The GPT Group (GPT) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the GPT Group's 2021 Interim Results Briefing. [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 interim results briefing. I do hope you're all safe and well. I'd like to commence by acknowledging the traditional custodians of the lands on which our business and assets operate and pay my respects to elders past, present and emerging. Joining me for today's briefing are Anastasia Clarke, our Group CFO; Matt Faddy, Head of Office and Logistics; Chris Barnett, Head of Retail; and Nick Harris, Head of Funds Management. As usual, we will take your questions at the end of the presentation. Unfortunately, we are not all in the same room together. So hopefully, we don't have any technology hiccups this morning. We commenced the year with strong momentum as the economy bounced back and business and consumer confidence lifted. This was reflected in a strong recovery in retail sales and rent collections during the half. Retail leasing activity during the period was the strongest it has been for some time as retailers expanded their physical store networks and launched new brands. We also saw encouraging levels of office inquiry, particularly from technology and services companies. This was more evident in Sydney, where physical occupancy in office buildings was recovering before the recent lockdowns were imposed. Both investor and occupier demand for the logistics sector was very strong, and we continued to build out our development pipeline and secure new opportunities in this sector. Clearly, from late June, measures to contain the Delta variant of COVID-19 across the Eastern Seaboard states changed operating conditions. And as a result, we found it was appropriate to withdraw FFO and distribution guidance for the year. As I'm sure most of you are aware, the Victorian and New South Wales governments have now reintroduced the Code of Conduct. The code requires landlords to provide rental relief to eligible SME tenants, proportionate with the reduction in their turnover. 50% of the relief is to be provided in the form of a rental waiver, and 50% is to be deferred. Clearly, we will work with our tenants to provide relief as required. Given the momentum we saw in the first half, we remain confident we will see a strong recovery once restrictions are again lifted. Turning now to an overview of our results on Slide 5. FFO per security for the period was up 24.6% to $0.156 per security. This was driven primarily by improved performance from retail and growth in our Logistics portfolio. The interim distribution is $0.133 per security, and this represents approximately 100% of free cash flow. NTA at June 30 was up 5.2% from December to $5.86 per security. This was driven by revaluation gains mainly from our Logistics and Office portfolios. And the total return for the 12-month period to 30 June was 10.2%. Turning now to valuations on Slide 6. We had the majority of our assets independently valued at the half, resulting in a revaluation gain of $472 million. There has been strong levels of transaction activity over the last 6 months, particularly for Office and Logistics assets, and this has provided valuers with strong levels of market evidence. GPT's Office portfolio recorded a valuation increase of 2.2% with the completion of 32 Smith, along with leasing activity across our Sydney assets driving this uplift. The weighted average cap rate was 4.87%, which is in line with December 2020. Valuers have softened near-term growth rates and increased incentives in the recent valuations. This has been offset by a slight firming of discount rates, consistent with market transaction evidence. The revaluation gain for our Logistics portfolio was $315 million, which is a 10.6% uplift. Given the investment appetite for the sector, valuation metrics continue to firm with the portfolio weighted average cap rate now 4.38% and the discount rate tightening to 5.81%, which, as you can see on this slide, is the lowest across each of our sectors. In Retail, valuations were stable for the period following the declines recorded in 2020. Valuers continued to include stabilization allowances for COVID-19 impacts. Low interest rates and expectations of a sustained economic recovery continued to underpin valuations for high-quality assets with the direct market willing to look through any short-term weaknesses. While COVID-19 is creating near-term uncertainty, we remain focused on executing on our strategic priorities. Our Logistics portfolio has grown to $3.4 billion in value and now represents 23% of GPT's overall diversified portfolio. This will increase further as we deliver our development pipeline and commit additional capital to the QuadReal partnership. The partnership initially targeted an $800 million capital allocation, and this has now been increased to $1 billion. The QuadReal partnership not only leverages our logistics platform but also provides growth in our funds management earnings. We have ambitions to further grow our funds management business. Our relationships with institutional investors remains very strong. And the GPT Wholesale Office Fund, GWOF, has a substantive development pipeline that will provide meaningful growth into the future. We completed the 32 Smith office development in Parramatta and GWOF's Queen & Collins development in Melbourne. Both of these assets have set new standards in their respective markets, and we are particularly pleased with the leasing activity at Queen & Collins as we've only recently been able to showcase the asset. We will also commence GWOF's 29,000 square meter office development at 51 Flinders Lane in Melbourne in the fourth quarter of this year. The asset will provide a unique offering to the market when it is complete in late 2024. We have advanced our plans for the mixed-use development at Rouse Hill, including updating the scheme to reflect the changes that have been accelerated since the emergence of COVID-19. And we are targeting to commence the development next year. We also continue to focus on building deep customer relationships and putting the customer at the center of everything we do. Customer engagement is providing rich insights into the services and propositions our customers are seeking, ensuring we differentiate our offer to match their changing expectations. This is influencing not only our development project but also the investments we are making across our portfolio. Underpinning our growth objectives are our strong balance sheet and our leading capabilities in ESG. As I have communicated previously, we have an ambitious target in place for all our managed assets to be operating carbon neutral by the end of 2024. We have a proven pathway to achieve this goal with GWOF being globally recognized for its carbon-neutral achievement in 2020. As you can see from Slide 8, GPT is recognized as a global sustainability leader, evidenced by our continued strong performance in leading ESG benchmarks on GRESB, S&P and ISS. Our focus is on achieving measurable outcomes through reducing energy intensity of our assets, generating on-site renewable energy, purchasing green power and investing in local biodiversity offsets for any residual emissions that cannot be mitigated. We're also recognized as an Employer of Choice for General Equality by WGEA. Our employees live our values, shape our culture and contribute to our shared success. Our stakeholders highly value our social and community programs, including our Stretch Reconciliation Action Plan and the support we provide to charities through The GPT Foundation. Despite the challenges of COVID-19, we have continued to ensure we provide community support through leveraging our people and our assets. I will now hand over to Anastasia Clarke to provide you with further details on our financial performance for the half, and I'll return at the end of the presentation for my closing remarks.

Thank you, Bob, and good morning. I'm going to start on Slide 10, where I'm pleased to be reporting far stronger financial results for the 6 months to 30 June 2021 in comparison to this time last year. Whilst the COVID-19 pandemic is still with us, we have a track record now of the rebound that will come when restrictions are lifted and which is evident in this period's financial results. Our statutory profit of $760.5 million for the half is a significant improvement on last year's result for June 2020. This is driven by stronger funds from operations and valuation increases, particularly from the Logistics portfolio. Funds from operations is $302.3 million, delivering an increase on the comparable first half of 23.6%. FFO per security is $0.1564, delivering enhanced growth of 24.6% due to our on-market security buyback from April to June of 1.7% of securities, costing $146.8 million at an average security price of $4.54, being a discount to NTA of 22.5%. The strength in our result becomes even more pronounced in the 43% growth in our distribution per security of $0.133, representing a 99.9% payout of free cash flow, which was underpinned by strong cash collections from across our portfolio. Looking to each portfolio's performance now on Slide 11 in the segment result. Retail profit of $140.8 million has recovered 77.8% of the impacts brought about by COVID-19 last year. Cash collections of 104% over the 6 months resulted in reduction of outstanding tenant debts from 2020 with $22 million remaining to be collected. Office contributed $134.5 million, delivering 1.8% growth on a like-for-like basis, which is a good result given the current level of vacancy in the portfolio. The overall result is down 3.9% due to the divestment of Farrer Place. Logistics contributed $75.5 million with growth of 17% resulting from additions to the investment portfolio, both completed developments and acquisitions. The funds management profit of $23.9 million was slightly down on last year, reflecting the valuation decline of the Shopping Centre Fund in 2020. Finance costs reduced almost 10% to $44.3 million, in line with savings of 40 basis points in the weighted average cost of debt to 2.7%. Corporate overheads of $28.1 million have normalized post last year's savings from withdrawal of variable remuneration schemes and support from JobKeeper. Costs have also increased in 2021 from higher D&O insurance premiums. We continue to be disciplined and targeted with our maintenance capital expenditure that has reduced to $12.9 million this half. Lower leasing volumes in Office and Logistics have resulted in reduced lease incentives to $23.1 million. For both maintenance capital expenditure and lease incentives, we expect these to normalize in line with the economic recovery. Overall, our strong results have delivered a 35% increase in AFFO. Turning to Slide 12, capital management, where the balance sheet remains very strong. NTA has increased to $5.86 per security, being 5.2% growth since 31 December 2020. Most of this growth is due to the strong asset revaluations, primarily from the Logistics portfolio. Gearing remains low at 24.5%, providing significant investment capacity for growth. There are no material loan expiries for the group until 2023, and we retained significant liquidity of $1.3 billion to fund growth opportunities. Our incremental cost of debt all in is circa 1.5%, and we estimate our average cost of debt for 2021 to reduce to approximately 2.5%. Our view is that the RBA is committed to an extended period of low interest rates. And therefore, we continue to hold hedging toward the lower end of our target range at 60% for a shorter duration of approximately 2 years. To conclude, our balance sheet is in excellent shape and positions us well to fund our strategic growth plans. For an update on our Office and Logistics operations, I'll now pass you to Matthew Faddy.

Thank you, Anastasia. Our high-quality $5.8 billion office portfolio has delivered FFO of $134.5 million in the half with like-for-like growth up 1.8%. The portfolio has a WALE of 5 years, and we have continued to achieve pleasing leasing outcomes with 38,000 square meters of leases signed in the period. Occupancy for our stabilized assets is currently 92%. A valuation uplift of 2.2% has been delivered in the half with a weighted average capitalization rate firming to 4.87%. Our sustainability leadership position in the Australian office sector has been further reinforced with the completion of 32 Smith and Queen & Collins. These developments have achieved 6 Star Green Star design ratings and expand GPT's prime office holdings in the core markets of Sydney and Melbourne. We saw leasing momentum build in the first half with positive jobs data and levels of tenant inquiry supported by rising business confidence. While this has been interrupted by the reimposition of government restrictions, we continued to negotiate with existing and new tenants across our portfolio as occupiers look beyond the current restrictions to the expected economic rebound. Turning to Slide 15. Leases have been signed across 38,000 square meters in the first 6 months of the year with a further 23,000 square meters at heads of agreement. Momentum has continued into the second half with 51,000 square meters of advanced negotiations across vacancy and future expiries. Sentiment in the Sydney CBD was positive in the first half with increased activity from tech groups and smaller occupiers. This is demonstrated by 40 deals achieved in our Sydney CBD portfolio at an average size of 580 square meters. This market also saw a reduction in sublease availability during the half. The Melbourne CBD was impacted by the lockdowns. However, government and technology tenants have remained active. Queen & Collins has been well received by the market with deals agreed with a number of tech occupiers and additional negotiations underway. As you can see on the charts, GPT has sustained occupancy well above the market average over the long term, and we are making good progress in reducing vacancy and upcoming expiry. Now to development. During the period, we concluded 2 projects, first being 32 Smith in the Parramatta CBD. This asset has achieved a 6 Star Green Star design rating and has been operating on a carbon-neutral basis from its first day of operation. Leasing is 75% progressed with QBE anchoring the development. At June 2021, the project was independently valued at $325 million, which is well ahead of feasibility commerce with a development margin of greater than 25%. We also completed the redevelopment of Queen & Collins in Melbourne during the period. Held within the GPT Wholesale Office Fund, this exciting project incorporates a 34-level tower integrated with heritage buildings fronting Collins Street. Leasing is progressing well with 41% of the office space now committed. This asset appeals to modern occupiers attracted by the unique building amenity, comprehensive customer service offering and the exciting new space-on-demand concept. Moving to Slide 17. We are progressing our $3.5 billion development pipeline across the Eastern Seaboard. These projects provide a pathway to growth from within our existing portfolio, unlocking opportunities on sites held by the group. In Melbourne, the 51 Flinders Lane development will commence in the fourth quarter of this year. This exciting tower design will provide 29,000 square meters across 650 square meter floor plates, being a unique offer that will target smaller boutique occupiers in the east end of the city. We are also seeking precommitments for 300 Lonsdale and Cockle Bay Park in parallel to progressing project milestones. Turning to Slide 18. We continued to engage closely with our customers as new workplace trends emerge. During the first half, through surveys and conversations with customers, we are gaining insights into how they are thinking about the office of the future. These insights are guiding our teams in prioritizing customer-centric investments to drive higher occupancy and rent outcomes. We are engaging with customers to reduce pain points such as simplifying lease documentation and providing spaces where a fit-out has already been constructed. Over several years, we have invested in creating furnished and fitted office suites to provide a ready-to-move-in solution for office users, and we are accelerating this to target smaller and growing occupiers. We are also leveraging our flexible workspace offering, Space&Co., to facilitate leasing transactions, support project teams and to incubate growing businesses. Our sixth Space&Co. venue opened at 32 Smith in Parramatta during June. Business lounge and collaboration facilities are also being expanded, along with healthy building upgrades, including up-specification of air filtration and touch-free lift and access to buildings. Now to Slide 19. Our team remains focused on delivering returns from our prime portfolio, demonstrated through a 12-month total return of 7.6% being achieved. With $13.3 billion of assets under management, we attract a diverse range of customers, including finance and insurance, global tech and professional services organizations. The quality of that tenant base is demonstrated with 100% of 2021 net billings being collected in the first half. We saw positive indicators in the first half with strong jobs growth supported by rising business confidence. While this has been interrupted by the reimposition of government restrictions, we expect the positive momentum of the first half to reemerge as restrictions unwind. Now to Logistics. Our portfolio has delivered excellent results in the first half with FFO up 17%, reflecting growing contributions from development completions and acquisitions. Investor demand for logistics remains strong, resulting in a firming of the weighted average capitalization rate for GPT's portfolio to 4.38%, reflecting the modern nature and distribution center focus of the portfolio. This sector has also experienced robust demand from tenants with levels of takeup well above average across the Eastern Seaboard, resulting in low vacancy rates in core markets. Four acquisitions have been secured and one development project completed totaling $350 million, and we have a further $170 million of developments that are on track to be completed in the second half. The 12-month total return of 24.2% has been achieved with the portfolio growing 13% to $3.4 billion and now makes up 23% of GPT's investment portfolio. Moving to Slide 22. During the first half, the group completed a $51 million facility at Glendenning in Western Sydney that is leased to Total Tyres for a 10-year term. We have also secured 2 acquisitions in Melbourne that will complete from 2022, both being held within the GPT QuadReal Logistics Trust, of which GPT holds a 50% share. The land bank has also been expanded with parcels for future developments secured in Kemps Creek and Wacol. These 4 acquisitions will have an end value of $370 million on completion. Earlier this month, an additional 8-hectare land parcel was secured at Crestmead in Brisbane. The site provides capacity for 40,000 square meters across 2 facilities with an end value of $90 million once complete. Turning to Slide 23. Our growing portfolio is made up predominantly of distribution centers, warehouses and cold storage that attract high-caliber tenants. With more than 90 customers, over 70% of income is generated from ASX-listed groups and multinationals. These include many well-known retailers and 3PLs such as Coles, Linfox, Toll and DHL. The existing portfolio is augmented by the pipeline and land bank, providing opportunities to expand our footprint and provide coverage to grow with customers across core markets. Turning to development. We have 4 projects totaling $170 million on track to complete in the second half. The latest stage of our Wembley Business Park estate was delivered in late July. Heads of agreement are in place with 2 groups across the facility. Works are also underway at our other Brisbane project in Wacol with practical completion expected in the fourth quarter. In Melbourne, we have 2 facilities due for completion at our Gateway Logistics Hub estate with one of these pre-leased to e-commerce retailer, The Hut Group. The second, a 24,000 square meter facility, has a heads of agreement in place with a national third-party logistics operator. Now moving to Slide 25. We are progressing our Yiribana Logistics estate project in Kemps Creek with the first facility to be delivered in 2022. The Kemps Creek precinct is set to become Western Sydney's next preeminent logistics destination, in close proximity to key infrastructure investments including the future Western Sydney Airport. As I mentioned earlier, we secured an adjacent site on Mamre Road in the half, and the combined scheme will now deliver 182,000 square meters of product with an end value on completion of $600 million. Now on Slide 26. Our $1.4 billion development pipeline provides capacity to create products totaling approximately 690,000 square meters. The pipeline provides coverage across core industrial precincts in Melbourne, Sydney and Brisbane with a diversity of facility sizes on offer. Consistent with our recently completed projects, we continue to target a yield on cost of over 5% for our developments. In addition to the 4 projects that are due to be completed in the second half, we plan to commence further projects this year. Turning to the outlook for the GPT Logistics segment. Our portfolio of modern, well-located assets are delivering an attractive cash yield with low maintenance CapEx requirements. Growth in e-commerce, urbanization, supply chain investments and infrastructure upgrades are tailwinds for the sector, resulting in strong levels of tenant demand and low vacancy rates of sub-2% in both Sydney and Melbourne. The GPT Logistics team have demonstrated the ability to consistently grow the high-quality portfolio through development and selective acquisitions. Our land bank provides control of a development pipeline to secure our future growth. We have clear pathways to grow assets under management from $3.4 billion to over $5 billion. In addition to the GPT Logistics land bank, further opportunities to acquire land and investment products are being pursued. I will now hand over to Chris Barnett to present the Retail results.

Thank you, Matt, and good morning, everyone. For our Retail business, the first half was pleasingly a story of rebound. Our assets continued to build momentum with positive sales growth when compared to our 2019 results. This has led to a renewed confidence in our retailers, resulting in a record level of leasing transactions. We finished the first half with higher portfolio occupancy at 98.9%. We had a lower level of vacancies. We had a lower number of holdovers, and we've improved our leasing spreads when compared to previous reporting periods. This momentum is very encouraging. For our assets who are currently impacted by government restrictions, we are confident that as history has shown, they will rebound strongly as restrictions are eased. In terms of our financial performance, the result was substantially up on the first half of 2020, given the reduction in COVID allowances and associated trading impacts from government restrictions. We independently valued 100% of our retail portfolio at 30 June, which has seen the stabilization of our asset values, evidenced by the overall portfolio delivering a positive revaluation. The specialty sales growth of 6.5% when compared to the first half of 2019 demonstrates the strength of the rebound and is a testament to how quickly our customers return to our centers to shop, to dine, to be entertained and enjoy the service and experience that they were truly missing during periods of restrictions. More so than ever, our centers are demonstrating their core alignment to the needs and wants of the Australian consumers. Now turning to leasing on Slide 30. The first half of '21 has been an exceptional period with record levels of leasing activity. Our leasing teams have been able to conclude more transactions in the first half of '21 than we completed in the full year of 2020. The leasing activity has resulted in a solid improvement in our portfolio occupancy, now at 98.9%. Our vacancies and our holdovers are down, and we've considerably improved our leasing spreads. Importantly, all of our leasing deals remain structured with fixed base rents and annual increases now averaging 4.4%. And we've seen a return to longer tenure with 4.5 years being the average term for all deals completed. As shown on this slide, our leasing metrics have improved considerably since the December reporting period. Now on to Retail sales on Slide 31. As seen on the graph, the strength of the sales recovery is evident when you compare this half to the first half of pre-COVID 2019. Whilst these numbers exclude Melbourne Central, the sales growth is strong with portfolio center sales up 5% and total specialties up 6.5% on 2019. At estate level, our New South Wales assets were the standout, up 5.9%, and Casuarina also performed well, up 4.8%, again, when comparing to 2019. Melbourne Central has benefited from the return of students and office workers during the first half of '21. However, CBD recovery is still protracted. Looking at sales in more detail. Whilst there are a few retail categories that are still being impacted by government restrictions, including cinemas and travel, of our major stores, discount department stores were the winners with an exceptional performance up 13.5%. It was our entertainment-based retailers driving the growth in the other retail category, up almost 24.5% from brands like Timezone and Strike Bowling, again, emphasizing our customers craving these experiences outside of the home. Across the categories of general retail, leisure and technology, the successful opening of new retail concepts like the LEGO Store have contributed to this higher sales growth, joining the powerhouse brands of JB Hi-Fi and Rebel. Importantly, our fashion category, which houses the majority of our omnichannel retailers, experienced a solid return to sales growth, up 6.9% for the half. Now turning to Slide 32. And whilst online has certainly benefited during the periods of restriction, what is illustrated on the graph is that online remains a very small portion of total retail spend and that physical retail sales continue to grow as customers return to our -- shopping at our assets. Evidence to this was Highpoint, where in April this year being the first month where our portfolio was not affected by any government restrictions, the center was 9% up in total sales compared to April 2019. And this was particularly pleasing given April was the first month without JobKeeper. This is a clear indicator of the importance of the role of a physical store on how brands connect and transact with their customers. This was recently reinforced by an analysis from Urbis, which shows that physical store facilitate over 1/3 of all online transactions. We continue to see those retailers who have successful omnichannel networks winning customer preferences. Now turning to Slide 33. And what is exciting about the high level of leasing activity is that we've transacted with over 90 new brands opening for the first time in a GPT center progressively throughout '21. Retailers are continuing to grow their businesses with an increasing investment in new store concepts as well as dominant brands upweighting their existing footprints to create flagship stores. And there are some examples shown on the slide across both Highpoint and Melbourne Central. This retailer remix is continuing to ensure our assets remain compelling for our customers and will deliver incremental sales as well as contributing positive valuation growth. Now to Slide 34. Our portfolio includes some of Australia's leading retail assets that continue to provide opportunities for growth and outperformance. Rouse Hill continues to outperform, delivering an 11.3% total return for the last 12 months, maintaining 100% occupancy and with our specialties enjoying double-digit sales growth, now trading at around $11,000 a square meter. The asset's performance is underpinned by an affluent growth market and continued government investment in the region. We remain committed to the development opportunities at Rouse, which will capitalize on the strong retailer demand and growth markets whilst delivering both additional retail GLA and residential apartments to the site. This will be a fantastic mixed-use development. We're currently working through authority approvals on a revised scheme and plan to commence the development in the second half of next year. Highpoint continues to reaffirm its positioning as one of the country's leading retail assets, dominantly located in a significant growth market of Western Melbourne. Over the last few years, there's been considerable repositioning investment, proactively rightsizing David Jones and Myer and replacing the existing Target store. These strategies have allowed us to introduce in-demand retail brands like a new Kmart and a second full-line supermarket with Coles, in addition to Waterman's coworking facility. Highpoint will continue to evolve as a leading retail destination whilst also providing an additional investment pipeline to drive outperformance. Last year, plans were lodged to secure mixed-use development opportunities on the center's significant land holdings. This will potentially result in an additional 150,000 square meters of commercial and residential space and create capacity for 7,000 residents and an incremental daytime population of 10,000 workers. Sunshine Plaza is well positioned to capitalize from its dominant location in Southeast Queensland, benefiting from strong population growth and significant ongoing government investment in the Sunshine Coast. The asset is performing strongly post the major redevelopment with center MAT growing to $680 million and specialty sales up 20%. The sales growth and increasing customer visitation are fueling retailer demand as the asset continues to attract first-to-market retail brands, reaffirming its position as the leading retail asset in the region. Now to Slide 35. GPT has a high-performing retail portfolio with $8.4 billion of assets under management, including some of Australia's most productive assets. The high level of leasing activity reinforces the demand by retail groups for physical store networks to transact with customers and to open new retail concepts. We've been on the front foot responding to customer trends and investing in our assets to ensure they remain the preferred choice in their markets for both the customer and retailers. We remain excited about the opportunities to deliver on our mixed-use development strategies, which will only strengthen asset performance by providing incremental customers to our retail assets. Whilst we navigate through this current period of uncertainty, we do anticipate a similar rebound as previously experienced once restrictions are eased. This will be assisted by favorable economic conditions such as high levels of household savings and low interest rates, which will provide ongoing support for the retail sector. To close, I'd like to thank the entire GPT Retail team for their incredible efforts in ensuring our customers are welcomed in the most safest possible environment, allowing our retailers to thrive. I'd now like to hand over to Nick Harris provide an update on our funds management business.

Thank you, Chris, and good morning, everyone. Our funds management platform has significant scale with $13.5 billion in assets under management and 70 institutional investors. We recorded 4.7% growth in assets under management over the past 6 months, driven by acquisitions in the GPT QuadReal Logistics Trust and the development progress in the GPT Wholesale Office Fund. Funds management has once again made a material contribution to the group, representing 7.9% of earnings for the period. As Bob mentioned earlier, we are pleased to have progressed our strategic capital partnership in Logistics with QuadReal Property Group out of Canada. This partnership is consistent with our dual strategic priorities of growing the Logistics portfolio and expanding our funds management platform while leveraging the group's extensive real estate capabilities. This is a new relationship with QuadReal and is our first foray in the logistics sector in funds management. As at 30 June, we'd committed $346 million in this partnership. And it represents 3% of our assets under management in the funds management business, complementing our existing funds platform in the office and retail sectors. Turning to Slide 38. The GPT QuadReal Logistics Trust is a 50-50 partnership announced earlier this year to create a prime Australian logistics portfolio. We've already committed 53% of the initial $800 million target across 5 deals in Melbourne and Brisbane. We are pleased to announce that this commitment has now been increased from $800 million to $1 billion. GWOF is the largest wholesale office fund in the Australian market with a $9.3 billion portfolio. The fund remains very attractive to domestic and global institutional investors due to its scale, high-quality assets and ESG leadership, including having all of its assets operating carbon neutrally. The fund's development pipeline is progressing well with the completion of Queen & Collins in late June and the commencement of the new office development at 51 Flinders Lane later this year. In addition to these 2 Melbourne projects, GWOF has another 4 asset creation opportunities in planning stages on land it already owns in Sydney, Parramatta and Brisbane. These existing development opportunities have an estimated end value of over $3 billion and would increase the size of the portfolio by 1/3. The GPT Wholesale Shopping Centre Fund strategy is to create value and drive performance from the existing assets and from their land banks. A mixed-use strategy is being activated across the majority of assets. Chris has already outlined the exciting mixed-use potential of Highpoint. Northland in Melbourne sits on a 19-hectare site, where a plan is being progressed for a new intercity community that could house some 3,500 residents and 6,000 workers adjacent to the parklands and the La Trobe education precinct. Macarthur Square also has large land holdings of 26 hectares and is located in one of the fastest-growing regions in Sydney that is benefiting from major infrastructure investment. The Macarthur master plan could ultimately allow for some 7,000 residents and 10,000 workers. These mixed-use opportunities provide significant scope for adding value to the fund's portfolio over the longer term. In summary, we are well placed to further expand our funds management platform with our focus on fully investing the QuadReal capital partnership in Logistics and further progressing the development pipeline in GWOF. I will now hand back to Bob to provide his closing remarks.

Thanks, Nick. So in summary, we saw a strong recovery in the first half, and this has been reflected in the FFO and distribution delivered over the period. Recent COVID-19 restrictions have obviously changed trading conditions. But fortunately, our experience is that foot traffic and retail sales recover quickly when restrictions are lifted. Office leasing activity will also strengthen when businesses return to the CBD office environment. The focus from governments to accelerate vaccinations across the country is welcomed as this should lead to a more sustained recovery and reduce the need for restrictive measures being in place for an extended period, as currently being experienced in Sydney. Continuing to grow our Logistics portfolio through development and acquisitions is a priority for the group. We are of the view that the strength of demand in the sector will continue to be a tailwind for some time to come. We have 4 logistics developments that will complete this half, and we will continue to accelerate the build-out of our Logistics development pipeline over the next few years. Growing our funds management platform and capital partnerships also remains a focus for the group. The increased capital commitment for the QuadReal partnership provides further growth potential, and our office fund has a significant development pipeline that will be progressively delivered. We will continue to drive leading performance in sustainability and deliver on milestones to achieve our industry-leading 2024 carbon-neutral target. Our balance sheet gearing remains modest, providing ample capacity to fund the group's development pipeline and other acquisition opportunities. Over the weekend, we secured an exclusive position to acquire a portfolio of long WALE logistics, industrial and office assets for approximately $800 million, and we will commence a 6-weeks due diligence period in the coming days. An acquisition of the portfolio is consistent with our strategy to increase capital allocation to the logistics sector and provides the potential opportunity to expand our funds management platform in the future. However, I note there is no certainty at this stage that a transaction will be completed. The buyback we announced in February is not currently active, with our preference now to invest in the group's development pipeline and other potential growth opportunities that are consistent with our strategy. Given the ongoing uncertainty in terms of the duration and nature of the COVID-19 restrictions, we are not providing full year guidance today. However, I am confident that we will see a strong recovery and a return to the favorable trading conditions experienced in the first half once restrictions are lifted. That concludes our formal remarks, and I'll now hand back to the operator for your questions.

[Operator Instructions] Your first question comes from Lou Pirenc of Jarden Australia.

Bob and team, a few questions for me. First of all, can you just talk a little bit about current trading in -- and particularly in Retail? I know we're only 6 or 7 weeks into the lockdown, but just to give some indication about gross collection and what you expect if this continues for the rest of the year.

Thanks, Lou. Were you asking about rent collection? Is that what you're asking about when you said trading?

Yes. And in Retail, particularly. I mean, any kind of current trading around retail would be helpful, sales, rent collection.

Yes. Okay. Look, most of our centers are being impacted by COVID-19 restrictions, particularly in New South Wales and Victoria at the moment. And so only essentials can really trade out of our centers. We do have some stores or quite a number of them that are just doing click and collect as well. But clearly, foot traffic, everything's quite low across the board. In terms of cash collection, you saw -- I think we mentioned in the presentation, we did mention it was 81% was the cash collection from retail in the July -- the month of July. That's clearly down from where we saw it in June and May. But still, it's nowhere near the lows that we saw when we first went into restrictions in 2020. It's a little bit premature to give you too much color on August. Cash collections are coming in, but it's fair to say it's probably tracking a little behind where we were in July at the moment.

Great. And then secondly, just on this, as you called it, due diligence. I mean, if you are successful, is that planned to go into the QuadReal partnership? And how do you plan to fund that? Maybe linked to that is kind of given the uncertainty that stops you from giving guidance, how comfortable are you -- or where are you comfortable to take your gearing?

First of all, we see the acquisition of the portfolio clearly in line with strategy for the group. It's a quality portfolio with a long WALE of 9 years. It's got limited expiry over the next 4 to 5 years. And what we see has got a very strong tenant covenant that sits behind it, fixed increases at sort of 3.1%. So there's a lot to be attracted to for the portfolio. We see it as a balance sheet acquisition rather than going into with QuadReal. The QuadReal partnership is much more focused on development-led opportunities. All the activity we have done with them is really being development-led to date, and we think that will continue to be the case with the QuadReal partnership. So we're expecting for this to go on our balance sheet, this portfolio, if we do conclude the transaction. Clearly, it would be very accretive from an earnings perspective. We'll be funding it with debt, and we'd expect the cost of that debt to be less than 2%. So it would be quite accretive. The average yield -- initial yield for the portfolio would be 4.4% to 4.5%. So we're quite attractive to the portfolio.

Your next question comes from Stuart McLean of Macquarie.

First, a couple of questions just on office, so maybe for Matt. The 12% expiries by income in FY '22 and 17% expiries in FY '23, are you just able to discuss kind of how you're looking to forward solve that today? It seems like that's a pretty big hurdle you need to go over in the next couple of years.

Thanks, Stuart. It's Matt Faddy here. With regard to the expiry that we have in 2022 and 2023, we are already actively working on those, as you would expect. We've already mentioned to the market that at Darling Park 1, which is one of the expiries that are coming up at the end of next year, is 1 of 3 tranches that CBA occupy in that Darling Park precinct. We are well advanced actually in discussions with a potential tenant who will take out the majority of that 17,000 square meters. There's work still to go on that, but we are seeing very good interest in that space. The other larger space is the QBE expiry at 60 Station Street in Parramatta. So we have moved QBE from 60 Station Street into 32 Smith. That lease doesn't expire until next year at 60 Station Street, but we have early access to that because they've now opened -- commenced operations at 32 Smith. And we -- the 9 floors that we are taking back, we've leased 1 of those, and we've commenced our marketing campaign to see the rest of that space leased up as well. They're 2 of the larger spaces that we are looking to deal with. We're also in renewal discussions with a number of the other customers and tenants that are in the spaces, and we look forward to being able to provide some positive news on that over the next 6 months.

Okay. And then maybe just also sticking with leasing conditions in office. You did say you're going to start launching 51 Flinders Lane. Is there a precommit there? And just given the limited lease up of 32 Smith Street or the other development in Queen & Collins, what gives you confidence that the market is there to launch a new office development?

Yes. Thanks again, Stuart.

Sorry, Matt. I'll start. It's a bit clunky. Sorry, guys, we are in different locations, all at home. Just on the Flinders Lane development, it will be speculatively developed. It doesn't finish until 2024. It's actually got quite a long duration build program. They're all quite small floor plates. And what we've really seen is that there is this strong inquiry from boutique firms, software companies, professional services firms, et cetera, all those smaller floor plates. And we're seeing quite a lot of demand, and that's coming through in the leasing that we're doing at Queen & Collins. So that gives us confidence that there is a deep enough market to actually progress this, but those sorts of tenants don't really commit until quite close to the end. So we weren't trying to seek a large tenant precommit. As I said, they're all smaller floor plates, and we expect to get that underway at the back end of this year and finishing in 2024. And on our projections, we do think we'll see the worst of, I guess, the -- we'll see positive momentum in the office market well and truly by then. So...

Can I just take a follow-up on that positive momentum? Is that a comment on incentives, for example? And maybe another question there. Do you think incentives have peaked and they'll start to trend lower from here? Or what's your outlook there on incentives?

Matt, can you answer that, please?

Thanks, Bob. Thanks, Stuart. We're seeing incentives in Sydney and Melbourne around that 32% to 35%, Brisbane around 41%, which is consistent with where we have seen incentives over the past, well, 8 months now. Face rents are holding, maybe even some upside in face rents. But our expectation as far as incentives are concerned across the markets, particularly Sydney and Melbourne, is that we expect vacancy to peak over the next 6 to 12 months. And as vacancy starts to come back down, we're also expecting that incentives will follow suit and come back down as well.

Okay. So recovery kind of 6 to 12 months out. And a final question for me. Just on the Logistics NPI, it was up 0.5%, I think, half-on-half. You acquired circa $130 million worth of assets towards the back end of last year. There's been a little bit of development. Is that the handbrake there, just the occupancy move from 99% to 97% over the last 6 months? And what's the outlook for occupancy, please?

Thanks again, Stuart. The -- yes, so we have fixed increases through that portfolio of over 3%. There is the impact of the vacancy, which is predominantly 2 assets in Somerton which we're in a joint venture on. And that's what's brought the like-for-like down to 1.8%. We do expect to see the Somerton lease up through the rest of this year. We are seeing very strong demand vacancy levels in Sydney and in Melbourne, as I said earlier, below 2%. Take-up is running the -- double the 10-year average at the moment. So we are seeing very strong demand. We expect occupancy will remain pretty high in our portfolio.

Your next question comes from Sholto Maconochie of Jefferies.

Just a few follow-ups. It's a good result, but you sort of expect that given the lack of COVID impact in the first half. I appreciate you withdrew your guidance. But can you sort of give some color around what it means for you going into the second half in light of Vic's Code of Conduct and more recently the New South Wales' Code of Conduct on retail, given retail's still 39% of the portfolio with 41% in New South Wales and 44% in Vic? Sort of how that impacts your year and what sort of assumptions you're assuming for assistance this year, if you can?

Thanks, Sholto. It's Bob here. I might just commence with a few comments, and I might ask Anastasia to speak to it as well. But first of all, as you know, 60% of our business is in office and logistics, and we don't expect the COVID restrictions to have any material or significant impact on that. Clearly, it is sort of stopping some of the leasing inspections, et cetera, at the moment. So that has slowed over the last few weeks. We are still seeing inquiry, but it's a bit hard to get the inspections done, et cetera, at the moment. So that has slowed a little, but we don't really see too much impact for those 2 sectors. So it's really our retail sector that's going to be -- well, is being impacted. Clearly, we saw rent collection fall in July as retailers were not trading and, I guess, concerned about what the outlook might be. So it came down to 81%, as I mentioned before, and is tracking a little lower again in August. What we have seen is the government just on Friday in New South Wales announced the Code of Conduct, which does require landlords like ourselves to provide SME tenants less -- and SME is defined as less than $50 million of turnover a year, provide them with a proportionate reduction in their rent. So if they're down 30% in their rent -- in their turnover, you have to provide a reduction of 30%. But that 30% is broken into a waiver of 15% and then a deferral of 15%. So we are...

The same as the previous Code of Conduct, basically.

Yes. It's very, very similar to that. We are able to offset in New South Wales up to the full amount of land tax. So we're able to offset some of that against land tax. So the government will give us some offset, but we're still working through that with our tenants at the moment. I might just ask...

And what -- in [ materiality ], what is the land tax, Bob, on -- what do you pay on Retail land tax typically in a given year?

I actually don't know that number off the top of my head. Do you, Anastasia?

Yes. We -- land tax in Retail, say, in Victoria would be around $2 million and similar level in New South Wales but just a little bit less because we haven't had the hikes that we've had in Victoria for land tax in retail. So we'd expected around $2 million, I believe, in New South Wales. So to add to Bob's answer around withdrawal of guidance, it's really the uncertainty of the magnitude and duration of restrictions. We can't give a pinpoint-type earnings growth guidance because we don't know what scale that will end up being. What we are very focused on is cash collection. And as you can see, the 81% collection in July, slightly deteriorating in August as the lockdowns have deepened, but that's where we're very focused. And it was much higher than what we experienced in Q2 2020, which was as low as 36%. So that's our starting position. We absolutely are going to support our tenants. We want them strong and able to be open when the recovery -- reopening happens, and we've seen that. So it's a short-term impact, but it does mean we had to withdraw guidance for the second half.

Understood. The $50 million sounded a bit generous for an SME. It doesn't sound like an SME. But on the next question, so I'll just ask on portfolio, if you just do the back the envelope, your gearing sort of goes to 28%. Plus you've got obviously a bit of development CapEx that you're funding with industrial. Would you look at any asset sales? Are you flagging -- I think you had a shopping center you were looking at? Or could you elaborate on that? Or are you comfortable with gearing going to that sort of high 20s, 30%? Can you sort of elaborate on that?

Thank you, Sholto. We've always said that we have a gearing range of 25% to 35% and that we want to be using the balance sheet strategically after the business. So we're very comfortable with moving into the midpoint of that range. So we don't -- we're not flagging any asset sales at the moment, put it that way.

Your next question comes from Grant McCasker of UBS.

Just some questions on the Retail portfolio. Did you collect any rent that you sort of impaired or not in the prior year for this half or collected more rent than you'd anticipated?

I'll ask Anastasia just to answer that.

Thanks, Grant, for the question. So we commenced the year with $32 million outstanding debtors in Retail from December 2020. We've obviously built our gross rents to tenants. We have to give some COVID relief. So we've given $11 million of COVID relief during the 6 months. And then of the outstanding cash collectible, we've collected 104%. So overall, we've reduced our debtors by $10 million of cash through that overcollection, which is great. And at 30 June, we have outstanding $22 million to collect, which obviously we've turned our minds to impairment, et cetera. And we don't think it's a material number. And we do believe that's collectible.

Okay. And then maybe can you give a bit of a guidance to -- so you gave Highpoint as a case study to say that things returned back to normal in April. How did the rental billings compare in April, say, 2021 versus, say, 2019? Just trying to get an underlying run rate of -- as things return to normal, what it looks like.

There was -- there's no difference other than the fixed rate rent increases, et cetera, and a bit of vacancy movement in April 2021 month versus April 2019. There's no COVID relief in that month.

Yes. I guess what I'm trying to get at is once you take into account a bit of vacancy, resetting of rents, trying to get an understanding of where the underlying run rates are for Retail could be sitting for an asset like that.

We would expect that we will get full recovery on the Retail income once we get back to full operating conditions. Clearly, we've had some negative leasing spreads, but we are getting strong rent bumps still in our Retail portfolio that is causing us to have our performance intact with what we were experiencing in 2019.

Your next question comes from James Druce of CLSA.

Bob and team, firstly, just wanted to understand what market rent growth is in industrial valuations at the moment. And can you contrast to that in what you're assuming for Ascot?