The GPT Group (GPT) Earnings Call Transcript & Summary

Well, good morning, everyone, and thank you for joining us for our 2019 full year results presentation. As an owner, developer and manager of assets in many locations across Australia, we acknowledge the traditional custodians of the land from which our business and our assets operate. Today, we are meeting on Gadigal land, and I'd like to acknowledge the Gadigal people of the Eora Nation, and pay respect to elders past, present and emerging, and extend that respect to all First Nation’s people present. The artwork presented here on the screen was created by a member of the GPT team, Molly Wallace. Molly joined GPT as an intern through the CareerTrackers program and works on our sustainability team. The agenda for today's presentation is outlined here on the screen. And as usual, we will take questions at the conclusion of the meeting. So during 2019, we made excellent progress in executing on our strategy through delivering strong portfolio performance, increasing our investment in the logistics sector and growing our development pipeline. Sydney and Melbourne remain our preferred investment markets, given their scale and liquidity. Both cities continue to benefit from population growth, densification, infrastructure spend and investment demand. As you can see from the table at the top right, we have delivered strong returns for investors, and we believe that having a portfolio of our high-quality assets in growth markets, coupled with our development pipeline, positions us well to continue to deliver strong returns. Turning now to an overview of the group performance for 2019. FFO growth per security was 2.6% and distribution growth was 4% for the year. These results are in line with the guidance we provided following the equity raising that was undertaken in June. NTA increased 4% to $5.80 for security, and the group's total return for the year was 8.7%. Portfolio occupancy remains high at 8.7% -- at 96.5%, I should say. Like-for-like income growth across the portfolio was a healthy 3.5%, driven by our performance from our office assets as we continue to deliver strong leasing outcomes and capture positive rental reversions. Comp growth for retail was lower in 2019, primarily due to lower contributions from turnover rent and store downtime. Net valuation gains totaled $342.2 million. As predicted, valuation metrics for the office and logistics sectors continued to firm, underpinned by strong domestic and offshore investor demand. The gains for the office and logistics portfolio were partly offset by some most -- softening of valuation metrics of the retail portfolio. The weighted average capitalized -- capitalization rate for the diversified portfolio is now 4.95%, reflecting the quality of our assets and our capital allocation to the Sydney and Melbourne markets. As you recall, in June last year, we raised $867 million of new equity to fund acquisitions in the development pipeline. You can see from this slide that we are continuing to deploy the capital, which will drive future growth for the group. Our Parramatta office development is on track for completion at the end of this year. And we expect to have the Melbourne central mixed-use expansion underway midyear along with the rest of Town Centre expansion. These developments are forecast to deliver attractive returns to the group. We're extremely pleased with the acquisition of a 25% interest in the Darling Park Towers 1 and 2, along with Cockle Bay Wharf. The office towers are modern, premium-grade assets and required an attractive yield of 5.3%, and structured rental increases averaging 4% per annum. We're also excited about the opportunity to create a new landmark office tower on the Cockle Bay Wharf site. Matt will provide an update on our progress in his presentation. Our Logistics portfolio has grown substantially over the period through the acquisition of $212 million of investment product and development completions. We continue to successfully develop out our land banks. And in the second half of 2019, we secured 36 hectares of land in Western Sydney and 48 hectares in Melbourne. In total, our Logistics development pipeline has the capacity to deliver over 0.5 million square meters of prime logistics space with an end value in fixed of $1 billion. In addition, we have a substantial pipeline of development opportunities within the GPT wholesale office fund that our teams are progressing. Nick Harris will speak to this in his presentation. So as you can see, it's been a productive year for the group. We're also pleased with our progress in terms of sustainability and social responsibility. In 2017, we established a target to be carbon neutral by 2030. A key milestone in our 2030 target is for the GPT wholesale office fund to be carbon neutral by the end of this year. I'm pleased to advise that 2 of our assets, workplace6 in Sydney and an art exhibition street in Melbourne, have recently been certified as carbon neutral. And these are the first 2 office buildings in Australia to achieve this certification. We are on track to achieve our target for all the fund assets to be certified during the course of this year. GPT has also been recognized as a Green Star company every year since the benchmark's inception. And we are rated in the top 1% of property companies in the Dow Jones Sustainability Index. We are investing in reducing our energy intensity of the assets, installing solar where practicable and policing battery storage. While we have a 2030 target for the group to be carbon neutral, we are challenging ourselves as to whether we can bring this forward, given the clear impacts we are seeing from recent climate-related events. Today, we're also releasing our inaugural climate disclosure report, which is aligned to the recommendations of the task force on climate-related financial disclosures, and this can be found on our website. We also continue to promote a positive culture for the group, which is underpinned by our core values. Safety is a core value for us and their first priority. We have millions of people visiting our assets each year and the safety of our people, our customers and the community is front and center for us. Particularly, as we execute on our growth plans, we see the group undertaking increased levels of development. Our people engagement score is well above the Australian national norm, and we have increased the representation of women in our top quartile from 42% to 46%. Diversity and inclusion remains a focus, and it's one of the highest linking categories in our staff engagement scores. Giving back is also important to our people, and our foundation is a primary focus on supporting needs at risk. In 2019, we partnered with a number of charities to help them grow, providing not only financial support but also leveraging our people, our assets and our customer relationships where we can. So overall, it's been a very positive year for the group, and we are happy with the progress we're making. I'd now like to invite Anastasia Clarke, our group CFO, to take you through the financial results, and this will then be followed by sector updates.

Thank you, Bob. Good morning. Today, I'm pleased to present to you the 2019 financial results for the group. Commencing with underlying profit, our funds from operations of $613.7 million, an increase from the prior year of 6.8%. After taking into account the midyear equity raise, this resulted in FFO per security of $32.68, translating to growth of 2.6%. Our statutory net profit after tax was $880 million for the 12 months, which includes property revaluations of $342.2 million, primarily driven by the office and logistics portfolios. Market interest rates reduced significantly during the period, resulting in mark-to-market losses of $82.7 million despite the hedge restructure at the end of the first quarter, which ameliorated the impact. Maintenance capital expenditure and lease incentives are largely flat year-on-year, helping drive stronger distribution per security growth of 4% along with a slightly higher payout ratio this period of 103.4% of AFFO. Turning to the segment results. Our earnings result is driven primarily by growth in our office, logistics and fund management divisions, combined with savings in interest expense. Comparable income growth in office of 6.2% was driven by positive rent reversion, higher occupancy and fixed rent increases. In addition, the result includes income from Darling Park for the 5 months since the acquisition, which together with comparable income growth more than offset 9 months of reduced income post the sale of MLC. Acquisitions and completed logistics developments drove 10.1% growth in logistics net income. Retail is flat for the year, reflecting fixed rent increases being offset by increased downtime between reletting tenancies and a lower contribution from turnover rents. Funds management income grew to an increase -- due to an increase in assets under management growth of $700 million to $13.3 billion, predominantly from the GPT wholesale offer fund acquisitions, partly offset by the GPT wholesale shopping center fund divestments. Interest expense has reduced by 13%, with the average interest rate, including margins and fees, falling 60 basis points to 3.6%. Now focusing on capital management. Gearing reduced to 22.1% during the year as a result of the media equity raise of $867 million, offset by the net incremental investment in acquisitions and development of circa $500 million. We are well placed with $1.4 billion of available liquidity to fund our mix stage of growth, with an estimated $800 million of commitments, including developments underway, planned in the first half of 2020. During the period, we issued USD 400 million in the U.S. private placement debt market across 11-, 12- and 15-year terms at a low average margin of 170 basis points. These lengthened our debt duration to 7.7 years. Whilst our average hedge level appears flat at 82%, we restructured our hedge book at the end of the first quarter, coinciding with the sale of MLC and our view that market interest rates would fall further. This resulted in hedging reducing toward our minimum policy level of 60%. Prior to this, our hedge level increased midyear due to the equity raise. We are well protected and expect a low-cost of debt again in 2020. In summary, the balance sheet is strong, reflected in our credit ratings of A with S&P and A2 with Moody's, placing us well to continue executing on our growth strategy throughout 2020. Matthew Faddy will now provide an update on the office and logistics results.

Thank you, Anastasia. The GPT office team have delivered strong results for the year, with comparable income growth of 6.2% and total portfolio return of 10%. Occupancy has increased to 98.3%, with 148,000 square meters of leasing completed and the portfolio WALE has extended to 5.3 years. The portfolio is now valued at $6.1 billion, with total assets under management increasing to $13.1 billion, made up of prime grade assets located in the deepest Australian office markets. We have seen strong valuation uplift with a weighted average capitalization rate firming to 4.85%. Operations net income is up 2.8% in the period, as a result of higher occupancy, positive reversions and structured rental reviews, together with asset acquisitions and divestments. Vacancy in Sydney and Melbourne remains large, while we are seeing improving conditions in Brisbane. Net valuation upwards of $271.2 million is being recorded with gains coming through increased market rents together with firming capitalization rates. Melbourne Central Tower has recorded the strongest uplift, with over 50% of the building re-leased, including 3 major renewals. Targeted capital upgrades to enhance customer experience and drive asset performance contributed to our leasing success, and the total return of 15.2% has been delivered in the 12 months. The Sydney and Melbourne office markets continue to experience very low vacancy, with prime grade vacancy sitting below the total market at 4.8% and 1.8%, respectively. These markets remain well positioned, coming from a period of low vacancy and with high levels of pre-commitment from new supply. Leases totaling 148,000 square meters have been signed during the year, with an additional 29,000 square meters of terms agreed. We have made significant progress in forward leasing our 2020 and 2021 expiries with this reducing from 29% at December 2018 to 17% including leases signed in January. We have maintained our market-leading customer satisfaction score. This focus on our customers has been demonstrated through our 2019 leasing with over 70% made up of renewals and expansions, including transactions with Google and ME Bank. Targeted upgrades and investment in our assets are focused on creating modern, efficient workspaces and providing our customers market-leading property solutions. In Melbourne, we have a number of lobby upgrades underway, including at Melbourne Central Tower and 550 Bourke Street, with a focus on creating spaces that enhance community and amenity. GPT is a leader in sustainability, and we continue to innovate and invest in technology and upgrades to minimize the energy, water and waste impact of our portfolio and to support the well-being of our customers. We are also responding to our customers' desire for flexibility through our space and core offering that provides on demand, flexible space. Our 5 venues are well utilized by existing GPT tenants who make up approximately half of space and car revenue. During 2019, over $1.6 billion has been transacted in the office portfolio. In August, the group acquired a 25% interest in Darling Park 1 and 2 for $531 million. The complex bordering Darling Harbour in the Sydney CBD includes over 100,000 square meters of premium grade office space, together with a compelling development opportunity, which will deliver approximately 73,000 square meters of office and entertainment space. We have been engaging closely with CBA, who have renewed the first of their leases to 2026, and we are in discussions around their wider occupancy requirements at Darling Park 1. The wholesale office fund has also been active, acquiring the remaining 50% share in 2 Southbank Boulevard in Melbourne for $326 million. During the year, the divestment of a 50% interest in the MLC Centre was completed, capitalizing on significant returns achieved at the asset in the prior 5 years. This provided the group with the opportunity to trade into the Darling Park complex with higher returns and a lower operational CapEx burden, plus the development opportunity of Cockle Bay Park. Our strong leasing results, combined with increased occupancy and inbuild structured rent increases, have delivered comparable income growth of 6.2% for the 12 months. We are capturing market rental upside from our high-quality portfolio, particularly in the Sydney and Melbourne markets. This is the fifth consecutive year of income growth above 5%, demonstrating the GPT office team's ability to extract value from the assets and the strength and quality of our portfolio. We continue to rebalance the portfolio with investments in newer, less capital-intensive assets through acquisitions such as 60 Station Street in Parramatta. This will be further enhanced as we continue to deliver our development pipeline. At 32 Smith Street, construction is well progressed with completion forecast for December. The office tower is 64% leased with QBE anchoring the development, and we are seeing strong inquiry for the remaining space. A 6 star Green Star rating is being targeted with investments to minimize energy and water consumption. A broad range of technologies are also being deployed, providing an adaptable, integrated and future-proofed building. The Parramatta market is performing strongly, with prime vacancy less than 1%. The market has recorded positive net absorption of 47,000 square meters with an increase of space taken by the state government, who continue to invest strongly in Western Sydney. The announcement of the Sydney Metro West stations including in Sydney Olympic Park and Parramatta will double the rail capacity to the Sydney CBD and cut journey time to around 20 minutes. This further enhances Parramatta as a compelling office destination for major occupiers. Our development opportunity at Cockle Bay Park is progressing well with the design competition finalized and the winning design to be announced in the coming weeks. We now move into the final planning phase with commencement of the project targeted for 2022. In Melbourne, we are targeting to commence the frame at 300 Lonsdale Street by mid this year. The mixed-use development is set to incorporate 20,000 square meters of office accommodation, integrated into the retail center below. The distinctive timber-framed structure is targeted to deliver a minimum 5 Star NABERS energy and water rating and a 6 Star Green Star rating. In addition, the building is designed to achieve a WELL Gold standard rating, which is a global measure of health and well-being of buildings. We are also progressing the redevelopment at Queen and Collins in Melbourne with completion expected in 2021. Our exciting pipeline office development opportunities exceeds $2.5 billion. This also includes new tower projects at 32 Flinders Street in Melbourne, 580 George Street in Sydney, and Riverside Centre in Brisbane, which are all in initial planning phases. We expect that this pipeline, combined with our proven track record of delivering strong performance from our portfolio, will lead to continued quality returns. Now to the GPT logistics portfolio results, where the team continued to execute on our growth strategy through leasing, building out the development pipeline and investment acquisitions. The portfolio has grown by $545 million in the 12 months to $2.4 billion and with our replenished pipeline, we are well positioned for the portfolio to exceed $3 billion. Operations net income has grown 15.4% and a total return of 12.1% has been achieved. A net revaluation uplift of $117.1 million has been delivered with a weighted average capitalization rate of 5.4%, firming 38 basis points during the period. During the year, we have replenished the land bank with 94 hectares secured in key growth corridors. We have also acquired 5 prime investment assets with a further facility due to settle in the first half of 2020. 2 developments have been successfully completed, and we have a further 4 underway. Our replenished development pipeline now has the capacity to deliver over 550,000 square meters of prime facilities with an expected end value in excess of $1 billion. Positive leasing outcomes have been achieved with 232,000 square meters of leases signed and an additional 27,000 square meters of terms agreed. Portfolio occupancy remains high at 95.7%. Renewals have been secured with key customers, including Schenker, ADI, Woolworths and InfraBuild with a retention rate of 74% for 2019 expiries. We've also secured leases with new incoming customers. In Melbourne, we have leased 19,000 square meters in Sydney west with this asset now at 100% occupancy. While in Sydney, we have re-leased our interchange drive asset to Jalco prior to the previous lease expiring and with no downtime. The strong leasing results have reduced our 2020 and 2021 expiries from 21% to 8% since December 2018. We have been delivering our strategy to grow the logistics portfolio. During 2019, our portfolio has grown by 29% to $2.4 billion. Land totaling $106 million has been added to the portfolio, with a further $134 million secured on deferred settlement terms. Investment acquisitions have totaled $212 million, with 5 prime facilities purchased and a further $42 million asset in Melbourne's west due to settle on completion in the first half of 2020. This 23,000 square meter warehouse in Truganina is leased to an international logistics company for a 10-year term. 2 facilities totaling $105 million were developed in 2019, located in Eastern Creek in Sydney and Truganina in Melbourne. Both are fully leased with a WALE over 6 years. We have a further 4 projects underway and due to complete in 2020, with expected end value of $167 million. The logistics sector is performing strongly, underpinned by global and local trends, with the group's portfolio well placed to benefit with holdings in key growth corridors. The Australian population is expected to grow by 20% over the next decade with a population increasingly concentrated in urban locations, predominantly on the Eastern seaboard. Infrastructure spending is also set to increase with over $130 billion being invested by federal and state governments over the next decade in transport infrastructure. Trade is also expected to grow by approximately 5% per annum over the long term but is expected to result in increased demand reports, intermodal terminals and efficient road networks. Supply chain sophistication, together with consumer demand for fast and convenient delivery, has resulted in occupied strategically assessing property requirements. Transport, postal and warehousing users accounted for 37% of take-up during 2019, with retail trade making up another 24%, reflecting a growing demand from these sectors. The industrial sector has also experienced strong investor demand. With local and global capital seeking exposure to the Australian market, demand for quality product remains high and has resulted in firming of investment metrics. Through our replenished land bank, we now have capacity to deliver over 550,000 square meters with an expected end value on completion of over $1 billion. In Melbourne, 33 hectares has been secured at Boundary Road in Truganina on deferred settlement terms, adding to 15 hectares acquired earlier in the year. Boundary Road will be activated following the build-out of the group's underway development, the Gateway Logistics hub. In Sydney, 33 hectares has been secured in Kemps Creek on deferred settlement terms near the established Erskine Park industrial precinct. This parcel is expected to deliver an estate with an end value of approximately $445 million. In Penrith, we have a fund through development underway and in Glendinning, a 3 hectare parcel has been acquired with the speculative facility anticipated to commence in the first half. In Queensland, our Berrinba development is progressing well, with the first 2 facilities set for completion next month. One facility is pre-leased to an international logistics company for a 10-year term, while lease terms have been accrued for the speculative facility. This takes our projects delivered in the second half and underway to 116,000 square meters with 100% of these leased. During 2020, we will continue to execute on our strategy to deliver high-quality investment product for long time ownership, with projects to commence in all 3 states. To close, the GBT office and logistics teams have delivered excellent results in 2019. Through executing our active management and leasing strategies together with the quality of the underlying assets, our team continues to deliver on our strategy. Our development pipeline has been replenished, and we start 2020 with the portfolio well positioned to deliver strong returns. I will now hand over to Chris Barnett to present the retail results.

Thank you, Matt, and good morning, everyone. I'm pleased to be able to take you through the full year retail results. The portfolio finished the year delivering strong sales productivity nearing $11,700 per square meter, up almost 2% on 2018. This high productivity is reflective of our quality assets and our focus on ensuring our retail offer responds to the changing -- the needs of our customers. We've delivered solid leasing results with a portfolio once again achieving high occupancy at 99.6%. Our specialty leases are averaging 4.8% fixed annual increases across their average tenure of 4.7 years. We are excited to open 2 new dining precincts, which were fully leased and brought together the best local restaurateurs to Charlestown and Melbourne Central. Both precincts are resonating well with the local markets and trading strongly. Earlier in the year, there was a successful launch of Sunshine Plaza development, introducing over 40 new brands to the market, including an upgraded dining and entertainment offer. The center is trading well with specialty productivity already over $10,000 per square meter. On our financial results, the retail portfolio delivered comparable net income growth of 1.2%. This result is reflective of the current retail environment, which has led to reductions in turnover rent, particularly from our cinemas, and the general market trend where leasing deals are taking longer to conclude, increasing our downtime. On asset valuations, whilst there was a negative reval for the full 12 months, this sits well under 1% of portfolio value. We've had positive guidance on 5 retail assets including Melbourne Central, Sunshine Plaza and Rouse Hill, offset by negative revaluations at Casuarina and Highpoint. For the full year, our entire portfolio has been independently valued with a consideration to the recent evidential transactions and our average weighted cap rate is only 1 basis point higher compared to 2018, now averaging 4.89%. There is no doubt that the retail conditions are soft at the moment, and we are anticipating this to remain as we progress through 2020. However, we believe that our quality portfolio, which is located in the high-growth markets, positions us favorably to capture growth when conditions improve. Now on to retail sales. Specialty sales productivity has increased, now trading at $11,667 per square meter. Total specialty sales on a dollar per square meter basis are up 1.9%, which continues to trend positively from where we reported at the half. In terms of total center sales productivity, delivering 1.1% growth, the discount department store category has improved on the back of growth of Big W and the continuing strength of the Kmart business. Supermarkets were strong at 3.3% while cinema faced a similar trend from the half, down 7%. Our specialty retailers, on average, are generating over $1.6 million in sales per annum per store. And if you look at the productivity growth, there have been some strong results. Technology and appliances continue to benefit from the category leaders, JB Hi-Fi, on trend product offers of Apple and Samsung, whilst growth in retail services has been buoyed by the outperformance of optometry and beauty services. Dining remains on an upward growth trend with productivity up by 5.8%, benefiting from the new entrants to this category following the launch of our 2 new dining precincts. The reduced sales growth in fashion is following the broader industry trend, particularly in women's apparel. Now on to leasing, where there have been a number of excellent outcomes. Retail demand for our portfolio remains strong, reflected in higher levels of occupancy and our ability to attract over 70 new retailers and launched dining precincts fully leased when introduced into our assets. We are achieving annual fixed increases of 4.8% on new specialty leases, and our retention rate remains high at 75%. The number of shops that are vacant or on holdover as at the 31st of December remain in line with 2018, our leasing spreads at minus 2.2% across specialty deals completed over the 12 months. Importantly, our retail debt as a percentage of annualized billings remains at historically low levels at only 0.5%. On the new dining precincts, the Corner at Charlestown opened in December, successfully converting an underutilized section of the center into a vibrant dining precinct amalgamating a number of local hero retailers from the Hunter region. Similarly, Melbourne Central, an existing food precinct adjacent to our commercial tower, was transformed, combining 13 famous Melbourne eateries into a collective space, reflective of the iconic Melbourne laneways. When you look at our retail portfolio, we have been using digital technology and data to understand in detail the behavior of our customers. These analytics enable us to adapt our retail offer, share information with our retailers to drive their sales productivity and ensure that our marketing campaigns are effectively targeting and maximizing visitation to our centers. As you can see from the table on the right-hand side of the slide, we are focused on ensuring our retail offer is weighted towards growth categories, making our assets more compelling in face of dynamic consumer behavior. Our retail mix is more relevant to our customers' demand, which is translating to both sales productivity and center visitations. We are leveraging new technologies such as artificial intelligence to bring together multiple data sources and insights to convert customer pain points into driving visitation to our centers. An example of this work is what we're doing at Melbourne Central. As we know, Melbourne Central sits on top of Melbourne's second busiest train station. And with over 60 million visitors a year to that center, converting more commuters into customers is an ongoing focus for the asset team. By utilizing machine learning, artificial intelligence to assess campaign results over the past 2 years, we have identified the most effective marketing techniques that we can incite with the highest probability of converting commuters into shoppers, bringing together multiple data sources, such as consumer spend and logical -- locational hotspot technology. We've learned by targeting commuters with a call to action with a short expiry of, say, 24 hours is 5x more effective in delivering the message than alternative media. This model was able to predict the conversion of commuters into customers with a 90% accuracy. We also utilize our voice of customer platforms to assist in guiding investment in our assets. This includes testing concepts regarding customer amenity, place-making elements such as play at and digital technology. Example of these have been integrated within a number of our upgraded precincts at Melbourne Central and Highpoint. Now on to retail development. We are very excited about the development proposal at Melbourne Central. The retail development is adjacent to proposed new office tower, The Frame, and will introduce a new 7,000 square meter retail, dining and entertainment precinct. We are delighted at the retail interest in this project, and we have already pre-leased over 40% of the project's income. We've received development application approval, and we are targeting to commence that project in mid-2020. Similarly, we look forward to the development opportunity at Rouse Hill. This asset has been achieving strong sales productivity growth and sits in the high-growth markets of Northwest Sydney, which is now benefiting significantly from infrastructure investment. The launch of the Northwest Metro and the Rouse Hill station has brought instant benefits to the center with noticeable increases in traffic to the adjoining precincts contributing to strong sales and to productivity growth averaging 7.6% over the past 3 years. The focus of the coming months is to advance design, confirm authority approvals and finalize our leasing deals with several key tenants that we will pre-lease prior to the commencement of the project. We are encouraged at the momentum and interest shown by retailers and therefore confident of the current program, which forecasts a commencement at the middle of this year. In line with GPT's commitment to take a leadership role in carbon emission reduction, both Rouse Hill and Melbourne Central will achieve a minimum 5 Star Green Star rating for both design and as booked. In summary, whilst consumer sentiment continues to impact the growth of our retail sales, GPT has a quality, highly productive portfolio. We are well positioned to be resilient to the headwinds of this year, and we look forward to progressing some excellent expansion opportunities in our strongest assets. I'd now like to hand over to Nick to provide an update of the funds management business.

Thank you, Chris. It is my pleasure to present the full year result for funds management, which reaffirms our position as a leading fund manager. Over the year, assets under management increased by 5.6% to $13.3 billion, and operating profit from the business grew by 8.7% to $46.3 million. Since 2010, assets under management in our funds platform have grown by 2.5x, equating to a compound annual growth rate of 11% per annum. Over the same period, operating profit has grown at a high rate of 17% per annum, demonstrating the economies of scale from the business as the platform grows. Our shopping center fund continued its asset recycling program with the sale of Norton Plaza in Sydney, reducing the net gearing in the fund to 23.6%. Over the past 4 years, the fund has increased its weighting to super regional shopping centers from 46% to 71%. The GPT wholesale office fund grew by $1 billion over the year, as a result of acquiring 2 Southbank Boulevard in Melbourne, coupled with strong valuation growth. The fund has great scale, with gross assets of $8.8 billion, which is approximately 30% larger than its closest wholesale office fund peer. GWOF raised $260 million of new equity during 2019 from a mix of existing and new investors, with net gearing in the fund currently sitting at 16.4%. The fund is presently undertaking a capital raising, targeting $300 million of new equity, which will provide additional firepower to fund its high-quality development pipeline. GWOF has 5 significant development opportunities on land it already owns in our 3 core markets of Sydney, Melbourne and Brisbane. Queen and Collins is currently underway, with the other 4 asset creation projects at various stages of predevelopment planning. This substantial $2 billion development pipeline underpins the future growth in assets under management in the platform. In summary, the GPT Funds Management business is well positioned for the future. We have strong ongoing support from both our domestic and global investors, given our demonstrated discipline, governance and performance over many years. I'll now hand back to Bob to providing his closing remarks.

So thank you, Nick. As you can see, the business is well placed to deliver further growth in earnings and distributions. Recent data supports our view that the underlying fundamentals of the domestic economy are starting to show signs of improvement. The residential sector is recovering. Unemployment remains relatively low, and infrastructure spend is continuing, particularly in Sydney and Melbourne. The turn in household wealth with rising house prices and faster debt repayments is expected to assist in rebuilding consumer sentiment in time. The fundamentals for the office markets in Sydney and Melbourne remain positive, with near record low vacancy rates and manageable supplier pipelines that are largely underwritten by healthy levels of tenant precommitments. Investment demand has remained very strong, and despite the compression of cap rates over the last few years, the relative spread to bond is well above long-term averages. It's a similar story for the logistics sector with low vacancy rates and strong demand from occupiers and investors. Yields have compressed, but we believe this reflects the structural demand stemming from retailers rationalizing their supply chains, growth in e-commerce and the increasing maturity and liquidity of the asset class. We expect that rents will continue to grow from assets that are located close to population growth areas and within easy access to transport nodes. We believe the current retail headwinds are mainly cyclical driven by weak consumer sentiment. However, structural change in consumer preference is also influencing the strategies we are deploying for our assets. Personalization, experience and convenience continue to be thematics that influence how we position our assets for the future. Shopper visitations remain strong and omnichannel retailers that understand their customers and our own pricing, both physical and online, generals are growing sales and profitability. So overall, we are optimistic about the outlook for 2020. We expect interest rates will continue to be accommodative for some time, supporting investment demand and valuations for real estate. Our portfolio has high occupancy and structured rental growth. We have a development pipeline that has grown to an excess of $4 billion, and we have a very strong balance sheet to support our growth plans. I note that our development pipeline is more than 85% weighted to the office and logistics sectors. Our guidance for this year is 3.5% growth per security for both FFO and distributions. So that concludes the presentation, and I now like to invite the presenters to join me upfront for your questions. Thank you.

We'll take questions from the room first. And if you could state your name and company from, that would be appreciated.

Grant McCasker from UBS. Just a few questions on the guidance. Are you able to just give us a bit more sort of granular detail primarily around comp NOI growth of the portfolio? And then also debt cost expectations for 2020?

I think from a portfolio perspective, we are expecting like-for-like growth across the average similar number to where we are this year, sort of that sort of circa 3.5%, where we were for 2019, I should say. That sort of like-for-like growth. We expect office and logistics -- office in particular to continue to outperform, logistics, again, to deliver a strong result and retail probably similar to where we saw it in 2019. In terms of debt cost, Anastasia, would you like to answer that?

So yes, we do expect it to be lower, probably in the low 3s. It really will depend whether we get a rate cut or not.

Just touching on -- another further question just on incentives on the portfolio. Are you able to talk about incentives across the office portfolio? What we've given for the period relative to PCP? And then also any comments on the retail portfolio as well.

We have seen quite similar incentives actually in Sydney, slightly lower than the prior calendar period. So we've seen low double-digit incentives for Sydney. We're seeing just bottom of 20% for Melbourne, and we still have seen mid-30s for Brisbane. Brisbane is getting better though, like not only Brisbane getting better, but Sydney and Melbourne, we've still seen good demand. And we've seen that in the leasing transactions that have occurred. If you take signed leases, heads of agreement and subsequent deals, we're 99% committed on our space. So we are still seeing very strong demand in office.

In retail. On retail, we have -- incentives have increased '19 on '18. I think we averaged about 9 months for tenants to receive capital contributions, that's now at 10 months. I think that's probably more weighted towards the way that we're moving away from apparel into dining, which is obviously more expensive to establish kitchens and things. But there has been a slight increase in incentives in '19.

And then just finally, just on the -- across the Funds Management business. Can you talk on any secondaries you've seen trade across the -- these units?

So in the office front, during the year, we had $54 million of secondaries and none in the shopping center front.

Adrian Dark from Citi. Chris, perhaps one for you. Just on the shift in downtime and turnover rent that you called out for FY '19. Could you talk about how your expectations for those items are changing at all in '20, please?

Mainly the shift in the percentage rental turnover rent has come from the cinema. Our portfolio was down about 7% for the year. We're pretty much forecasting that to be the same through 2020, obviously, very product driven. And we thought we'd have a better product in the second half of this year than we ended up getting. And on downtime, downtime is really from our perspective, just wanting to get shops open faster. So at the moment, our downtime is about where it was last year. Next year, it slightly increased '19 on '20, and they probably keep thinking that, that thematic will continue into 2020.

And perhaps a question for Matt on 32 Smith Street. It looks like the end value might have shifted there a little bit. Could you maybe comment on that? And also leasing progress on that project, please?

Yes. So we're 54% committed on the project, which is in line with our expectations. We have 3 general runners on the remaining space. So we are seeing very good inquiry in that market. There's a significant amount of private -- large privates that are looking to come out into that market who maybe aren't represented in Parramatta following the government and following, obviously, the employee -- the employee base that are out there. So we've seen very good inquiry on that project for where it is. As far as the valuation moving up, that's the value we're taking a view on the fact we're moving through it. So our risk, our component of the valuation is starting to diminish. So that profit and risk factor is just closing out as we're leasing it and as we're getting more and more out of the ground.

Sheldon [indiscernible] from Jefferies. Just a couple, one's been answered. Just on the retail weightings, Bob, it seems that you probably get there the 40% is from the progression of the pipeline. Is that fair to say?

Yes, you see, we've made it a lot of momentum towards that. You can see the development plan going up. We've gotten some of this that it's mainly Office and Logistics as we continue develop that out, certainly, be moving much closer to those 3 tail weightings, so we didn't say that we wanted to...

Are you selling any other assets? I know Wollongong has always seemed to be in the development buckets much easy, but when you look at some of the other retail assets going forward? And also in the fund, Nick, if you take out Northern Central, it looks like there's about $150 million thereabouts of negative revals, just sort of, first.