Vicinity Centres (VCX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Vicinity Centres FY '24 Annual Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Peter Huddle, 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 30th of June 2024. Joining me on today's call is Adrian Chye, our Chief Financial Officer. Before we begin, I'd like to acknowledge the traditional custodians on the lands on which we meet today and pay my respects to their elders past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples on the call today. I will start today's presentation on Slide 5. FY '24 was a successful year at Vicinity, showcased by the achievements of our operating and financial objectives and the momentum of strategic execution. We are making meaningful investments in the quality and future resilience of our retail asset portfolio by investing in major developments at our existing premium centers and concurrently driving a portfolio shift by strategic acquisitions and divestments at attractive pricing. In this context, we're pleased to announce that last night, we simultaneously exchanged contracts and settled on the acquisition of the 50% interest in Lakeside Joondalup in Western Australia. I'll talk to the transaction in more detail shortly, but suffice to say, as a well-located fortress-style asset with significant growth potential, Lakeside Joondalup has been on our target list for some time. From a financial results perspective, we delivered an FFO per security of $0.146 which was above our guidance range thanks to our strong leasing outcomes and other positive portfolio metrics. As a result, the Board declared a final distribution of $0.059 per security bringing the full year to $0.1175, representing a payout ratio of 95.2% of AFFO. As we expected, elevated living costs weighed on consumption in the second half of FY '24, but retailer confidence to lock in leasing deals remain robust, and we maintained our disciplined approach to negotiating new leases where the structure, tenure and value of rents risen strengthens our current and future income growth profile. Adrian will talk to the financials in more detail shortly. But at a higher level, Vicinity delivered a net profit after tax of $547 million for the 12 months. While our headline FFO was slightly below the prior year at $665 million, adjusting for one-offs and higher loss rent from developments, FFO was up 3.2%. Comparable NPI was up strongly at 4.1%. Leasing spreads for the year were positive, but as expected, moderated in the second half at 99.3%, occupancy is at its highest level since before the pandemic. And while cost of living pressures weighed on our retail sales growth in the second half, MAT sales growth for the 12 months remained positive at 1.9%. In FY '23, we set a new pace at which our organization now operates. And the momentum of execution in FY '24 actually accelerated. With a strong balance sheet and disciplined approach to capital management, our competitive advantage continues to be our ability and willingness to invest in the quality and vibrancy of our retail assets, both large and small. We enhanced our investment portfolio having settled on the acquisition of the remaining 49% interest in Chatswood chase, giving us full control to transform this asset into Sydney's fashion capital. We acquired Lakeside Joondalup and secured the property and retail development management rights, enabling us to further unlock the asset's future growth potential. We further uplifted the quality of our portfolio, having divested 7 nonstrategic assets, 4 of which were part of our deliberate strategy to rightsize and strengthen our portfolio in Western Australia. Reinforcing the asset as a destination for retailer headquarters, Chadstone welcomes the corporate officers of top-tier retailers, Kmart and Adairs to its new office tower, named One Middle Road. Retailer interest in Chatswood Chase continues to be strong with approximately 80% of income secured, and also during the period, Vicinity received authority approval for major mixed-use developments at Box Hill and Victoria Gardens in Victoria, and we will, of course, maintain full optionality over how and when we create value from these developments. Our steadfast focus on strong financial stewardship is a discipline that we know our shareholders value, preserving our balance sheet and sector-leading credit ratings are and will remain guiding principles for us when deploying capital. In April, we took advantage of market dynamics and issued a 10-year AUD 500 million bond, which further diversified our funding mix and lengthened our weighted average maturity. And lastly, enabling good business is focused on ensuring Vicinity continues to be a responsible, safe and sustainable business while being a great place to work. In this context, we are delighted to present the outcome of our enterprise-wide collaboration that has successfully redefined our shared purpose, vision and values. And when brought to life in unison with our strategy, we are confident we will deliver on our strategic and financial ambitions and at the same time, create a workplace where high performance, diversity, inclusion and well-being are Universal. As I said earlier, Vicinity is in the advantaged position to be actively curating a stronger, more resilient asset portfolio. We know that premium fortress star assets located in great trade areas that are well managed by retail property experts have the potential to deliver superior income growth and value accretion over time. To that end, in the past 12 months, we've been able to secure 2 iconic assets. While unique in their own right, both Chatswood Chase and Lakeside Joondalup are fortress-style major regional assets located encatchments they are for Chatswood Chase extraordinarily affluent. And for Lakeside Joondalup, growing and emerging as a major activity center outside of the Perth CBD. Both assets are approximate to bus and rail transport. And importantly, both assets are primed for revitalization and significant growth. Our track record of maintaining a strong balance sheet with the flexibility to invest in growth has enabled Vicinity to acquire well, not just this year, but also throughout the pandemic. In November 2021, we acquired a 50% interest in Harbor Town premium outlets on the Gold Coast. And in April 2020, we acquired a 50% interest in subsequently rebranded DFO University Hill in Victoria. Both these assets have since benefited from outstanding leasing execution where we leveraged our scalable network of growth aspiring retail partners and significantly elevated the retail offers. And the sales and leasing spreads results shown on this slide speak for themselves. And this active portfolio investment strategy is having a meaningful impact on our portfolio composition. Combining the acquisition of Lakeside Joondalop, our divestments and upon stabilization of development at Chadstone and Chatswood Chase, our weighting to premium assets will increase from around 50% of our portfolio to just under 2/3. Our strong balance sheet and importantly, our portfolio diversification is enabling us to be highly selective acquirers of assets that align with our investment strategy and sellers of assets where market liquidity and pricing is strong. Additionally, with limited investment in new retail supply at a sector level and with a growing population, premium retail assets are today and will remain resilient through cycles and have tremendous growth potential. These assets have continued to remain in high demand by retailers showcased by our blended leasing spreads across Chadstone and our outlets averaging greater than 8% per annum since the peak of the pandemic. Earlier in FY '24, we set a target of $400 million of asset sales. And to date, we have delivered more than $550 million at a blended 9% premium to book bill. While providing an important funding mechanism for our acquisitions and flagship developments, asset sales are also a key part of our overall portfolio repositioning. Notably in the second half of FY '24, much of our focus was on the West Australian portfolio. In fact, the acquisition of Lakeside Joondalup, the forthcoming redevelopment of Galleria and divestment of 4 nonstrategic assets in Western Australia was a deliberate strategy to recycle and redeploy capital to rightsize and strengthen our asset base in that region with the right assets for long-term growth. Looking ahead, preserving our balance sheet and sector-leading credit ratings remains our absolute priority. And in this context, we are targeting a further $250 million of additional asset sales in FY '25, whilst remaining opportunistic and selective in terms of acquisitions that align with our investment strategy. As expected, significantly elevated household living costs impacted retail sales growth rates in the second half of FY '24. Vicinity's portfolio reported a total MAT of $18.4 billion with comparable sales growth of 1.9% relative to FY '23. Strong retail sales growth across our CBD portfolio, up 5.5% in the second half was supported by the steady return of international tourism, international students and office workers. Notably, occupancy of our CBD portfolio at 99.6% now exceeds pre-COVID levels, reflecting retailer confidence in the future of CBDs as well as a number of outstanding flagship stores and new concepts being introduced. Across the retail categories, fresh food, dining and supermarket sales growth as well as sporting goods, cosmetics and retail services remain positive. While softer apparel and footwear and homeware sales reflected the cycling of exceptional growth rates in recent years and cost of living pressures. There was an observable shift to value-conscious shopping, highlighted by our outlet centers growth rate of 5.2% in the second half of FY '24. Not surprisingly, in today's environment, luxury sales growth has been relatively volatile. Importantly, however, relative to 2019 same-store retail luxury sales per square meter have increased by 45%. And together with our luxury retail partners, we have plans to grow their network of stores across a number of our premium assets. Despite the relatively flat retail sales environment, retailer confidence to look through the cycle and locking long-term leasing deals remain robust in high-quality premium portfolios. The leasing team negotiated over 2,000 deals during the year, and of note, the retention rate remained elevated at 74%. 234 vacant stores, representing 33,000 square meters of GLA were leased in the period, which supported an increase in portfolio occupancy up 50 basis points to 99.3% at 30 June 2024. Fixed annual rent increases, positive leasing spreads and higher occupancy delivered in FY '24 all contributed to our 4.1% comparable NPI growth. What's more, we enter FY '25 with a relatively healthy occupancy cost ratio of 13.7%. Demonstrating retailer confidence more broadly, we locked in more long-term leases this year and further reduced our leases on holdover by 70 to now sit at just over 300 stores, of which 1/3 have been strategically held for development. As a result, the weighted average lease duration of all leases across our portfolio increased by almost 10% over the past 12 months to 3.6 years at June 2024. I'll now hand over the call to Adrian to discuss the financials.

Thanks, Peter, and good morning entry net profit for the year was $547 million. This was mainly comprised of $665 million of funds from operations, or FFO, partly offset by modest full year net property valuation loss and other statutory items. As Peter mentioned, we delivered FFO of $0.146 per security, above our guidance range of $141 to $0.145, with the outperformance largely driven by strong leasing outcomes and other positive portfolio metrics. While FFO was 2.9% lower than the prior period, when we exclude one-offs and adjust for higher loss of rent in FY '24 from our major Chadstone and Chatswood Chase developments, FFO was up by 3.2%. The one-offs comprised reversals of prior year waivers and provisions and the net impact of transactions, which collectively had a net adverse $24 million impact on FFO growth compared to the prior period. Given the ramp-up of Chadstone and commencement of Chatswood Chase, loss of rent increased around $16 million to $30 million in FY '24. Underpinning the adjusted 3.2% growth in FFO was comparable NPI growth of 4.1% throughout FY '24, which was in turn driven by positive underlying rental growth, positive leasing spreads and of course, as Peter mentioned, increased portfolio occupancy. Other key movements on the income statement include net corporate overheads, which were down 2.9% or $2.8 million, having benefited from lower corporate insurance costs and higher capitalization and development costs. As expected, net interest expense increased 5.8%, principally due to higher interest rates and the impact of completed developments. This was partly offset by asset sales during the year. Meanwhile, maintenance CapEx and leasing incentives were broadly in line with the prior year. Turning now to valuations. We are pleased to report net property valuation growth of $8 million in the second half of FY '24, relative to a net valuation decline in the first half. As expected, capitalization rates are showing signs of stabilization. And owing to positive leasing and portfolio metrics, income growth contributed 2.3% to portfolio valuations in the second half. Outlet portfolio valuations benefited from income growth of 4.1%, once again highlighting the attractiveness and resilience of this asset class. Similarly, having been the most impacted asset class in the pandemic, CBD valuations increased in the second half, owing to our concerted efforts on remixing and leasing execution and hence increased occupancy across this portfolio. Elevated operating expenses have had an impact and in Vicinity's case, mostly reflect increased statutory expenses such as higher land tax, award wage increases across security and cleaning as well as higher property insurances. Our portfolio weighted average cap rate is 5.65%, 1 basis point higher than December 2023. Of particular note, Chadstone's cap rate expanded 12.5 basis points and consistent with previous developments, Chatswood Chase's valuation now takes into account the major redevelopment with an on-completion cap rate of 5%. The valuation uplift driven by the cap rate tightening is largely offset by development profit and risk allowances, which are expected to unwind as the project progresses. With the prospect of interest rate cuts in the future and resilient income growth continuing, Vicinity's portfolio continues to be well positioned for future growth. Turning now to capital management. Financial stewardship continues to be governed by the preservation of our strong balance sheet and sector-leading credit ratings, together with our disciplined approach to capital allocation and driving efficiencies. We continue to focus on preserving our credit ratings of A stable and A2 stable from S&P and Moody's, respectively. And at 27.2%, our gearing remains at the lower end of our 25% to 35% target range. Adjusting for the acquisition of Lakeside Joondalup and assets sold but not yet settled, being Mornington Central and Karratha, pro forma gearing increases marginally to 28.3%. We continue to actively manage debt expiries, having issued $500 million of 10-year Australian dollar-denominated medium-term notes in April. And consequently, our weighted average maturity increased to above 4 years. With the benefit of being highly hedged over the year, averaging 85%, our weighted average cost of debt increased marginally to 4.9%. As we look ahead, our average hedging ratio for FY '25 is forecast to remain around 80%. From a liquidity perspective, we have $1.4 billion of cash and undrawn debt facilities, representing around 90% of our FY '25 and FY '26 expiries. Once again, Vicinity enters FY '25 in a strong position to invest in its long-term growth priorities. Thank you. I'll now hand back to Peter.

Thank you, Adrian. Turning now to developments. I believe that our willingness and importantly, our ability to invest in the vibrancy and quality of our asset portfolio continues to be a competitive advantage and sets us apart from our sector peers. Today, the majority of our committed capital spend relates to 2 major projects at Chadstone and at Chatswood, 2 of our premium assets, both with significant growth potential. And during the year, we also completed 4 smaller redevelopments at Bayside and Emporium Melbourne in Victoria, Castle Plaza in South Australia and Nepean Village in New South Wales. That being said, we remain acutely aware of the elevated cost of capital and the challenged construction sector nationally. At our half year results in February this year, we communicated an elongation of our development pipeline and prioritization of higher-value retail developments. And today, there is no change to that approach. Touching on Chadstone. And while the project has not been immune from industry-wide construction sector challenges, we are well progressed on our retail and mixed-used development project. The development incorporates a new 20,000 square meter office tower, One Middle Road, and significantly elevated fresh food and dining offer named, The Market Pavilion. We have previously announced One Middle Road as home for Adairs' corporate office. And today, we are delighted to announce that the headquarters of Kmart will also relocate to One Middle Road. Our agreement with Kmart was the largest office leasing deal in the Australian Metro markets in 2024 to date. The deal strongly aligns with our strategy of locating the corporate offices of key Australian retailers at the best shopping center precinct in Australia. One Middle Road as a new-to-industry commercial asset, fully integrated into Chadstone's retail core will commence occupation in 2025 with pre-leasing commitments now greater than 95%, a significant outcome in this office leasing market today. The Market Pavilion is now 95% leased and will house some of the very best local fresh food retailers and truly artisan concepts and experiences. The opening of this exciting new precinct will occur in March 2025. In October 2023, we announced the acquisition of the residual 49% interest in Chatswood Chase in Sydney. The acquisition paved the way for the commencement in March 2024 of the major redevelopment of the center. In our view, our redevelopment plans for Chatswood Chase represent the most exciting and transformational retail development project today and into the foreseeable future. While the redevelopment is not expected to open until late 2025, demand for store space from both national and international retailers has been overwhelming with around 80% of the project's income secured. And the caliber of retail partners, this project is attracting. It is showcased on this slide, including some of the world's best luxury retailers such as Louis Vuitton, Hermes and Cartier, in addition to category-leading retailers such as Apple, MECCA, SCANLAN THEODORE, ZIMMERMANN and lululemon. Chatswood Chase will be a fashion capital for the Greater Sydney area. And needless to say, we're extraordinarily excited to bring this project to market. Completing the premium experience this project will deliver is the new fresh food and dining precinct on the center's lower ground level, home to over 65 new fresh food, dining and daily essential retailers, which opened in March 2024 and is performing well. At Vicinity, we recognize the importance of sustainability in our business and more so than ever before, we are approaching our environmental, social and governance priorities and commitments with a high degree of focus. And we continue to make progress on our Net Zero target with the emissions intensity of our Net Zero portfolio down almost 40% compared to FY '16. And with an additional solar array going live at Grand Plaza, we now generate a total of 43 gigawatt hours of renewable energy across our shopping centers this year. Turning now to FY '25 earnings guidance. Like FY '24, FY '25 is expected to be a year where our earnings growth profile reflects continued strength in our operating and portfolio metrics, together with some temporary impacts from our deliberate strategy to curate a higher-quality asset portfolio. We expect FY '25 FFO and AFFO per security to be in the range of $0.145 to $0.148 and $0.123 to $0.126, respectively. On a normalized basis, the FY '25 FFO per security guidance reflects growth between 2% and 4%. Our guidance assumes the impact of divestments announced today where contracts have been executed, but are yet to settle as well as our targeted $250 million of additional asset sales in FY '25, comparable NPI growth of 3% to 3.5%, supported by strong leasing and portfolio metrics delivered in FY '24, a total loss of rent of $35 million due to developments, FY '25 is expected to be the peak period of loss of rent as Chadstone is completed and as Chatswood Chase is substantially complete. Also assumed in guidance is an increased weighted average cost of debt to 5.1% from 4.9% in FY '24. And maintenance capital and leasing incentives should remain broadly in line with FY '24 at roughly $100 million. In summary, FY '24 was a productive and successful year at Vicinity, and I'd like to recognize and thank my leadership team, our Board and the entire team at Vicinity for their hard work, passion and commitment. Just like FY '24, FY '25 will be another big year for us where we will continue making strategic decisions and investments to drive long-term sustained value for our security holders. Before I open the call to Q&A, let me close by sharing with you how I think about Vicinity, what we are focused on and why. At the heart of all of our business decisions and investments is a focus on delivering predictable and growing income for our security holders, while also driving capital growth over time. With our intense focus on negotiating quality long-term leases with fixed annual growth escalators, we believe Vicinity provides investors with a more resilient and hedge exposure to Australia's retail sector. Of particular note, the medium- to long-term fundamentals of the Australian retail property sector are favorable, anchored by record high migration numbers since the pandemic, compounded by Australia's population being forecast to grow by another 15% from 27 million today to a population of 31 million people by 2033. And from a structural point of view, the combination of Australia's growing population, tight planning rules and the lack of investment in new retail floor space is expected to reduce retail GLA per capita, which naturally bodes well for capable owners of established, well-capitalized shopping centers that shape meaningful places where communities connect. We have an industry-leading management team and a clear strategy that is focused on driving retail property excellence and value-accretive capital management. We have a compelling portfolio of diverse assets that is increasingly premium and which also includes large land parcels with long-dated authority approvals for major mixed-use developments. These opportunities represent pure option value for Vicinity and its shareholders regardless of how the value is unlocked. Finally, and perhaps most importantly, Vicinity is now an organization where working at pace to execute immediate medium- and long-term strategic priorities and deliver consistent results year after year is just the baseline. Thank you, and I'll hand over to the operator for Q&A.

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

Two quick questions, if I may. The first one, just what is the yields on the Joondalup acquisition? And I'm asking because on your waterfall on Page 20 of the presentation, you talk about one-off items relating to that. So I just wanted to kind of see what's one-off of that.

Lou, it's Peter here. Essentially, the passing yield on the Joondalup transaction on today's cash flow is around 6.5%.

Great. And then, Adrian, can you just explain that one-off part of the acquisition there?

Yes, sure. So we expect Joondalup to be about a $5 million benefit into FY '25. So we just excluded that in that one-off items. The other, I guess, transaction impacted the asset sales. So we expect the asset sales to have about a $10 million negative impact on that. So net negative $5 million impact from the asset transaction for FY '25.

And then just on your development pipeline, you do give that $26 million indicative loss rents based on your development pipeline. Can you just talk about kind of what is most likely to be next in terms of you kicking off developments?

I'll pick that up on that, Louis. So obviously, we're finishing Chadstone and Chatswood, which is fundamentally the forecast around $35 million. If you then move into FY '26, we still have Chatswood to open in the first half of FY '26, and we anticipate moving into Galleria and towards the later part of FY '26, the development in uptown in Brisbane CBD. So you'll start to see the loss rent peak through FY '25 and then taper off as we move into FY '26.

Your next question comes from David Pobucky with Macquarie Group.

Congratulations on the results. Just a follow-up on Lakeside Joondalup, please. Maybe if you could just talk to how you think about the property and retail [indiscernible] right in terms of earning additional fee income.

David, it's Peter here. I mean an important part of the transaction for us was, we purchased the nonmanagement equity interest in that or future funds. And then we had some negotiations with Landlease and APPF retail side of their fund. So important was to transfer the management rights to unlock the value in terms of our forecast, it's circa around an incremental $2 million.

And just the second question for me. You've flagged 250 more divestments and $470 million of deployment. Is that suggesting we should expect gearing to move up throughout the year? And where are you comfortable on this compared to your target range, please?

David, yes, we're expecting gearing to pop up a little bit. On a pro forma basis, if we assume the transactions that we've announced only, we get to 28.3% with some of the development completions over the next 12 months plus, obviously, with Joondalup up as well and the extra $250 million, we expect gearing to be about the 29%, 29% -- and our current target range is 25% to 30%. But as we've said in the past, we'd like to be below 30 at this part of the cycle, and we still think over the next 12 to 24 months will be at or below 30%.

Your next question comes from Howard Penny with Citi.

Thank you very much and well done on the results. Just a question on the developments. You mentioned that FY '25, '26, we see the sort of peak loss rent, how do you see the corresponding capitalized interest and capitalized development costs offsetting that oncoming rent? And any sense you can give us on that incremental yield above those costs or incremental rent received?

Howard, it's Peter here. We capitalize interest to the balance sheet to the point in time in which the developments open and then obviously, the interest then essentially flows back to the P&L. In terms of the blended cash on cash yield across those 2 developments it's circa around the 5.5% mark. The current weighted average cost of debt that we have and flagged in FY '21, it's at 5.1%. So there's an incremental benefit. And then obviously, from our point of view, you then look at growth rates on those developments once launched. So that gap between income and interest will only increase over time, particularly in the event that we take a view that interest rates heading towards the peak and should stabilize or reduce over time.

Absolutely. So just to put it back math for myself. So starting 5.5% cash on yield on asset, $5.1 million on debt. But the 5.5% is hopefully growing upwards and the 5.1% decreasing as interest rates come off. So we'll see that expand from 0.4% going forward. Is that a fair summary?

That's fair, Howard. I mean the only qualifier I'll put on that is we do report a stabilized yield. So it can take 12 to 24 months to get to that position as we progressively open these developments and new products to the marketplace, they typically do take -- we did provide for some additional incentives in the first couple of years to make sure that they're successful.

Great. And just on the leasing spreads and they've come down and normalized somewhat. What do you see the outlook for that over the next year? I know it's a difficult one to predict, but do you see that dropping further or just remaining positive throughout the year?

Howard, look, they did come down in the second half of this fiscal year. They didn't -- in the half year, you may remember that we did predict that they would be negative leasing spreads. They were negative, but not to the same degree that we anticipated. And for FY '25, we have a -- within the guidance, we have a leasing spread that's broadly in line with the result of this year around the low 1% positive mark moving into '25.

Well done on a busy year.

Your next question comes from Ben Brayshaw with Barrenjoey.

I was wondering if you could just expand a bit on the fundamentals for Lakeside. I mean, we don't obviously not a publicly owned asset. But now that you've taken ownership could you maybe just elaborate on productivity, occupancy cost ratio, opportunities to add value to that asset short term, maybe potentially medium term as well?

Yes, Ben, look, from our point of view, the key fundamentals in the asset today, you've got really strong sales around -- excluding GSE, around $750 million with good growth rate in the sales, so about 3%. Occupancy cost ratio in the asset today is about 15% occupancy cost ratio with sales kicking out lower than our portfolio average, but it's still around $12,250 per square meter. You've got occupancy rate below our occupancy rates at around 97%. So we see some opportunity to grow there. I mean, from our point of view, we've done a very detailed 3-year leasing remix plan as part of this. So clearly, we brought on a passing yield, but we have a -- under our due diligence, a much higher expectation than that moving forward with mixes in the existing asset over the next 3 years. On top of that, I would say that the outside of the remixing of that asset, it is on a significant landholding connected by rail in a principal activity center of Perth. And we see over the short to medium term also opportunities, from a retail point of view, there's clearly some opportunities in the entertainment precinct, and then more longer term, potentially some non-retail development opportunities once we get a full handle of the master plan and have our influence with the car owners over that. So we're super excited, Ben, about this one.

Yes, I understand. And just on the replacement cost, do you have a view as to where that would likely be for a center like this. The acquisition price of just a bit over $8,500 a meter would be? And just how that would compare with the acquisition price?

it's over 100,000 square meters of centered at A+ multi-deck car park on 30-odd hectares land. I mean replacement cost, just the building itself is well in excess of $600 million, and then you've got the land value on top. So I haven't got a number from our point of view, we think we're buying very well and my -- and our estimate is below replacement costs. So I think these type of assets, I think, had a peak value at a point in time, about $1.15 billion.

And so can I just clarify, did you say on the call earlier that it is a nonmanagement equity interest, but you had worked something out with [indiscernible] to take over the management.

Yes. I mean we -- so we purchased future funds interest of this. And then in a really collaborative approach with APPF and Lendlease we've coordinated for the retail management and leasing rights to transfer from Lendlease to Vicinity to manage this asset moving forward. There's a transition that occurs effectively, we've settled the asset now and the transition will occur over the next 6 weeks, and we'll commence full-time management from the 1st of October.

Our next question comes from Richard Jones with JPMorgan.

Peter, just following up on Joondalup. It's the $420 million and 6.5 passing yields, are they inclusive of the payment you've made Lendlease and the management rights you'll draw.

Pretty much. There was some additional payments to Lendlease -- or to essentially the consortium of Lendlease and APPF, but 6.5% would be the number across the total transaction.

Okay. Good. Is it possible to get a breakdown of the total portfolio and specialty sales ex-Chadstone. I assume that I think you've called out previously has had some development impacted and luxury impact on sales in the last 12 months.

That's a good question, Richard. I mean, obviously, Chadstone is so important for our portfolio. This -- we don't exclude it when we're reporting. If you report ex-Chadstone for the sales for the 12 months, it's circa around 3.3%, 3.4% MAT for the period. So Chadstone itself, in terms of MAT for the 12 months was around 6% negative, primarily resulting from -- we're doing a very large-scale development in terms of the office tower, the fresh food area, redoing a multi-deck car park and there's also been a significant amount of remixing that's occurred within Chadstone in the last 12 months. So preparing Chadstone for its next phase of growth, which will commence from March of 2025.

Okay. And do you have the spec numbers as well?

The spec numbers. For Chadstone, the spec number was negative -- was about negative 4% for Chadstone for the 12 months. So if you adjust for the portfolio for that, the portfolio then becomes about 2.7% positive on spec if you adjust for Chadstone on an MAT basis.

Our next question comes from James Druce with CLSA.

Just to clarify on Richard's question. the like-for-like number on Slide 9, you're saying that total portfolio includes Chadstone. That's what you're saying?

That's correct, James.

Okay. That's clear. All right. Just on another question on Joondalup. I'm sorry, but the passing rents relative to market rents are you sort of -- I know you guys have a more bullish view on where rent will go to, but a value is assumption of market rates, where are they versus passing?

So as of today, the value assumptions are pretty close to passing rents. And we have a different view, but that's where the value is viewed. So we would -- and so obviously, this transaction was third-party valued as part of our due diligence and acquisition approvals, so broadly in line with passing rent today.

Okay. So it's a pretty big transaction. And if you look at what it was trying to be sold out in 2018, it was closer to $600 million. So that's a 3% discount. What impact does this have on value as assumptions across the portfolio, do you think?

Look, James, it's obviously a key transaction. And I think there's probably a couple of things. I mean, clearly, there's 2 parts of the transaction. There's the transaction, which is the nonmanagement interest that we purchased and then there's a separate transaction that deals with the management interest. I think from a values point of view, you've got to look at the nonmanagement interest transaction of that, probably not too dissimilar to what [indiscernible] group had done more recently with a couple of their transactions, at 6.5%, that's obviously a key indicator for that type of asset across the market. All I can suggest from our point of view, we've looked at similar assets in our valuation and taking into consideration this transaction are pretty comfortable with it in terms of where our assets sit. Clearly, we've been a very active seller of assets in the marketplace over the last 12 months. And again, when we look at those asset transactions, so typically the neighborhood and subregional assets, we're also pretty comfortable with where that sits in our book. And I suppose the rest of the industry needs to do their own assessments in terms of their own independent third-party valuations.

Do you mind giving you a feel for the discount rate then for Joondalup.

So on this, I think it's about $775 million.

And is there any read-through for occupancy cost? I mean leasing spreads, or expecting to be positive for '25. Are you being more conservative? Or how much more do you think you are sort of reaching a bit of a threshold for some of the tenants in terms of pushing things higher?

James from our point of view, we would anticipate that sales will turn positive on a comp basis leading into FY '25. A number of reasons as to that. And it's also coming off a lower base, obviously, in FY '24. So we think comp sales will turn positive. And from a leasing point of view, we've got a retention rate of 74%. It's higher retention rate in our core portfolio than our premium portfolio. Our premium portfolio, we've done some planned replacements in that portfolio to drive productivity. So we do think that that 13.7% occupancy cost ratio, there's still good room for us to be in a position to grow rents and particularly more confident, obviously, if the comparable sales growth in FY '25 results in what we anticipate it will, which is starting to return to growth in this quarter and then obviously more progressively throughout this fiscal year.

[Operator Instructions] Your next question comes from Tom Bodor with UBS.

Just a quick one on that management rights piece. Just to be crystal clear, the $420 million excludes the management rights at Joondalup, is that correct?

Yes, we paid -- Tom, we haven't released the number, but it's not a huge number, but we paid a little bit of money for the management rights transfer as well. So the $420 million purely for future funds interest in the Joondalup transaction, that's the equity component that we purchased.

That's clear. And then just on Chatswood Chase, I'd just be interested in understanding if you've used up any of your contingency around budget or time -- any time delays you're seeing on that project?

Tom, yes, we've used up a little bit of -- all of our development projects, particularly in this current environment, have an enhanced level of contingency that's going into this -- into projects. And like all typical development projects, you don't foresee everything. So we have used up some contingency on Chatswood associated with some latent conditions and so forth. We're working hand-in-hand with multiplex who an excellent contractor, to be honest, on Chatswood. And so it's a live environment. So we're operating within an existing shopping centers. So there's always surprises. But at this stage, there's nothing that is abnormal.

And how about just the program or the timing on that project?

Program. A little bit behind, but it's not material, where we need to be. We're still about 1/3 of the way through the program just in the process of completing demolition and starting to rebuild the center at this point in time and starting to do some phased handovers to some of the major retailers that are involved in the -- or particularly David Jones that's involved in that project.

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

Thank you. Well, firstly, I'd just like to thank everyone who called in today for their interest in our company. Look forward to catching up with you in more detail shortly. And again, thanking our management team, our Board for the last 12 months and look forward to catching up soon.

That does conclude our conference for today. Thank you for participating. You may now disconnect.