The GPT Group (GPT) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the GPT 2024 Annual Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Russell Proutt, CEO and Managing Director. Please go ahead.

Good morning to everyone who's joined our 2024 full year results call. Today, I am joined on the call by the GPT executive team. I would like to start by acknowledging the traditional custodians on which our business operates. We pay our respects to elders past and present, and honor our responsibility for country, culture and community in the places we create and how we do business. It was a year of delivering results while recalibrating our strategy. We achieved our earnings and distributions guidance of $0.32 and $0.24 per security for the year and have made meaningful strides in moving the business forward. We ended the year at nearly 99% occupied across the portfolio, achieved 4% property income growth on a like-for-like basis while maintaining our solid capital position. And the management platform's assets under management ended the year at $34 billion. Turning to the GPT platform. And as illustrated, our platform's foundation is very strong. We have scaled operations across retail, office and logistics. Our operating metrics are excellent with very high occupancy, supporting income security and reflects the attractiveness of our portfolio to tenants. In particular, I would like to call out the improvement in our office portfolio occupancy, a testament to the hard work and capability of the office team. Our Funds Management segment is positioned to grow with existing partners as well as through the introduction of new institutional investors to the platform. On the next slide, we have highlighted some of the past year's important milestones and achievements. During the year, we set our ambition to be the leading diversified real estate investment manager in Australia and clarified our strategy for achieving this aim. We delivered excellent financial performance and have set up the platform for success. We've assembled a deep and highly capable senior leadership team. We reallocated and prioritized resources to the growth areas of the business. We refined the incentive systems to align with the value creation objectives for security holders. This included establishing a multifactor group scorecard to assess performance once the FFO gate threshold has been met. We introduced how we use capital into our LTI criteria through a new multiyear AFFO growth measure. And we facilitated the opportunity for increased employee ownership through remuneration investment programs. While it is still early days, we believe there's been a clear demonstration of the strength of and potential for GPT to create and deliver value to stakeholders. Looking forward, we have set the path for the business. We will source growth capital, transition our investments from direct property to co-investment stakes which will drive growth and enhance return on capital. We expect to be capital raising on multiple fronts and across all sectors this year. We will continue to drive platform performance. Our assets and portfolio must drive superior returns for our investors. To achieve the same, we must have a relentless focus on value for our tenants, combined with the effective employment of capital across the business. We will also be active investors. We have significantly enhanced our investment capability with additions across capital transactions, corporate development, investor relations and research. This deepened capability will enable us to actively originate, underwrite and execute transactions in volume and across the spectrum of complexity. I will now hand over to our Chief Investment Officer, Mark Harrison.

Thank you, Russell, and good morning, everyone. Looking at our portfolio valuations, our portfolio experienced a 5.6% decline in value in 2024. However, this was primarily driven by first half valuation movements. The strength of our retail portfolio continued with annual valuation growth of 2.7%, driven by stable capitalization rates and strong operating fundamentals. Our office portfolio saw a decline in value of 16.8% for the year, resulting from both weak income fundamentals and a softening of capitalization rates following a reemergence of transaction activity. We continue to see evidence of the fragmentation of office valuations with prime grade assets stabilizing and experiencing net effective rental growth. The strength of industrial market rents were offset by a softening of logistics capitalization rates with the portfolio value largely stable for the year. Prime industrial capitalization rates have remained well supported by investment activity and we continue to see positive leasing spreads. On the following slide, we illustrate the execution of our investment strategy, employing a disciplined approach, including surfacing balance sheet capital for reinvestment alongside our capital partners. It is important to note this example is illustrative only and not intended to represent a forecast or a target, but rather to demonstrate the potential AUM growth possible. Assuming $8 billion of balance sheet proceeds are reinvested as a 20% co-investment on all new and expanded products, GPT AUM could grow to greater than $85 billion. Illustrative AUM growth opportunities can be contextualized with a $1.2 trillion existing investable universe, a further $22 billion market development pipeline and annual transaction volumes of $35 billion. This growth is possible through expansion of our existing investments in retail, office and logistics as well as new and emerging investment classes. These emerging investment themes support our ambitions to grow, renewed liquidity for real estate, coupled with elevated replacement cost values and rising economic rents provide a compelling case for market fundamentals to support rental growth. We will maintain a flexible yet disciplined investment approach to deployment across different sectors and risk profiles based on market opportunities, relative value and a thematic framework all while employing an owner's mindset. Our focus on creating long-term shareholder value will guide our growth ambitions, ensuring our co-investments are driven by return on capital. Turning to sustainability. ESG considerations are integral to our operations and investment strategies. All ESG activities are aligned with our strategy to enhance our competitive position. An important priority is the energy, water and waste associated with the assets we own and manage. This focus aligns with the nature of the businesses we are in and governs our resource allocation. As you can see across the business and in each of our core sectors, meaningful achievements and standards of performance have been maintained. Our commitment is to deliver sustainable value to our investors. I will now hand to Merran to go through the financial results for the full year.

Thank you, Mark, and good morning, everyone. I will commence on the 2024 earnings drivers slide. In line with the half year, we are now presenting our earnings drivers to disclose FFO from management operations, which we expect will increase as a percentage of FFO over time. For the period, management operations contributed 9.8% of FFO, and our co-investment earnings were 12.8%. FFO from our direct property investments totaled 75%, comprising retail of 31, office of 23 and logistics of 21. Now turning to the segment results slide. Overall, we have seen an increase in total investment portfolio and management FFO for the year of 4%. However, this was partially offset by a 6% increase in finance costs, resulting in an overall increase in FFO of 2.6% to $616 million. Our retail portfolio income grew 4% or 5% on a like-for-like basis driven by rent reviews and positive leasing spreads. The like-for-like income growth for the office portfolio was 2%. However, due to the timing of lease termination payments in the prior period, the headline result shows a decline of 3% in income. Strong underlying growth across the logistics portfolio from positive leasing spreads and structured rent reviews resulted in a like-for-like income growth of 6%. However, this was offset by lost income from divestments resulting in flat earnings growth for the period. Income from funds was down 3%, primarily due to higher interest costs. 14% higher earnings from management operations were achieved due to a full period impact of new mandates, partially offset by asset devaluations. We continue to exercise prudent cost control with corporate costs down 4%. Trading profits realized in line with our guidance at the half year of circa 3%. This is expected to be approximately half this in 2025. AFFO is down 4% on prior period due to higher maintenance and leasing CapEx, which in line with expectations. Given the timing of some of our recent leasing deals in office, our expectation is for elevated CapEx again in 2025. Turning now to our financial position. Our balance sheet remains strong with net gearing of 28.7%, which is in the middle of our stated range of 25% to 35% and provides material headroom to our 50% covenant. We continue to take a disciplined approach to capital management. We have no unfunded capital commitments with $1.1 billion of liquidity, and we continue to hold our A- S&P and A2 Moody's ratings. Our weighted average cost of debt was 5% at the year-end. Our expectation is that this will be in the mid-5s in 2025, and we are currently 77% hedged. I will now pass to Chris Barnett for an update on our retail business.

Thank you, Merran, and good morning, everyone. 2024 was an exceptional year for GPT's Retail business. Our assets have benefited from a strong domestic retail economy, consistently outperforming in terms of sales and income growth. Our retail platform continues to expand, now comprising 17 shopping centers totaling $14 billion of AUM. These centers, which are owned or managed by GPT have over 4,300 retail partners, generating $12 billion in annual retail sales. Whilst not represented in these results, we were delighted to have settled on Perron partnership on the 31st of January, adding 2 premium assets in Cockburn Gateway and Belmont Forum which complements our current portfolio whilst adding a further $1 billion in AUM. These assets give us scale on the west, allowing us to continually improve on the operating efficiencies of our platform. Our investment portfolio has delivered comparable income growth of 4.9% for the year, predominantly as a result of strong rental growth and rent reviews. Our centers continue to perform strongly with total center sales growing 4.3% and our specialties up 4.9% when compared to the very productive 2023. Total specialties have also grown with fresh food, dining, leisure, health and beauty, all benefiting from higher customer demand. GPT has curated the most productive portfolio in the country with our June '24 specialty sales achieving $13,000 a square meter. The quality of our portfolio and the strength of our sales has seen specialty sales grow a further 1.5% since June and now are over $13,200 per square meter. Melbourne Central continues to grow strongly and was recently announced as the most productive Big Gun center in Australia. We're also delighted to note that our newly acquired Belmont Forum is the largest little gun center in the country with sales in excess of $480 million compared to the next best center at around $400 million. The addition of the Perron portfolio will add to the overall productivity of GPT's investment assets. Our leasing teams continue to achieve positive results, maintaining a portfolio occupancy of 99.8%. And with strong center sales, our assets have a specialty occupancy cost averaging 15.8%. The combination of specialty sales growth and strong retailer demand has resulted in positive leasing spreads of 4.2% for the deals concluded for the year. And for those deals completed, all were structured with fixed base rents and annual increases of 4.9% and our lease terms have continued to average over 5 years. Now looking at the drivers of the retail platform. And as stated earlier, our June '24 half year results were market-leading, and we were optimistic that we could continue our outperformance for the remainder of '24. We are pleased with the full year results, and we maintain our optimism leading into '25. Our leasing metrics will continue to be positive as there is limited new retail GLA supplier to a market that is underpinned by strong retailer appetite to expand. Our Rouse Hill development will commence in the next couple of months, and we have entered into a construction contract with our preferred builder [ AGCO ] The 10,000 square meter development will allow the asset to introduce an expanded retail offer which is aligned to the needs of a fast-growing trade area. Melbourne Central has achieved its development application to expand the center's entertainment, leisure and dining offer and the team is actively working towards a commencement in 2026. Overall, our outlook for '25 is positive. Our assets are in great shape, and our quality portfolio and operating platform is well positioned for future growth. I'll now hand you to Matt for the office sector update.

Thank you, Chris, and good morning, everyone. In relation to the GPT office management platform, despite challenging market conditions, the size of the platform has grown over the past year to now total $14.2 billion of assets under management. Breaking this down further, the total office portfolio comprises $3.6 billion in direct property interests and an additional $10.7 billion of funds under management spread across funds and mandates. We maintain a strong focus on active portfolio curation. And in keeping with this approach, GWOF strategically divested 655 Collins Street, Melbourne, and the 155 Walker Street, North Sydney development site in the second half of 2024. In relation to investment portfolio performance, we have had a very successful year in the leasing across our national office portfolio. In 2024, we achieved the highest level of leasing volume we have seen in 5 years, executing over 202,000 square meters of new leasing, including heads of agreement across 147 deals. Pleasingly, deals for customers above 3,000 square meters make up more than half of the total leasing volume for 2024. Our 2024 leasing volume reflects a 50% increase compared to this time last year, and translates into approximately 20% of total portfolio NLA leased by area. As a result, portfolio occupancy has increased to 95%, with like-for-like office income growing by 1.9% during the year due to our strong leasing result and structured rent increases. Looking forward to 2025, the team has already made solid early leasing progress, successfully dealing with approximately 30% of at-risk income in this calendar year. While the team is actively addressing the portfolio's current 5% vacancy rate, we remain focused on proactively working through larger long-dated forward expiries in 2026 and 2027 throughout the course of this year. In relation to forward-looking growth drivers, we are now seeing the formalization of return-to-work policies amongst larger space users following the rightsizing of space requirements for these organizations post-COVID. This, coupled with increased levels of demand for high-quality office space and a reduced forward supply pipeline will place GPT in a strong position to benefit from improved office market fundamentals moving forward, given our high-quality modern portfolio. Additionally, office capital market activity is anticipated to increase in 2025 as leasing market conditions continue to improve and valuation metrics stabilize. As investor appetite for Australian office investment accelerates, we will maintain a strong focus on executing our platform growth strategy through increased capital partnerships with like-minded investment partners and new investment product development. I will now pass to Chris Davis to present the logistics results.

Thank you, Matt, and good morning, everyone. The logistics platform has delivered excellent results for the group and has $4.6 billion under management. Our 69 investment assets are complemented by a $3 billion development pipeline with sites held in strategic locations across East Coast markets. We continue to see a positive outlook for the drivers' industrial demand, an increasing population base, growing e-commerce and occupier investment into supply chains to drive efficiency. We expect a measured supply response in the market as developers prioritize pre-leasing strategies, supported by low market vacancy currently sitting at 2.5% nationally. Turning to the logistics investment portfolio performance. We have delivered 5.6% like-for-like income growth through leasing success and structured rent increases. Occupancy is high at 99.5%, and the portfolio has a weighted average lease expiry of 5.1 years. More than 70% of portfolio income is generated from ASX-listed and multinational corporations. We're leveraging opportunities to grow occupiers across the group's diversified platform building on our relationships with retailers in logistics portfolio, including Coles, Woolworths, JB Hi-Fi and Spotlight Group. In 2024, leasing of 104,000 square meters was completed with an average leasing spread of 35% achieved. Moving into 2025, our focus is on forward leasing for upcoming 2026 and 2027 expiries. We're already engaging with a number of these customers to secure renewals and achieve income upside with the portfolio estimated to be more than 15% under-rented. Now to growth drivers. We're progressing milestones for our $3 billion development pipeline with the first 2 facilities at Kemps Creek in Western Sydney due to complete in the second half. We also have earthworks underway at a second site in Kemps Creek and in Truganina in Melbourne's West with the build-out of facilities to commence this year. These developments complement our existing investment portfolio. Our assets are strategically located in dense urban areas. With more than 70% of our East Coast assets able to access more than 1 million households within 60 minutes. These locations optimize supply chains by providing access to the greatest number of consumers, in turn, driving tenant demand, rental growth and high occupancy. Underlying market fundamentals are driving continued investor interest in Australian Logistics. In line with the group's strategic priority to grow funds under management, we will utilize our balance sheet portfolio to create products and introduce new capital into the platform. This is an exciting opportunity that will leverage the skills of our team and built on our origination, development and management capabilities to further grow the logistics platform. I will now hand back to Russell to deliver his closing remarks.

Thank you, Chris. Looking forward, we are excited about the opportunities in front of us. We see the economic and industry backdrop to be conducive for investment across the sectors in which we operate. The platform is now positioned with the right people and right resources to execute our strategy and drive earnings growth. Barring unforeseen circumstances, in 2025, we expect to deliver FFO of between $0.325 and $0.331 per security, which is a range of 1% to 3% above reported 2024 earnings. We also expect to maintain our distribution at $0.24 per security, which will be within our band of 95% to 105% of free cash flow. Thank you for your time today, and I will now hand over to the operator for questions.

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

Maybe starting with the trading profits, can you maybe give a bit of color behind that $24 million. I think it's about $20 million for the second half, where that comes from? And then linked to that, what are you including in your guidance for '25 for trading profits?

Lou, it's Merran. In the '24 year, it was predominantly linked to the Sydney Olympic Park transactions that we guided to at the half year. And then in '25, we're expecting trading profits to be about half of what we had in the '24 year.

And then maybe just continuing on the guidance assumptions, what might be are you assuming, I mean, I guess you've given your gearing. So BBSW, just about 3 -- sorry, 4.25.

The weighted average cost of debt, we're assuming in our calendar year '25 guidance is in the mid-5s, Lou.

Right. And then finally, on office occupancy, what would it have been without the heads of agreement in the year? Kind of what's your income -- average income occupancy in '24?

Without heads of agreement, it's roughly 92%.

Thank you. Your next question comes from Simon Chan from Morgan Stanley.

Russell, in your prepared remarks, you talked about expecting to be capital raising on multiple fronts this year. Just wondering do you have at this stage, an early indication for us as to the type of products, the scale or funds or partnerships like any early indication for us, please?

Yes, sure. Across the various sectors, it depends, for example, in office, you probably see more likely an opportunistic type strategy being pursued. In retail, we have a combination of core and core+ discussions underway and logistics, I'd say, a lot more of the focus and engagements around development opportunities, but they range anywhere from the opportunity in front of us, for example, in the shops fund that has performed so well to bespoke stand-alone partnerships. So I'm not going to give you a volume level, but there's engagement and discussions across all of those right now.

Right. And so you said you will be raising new money like new money will be coming in through the door, right? It's not based around hope or anything like that at this stage?

Well, we are hopeful, Simon. But I would expect that we have a reasonable expectation we'll be able to raise incremental capital into the business this year. We haven't put a number out there because when you're dependent on third parties for those decisions, and we've gone through a period where it's been relatively difficult to raise capital, and we see improvements on that front, but we are optimistic for '25.

Cool. And when you did your GWSCF fund modernization, my understanding is there was a provision for some up-front liquidity, which was to take place around early this year. How is that going?

It's underway right now. There's a series of activities. You saw the fund actually rebalanced its portfolio to have a -- had a heavy weighting to Victoria with its high point exposure, and it was able to add a 50% interest in Rouse Hill, which is a great asset for them to hold and hopefully raise capital against. But there's also some relatively low gearing in the fund and some initiatives underway to satisfy that demand. But we think it was a very -- it was a great success for the fund and great for investors.

You're not expecting any material, I guess, redemption at this point in time?

There was a redemption request. It was capped at 20% going into December, and those have been received, and we're working through them right now.

The next question is from Solomon Zhang from JPMorgan.

Maybe a question for Merran first. Just on Slide 13. Just looking at the corporate costs. They're down 4% year-on-year, 5% half-on-half. Could you just talk to the drivers for that? Is it sort of outright headcount reduction? Is there just a timing issue with sort of exits and hires? And how do you expect that to evolve over the next year or so?

Yes. Look, corporate costs, there is a little bit of headcount reduction. We did have a restructure of the IT team in the first half of the year. And corporate costs, apart from that, remained pretty stable, and we do expect them to continue to be consistent with calendar year '24 in our guidance in calendar year '25. I think the key change you will see is within categories within our corporate costs where we're reallocating our cost base to align with our strategy. But overall, I would expect them to be the same into calendar year '25.

And you are right. So just to add to that, there's a level of delay in some of the new hires that have come on that haven't been in for the full year.

Got you. Second question, you used to disclose the cost of debt for your wholesale fund. So I think end of '23 GWOF was 5.3%, shopping centers fund was about 5.8%. Could we just get an update on where those interest rates are today and maybe how you expect them to evolve over the next few periods, just given it does have a material impact on FFO?

Yes. The cost of debt for the office and shopping center fund is around 6.1%, and we expect that to increase. So that was calendar year '24 and expect it to increase into calendar year '25 by about 40 basis points.

Right. So 6.5% cost of debt. I'm just trying to reconcile that to where the BBSW is and where your margins would be, it seems quite high.

Let us come back to you on the detail on that. It would have to be -- it won't be on the margin. It will be on the hedge book profile, but let us come back to you on the detail.

Yes, that's right. It's in regard to the hedging, I'll come back to you.

Yes. And maybe just a final one, just on GWOF, any updates you can provide on just how your discussions are going on in terms of the modernization process. And yes, I just the prospects of retaining that AUM within the platform?

Look, we're working with the investors. Obviously, we put up a similar proposal as we did on the Shops fund in November, which got voted down. And just for context, to get that approved needed 75% of those that voted outside of the GPT holdings, the greater majority of investors by number voted for the modernization, but then some larger holders were not supportive. So we are actually working through that process with all the investors to see what the best outcome can be for the fund heading into the '26 liquidity event, but that's ongoing. So I can't really speak beyond that. But we did -- with the work that was done in '25 was not for not. It was actually a very good engagement, and we're working toward other solutions as well rather than just waiting until '26 occurs.

The next question is from Tom Bodor from UBS.

First one, just on the strategy around sort of becoming more asset-light. I'd just be interested in how you're sort of thinking about balancing sell-downs sort of balance sheet assets and raising third-party capital with potential near-term dilution as you sort of move that's sort of probably Slide 9 that I'm talking about there. What's the sort of balance there? And how do you -- how long do you think it takes and that sort of thing?

Yes. Well, it's going to take time, obviously. And again, we knew this would catch the eye, this slide and is intended to be illustrative. But everything is around value, Tom. Like if there's some short-term adverse impact on FFO and its accretive long term to value, that is something we would obviously weigh heavier toward the value equation. But I think we can execute in a method on a basis that will actually support the continued delivery of guidance or else we wouldn't have put the guidance out there. So we will be balanced in how we execute. It will be disciplined, and we're well aware of the potential like short-term impacts versus long-term impacts as we go and execute. But I think we're pretty comfortable with the plan we have. I think one of the biggest things we have to be also focusing, and that's one of the reasons for the slide was around reinvestments a fundamental key element of actually replacing those earnings as we introduce new third-party capital onto our balance sheet.

Great. And then just on the office space, just be interested in where you'd expect the sort of range of outcomes on like-for-like growth into '25 given forward starts on many of the leases and downtime across the office portfolio.

Yes, thank you for the question. Our anticipation is we'll see an increase in that like-for-like income growth as those leases that we have now signed or in heads become rent paying through the course of '25.

But the majority of the leases, where do they start early in the calendar year? Or are they -- is it staggered throughout the period?

They're generally staggered throughout the period. Some have commencements in '25 and some actually because we've been forward leasing have commencements in '26.

The next question is from David Pobucky from Macquarie Group.

Just the first one around the distribution payout. How we should be thinking about it over time as the group pivots towards capital structures, please?

Yes, sure. First maybe back up a little bit on the capital-light structure. I don't think you're going to see our asset base change materially. So we'll still have a significant amount of capital, obviously, invested in what we're doing. We'll just have more third-party capital alongside. We -- look, we've been -- there's been a lot of discussion around our distribution levels. I think we'll continue to work within our band of 95% to 105% of free cash flow as we go forward. And until we make a material shift in the composition of the business and the execution of the strategy, I don't think it's prudent for us to really change that policy at this time.

And just the second one around the balance sheet, gearing towards the midpoint of the target range. Maybe if you could just talk to how you're feeling about capacity to deploy from current levels.

Yes. Look, we'll hit a limit if we don't introduce new third-party capital into the business on how we execute our growth strategy. But as you saw on even the parent transaction, which was a fantastic opportunity that we weren't going to let go, we were able to use balance sheet capacity to execute. And we'll continue to do that. Right now, we're sitting on about $1.1 billion of head stock of available liquidity. But we'll stay within our 25% to 35% gearing band because that's the level of what's expected of us, and we want to maintain our A- rating.

The next question comes from Ben Brayshaw from Barrenjoey.

Just firstly, on the trading profits reflected in FY '25 guidance. How should we think about trading profits beyond this calendar year? Do you see this as, I guess, an ongoing feature of the group's earnings and therefore, distributions? Or are you just working out the inventory that you need to exit at Olympic Park and/or Rouse Hill?

Probably a little bit of both, Ben. I think you'll see over the long term, there'll still be ins and outs and -- but the level which you saw in '24, I think, is going to be more of an anomaly. I would expect us to be less than 2% of FFO over the long term, but it will really be situation specific. I'm not going to turn away opportunities to make a profit, but I do think it's a relatively minor part of our outlook. Like even if you look at our guidance for the year, if we backed out trading profits this year and next year, it actually add 100 basis points to the guidance of 2% to 4% rather than 1% to 3%, but we didn't make that adjustment in our presentation.

Yes. Okay. Terrific. And just to your comment on the potential to raise capital, I think you were referencing the shopping center fund. Do you see either the shopping center fund or GWOF as potentially being in a position to raise equity at some point in the next 12 months?

Well, given the performance of the shops fund as being #1 this year across pretty much all sectors and then long term across the retail sector consistently, I think it's a platform set up well for growth. There's a reason why we rebalanced the portfolio with the Rouse Hill transaction. I think it's a very compelling opportunity for investors. We haven't made a decision. The Board has not made a decision to raise capital yet, but that would be, I think, a reasonable assertion or potential for the business. I think the office fund is obviously a little more challenging given where we're at with the timing of the liquidity event in '26 and the state of the sector. But look, there's opportunities in office that we're looking at in the business right now.

So can I just clarify, just is there, I mean, is the intention to clear the redemption queue within the shopping center fund via an improvement in secondary market liquidity? Or is the goal to divest one or more assets to address that overhang?

Both of those approaches will be considered. We also start entering into the year with relatively low leverage in the shopping center fund. When we first had the first EGM last August, we eliminated the preemptive process so that we could facilitate secondary trades, but also potentially servicing some liquidity in the fund to deal with any kind of redemptions is all part of the available options and probably looking at all 3.

Your next question is from James Druce from CLSA.

Just wanted to talk about the maintenance and leasing CapEx for this year. Do you expect the distribution to be covered? And can you give a guide for that OpEx number?

Well, I'll start with -- the distribution is absolutely within the 95% to 105% range. There's no -- it's not outside that range, so I'll confirm that. And then with respect to composition.

James, just in regards to the composition of it, it's about 30% maintenance and 70% leasing. And then if I split leasing out, that's 50-50 fit out and rent abatement in calendar year '24, and we expect that to be the same in calendar year '25.

Yes, sorry, it was more the quantum for this year and whether you'd be paying out more than 100% of free cash flow.

No. As Russell said, we won't be.

More than 100%, not 105%.

We'll be within the range of the 95% to 105%, which we need flexibility given the variability in the calendar year '25.

Okay. And one more, if I may. How much of that leasing CapEx is being deferred into FY '26. Is that another decent year?

I think it's reasonable to assume in '26, there will be some elevated capital expenditure given the timing of the tenancy and occupancy for the office sector.

[Operator Instructions] Your next question is from Yingqi Tan from Morningstar.

I just have a question on the outlook of the office leasing incentives. Do you think we've sort of reached inflection point of the incentives right now? Or -- and what's your outlook on that?

Thank you for the question. We've seen relative strong leasing momentum at the beginning of this calendar year. Obviously, we need to see that convert into leasing. But when you look at the market data, we're seeing positive net absorption across the majority of markets. So I think that has a positive impact on leasing incentives. And the other thing to note with our portfolio, given the occupancy level of around 95%, there's an ability for us to really look more actively at those leasing incentives and continue to test those incentives. And ultimately, our view is on the next 12 to 24 months, we'll continue to see those leasing incentives fall as we see an improvement in market conditions.

Great. And just a second question on the Melbourne Central redevelopment. Just wondering if you have any estimation on the CapEx of the redevelopment and what the time line is on that?

Thanks for your question. It's Chris Barnett. Timing would be that we're looking to commence that probably Q3 of '26. And it's around about $120 million is what we put aside for construction cost on the total project cost on that.

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

Thank you, everybody, for being on the call this morning. I guess, we'll look forward to meeting you this afternoon and throughout the period.