Vicinity Centres (VCX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Vicinity Centres' FY '21 Annual Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Grant Kelley, CEO and Managing Director. Please go ahead.

Good morning, and thank you for joining us for Vicinity Centres' results call for the 12 months ended 30 June 2021. Before we begin, I'd like to acknowledge the traditional custodians of the lands on which we meet today and pay my respects to their elders past, present and emerging. I extend that respect to aboriginal and Torres Strait Islander peoples on the call today. Joining me on today's call are Peter Huddle, Vicinity's Chief Operating Officer; and Adrian Chye, our acting Chief Financial Officer. And I'll start today on Slide 4. 2021 was obviously a challenging year for Vicinity but also, in many ways, a year of solid progress and execution. That being said, our headline financial result demonstrates the heavy toll, which COVID-19 has indeed had on our business. In total, we have provided some $231 million of rental support to retail tenants since the onset of the pandemic. And in many cases, that support extended beyond our regulatory obligations under the respective SME codes. However, while retailer confidence continues to remain fragile, we observed a strong uplift in the number of leasing deals completed, particularly in the second half of the financial year. Retailer demand for our premium CBD centers was particularly encouraging and this further supports our favorable long-term outlook for these assets. And despite the constant disruption to trade for our customers, Australians displayed an overwhelming preference to return to their favorite retail destinations when able. We delivered on our strategy to keep our centers full with 98.2% occupancy, which is up 20 basis points since our interim result. And despite the distractions and challenges, we maintained strong financial stewardship and a prudent approach to capital management. Consequently, we enter FY '22 with the capacity to withstand further COVID disruptions while taking steps to drive a renewed growth agenda, and we will expand on that theme later. Turning to Slide 5, and adding to our cautiously growing optimism is the favorable macroeconomic environment in Australia. Despite the challenges of the past 2 months, the Australian economy has had a strong recovery overall, evidenced by near-record-high consumer confidence, rising house prices, the unemployment rate being below pre-pandemic levels and job advertisements at close to 13-year highs. Additionally, consumers have begun to draw down on the high level of savings accumulated at the height of the pandemic. Turning to Slide 6. And in order to manage the constantly evolving landscape in 2021, we took the necessary steps to ensure our centers remained safe and open. Our targeted support of retailers, which extended beyond the requirements of the SME Code resulted in more than 6,700 COVID lease variations. Adding to this, our leasing executives completed over 1,250 new leasing deals, mostly in the second half of the financial year, which was well ahead of the prior year. Of all new leases, more than 3 quarters were on standard terms of 5% fixed rental growth. Additionally, after strengthening the balance sheet with the equity raise in June 2020, we maintained our investment-grade credit ratings with Moody's upgrading their outlook for Vicinity from negative to stable in June this year. While being prudent with our capital, we nevertheless accelerated mixed-use and retail development planning and approvals to put ourselves in the best possible position to advance high-priority development projects when the market recovers. We also met retailer demand for flagship stores in premium CBD centers as retailers consolidated their networks. Additionally, our recently formed insights and innovation team delivered a data-driven leasing optimization tool, which has already enhanced our leasing capability and provided insights into other key business initiatives. In summary, while we navigated the short-term challenges of COVID, we also managed and planned for the longer term, and I will share our refined strategy later in today's presentation. Turning now to Slide 7, and fundamental to Vicinity's strategy is our approach to sustainability. Vicinity continues to be recognized and are highly ranked by independent sustainability agencies. This year, Vicinity was 1 of only 3 Australian companies included in CDP's Climate A List. We were also ranked 3rd of all Australian retail companies in the GRESB survey, which includes unlisted funds. And we ranked 7th amongst our global real estate peers in the Dow Jones Sustainability Index. We published our first modern slavery report this year and further enhanced our approach by identifying and addressing modern slavery issues in our supply chain. Additionally, we furthered our commitment to staffing out modern flavor by becoming a signatory to the United Nations Global Compact. We are also now well progressed towards our 2030 net zero target and strengthen our commitment to managing climate-related risks and opportunities with our formal support of the TCFD. Could I also note that the health and well-being of the communities in which we operate has never been more important to us than they were over the past year. To ensure customers were able to buy essential goods and services during periods of lockdown, we kept our centers open and COVID safe. We also assisted in the broader health response by leveraging our assets to facilitate COVID testing clinics. And last month, we opened a vaccination hub in Victoria. I'm also pleased to announce our recent partnership agreement with the Australian Red Cross. This is an important alliance as we focus on community youth engagement and employment. I'll now hand over to Peter Huddle to take you through our operations this year.

Thanks, Grant, and good morning, everyone. I will start on Slide 9 with a review of the key market trends and our portfolio performance. While the prolonged Victorian lockdown and, to a lesser degree, a multiple state-based sporadic lockdowns did cause some portfolio disruption throughout the year, I am pleased to report that in all instances, our customers have been quick to return to their favorite shopping centers post lockdown. Shopping, however, has become more purposeful since the onset of COVID-19. Consumers are doing more research online. And while they are visiting with less frequency and are less inclined to dwell, their spend per visit is much higher. As a result, this trend in consumer behavior appears to favor retailers with strong omnichannel businesses, which are typically national retailers. In addition, the luxury and premium retailers are benefiting from spending being diverted from overseas travel. These trends are reflected in our sales and visitation numbers throughout the year. At a total portfolio level, whilst visitations in the June 2021 quarter sit around 20% below 2019 numbers, sales were only 3.3% down. Outside of Victoria and our CBD assets, where the COVID impacts have been comparatively low, visitations are down around 7%, but sales are up 11.9% for the same quarter. Turning to Slide 10. With conditions improving, particularly in the second half of the year, we saw a consequent improvement in our cash collection rate with the June quarter reaching almost 100% for majors and national retailers, and there is minimal outstandings remaining from the first half of FY '21. Following the cessation of the Commercial Code of Conduct, the industry was able to focus on tailored assistant for retailers who generally required it and remove the element of commercial opportunism experienced under the code. Retailer debt for the second half, that is, rent that has not been received or waived largely relates to retailers that continue to be impacted by the lockdowns, and we are actively working with them to manage through this period. Where COVID variations have been executed with retailers, there is a higher cash collection rate of 96% of agreed billings, whilst the retailers where we are still negotiating or finalizing the COVID variations, the collection rate is lower at 85%. As retail conditions improved, particularly in the second half of the year, only 10% of leases had COVID rental assistance in place in June. This is down from 73% back in April last year. Our focus has always been on supporting retail categories and geographies most impacted by this pandemic, and we will continue to provide a balance of support measures to our retailers that require assistance regardless of government legislative intervention. We are carefully monitoring the present impacts of the Delta variant and are in constant dialogue with our retailers regarding its effects. Turning to Slide 11. Despite COVID disruptions during the year, we have enjoyed a very active period of leasing that saw the team complete almost 350 vacant shop leases and negotiate a substantial number of key national retailer lease renewals for stores previously on holdover. The team executed in excess of 1,250 leasing deals for the year which is more than 50% higher than FY '20. For the second half of the year, we completed 15% more leasing transactions compared to the same period in FY '19 despite numerous sporadic lockdowns across the country. If you included the nonstandard leasing deals, such as lease extensions, tenant remixes and project leasing agreements, the number of deals for the year jumped in excess of 2,000. This increase in leasing activity was part of our strategy to maintain strong occupancy levels and keep our centers vibrant. Occupancy rates improved 20 basis points since December 2020 to close the year at 98.2%. Whilst leasing spreads have softened compared to FY '20, pleasingly, we have largely maintained our standard lease structure with 3/4 of all new leases achieving 5% annual reviews. In addition to higher leasing activity for the period, the team also concluded over 6,700 short-term COVID lease variations across the portfolio, which saw approximately $230 million in rental support to our retailers. To date, the level of retail administration remains low with 24 stores in the portfolio impacted this financial year. This, of course, was assisted by government stimulus, temporary changes to insolvency laws and retailer support from landlord under the SME Code and beyond. Subsequently, we remain cautious around potential for future administrations as we take into account the most recent outbreak for COVID and associated lockdown periods. Turning to Slide 12. I want to quickly touch on the performance of our portfolio outside of Victoria and our CBD assets where the COVID-19 impacts have been comparatively low. Note, this analysis is for the 2021 financial year and, hence, does not reflect the impact of the more recent COVID-19 Delta outbreaks. What this analysis does show is that strong sales -- strong growth in sales in the second half of FY '21 is reflected by the recovery in retail in non-CBD locations once the pandemic risks have pass, the benefit of higher discretionary spending with limited ability to travel and the continued attractiveness of bricks-and-mortar retail in COVID normal states. The key takeaway is that while visitations remained 8% below pre-pandemic levels, a higher spend per visit is delivering strong sales growth and, importantly, was delivered despite 25 days of sporadic government in-force lockdown in Western Australia, South Australia and Queensland. By contrast, on Slide 13, we acknowledge that the pandemic has had and continues to have a material impact on our CBD centers. Like the rest of the portfolio, visitation improved in the second half of the year, but momentum slowed during these lockdown periods, all when significant restrictions remained in place including limits on commercial occupancy and the mandatory wearing of face masks. Whilst commercial workers and international tourism remains important for our CBD business, our research identifies that domestic day trippers are actually the most important customer segment. We believe this segment will recover far quicker as more CBD events and activities return even with some restrictions in place. In addition to this, the concerted and aligned push by the federal and state governments to accelerate the rollout of the COVID-19 road map should lead to the return of the commercial CBD worker en masse, an increase in domestic tourism to CBDs and, in time, the opening of international borders. Our assets are extremely well placed to thrive in this environment. With this in mind, our focus has been on maintaining and securing a best-in-class leasing mix for our CBD asset. And turning to Page 14, we see this as a unique opportunity to partner with domestic and international retailers to secure a prestige and new-to-market concepts, which will position ourselves to maximize opportunities during the recovery of CBDs. Over the past 12 months, we've partnered with retailers and opened a number of significant flagship stores in Sydney, Melbourne and Brisbane. These are represented in categories such as luxury, athleisure, ready-to-wear fashion, beauty and technology with examples shown on this slide. Turning to Slide 15. Our DFO portfolio was also significantly impacted during COVID lockdowns due to their largely discretionary retail spend profile and natural link to the tourist economy. However, post-lockdown periods saw strong rebounds in visitations and sales as the DFO proposition became even more attractive to consumers. So overall, performance across this segment remains strong with occupancy of 98% being largely in line with our portfolio. Importantly, leasing spreads were positive highlighting the demand in this segment despite MAT being down by approximately 10% for the financial year driven largely by lockdowns in Victoria. For consumers, there is a clear value proposition, which makes our DFO assets resilient through cycles. For our retail partners, DFOs represent not only a key component of their distribution channel, but also the inventory management, which has been of particular importance over the past year when seasonal supply chains were disrupted by lockdowns. As such, our portfolio strategy includes a focus on continuing to build on our strategic advantage in this space with plans to develop and grow our premium outlet portfolio exposure going forward. Turning now to development on Slide 16. And while Vicinity made the conscious decision to constrain capital expenditure as it adjusted to operating in a pandemic this year, we still made significant progress on our development pipeline. Earlier in the year, we completed the expansion at Ellenbrook, and saw Kmart introduce into this important Northeastern Perth growth catchment. And at The Glen in Victoria, we completed the final retail stage of the development and residents started moving into the 550 apartments above the center, which stem across 3 completed residential towers. During the year, our main focus was on fast tracking planning and approvals at both local and state government levels to progress the commencement of a number of transformational mixed-use and retail developments. We received 12 town planning approvals this year, and we have now moved to derisk these projects by preleasing a proportion of the income prior to construction commencement. With a large weight into nonretail development in the pipeline, we currently have planning approval for 5 office towers. Timing for these projects, again, remain subject to tenant precommitments, which we are being actively pursuing. We have also commenced a number of retail reconfiguration projects replacing dated majors offerings with a combination of either stronger discount department stores, on-trend mini majors or creating precincts around new concepts, all of which are expected to generate a far more attractive consumer offering and therefore, a superior commercial outcome. And finally for me on Slide 17. This slide outlines a number of our major near-term projects planned. At Chadstone, construction is well progressed on a major car park expansion. We are establishing required car parking first in order to accommodate imminent future development activity. This includes an expansion of our retail offering, entertainment offering and the construction of the proposed 20,000 square meter Middle Road office tower. Detail is shown on the top left of this slide, and we are presently undertaking market precommitment activities for both developments. At the top right, we have received planning approval to develop 30,000 square meter office towers at Bankstown Central. We are replacing an existing supermarket, revitalizing the fresh food offer and ambience and creating a mini majors precinct. These projects allow the execution of further major mixed-use development activities at Bankstown in the future. At Box Hill, we have commenced consolidating retail into the South Precinct, which includes the introduction of a new Coles, mini majors and a restaurant offer incorporated into an aesthetically enhanced mall. This work is a prelude to the major mixed-use development planned for the North Precinct, which is progressing through relevant planning approval assessments. At Galleria, we plan to commence a significant ambient upgrade at the entire center as well as an expansion of the food, entertainment and leisure precinct in this financial year. While at Bayside, we have plans for 2 office towers, which are subject to tenant precommitment. We continue to work through plans for Chatswood Chase in Sydney. Delaying the project at the commencement of the pandemic enabled us to work through both rescoping and resequencing of the project, which has significantly reduced the project costs. The project will require a lodgment of an amended DA, which we plan to submit during FY '22. Concurrently, we continue to work on securing binding agreements with key retailers to enable its commencement. I will now hand over to Adrian to provide an overview of our financial results.

Thanks, Peter, and good morning, everyone. I will start on Slide 19, and 2019 continued to have a material impact on our FY '21 financial results. However, we were pleased to see a strong rebound in the second half as conditions improved. At the statutory profit line, the full year net loss of $258 million was an improvement compared to last year as valuations this year progressed towards stabilization. FFO was up approximately $39 million or 7.4%. The key drivers of this increase were the $60 million uplift in NPI and a reduction in interest expense of $32 million. The reduction in interest expense was due to the lower drawn debt following the equity raising in June last year and the interest rate swap restructure which benefited the first half of this year. Cost control remains a key focus. Nonsalary-related discretionary costs were flat against last year and was approximately 11% below pre-COVID levels. The increase in gross corporate overhead this year was principally due to the reinstatement of the STI program and a material increase in insurance costs. At a net overhead level, this was further impacted by a reduction in internal recharges due to the low levels of development activity during the period. FY '21 maintenance CapEx and leasing incentives increased by $13 million. This was mainly due to the strong momentum on leasing deals completed, as outlined by Peter. We continue to focus our maintenance capital spend on a central expenditure, but we do expect some catch-up spend in FY '22. The FY '21 distribution per security of $0.100 is a 30% increase compared to last year. As previously announced, $0.025 of the FY '21 distribution is attributed to one-off items, which we don't expect to repeat into '22. Moving to Slide 20, where I will provide some further detail on our NPI, including estimated waivers and provisions. It was pleasing to see a strong rebound in NPI in the second half as trading conditions improved. Waivers and provisions reduced to around 8% of gross billings in the second half versus approximately 22% in the first half. We also recognized a $75 million write-back in FY '20 waivers and provisions for the full year compared to the estimated position at June 2020. This favorable movement was due to improved cash collections and reduced waiver requirements relative to our expectations last year. On a full year basis, due to our portfolio weighting to Victoria and the prolonged lockdown experienced in that state in FY '21, wages and provisions were higher compared to last year. Now to Slide 21 and valuation outcomes. Overall, in the 6 months to June 2021, we saw a modest net valuation decline of 1.3% or $181 million. This compared to a net valuation decline of 4% in the first half. Although we believe the long-term fundamentals are favorable, the CBD portfolio saw a decline of 3.7%, reflecting the continued impact of COVID-19 in the short term. Conversely, the DFO portfolio increased in valuation, reflecting the strong ongoing demand from retailers and consumers for this product. The neighborhood portfolio also increased in value, reflecting the continued resilience of nondiscretionary-based retail assets in the current market environment. Slide 22 highlights the strength of the balance sheet. Gearing was 23.8% at June 21, and we had $2.4 billion of available liquidity. Our balance sheet strength enables us to navigate through periods of heightened uncertainty, and it also provides us capacity to selectively pursue growth opportunities. Our debt portfolio remains well diversified, and we have no debt maturing in FY '22. As you can see, the majority of FY '23 and FY '24 maturities relate to undrawn bank facilities. The number of which were favorably repriced and/or extended during the period. Our weighted average cost of debt for FY '21 was 3.62%. Excluding the swap reset benefit, which positively impacted the first half, our full year weighted average cost of debt was 4.35%. This is well representative of where we see our cost of debt going forward. We retained credit ratings of A/stable with Standard & Poor's and A2 with Moody's, which recently changed its outlook from negative to stable. Now to Slide 23. And given the ongoing uncertainty, we are not in a position to provide FY '22 FFO or a distribution guidance. However, I would like to provide some high-level directional comments on our outlook for FY '22. As I mentioned earlier, we have highlighted several one-off items that benefited this year, and we don't expect these to recur in FY '22. Given the continued impacts from the Delta variant, both domestically and offshore, we anticipate continued uncertainty until the threat of lockdowns diminishes. So we do expect the continuation of challenging trading conditions for our centers while lockdowns are in place, which will require continued support for our COVID-impacted retailers. Although we continue to navigate through the impacts of the pandemic, we see the importance of investing for future growth. This includes some additional investment in organizational talent to drive our growth strategies, and we are forecasting a modest increase in net corporate overheads. For FY '22, we are forecasting AFFO capital in the range of $110 million to $120 million. This is elevated compared to previous years due to an anticipated higher leasing deal count and some catch-up managed capital. Despite the current uncertainty, we are cautiously optimistic that once the sort of lockdown is diminished, the rebound in consumer visitation and spending will be rapid. I will now ask Grant to take you through the summary.

Thanks, Adrian. And turning now to Slide 25. And as we've discussed, FY '21 was a challenging year, but also one of progress across the organization despite the challenges of the pandemic. Of course, even before the pandemic, our industry was facing a number of structural shifts. These included the increase in online and omnichannel retail, retailer preference for flagship stores in premium centers and the need to invest in data, digital and technology solutions. Of course, in many respects, the pandemic accelerated these shifts. And so while our vision of creating market-leading destinations remains unchanged, Vicinity now also requires a refined strategy, which will both drive our existing vision and also address the structural shifts, which are clearly occurring. Indeed, Vicinity must adapt to these structural shifts by transitioning from a pure retail REIT to a forward-thinking real estate business. To achieve this, all of our 59 retail assets must be leveraged more creatively and effectively to deliver additional income streams and ultimately, greater value for security holders. Moving forward, our definition of assets will expand to include underleveraged and, in many cases, unacknowledged assets and capabilities. These unacknowledged assets and capabilities include: over 1.5 million square meters of developable area, which today is used primarily for on-site parking; more than 340 million visits to our centers in FY '21 alone; a growing customer database of over 1 million members; sector-leading data and digital technologies and platforms; and 23 strategic partners, representing approximately $9 billion in external assets under management. Turning to Slide 26. By leveraging these unacknowledged assets, we expect both to grow our core business and create new revenue streams from adjacent opportunities. Vicinity is, in fact, already achieving solid performance from existing adjacencies, such as solar, media and car parking, but an opportunity also exists to pursue more products and services in the areas of logistics, data, automation, artificial intelligence and energy. In addition to these new adjacent opportunities, our mixed-use development program is by now well established and will be an increasing contributor to valuations and NPI over time. Similarly, our existing funds management platform includes a network of 23 strategic partners, providing a solid foundation to build our third-party capital platform. Providing the bedrock for all of this is our strong balance sheet, which will be, we believe, enable us to withstand ongoing COVID disruptions while repositioning our business for future sustainable growth. Turning to Slide 27. And as we transition from a retail REIT to a forward-thinking real estate business, we will: continue to optimize and grow the core retail portfolio; continue to increase our exposure to premium and DFO assets; continue to execute on significant mixed-use opportunities; continue to invest in data, insights and innovation to support existing and newly identified adjacent opportunities; deepen and expand our relationships with strategically aligned capital partners; and most importantly, invest in our organization, creating a high-performance culture. Turning to Slide 28 and in conclusion. Our near-term focus is on the delivery of our refined strategy, which to reiterate will include optimizing the performance of our existing retail assets, recommencing development activity and increasing our focus on funds management and adjacent products and services. The success of all of these will be underpinned by maintaining our strong balance sheet and continuing to invest in our organization and people. However, while our medium- to longer-term outlook is optimistic, our short-term outlook remains uncertain as some states continue to grapple with lockdowns and COVID outbreaks. Therefore, we are not presently in a position to provide earnings or distribution guidance for FY '22. But we'll continue to monitor prevailing conditions and provide further updates as appropriate. We'll now open up the lines for any questions, and we would appreciate it if you could limit yourself to a maximum of 2 questions to allow time for others.

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

Yes. Two questions. The first one, just on this new strategy or refined strategy, what does that mean in terms of are you going to hire more people, different people, replace people? And what does that mean for the cost base and for your CapEx plans just in the next 12 to 24 months?

Yes. Thanks, Lou. Grant here. What we do already is actually incubate new ideas, and we've done so probably successfully in 3 areas already, which is solar energy, digital sales of media and also car parking. The incubation program is now formalized in an innovation team, which is led by Justin Mills. They are tasked with actually developing these new ideas and scaling lows. And that has actually been established, I think, since November of last year. In terms of your question on overheads, we are actually adding additional resources in that innovation and funds management team, but also I might add in mixed use. And so we will see some increase in cost through the FTEs that are being allocated to those new areas that are designed for growth. And I think you had a second question, Lou.

Yes, sure. Second one, I'll take it for everyone. I mean just current trading, kind of what percentage of income is currently not operational in the portfolio. And what our gross collections for July and maybe the start of August.

Sure. Perhaps I'll ask Peter Huddle or Adrian to pick that up.

I'll jump in first, Adrian. Lou, it's Peter Huddle here. So in terms of impact on the portfolio for New South Wales and for Victoria, we presently have somewhere between 75% to 80% of our stores closed fundamentally, obviously, in New South Wales for up to 8 weeks now. In terms of impact, obviously, it will have a material impact on sales for these particular months. We don't have headline sales results for July until later this month. In terms of collections, from a rent collection point of view, for the month of July, we were approximately 80% in terms of rent collection. And August is a week-by-week proposition, but we're currently lower than July's collection for the same period in August. But we anticipate it will be similar levels to similar up-down periods of last year, which will be around the 60s -- somewhere in the 60% mark.

Your next question comes from Sholto Maconochie of Jefferies.

Just following on from Lou's question asked a different way. What percentage of your income would qualify for the New South Wales and Vic code of conduct? I appreciate New South Wales, and it came out Friday night. Do you have that sort of number?

Peter or Adrian, do you want to pick that up?

Yes. Sorry. Sholto, in a broad sense, it's about 30% of income.

Okay. That's good. Great. And then just looking at your holdovers, it went to -- I think it's 8%, if I read that slide correctly. Is that due to a lot of predevelopment centers in the portfolio? Just trying to understand because the WALE went down to 3.3 years. I'm just trying to understand why the holdovers were 8% and what they were in the previous period.

Sholto, yes, the -- it went to 8% at the end of June. We actually, a couple of months before, it was probably in the mid- to high 6%. We had quite a number of leases expire towards the end of June. Some of them are -- a significant portion of those are in the predevelopment centers, which we're holding, obviously, for development. Some of them are still with national retailer networks as well, which we're working through.

And then finally, a follow-up on that. Like, if you look at your guidance -- your blocks, you've got higher maintenance CapEx, higher overheads and [ lack ] of the [ $0.025 ] of one-offs, it's still hard to see the distribution really be about $0.07. Is there anything you could say to that?

I'll take that one, Sholto. I think what we're looking to do is invest for longer-term growth. So although there is uncertainty, in terms of overheads, we're looking to invest in those growth strategies so that when we do recover, which we know happens quickly post lockdowns, that we've got great momentum in terms of growth going forward in terms of those income streams. In terms of CapEx, I think there's 2 components there. One is FY '22, there's a bit of catch-up maintenance capital coming in because we were focused on essential capital for '20 and '21. I think in terms of leasing incentives, we are expecting a high deal count in FY '22. So that is slightly elevated into '22.

Your next question comes from James Druce of CLSA.

Pursuing that sort of maintenance CapEx and tenant incentive line of questioning, it's a fairly big jump, obviously, even from FY '19 levels from $80 million net debt to $110 million to $120 million. So looking at the actual incentives, yes, there's more deals to be done, but what of -- what rent freeze or how much of incentives as a percentage of the lease actually moved the last 12 months?

James, I'll pick that up. It's Peter. It's essentially, it is purely on deal count. So what we're anticipating is that we'll have more deals to do. What we're forecasting is a lower retention rates, so more replacements of retailers. The average incentive per deal has not changed materially at all since FY '19. It's fundamentally the answer, and that's what we're forecasting in.

Okay. Good. That's clear. And then just on the comment that you made. So 75% of leases are getting 5% rent bumps. How does that compare to -- just to get a sense pre-COVID, is it about the same number?

It is about the same number. And it's also about the same average length of terms. So the average length term on the non-short-term lease is about 4.8 years. When you throw all leases together, it's about 4.3 years, which is only a point lower than pre-COVID.

Okay. And what was that -- in terms of the percentage, was it 75% pre-COVID? Or was it more like 70%? Or do you have that number at hand?

James, it was broadly the same number.

Your next question comes from Grant McCasker of UBS.

I'm just trying to get to a sort of more of an underlying run rate for the second half on NPI. You called out a number of sort of one-off adjustments. Is there anything in the second half worth noting because it looks like there's sort of an add back FY '20 waivers? Is there anything else worth noticing in the second half?

Yes, Grant, Adrian here, I'll take that question. You're right. There was an additional $19 million of waivers that we wrote back or waivers and provisions that we wrote back into the second half. And there was probably a couple of million of additional surrender payments into that second half, but nothing more than that.

Okay. Great. And then just maybe touching on one of your longer-term value drivers around fund management. That's been core to your longer-term strategy for some time. How is it evolving? And I guess you made comments to say that you're employing people that suggests that there's products or initiatives being undertaken shortly. Are you able to elaborate on that in a bit more detail?

Yes. Thanks, Grant. I'll pick that up. Great question. You're right. It has been a strong central element of our strategy since September of 2018. I think in fairness, and we've talked about this a lot, we probably had a misstep with the Keppel JV, which was poorly timed, although I think the concept was one that could actually have succeeded perhaps in a more buoyant market. And the evolution of the funds management business thereafter was really slowed by the pandemic. We now think that the timing is better. And yes, we are in the process of looking at professionals to staff a dedicated function that will report into the CEO focused on building that business.

So is it like similar to like a capital fund structure? Or is it a development partner strategy?

It's evolving. So I think at the end of the day, and if you look at our competitors, there's a multiple of funds. And if you take a 5-term view, not a 1-year view, to me, it's conceivable that we could be in several different asset classes. I referenced the Keppel fund purely to acknowledge what is in the market, which is that we didn't have the strongest outcome from that venture. But also to denote that we have learned from that, and we are, I think, evolving into a better spot in terms of how we think about funds management strategically.

Your next question comes from Stuart McLean of Macquarie.

Question just revolve around that strategy as well on a go-forward basis. Are you able to provide any quantitative timing of positive impacts to the P&L from these items announced today? Are you able to provide any quantitative dollar impacts that you see as a potential upside? I think it was 2018, there was $1 billion of mixed-use upside was mentioned. Can we wrap around some quantitative metrics around any of these?