general question also relates to COVID and is seeking an update on what incentives are being offered to retail tenants to resign leases in the current market environment.

Thanks, Katherine. Just as a bit of background to this question. I'll also get Mark to answer the detail. It was very important when we started -- when COVID started that we work out a proper code to deal with ourselves and the tenants. And that was very important to ensure that as many of our tenants would survive the COVID crisis as possible. And that involved a series of support functions, including rental deferrals and abatements. And we've been working very closely with those tenants, especially at the small to medium enterprise tenants. And it's been quite a successful endeavor to date, and we've had good support from our tenants during that process. But Mark, do you want to add anything on how the incentives are going and so forth?

Thanks, Tom. A couple of points. The first one, obviously, for small to medium enterprise, as Tom noted, we've negotiated and applied the code, which is relatively straightforward as enacted by the various state legislations. And so that simply flows through and isn't something that's obviously an incentive per se, but it does help ensure that those businesses, as Tom described, can get to the other side of the crisis and trade again. And looking at the rapid improvement in the foot traffic and sales in our centers, you can see the wisdom of taking that approach. As it relates to larger tenants that don't qualify for the application of the code, we have negotiated with them in good faith as we reported in 30 June and has been with a more limited number of tenants post 30 June in the spirit of the code. But importantly, we did that from a partnership approach, whereby there was a quid pro quo that was fair and reasonable for both our tenants and for Stockland. So I'd note that in 85% of those cases where we provided some level of rent relief, which is typically some level of deferral for the most impacted months of April and May, 85% of those negotiations included new rental -- new leases, extensions of leases or renewal of terms. And typically, they have been on very similar terms to where we've done transactions in the past. We've noted in the quarterly update, a whole series of significant transactions for example, at Greenhills, where we repositioned the Harris Scarfe space during the crisis to be leased to TK Maxx and Cotton On, and they were very typical deals. They wanted to be in that center given the fast recovery and the high levels of sales. The other thing I'd point to, the last time we announced or provided data as it relates to incentives was 30 June. At that point for FY '20, the number was 12.9 incentive months. That was up from 11.6 incentive months in FY '19, and we haven't seen material shifts from that FY '20 number so far.

Thanks, Mark. Are there any further questions, Katherine?

Not in terms of the general questions, Chairman.

Great. Thanks, Katherine. Well, there being no further questions, we will note the financial report, Director's report and auditors report and move on to other business. We will now move on to the items of business, resolution 2 is the election of Ms. Kate McKenzie. The resolution is that Kate McKenzie is eligible and having offered herself for election, is elected as a Director of the company. Kate was appointed to the Board on 2 December 2019. Kate's executive career included over 30 years' experience in the telecommunication and government sectors in Australia, New Zealand and Hong Kong. She was most recently the Chief Executive Officer of Chorus, New Zealand's largest provider of telecommunications infrastructure, a top 50 New Zealand Stock Exchange-listed company. Kate is currently a Director of NBN Co Limited. She is a member of the Audit Committee and Sustainability Committee, and I'm sure you will agree that Kate brings much valuable experience to the Stockland Board, and her election today is unanimously recommended by the Board. I will now invite Kate to address the meeting. Thanks, Kate.

Thank you, Tom, and good afternoon, ladies and gentlemen. Thank you for the opportunity to address your meeting and to put myself forward for election to your Board of Directors. I'm proud to be seeking the right to join your Board after Tom approached me last year, and to have the opportunity to contribute to Stockland's 68-year history. Since I joined the Board in December last year, I have been a member of the Audit committee and the sustainability committee. In that time, I have enjoyed being part of a strong Board with a commitment to best practice governance and transparency during what has been a challenging year. As Tom mentioned, I have over 30 years of executive experience in leading senior executive roles in the telecommunications and government sectors in Australia, New Zealand and Hong Kong. Most recently, I was the Chief Executive Officer of Chorus, New Zealand's largest provider of telecommunications infrastructure, a top 50 company on the New Zealand Stock Exchange. Prior to leading Chorus, I held roles, including Chief Operating Officer at Telstra, where I was responsible for the property portfolio and Director General of the New South Wales Department of Commerce. I have strong skills in innovation, transformation and culture change, all of which I believe are important to Stockland at this time as it seeks to leverage advances in technology and infrastructure to shape the future of communities and workplaces across Australia and digitize its everyday operations. This must, of course, be done within often complex and evolving regulatory environments. I have experience as both a regulator and as a business person dealing with regulatory environments and can provide counsel in this area. As a Director of Stockland, I think my skills, in combination with other directors, can help guide the future strategic direction of the company. As Tom has said, I am currently a Director of NBN Co Limited, and I have the time to fulfill my duties as a nonexecutive Director of Stockland. I'm focused on security holder returns over the short- and long-term, and I am committed to Stockland remaining Australia's leading community creator and a strong ASX 50 company. Should you choose to elect me, I believe my experience will add to the skills of your already strong team. Thank you.

Thank you, Kate. For those that have not as yet placed their vote, please take a minute to cast your vote for resolution 2 via the online Lumi platform. Katherine, are there any questions on this resolution?

Chairman, we had received one question in relation to the resolution, which was to hear from Ms. McKenzie as to what she feels she brings to the Board. Obviously, we have just heard from her as part of the introduction to this resolution.

Okay. Thank you, Katherine. There being no more -- thanks, Kate. If there are no more questions, I'll refer to the proxy voting, which is now seen -- which is now shown on the screen. As you can see, over 99% of proxy votes have been cast in favor of the resolution. Congratulations, Kate. As the next resolution relates to my tenure as a Director, I will now hand over to the Chair of the meeting to Melinda Conrad.

Thank you, Tom. Ladies and gentlemen, Resolution 3 is for the reelection of Mr. Tom Pockett to the Stockland Board. The resolution is that Mr. Tom Pockett, being eligible and having offered himself for reelection, is reelected as a Director of the company. Tom was appointed to the Board on the 1st of September 2014 and became Nonexecutive Chairman on the 26th of October 2016. Tom has extensive experience in both the property and financial sectors, having held a number of senior executive positions, including Chief Financial Officer and Executive Director of Woolworths Limited, Deputy Chief Financial Officer at the Commonwealth Bank of Australia and several Senior Finance roles at Lendlease. Tom is the Chairman of Autosports Group Limited and a Director of Insurance Australia Group Limited. In addition to his role as the Chair of the Stockland Board, Tom is Chair of the Sustainability Committee and a member of the People and Culture Committee and Chairman of the Stockland CARE Foundation board. The reelection of Tom is unanimously recommended by the Board. If you have not already cast your vote, please take a minute to cast your vote for resolution 3 via the online Lumi platform. Katherine, can I ask if there are any questions on this resolution?

Thank you, Melinda. We have received one question, which also relates to remuneration, but I think we'll cover it here. The question is that the Australian Shareholders association would like to see more shareholder alignment with the Chairman share ownership, given his 4 years as Chairman. The ASA recommends directors have at least 1 year's base fees within 3 years. Given Mr. Pockett's current base salary of $500,000 and his share ownership of 50,000 shares, we would like to see this increased.

Sure. Thank you, Katherine. I will answer that question in my role as the Chairman of the People and Culture Committee. I appreciate that there are various methodologies on how to calculate share -- nonexecutive and share shareholding requirements. And I can confirm that the People and Culture Committee have conducted a formal benchmarking exercise across ASX benchmarks to determine whether our share -- our Board directorship shareholding is appropriate. And I can confirm that both for nonexecutive directors and Chairman that our shareholding is aligned with other benchmarking results. Are there any other questions, Katherine?

There are no further questions.

If there are no further questions, I will refer to the proxy voting, which is shown on the screen. As you can see, over 98% of proxy votes have been cast in favor of the resolution. I will now hand back to the Chair of the meeting, to Tom, for the balance of the resolutions.

Thank you, Melinda. Ladies and gentlemen, resolution 4 is for the reelection of Mr. Andrew Stevens to the Stockland Board. The resolution is that Mr. Andrew Stevens, being eligible and having offered himself for reelection, is reelected as a Director of the company. Andrew was appointed to the Board on 1 July 2017. During Andrew's executive career at PWC and IBM, he gained significant experience in change management and in business information and communications technology. Andrew is Chairman of the Board of Innovation and Science Australia and the Chairman of the Data Standards Body, which is responsible for the implementation of the consumer data right in Australia. Andrew also serves as a Director of Western Sydney Football Club and oOh!media. Andrew is a member of the Risk Committee, People and Culture Committee and the Sustainability Committee. He is a former member of the Audit Committee. The reelection of Andrew is unanimously recommended by the Board, and I would like now to invite Andrew to address security holders. Thank you, Andrew.

Thank you very much, Tom, and good afternoon, ladies and gentlemen. I'm pleased to submit myself for reelection to your Board. I've been a nonexecutive Director of Stockland since 2017 and currently serve on the Risk, People and Culture and Sustainability Committees. As Tom mentioned, much of my experience in business and technology reflects my interest in how new and emerging technology can be leveraged for the benefit of customers and our broader society. As a Director of Stockland, I've keenly applied my experience in responding to significant change in disruption, developing and adopting new technologies to provide business resilience and productivity. This has been balanced by my qualifications as a chartered accountant and my commitment to strong governance. I currently hold 2 nonexec Director positions at oOh!media and the Western Sydney Football Club, The Giants. These roles are complemented by my roles as Chairman of the Board of the recently renamed Industry Innovation and Science Australia and the Chairman of the Data Standards Body for the consumer data right implementation in Australia. These are roles that I believe expand my understanding of the emerging needs of Australian business and our communities. I'm committed to supporting your Board and leadership team in ensuring we provide growth in shareholder value and remain a well-run and responsible leader in the property sector. I would greatly appreciate your support of my reelection. Thank you.

Thank you, Andrew. If you have not already cast your vote, please take a minute to cast your vote for resolution 4, via the online Lumi platform. Katherine, are there any questions on this resolution?

Chairman, we had 1 question in relation to Mr. Steven's contributions to the Board, which we've covered in both of your addresses.

Great. Thank you. And I'd just like to add that Andrew has been particularly contributing in the areas of technology and data and helping Stockland think through many of these issues that are facing all our businesses at this stage. So thank you, Andrew. If there are no more questions, I'll refer to the proxy voting, which is shown on the screen. As you can see, over 99% of proxy votes have been cast in favor of the resolution. Congratulations, Andrew. The next item for consideration is resolution 5. The resolution provides that the company's remuneration report for the financial year ended 30 June 2020, be adopted. Section 250 SA of the Corporations Act allows security holders to have a reasonable opportunity to ask questions about or make comments on the remuneration report. As security holders will know, this is an advisory nonbinding resolution. But your Board takes into consideration the views of our investors on the important subject of executive remuneration policy. I will ask Melinda to assist me in addressing any questions relating to this resolution. If you have not already cast your vote, please take a minute to cast your vote for resolution 5 via the online Lumi platform. Katherine, are there any questions?

Chairman, we had one question from the ASA, which is similar to the question Melinda addressed in relation to your resolution. To read out the question, the ASA feels that the director shareholding policy needs to be reviewed and aligned with shareholders in KMP to reflect 1 year's base fees after 3 years. Will the Board consider this going forward?

Thanks, Katherine. We did consider it this year, and we'll continue to review that policy on an ongoing basis going forward. Katherine, are there any other questions?

Chairman, the only other question in relation to this is in relation to the CEO succession planning. This was covered as part of your introduction. The question was what progress has the Board made in finding a new CEO?

Thanks, Katherine. As I mentioned, we have appointed an international search firm. We're making very good progress on that. I won't put a date on when that will be resolved as these things tend to take a longer time than one expects, but hopefully, will that be in the -- in the medium-term future. So yes, that's about all I can add at this stage, Katherine. Thank you.

Thank you, Chairman. There are no further questions.

Great. If there are no more questions, I'll refer to the proxy voting, which is shown on the screen. As you can see, close to 98% of proxy votes have been cast in favor of the resolution. The final resolution today relates to the refresh of our existing termination benefits framework. The resolution is shown on the screen. The company is seeking security holder approval for a 4-year period for the benefits that may be provided to the Managing Director and Chief Executive Officer, Senior Executives, General Managers and Senior Managers of Stockland, when they cease to hold an office or position of employment with Stockland. This resolution was first approved by shareholders in 2012 and again in 2016. Further details of the valuation methodology are set out in the explanatory memorandum attached to the Notice of Meeting. The Directors, other than Mark, unanimously recommend that security holders vote in favor of this resolution. Again, I will ask Melinda to assist me in addressing any questions on this resolution. Once again, can you please take a minute to cast your vote for resolution 6 through the Lumi online platform. Katherine, do we have any questions on this resolution?

Chairman, we have received no questions in relation to this resolution.

Thank you. Given that, I'll refer to the proxy voting, it's shown on the screen. As you can see, close to 99% of proxy votes have been cast in favor of the resolution. That was the last item of formal business. All persons wishing to cast a vote should place their vote through the online Lumi platform now. Thank you, ladies and gentlemen. The polls will now be closed. The final results will be announced to the ASX later this afternoon. That concludes the business of this meeting, and I now declare the meeting closed. Thank you for your attendance, and good afternoon.