The GPT Group (GPT) Earnings Call Transcript & Summary

[Audio Gap] [Operator Instructions] I would now like to hand the conference over to Mr. Bob Johnston, CEO and Managing Director. Please go ahead.

Good morning, everyone, and welcome to GPT's 2020 Full Year Results Briefing. We are hosting today's presentation from our offices in Sydney. And as such, I'd first would like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora nation and pay respect to elders past, present and emerging. With me today are Anastasia Clark; Matt Faddy; Chris Barnett; and Nick Harris. and the agenda for today is outlined on Slide 3. As usual, we'll take your questions at the end of the presentation. Given the unprecedented social and economic COVID impacts -- that COVID has had on the community, and indeed continue to have, I think it's appropriate to start with a recap of the last 12 months. I'm pleased to be able to report today that despite 2020 being an extraordinarily challenging year, we were able to deliver a solid FFO result. We had commenced 2020 with the expectation of delivering further FFO and distribution growth, but COVID has changed the operating landscape. Throughout the year, we maintained a focus on working with our customers to help them navigate through the uncertainty, providing support where necessary. As you know, Melbourne was hit hardest with an extended period of strict lockdown. And GPT has 38% of its real estate portfolio located in Melbourne, including 44% of our retail assets. The extended lockdown meant that our retail assets, and particularly, Melbourne Central and Highpoint were significantly disrupted. While the 5-day lockdown in Victoria announced on Friday was disappointing news, we are confident, though, that a recovery is underway for the city, and this will be sustained. Rent collection across our portfolio improved strongly in the second half, and particularly in the fourth quarter, as we closed out approximately 90% of our expected tenant relief deals. During 2020, we also saw the acceleration of a number of trends, including e-commerce and working from home. Online retail gained market share, but we also have seen a strong return to bricks-and-mortar stores when shopping centers reopened, demonstrating the pent-up demand and desire for services, experiences and sales interaction that our shopping centers offer. The COVID restrictions also show that working from home can be effective. And I have no doubt, more people will participate in flexible working going forward. Technology has been a strong enabler of effective remote working, but I also believe that there is no substitute for face-to-face connection. Most business leaders I speak to want their people in the office for the majority of their work week to foster culture, teamwork and collaboration, which is obviously much harder to do without established relationships and connections. However, they also recognize that their people have enjoyed not having to make long commutes on a daily basis. So we do expect that many organizations will retain an element of working from home. But we also expect there will be a strong recovery in office space utilization in 2021 as the focus changes from managing the pandemic risk to business growth. Our office and logistics assets, which represent over 60% of the portfolio have been resilient throughout the pandemic with strong rent collection rates. Office leasing activity during the year was hampered by COVID with many large tenants delaying decision-making as they reassessed how they would use their office spaces in the future. Tenant demand for high-quality logistics assets remained strong, benefiting from e-commerce tailwinds and supply chain management drivers. We have continued our investment in the sector, developing and acquiring approximately $400 million of logistics assets during the year. So overall, 2020 was an extraordinary year and COVID outbreaks and containment measures will remain a risk. However, a recovery is clearly evident. Jobs growth has been robust. Consumer sentiment is strong. The household savings rate is at levels not seen for many years. And people are returning to offices, restaurants and shopping centers. So we remain optimistic that the recovery will be sustained, albeit it is likely to be uneven. Turning now to an overview of the results on Slide 5. FFO per security for the year was down 12.9% to $0.2848. This was driven primarily by the reduction in net operating income, given the COVID rent relief we provided to our retail tenants. Today, we announced a second half distribution of $0.132 per security, taking total distributions for the year to $0.225 per security. It represents 100% of free cash flow for the group and a yield of 5.5% on our current security price. NTA at December 31 was $5.57 per security, and this is supported by independent valuations for all our investment assets. The total return for the year was minus 2.4% and was impacted primarily by devaluations of our retail portfolio. While this is disappointing, I note that the total returns for the group over the last 5 years have averaged more than 10% per annum. I want to now provide you with some further details on rent collections, waivers and provisions we have made for the full year, as outlined on Slide 6. Overall, rent collection was 94% of net billings with the office portfolio achieving 98% and the logistics portfolio 100%. Rent collection for the retail portfolio improved significantly during the December quarter following the reopening of Melbourne in late October, resulting in 88% of net billings for the full year being achieved. To support our tenants through the challenging period, we agreed to rent waivers totaling $71.6 million which equates to 7% of gross billings. We also made provisions of $23.7 million for receivables, taking total COVID allowances for the year to $95.3 million. The majority of this relates to our retail tenants. The waterfall chart on the right-hand side of the slide provides a summary of billings, rent waivers agreed and estimated, along with the provision for receivables and the residual amount of $32 million, which we expect to collect. Turning now to valuations. While transactions in the direct market slowed in the first half of 2020, there was a significant increase in activity during the second half for office and logistics assets, providing value with strong market evidence. There was a material uplift in the valuation of our logistics portfolio which was offset by a decline in the valuation of the retail portfolio. The valuation of Melbourne Central was the key driver for the valuation decline, down 8.8% in the second half, reflecting the restrictions imposed on the Melbourne CBD. Investment metrics for retail assets remained in line with the June valuations. However, value has moderated their market rent assumptions to reflect current leasing transactions. Prime office valuations remain relatively stable over the year, with a number of transactions supporting book values in the second half. An increase in the allowances for incentives, given the elevated vacancy rates was offset by 13 basis points firming in discount rates. For the full year, the group's diversified portfolio declined 4.8% in value. The portfolio average capitalization rate is currently 4.95%, with discount rates across each of the sectors now very similar at approximately 6.2%. The spread between long-term bonds and discount rates is more than 500 basis points and remains above the long-term average, which provides support for valuations. Despite the challenges that COVID presented in 2020, we continued to make progress towards our target to have all our managed assets operating carbon neutral by 2024. During the year, GWOF's assets were certified as operating carbon neutral, making GWOF the first property portfolio of scale within the World Green Building Council Network to achieve this milestone. The group was also ranked second globally for real estate in the Dow Jones Sustainability Index, and we again achieved the maximum 5 star status for our ESG management and performance as measured by GRESB. Furthermore, across the office portfolio, we achieved a NABERS Energy rating of average of 5.8 stars. And across the retail portfolio, we achieved an average of 4.4 stars. We also recently launched our Modern Slavery and Human Rights statements, you'll find more information on this in our inaugural integrated annual report we released today. So while the year has been challenging, we have continued to execute on our strategic priorities. Fundamental to our strategy is developing, acquiring and proactively managing a high-quality diversified portfolio of assets that will generate growing and predictable earnings and create value for security holders. A key consideration in our strategy is market selection, and we believe in the long-term attractiveness of our major cities of Sydney, Melbourne and Brisbane, despite the recent disruption from COVID. Increasing our capital allocation to logistics has been a priority, and we continue to execute on both developing and acquiring assets in locations that will be underpinned by tenant demand, which in turn will drive rent growth and valuation growth. Over the last 2 years, the logistics portfolio value has grown from $1.9 billion to $3 billion. Our brand and capabilities in the sector are now well-established. And to further accelerate this growth, we have formed a capital partnership with the QuadReal Property Group. We will provide development and management services for the partnership with a target to deploy $800 million of capital on a 50-50 basis. This will be done through a combination of acquisitions and developments. We see this as an important step in growing our funds management platform as well as leveraging our real estate skills with a high-quality capital partner. Last year, we sold 1 Farrer Place, and these proceeds, along with the existing balance sheet capacity, ensures that we are well placed to fund the logistics partnership as well as other growth opportunities. Furthermore, given GPT Securities are trading at a material discount to our NTA, we've also announced today we will initiate an on-market buyback. We believe there is a fundamental disconnect between our security price and the value of our business. Our gearing remains conservative, and we are well positioned to benefit from the economic recovery, which should accelerate as the vaccine program is rolled out. I'd now like to hand over to Anastasia Clarke to provide you with further details on the financial results and our capital management settings.

Thank you, Bob. Good morning. Starting with the annual financial results for the group for the 12 months to 31 December 2020 on Slide 11. Funds from operations is $554.7 million, a decrease of 12.9% per security on 2019, driven by the impacts of the pandemic, predominantly in retail. Our statutory loss of $213.1 million is due to the investment property devaluations, mostly in our retail portfolio. Mark-to-market losses of $52.2 million are a result of market interest rates reducing by approximately 85 basis points last year, in line with the RBA setting historic low interest rates. Free cash flow of $438.3 million grew by 40% in the second half compared to the first half of 2020, reflecting the strong last quarter cash collection rates of rent and debtors. The strong free cash flow in the second half of 2020 has resulted in a $0.132 per security final distribution, taking the full year distribution to $0.225 per security. The distribution declared today represents a payout ratio of 100% being the midpoint of our target payout range of between 95% and 105% of free cash flow. We expect to pay the distribution on 26 February. Turning to Slide 12, the segment results. Our earnings result was significantly impacted by COVID-19 rent waivers and debtor provisions of $95.3 million. $83.5 million of this impact is in the retail segment. And a further $11.5 million is for retail tenants in the office segment. Besides retail rent revenue being lower, ancillary income from car parks, turnover rent and property management fees has also been impacted. This was somewhat offset by property cost savings of 12.5%. The Office segment achieved modest growth from fixed rent increases and the full year contribution from the acquisition of Darling Park in 2019, offset by lower occupancy and COVID rent waivers and provisions. The benefits of a diversified portfolio are demonstrated in the result with the Logistics segment up 15.2%. Part of the increase is due to the contribution from acquisitions and developments being fully leased on completion. There has also been strong growth from higher occupancy and fixed rent increases. The overall group result was aided by a reduction in interest rates, resulting in a lower average cost of debt of 3.1%, 50 basis points lower than 2019. Corporate costs were reduced due to the withdrawal of the 2020 bonus schemes, a decrease in discretionary spending and assistance from JobKeeper, partly offset by higher directors and officers insurance premiums. Maintenance CapEx decreased during the year as nonessential capital expenditure was deferred given the COVID-19 uncertainty. Turning to Slide 13 on capital management. Gearing is modest at 23.2%, and we continue to maintain an elevated level of available liquidity of $1.8 billion. This places the group in a strong capital position to both turn on a security buyback and continue to invest in our strategic growth in the Logistics sector. Throughout the year, we raised approximately $500 million of low-cost additional liquidity from issuing long-dated medium-term notes in the debt capital markets. Our incremental cost of debt, all-in, is circa 1.5%. And we estimate our average cost of debt for 2021 to be approximately 2.5%. We believe the group will benefit from an extended period of low interest rates, as foreshadowed by the RBA. As a result, we continue to transition to lower interest rate hedging levels and shorter duration. During 2020, we reduced our hedge term from 4 years to 2.5 years. And the hedge level is expected to reduce to approximately 60% by the end of 2021. In summary, we are well positioned to benefit from the recovery underway and a significant available balance sheet capacity to invest. I will now hand over to Matthew Faddy to provide an update on the Office and Logistics segments.

Thank you, Anastasia. The quality of the GPT office and logistics portfolios and our customer focus has been clearly demonstrated through 2020. In the office portfolio, we have concluded 100,000 square meters of leasing with a WALE in excess of 5 years and 98% of net billings collected. Segment FFO of $282 million has been delivered and portfolio occupancy is 94.9%. We continue to progress delivery of our development pipeline with 32 Smith achieving practical completion in January and a pipeline of opportunities in excess of $3 billion -- $3.5 billion. The events of 2020 have seen customers more broadly adopt flexible working. But they recognize the importance of high-quality office space to achieving ongoing success. GPT is well positioned to respond to the changing market, leveraging investments we have made in our portfolio to provide flexible working spaces, integrated technology and healthy buildings. All assets were independently valued in December with a weighted average capitalization rate of 4.89%. The office valuations were up by 0.5% in the second half with a 1.2% moderation for the year. The valuations reflected the softer rental market. However, this has been offset by the firming of discount rates. The valuations of our prime office portfolio have been supported by sale transactions in the second half. One of these transactions was the divestment of Farrer Place in Sydney which we concluded in line with the June valuation of $584.6 million. This successful sale at a strong price crystallizes a total return of 12% per annum over the past 5 years. Leases have been signed across 100,000 square meters, with an additional 26,000 square meters at heads of agreement. Portfolio occupancy is 94.9%, with 7% of income expiring in 2021. The timing of COVID was a headwind for our 550 Bourke Street leasing campaign. The lobby is now complete and pleasingly, leasing is progressing with BAE Systems taking a 10-year lease across 7,000 square meters. Through the second half of 2020, we have seen a rebound in leasing volumes with the doubling of GBT heads of agreement numbers in the second half of 2020. At the leasing, we completed with sitting tenants. Around 3/4 kept the same amount of space with the remaining a mix of between downsizes and expansions. Last month, our office tower at 32 Smith in Parrramatta achieved practical completion. Leasing has reached 70%, including heads of agreement with QBE anchoring the development. We anticipate leasing progress will continue through 2021 with the remaining space targeting full floor and part floor tenants. The asset has an expected end value of over $330 million with an expected yield on cost of greater than 6.4% and a completion capitalization rate of 5.125%. This will be a successful development entry into the Parramatta market. Within our portfolio, we are progressing a number of exciting future development opportunities. In Melbourne, the underway Queen and Collins project is on track to be complete in the first half. And leasing is progressing with approximately 20% of the office space now committed, including terms agreed. We are engaged with a number of potential tenants and look forward to continuing the positive leasing momentum. Across the portfolio, 6 projects are being advanced through planning ahead of the next market cycle and are expected to deliver approximately $3.5 billion of asset creation opportunities for the group. We are engaging closely with our customers to gain insights into the future of the office. Through these conversations, it is clear that the office will play an important role for high-performing organizations. The trend towards greater flexibility was already evident pre COVID with the ABS estimating 32% of employed people regularly work from home. Through 2020, this trend has accelerated and we anticipate that the hybrid work model will continue with the office to be the cornerstone for most organizations. Business leaders are telling us that the office is important to bring teams together to collaborate, innovate, learn and most importantly, create the culture of an organization. We expect the majority of offices will remain in CBDs, and there will be a greater focus on flexibility, well-being and sustainability. Our response to these insights include the evolution of our flexible workspace offering Space&Co to focus more on collaboration spaces and team rooms. With a presence in 5 assets, this will grow in 2021 with the introduction of a Space&Co at 32 Smith, along with the next evolution of our flexible workspace offering at Queen and Collins. Our Sydney venue is approximately 90% occupied, and we expect to see occupancy rates increase in Melbourne through the first half of 2021. We are also enhancing our portfolio of prime assets through healthy building initiatives to support occupants as they return more broadly to the workplace. These initiatives have been piloted at 580 George Street with a wider rollout underway. Our expectation is that future of office trends will result in a divergence in performance between prime and secondary assets. Occupiers of secondary office buildings will look to upgrade to prime office space, attracted by quality amenity, health and well-being initiatives. Face rentals are generally holding firm across the GPT portfolio, although lease incentives will remain elevated as a result of increased market vacancy. Pleasingly, we are seeing increasing leasing activity across our portfolio, with a number of tenant inspections in first 6 weeks of 2021, up on the same period last year. Investor demand remains strong for prime assets with investors taking a long-term view. The Australian prime office market remains attractive to both domestic and global investors. The low interest rate environment, stable government and the successful management of the pandemic provide a supportive macro environment for real estate investors. Our portfolio remains well placed to perform as restrictions ease, as demonstrated through leasing success in 2020 and our high rental collections. We will continue to progress our pipeline of development opportunities to be shovel-ready once market conditions are favorable. The GPT office team have positioned our prime portfolio to deliver for our customers through developments, lobby refurbishments, health and well-being initiatives. We are looking to capitalize on the leasing momentum from the second half of 2020 and deliver our leasing strategy. The logistics portfolio has delivered excellent results in 2020 with the portfolio growing to $3 billion, now representing 21% of GPT investment portfolio. Logistics FFO was up 15.2% to $139 million as a result of positive leasing outcomes and portfolio growth. Occupancy remains high at 99.8% and 100% of net billings have been collected, delivering comparable income growth of 3.1%. Growth has been achieved through development completions and targeted investments in preferred markets. We have also established a logistics partnership with QuadReal that will be covered in the funds management update. During the year, valuation uplift of $228 million has been delivered with strong demand for prime logistics assets from both domestic and offshore investors. Our strong focus on customer relationships has resulted in 185,000 square meters of leases being signed, with a further 11,000 square meters of terms agreed. The portfolio has a long WALE with high quality tenants, with over 70% of income generated from customers that are ASX-listed groups or multinationals. Groups expected to be beneficiaries of market trends impacting the logistics sector make up a large proportion of the portfolio, with 61% of income generated from groups engaged in trade, along with transport, postal and warehousing activities. Portfolio growth of $543 million has been delivered in 2020, with assets acquired for $202 million and development completions totaling $195 million. Valuation uplift of 9.3% has been delivered and the weighted average capitalization rate has firmed to 4.84%. The value of the GPT logistics portfolio has doubled since 2017, with around half of the investment portfolio created via our development pipeline. This growth momentum is set to continue into 2021. 4 developments were completed over the year. In the first half, 3 facilities were delivered for DHL, JB Hi-Fi and Westcon. In the second half, the 50,000 square meter facility leased to Visy for 10 years at Penrith was completed. The developments undertaken in 2020 delivered a yield on cost of 5.8% and a WALE of 8.3 years. Earlier this month, the $44 million facility at Glendenning reached practical completion, with leasing negotiations well progressed. We continue to create product through our development pipeline. 4 projects are underway that have an expected end value of $158 million and will be completed in the second half of 2021. 3 of the projects are being undertaken on a speculative basis with the fourth to be delivered following conclusion of lease documentation. The pipeline inclusive of underway projects has an expected end value on completion of approximately $1 billion. We have added to the land bank with parcels acquired in Wacol and Truganina. The first 10 hectares at Kemps Creek has also settled with this project now named the Yiribana Logistics Hub. We are excited about this opportunity located in a growth corridor close to the future at Western Sydney Airport and benefiting from strong transport links. 3 Victorian assets totaling $202 million have been acquired during the year. In December, the foundation of state in Truganina was acquired, comprising 3 high-quality facilities. The estate has a WALE of 8.1 years and is leased to 5 tenants engaged in cold storage, trade and transport. This month, $137 million fund through development was secured, also in Truganina in Melbourne's West. This 7,000 square meter facility is expected to be completed in the first half of 2022, with a 10-year leased to global e-commerce group, HB Commerce, who trade as VidaXL. This facility is being acquired within the GPT QuadReal Logistics Trust. Market trends impacting the logistics sector have accelerated in 2020, most notably e-commerce. Logistics occupiers are investing in their supply chains and long-term trends to urbanization in key population centers are being supported by investments in transport infrastructure. Market vacancy remains low, and investor demand is strong, driving asset values higher. The GPT Logistics team continues to deliver enviable results through the leasing and management of our investment portfolio, combined with the creation of new product. The modern long WALE GPT logistics portfolio, combined with our land bank of 122 hectares, will see a further positive contribution in 2021. I will now hand over to Chris Barnett to present the retail results.

Thank you, Matt, and good morning, everyone. I'll now take you through the results for the retail portfolio. 2020 has been a challenging year for the retail industry. COVID has significantly affected our retailers, our customers, our staff and our communities. However, in many ways, it has brought our people and our teams closer together. It's challenged us to operate our assets more efficiently, and it has positively changed the way that we connect with our customers. Our aim in '21 is to amplify the positive learnings for the past year to constructively enhance our operating business moving forward. In terms of our financial results. The full 12 months has been predominantly impacted by the rent waivers agreed with the retailers as required by the code of conduct and the significant restrictions imposed in Victoria. Despite the difficult environment, the higher levels of rental collections in the second half and being able to finalize the majority of the COVID arrangement with retailers has considerably strengthened our financial results from where we were sitting at June. What has been encouraging is the evident recovery and rebound of our portfolio once restrictions were eased and customers were able to return to our assets. Excluding the CBD, our customer numbers in December were back up to 95% of 2019. In the final 2 months of the year, where all of our assets were able to trade freely, there was strong sales growth, particularly in New South Wales and at Casuarina, and we feel that this will provide positive momentum as we commence this year. Turning to retail sales, which have experienced a phenomenal recovery. For the combined months of November and December, excluding Melbourne Central and travel agencies, the portfolio center sales grew by 4.8% and total specialties were up 4.1%. At a state level, not surprisingly, New South Wales and the Northern Territory have led the way with even higher sales growth being up 6.4% and specialty is up 5.5%. Looking at sales in more detail and at an asset level, Rouse Hill and Casuarina were the standout for December, with sales up 9% and 12%, respectively. On retail categories, there have certainly been some winners with a number of retailers reporting excellent results. Supermarkets were up 5.6% for the 12 months as they continue to benefit from the changes in consumer spending patterns. The discount department category performed well for the year, up 6.9% off the back of a very strong December, where the category was up 14.6%. Continuing on from our midyear results. Our large-format technology, leisure and sporting retail brands, namingly JB Hi-Fi and Rebel Sports, performed strongly in both December but also for the 12 months. There are still several retail categories that are being impacted by government restrictions, including cinemas, entertainment, travel and dining and with a return to normal, we feel this provides a positive opportunity for further sales growth in 2021. Turning to the broader retail market conditions. The sales trends continue to be positive, with particular strong growth over the final quarter of 2020. The retail market rebound has been underpinned by economic factors that have boosted consumer confidence to its highest level in 10 years. A strong recovery in the jobs market and improved wealth effect, given the resilience of house pricing and record household saving rates are providing a solid backdrop for retail spending this year. Turning to Slide 36. There was no doubt that online was able to significantly grow through the peaks of the restrictions. However, as we spoke at the midyear results, as restrictions were relaxed, we saw our customers return to the assets. This, again, was evident in the last quarter of the year where the leakage of sales to online rapidly declined as customers return to their normal shopping behaviors. As demonstrated by the charts on the slide, our market share showed strong recovery, particularly in the final months of the year, with our market share for the month of December actually up from where we started the year. Using insights from our research to understand how this growth of online may have influenced physical retailers and customer behavior, the data from Quantium shows that omnichannel retailers have been the clear winners throughout this period. Further to this, the more sophisticated the omnichannel platform is, the greater the sales growth achieved by that retailer across both online and their physical store networks. Now turning to the leasing activity on Slide 37. Despite the challenging year, there have been considerable leasing activity, particularly in the second half of the year. With the onset of COVID, we chose to strategically secure the tenure of our expiring leases to avoid uncertainty. Locking in these tenants during the second half of the year did impact our leasing spreads. However, these deals were agreed on considerably shorter tenure with over 40% of them on terms of less than 36 months. Further, this strategy has led to an increase in our retention rates and a 15% reduction in tenancies on holdover from the first half, whilst our occupancy remains in line with our June result at 98%. Importantly, our leasing deals remain structured with fixed base rents and annual increases. However, given the environment, there has been a reduction in tenure, which was 4 years on average from the deals that we completed during the year. We've also negotiated COVID rent assistance with our retailers reflecting an 83% completion rate, and we are looking to finalize the remaining discussions over the coming months. Turning to Slide 38. We undertook independent external valuations on the entire portfolio in December. The overall portfolio revaluation for the 12 months was negative 13.7%, with the majority of this already reported at our June results. There were no cap rate movements in the second half. The December movement of 3.6% was mainly as a result of Melbourne Central, which like all CBD assets, has been impacted. However, leading into COVID, it was the # 1 center in the country with the higher sales productivity and the strongest level of customer visitation of any asset. We are firmly of the belief that all the aspects that make Melbourne Central great will return. However, recovery will be slower than the rest of our portfolio, which, as highlighted, has rebounded strongly. The challenges we all faced as an industry in 2020 were immense. The impacts of COVID are short term. However, it has accelerated some key issues and structural changes that will continue to be themes for retail moving forward. We are well advanced with our strategies to deal with a quicker onset of the repurposing of our traditional major anchors, and we will remix and downsize major stores at both Highpoint and Rouse Hill over the course of the next 12 months. We have known for a while that customers will continue to demand more from our assets. The shift away from traditional apparel towards spend on lifestyle brands, personal services and experiences is even more pivotal, and we have already been responding to this with investment in growth retail categories and new retail experiences. As our centers continue to evolve, mixed-use will become more prominent, and our assets have significant landholdings in quality growth markets, and we are well placed to consider these opportunities in the future. A recent example is the lodgement in November of a development application to secure long-term mixed-use rights at Highpoint. Now whilst there are favorable conditions for retail sales and the growth at the end of the year provided us a level of optimism, there is still a road to recovery as we turn to '21. In particular, the leasing market will have its challenges as retailers continue to adapt their business models to post -- business models post the impacts of COVID. We are confident in the quality of our portfolio which has included some of Australia's most productive retail assets. We are well placed, given we already are investing in our assets and strategically responding to several of the key themes, which were accelerated by the onset of COVID. I'll now hand you over to Nick to provide an update on the Funds Management business.

Thank you, Chris. Our funds management platform has significant scale with $12.9 billion in assets under management and it has made a 7% contribution to the group's earnings in 2020. Despite the onset of COVID-19 early in the year, funds management earnings for the full year was $47.2 million, representing annual growth of 2%. As Bob and Matt mentioned earlier, we are pleased to have entered into a strategic capital partnership in logistics with QuadReal Property Group out of Canada. This is our first foray in the logistics sector in funds management and complements our existing funds platform in the office and retail sectors. The GPT QuadReal Logistics Trust is a 50-50 partnership, targeting to create a prime Australian logistics portfolio with a capital commitment of $800 million. We've already committed 20% of this target across 2 deals in Melbourne and Brisbane. Turning to our wholesale funds. Despite the emergence of COVID-19, we successfully completed the GWOF capital raising in the first half. Including the distribution reinvestment plan, $339 million of new equity is being raised in GWOF from a mix of existing and new investors from Australia and abroad. Pleasingly, we introduced 5 new investors to our platform during the year. A feature of our platform that attracts investors is GPT's ongoing commitment to an exceptional track record in ESG. We are proud that GWOF achieved its ambitious target of carbon neutral certification in 2020. Reaching this milestone and having it externally verified during the pandemic is an enormous achievement. GWOF is the largest wholesale fund in the Australian market, with a $9 billion portfolio. The fund increased its development pipeline to $3 billion following the acquisition of a development site in Parramatta. GWOF has over $1 billion of debt capacity to fund new developments or to take advantage of any opportunities, which may present themselves in the market. The GPT funds platform is well positioned for the future. We have strong ongoing support from our existing domestic and global investors and we continue to attract new investors. I will now hand back to Bob to provide his closing remarks.

Thank you, Nick. So hopefully, as you heard throughout the presentation, despite the ongoing impact of COVID, we have made good progress on our longer-term strategic objectives, and we intend to maintain this momentum in 2021. Growing our logistics platform remains a priority, as well as ensuring that we maintain deep customer relationships across each of our portfolios so that we can be agile and respond to their changing needs. While we're optimistic about the outlook and our prospects, given the continued uncertainty in the operating environment, evident recently in the lockdown of Victoria, we are not providing earnings and distribution guidance for 2021 today. We currently expect to provide guidance with our first quarter operational update. We are well positioned to benefit from the emerging economic recovery and we have a strong balance sheet, providing capacity to invest in strategic growth opportunities and fund the security buyback announced today. So that completes our presentation, and we will now open the line for your questions. Thank you.

[Operator Instructions] Your first question comes from Sholto Maconochie from Jefferies.

Just a quick question on the result. On the -- you flagged the JobKeeper and the lower corporate costs. How much was that booked in that lower corporate costs with the $11 million saving from JobKeeper.

Sholto, Anastasia here, $8.8 million.

Do you think it's appropriate just to claim it, given you're now estimating -- I get the legal entities, but does that -- some of your other peers have done it, too, is there any view on that?

Look, we wouldn't have claimed it if we didn't think that was appropriate to climate it, to be honest, Sholto. So we thought about it deeply and carefully, and we think it's appropriate. So we're quite comfortable with that decision.

Okay. And then just on the -- some good cost savings come through on the expense line in the trust. Do you expect them to be -- those statements to come through in '21? Or they'll normalize back to sort of previous levels?

I think you should take the 2020 number, and then you need to add costs for reinstatement of the bonus schemes, and you need to add further increases in directors and officers insurance because it is well flagged to us, so it will continue to escalate.

All right. I might take that one-off line later. And then just on the finance cost. You did lower costs, you're guiding at $2.5 million. I saw you broke some swaps of $36 million in the previous. Is that providing some benefit through into '21 from those? Or is it more the floating rate and then selling down the -- from selling down the Farrer Place asset?

There is a little bit of help from the $36 million hedge breaks in 2021 because we only broke those hedges late in line with the proceeds being received from Farrer Place so late in 2020.

All right. And then just on the office line, can you talk -- can Matt talk through the sort of incentives and releasing? I think it's that face rents are holding firm, but sort of what incentives you see across the markets and the releasing spreads? Is there pretty good leasing in the second half at 60,000 meters? Can you just talk to those numbers?

Yes, Sholto, it's Matt here. For the year, our average incentive was 25% of growth, just taking the 3 cities in 1 line. But it's fair to say that in the latter part of the year and our expectations for this year, you'd be guiding more towards 30%. So incentives have increased through the last 9 months. So we'd be expecting around 30% in Sydney and Melbourne and higher than that in Brisbane. We don't have a lot of leasing to undertake in Brisbane over the next year or so, but Brisbane is probably getting up towards 40% in that market.

All right. And then just on the retail. Did you -- can you disclose what the metrics would have been with Melbourne Central and travel agencies in there? Or do you have that in the additional info pack?

Yes, I do, Sholto. It is in the data pack. But -- yes. I mean, obviously...

I'll look at that later. Okay. And then just on the guidance, I think to Bob, did the Melbourne recent outbreak with that, did that sort of temper your view on providing an outlook for '21. Could you sort of talk to that given that you just put in March?

Yes. Absolutely, Sholto. Look, we're, as you know, calendar year business, 12 months. So we're only really just had Melbourne reopened just before Christmas, and we saw some really good signs with the pickup in retail. Obviously, Melbourne Central is a big part of our portfolio and the recovery for Melbourne Central will obviously lag, given we don't have all the CBD workers coming back. So we really wanted to see at least the first quarter of cash collections across our portfolios and particularly retail, but also to understand how quickly or what the trajectory might be for the Melbourne Central recovery as part of that. And clearly, then the lockdown on Friday really sort of cemented a view that it's a little bit premature for us to give it given the uncertainty that's still out there. So that were probably the factors that led us to not provide guidance today. But our intention or expectation is that we will provide that as part of our quarterly result once we see the run rate sort of coming through for the first quarter.

All right. Just finally on the retail. Those holdovers, would it be fair to say most of the 7.7% are in Victoria given the issues going on there?

Sholto, it's Chris. The spread across the whole portfolio, it's not specifically in Victoria. It's representative, I think, of the weighting of all the assets.

Your next question comes from James Druce from CLSA.

Bob and team, just following up on Sholto's question on guidance. Can you sort of talk through how you're thinking about the roll-off of JobKeeper and the code of conduct on the business and the scenarios that you're thinking about there?

Yes. Look, I'm pretty optimistic about the roll-off of JobKeeper. I think the fiscal stimulus that has been injected into the system in Australia is really doing its job, to be quite honest. We're seeing jobs growth where household savings rates are up, people are spending money. So I'm pretty optimistic that as JobKeeper rolls off, the stimulus that's been put in place will do its job. So I'm optimistic about that in the -- for the -- post the first quarter. But it's still early days, and we'll have to just see how that plays out. But clearly, the Melbourne market is a bit more challenging given it's been through the extended lockdown period. We're still a big believer in Melbourne, but -- and we expect it will take a little bit longer to recover the Melbourne CBD than what we're seeing in Sydney. The pleasing thing here in Sydney is we're starting to see people back, the roads are busy, activities are happening. So we really wanted to see how the first quarter played out and then be in a position to give you a view on our -- what the guidance would be for the full year at that time.

Okay. And the second question on capital deployment. I mean you're seeing on quite late again, you flagged the buyback. But just wondering how you're thinking about acquisitions. Obviously, you've been fairly active over the period. But how you sort of seen the acquisition environment over the next 12 months?

Look, my preference has always been to try and use the capital we have available to us to invest in growth opportunities for the business. But clearly, I guess, where our share price has been trading for an extended period, we felt that it was compelling buying. And so we have activated the buyback. But we will balance that against continuing to invest in the business and growth opportunities. And we do think there will be a number of opportunities coming to market over the -- particularly the first half of this year that would be of interest to us.

Okay. 1 or 2, if I may -- 1 or 2 more. The QuadReal JV, how does the preemptives work with the -- well, not the preemptives, but how do you sort out maybe that's what in the partnership or the balance sheet?

Matt, do you want to talk to that?

Yes. I'll talk to that, James. It's Matt here. With the partnership with QuadReal, we are looking to build that out to $800 million, as we stated earlier. The partnership has the first dibs at anything up until that $800 million. But should the partnership not want to buy an opportunity, GPT has the right to proceed on its own right. But with the relationship so far, it's -- we're very -- we're finding that we're very compatible. Our view on pricing, our view on our preferred sectors, preferred locations is very well aligned. So I expect to see that the partnership will be where you'll see most of our acquisitions occurring through to about $800 million.

Just to add to that, we haven't seeded the partnership, it's for us to grow together. And the partnership doesn't really have any right over the existing portfolio or any assets we own, so.

And just at the fees. You're getting performance fees, development management fees, what are the fees that you've sort of agreed there?

I can't give you those fees, it's commercial. But what I would say is it's commensurate of what you would expect for the services we're providing.

Okay. And one final one, if I may, just on the office. So the CBA lease, I think you did around 16,500 square meters. I think the whole asset, 52,000. Can you -- for CBA, can you just talk to when that lease ends for CBA and the impact that will have?

Yes, James, there's 3 tranches that CBA have over the tower, and we have extended one of those tranches in 2020. The lower tranche is likely to come back to us at the end of 2022. Sorry, just hesitating there, 2022. So the impact would be in the '23 year.

Your next question comes from Grant McCasker from UBS.

Can we look at the retail portfolio? If we look at the re-leasing spreads down 14% for the full year, that's nearly implying something a lot worse for the second half. Can you talk me through just sort of the re-leasing spreads in the final 2 quarters? And then as we move into 2021, what are your expectations going forward? And what's the expiry profile or the amount of leasing that needs to be done this year?

Grant, it's Chris here. On the leasing spreads, we took in -- I think we had about a 19% expiry profile this year. We did about 40% of our deals in the first half, which was pretty good, given that April, May and June, there was absolutely 0 leasing activity. So the 60% of our deals were for the second half of the year. We did -- we had minus 14% leasing spreads for the second half -- sorry, we had 14% across the board. We had minus, I think, about 18% for the second half. But really, they are reflective of the deals that were achieved at a point in time as opposed to sort of a reflection of the asset we chose at the beginning of COVID to lock in our tenancies to ensure that we had security of tenure over the uncertainty. And as a consequence of that, as we locked in our expiring leases during the year, the negative spread was for the second half. Moving forward, though, I'm assuming we're going -- sorry, those deals also, I should say, were for a shorter period of time. I think, about 36 months was the average tenure for those -- for the deals that we locked in for the second half. And we hope that we'll be able to recover that spread as they expire in better times.

So then so if we look at 2021, you're expecting re-leasing spreads of another down 20%?

I mean, I don't want to give guidance as to where '21 will end. But at the end of the day, if you're renewing tenants in an environment where your traffic is back to 96% of where it was before your sales have returned, you're leasing in a completely different environment than you were in the second half of the year, where effectively 50% of your specialty shops were closed for 6 months of the year.