Everybody, welcome to the FY 2025 results for Abacus Group. I'm joined here today in Sydney by Evan Goodridge, CFO for Abacus Group, Kevin George, the General Manager, Commercial and Fund Manager for the group, as well as Cynthia and Chris from the Investor Relations team, and some of our other financial team members. Abacus Group remains a diversified commercial REIT with investment exposure across the portfolio of office and retail assets, as well as self-storage through our management and strategic stake in the Abacus Storage King business. Total assets of the group are valued at AUD 2.6 billion as at the end of FY 2025, with a weighted average cap rate of 6.77%. We were very pleased to announce for the year a distribution to investors of AUD 0.085 per security, flat on the distribution for FY 2024, despite the lower asset base.
Gearing for the group sits comfortably at 34.5%, within our target range and at a level we think that is appropriate for this point in the asset valuation cycle. From an office and retail sector perspective, we're seeing early signs of both capital and leasing sentiment improving, with a large volume of leasing transactions undertaken in the year. Turning to the highlights for FY 2025, as I said, leasing momentum is the key positive for the period, delivering a strong performance in our portfolio of commercial office assets. Office operating earnings were up 9.8% year-on-year, with earnings supported by like-for-like rental growth of 4.3%. Strong positive leasing spreads, positive rent reviews, and higher than normal surrender fees for this period.
Our investments in One Retail Centre and our CBD retail flagship store in Melbourne also performed very well, with like-for-like operating earnings growth of 8.8% up on FY 2024, supported by rental reviews of 3.5%. Our ASK, Abacus Storage King self-storage return on investment earnings and management fees represent two of our major income sources for the group. We're encouraged by the strong results that ASK delivered on the 14th of August, as a result that was underpinned by an irreplaceable portfolio of land-rich assets in prime suburban locations, with the several structural tailwinds in the sector.
Our investment management earnings from commercial fees, as well as our ASK fees, grew by 14% compared to the prior period, reflecting an increase in the asset values for ASK, as well as the full 12 months of ASK management compared to the 11 months in FY 2024, due to the timing of the destaple in August 2023. We continue to explore investment management initiatives, which Kevin will touch on later. I'll now turn over to Evan to talk about the financial metrics and capital management of the group.
Thanks, Steven, and good morning. Financial year 2025 has once again been a year of solid operational delivery for Abacus Group, with diversified income streams continuing to underpin a resilient earnings profile. Over half of our operating earnings came from office, with the balance collectively from retail, management fees, and investment returns from our 19.8% ownership in Abacus Storage King. Like-for-like operating earnings rose by 7.7% for the year, with growth achieved across all segments: office, retail, self-storage, and investment management. Breaking this down, office income increased by 9.8%, driven by strong leasing outcomes, particularly in our Sydney CBD holdings at 201 Elizabeth Street and 77 Castlereagh Street. The portfolio's leasing spreads remain positive, and occupancy is broadly stable at 91%. Throughout the period, the group received AUD 8.3 million in early surrender fees, as two of our larger non-SME tenants centralized their operations.
Excluding these surrender fees, period-on-period, office operating earnings still increased, up 2.8%. An important swing factor for next year's earnings will be the pace at which we lease up existing and swing vacant space across the portfolio, which Kevin will update you on shortly. Pleasingly, we do enter the year with solid inquiry levels and active negotiations already underway. Retail delivered like-for-like income growth of 8.8%, underpinned by CPI-linked rental growth at Maya in Melbourne and improved leasing momentum at the Oasis Shopping Centre in Broadbeach. Self-storage contributed strongly, with ASK delivering AUD 16.8 million in earnings to Abacus, plus a further AUD 18.1 million in storage-related management fees, AUD 13 million from funds management, and AUD 5.1 million through development fees. We were also pleased to deliver a full-year admin expense saving of AUD 1 million compared to the prior period.
Importantly, we have now implemented a simpler, more scalable finance system, positioning the group for annual savings of around AUD 500,000 from FY 2026 onwards. The group's average cost of debt for FY 2025 was 5.1%. With the recent RBA interest rate cuts, Abacus's finance costs appear to have peaked, and we anticipate a significant reduction in the year ahead. The group's tax expense once again remained low for the period, at AUD 1.3 million. Abacus has historically utilized carry-forward revenue losses to mitigate its tax expense payable. However, these losses are now almost entirely exhausted, and a more normalized run rate of AUD 6 - AUD 8 million per admin tax expense is expected moving forward. Due to this anticipated increase in tax expense, we are forecasting next year's earnings at the top of our payout ratio range.
The forecast provided is subject to the continued success of our re-leasing program, as well as no material deterioration in current business conditions, including the management of and our 19.8% interest in Abacus Storage King. Steven will further discuss the group's outlook and guidance later in the presentation. At year-end, our AUD 1.5 billion office portfolio remains weighted towards A-grade assets, with over 50% exposure strategically located in Sydney, within close proximity to transport nodes and strong amenity offerings. Our AUD 460 million investment in ASK remains our single largest holding, representing 18% of group assets. The group also has 16% allocated to our two remaining retail properties, being the Myer Building and Oasis Shopping Centre, as during the year we completed the AUD 60 million sale of Market Central Lutwyche. We continue to adopt a disciplined approach to capital management.
The group has acquisition capacity of over AUD 230 million, and our gearing sits at 34.5%, comfortably below our target gearing ceiling of 40%. The group would need to see cap rates soften by more than 280 basis points before approaching its existing covenant limits. Abacus has recently received its first-ever public credit rating, receiving an A+ rating with stable outlook from the Japan Credit Rating Agency. With this rating, we were able to extend our existing banking facilities on competitive terms, meaning that we have no near-term refinancing requirements and remain well supported by our lenders. The external rating also provides the group the potential to access additional debt capital markets going forward. Our limited short-term capital requirements, with no committed developments, also provide us significant capacity. Our hedge cover sits at 80%, and we are forecasting an all-in cost of debt over the next 12 months of 4.5%.
Full-year valuations have been impacted by a 27 basis point expansion in cap rates, partially offset by solid income growth, resulting in an overall value decline of 4%. Since pre-COVID, our office values have now reduced by around 30% in value, with our weighted average cap rate now sitting at 6.77%. While the market remains selective, leasing activity has improved, and we believe values are stabilizing. Our focus remains on delivering sustainable and diversified returns, supported by a strong balance sheet and disciplined capital allocation. With that, I'll hand over to Kevin to discuss the group's operating performance and operational priorities.
Thanks, Evan, and good morning, everyone. The Abacus Group strategy continues, that is, identifying, owning, and managing real estate to deliver both exceptional returns for our investors and value for our customers. Moving forward, we'll continue to be a principal investor, prioritizing the office and retail sectors, where we have embedded capability, but also look to leverage our platform to invest with like-minded capital partners in those sectors. To deliver the strategy, APG is focused on some key priorities to improve and grow earnings sustainably through the cycle. Firstly, the composition of the portfolio will continually be reviewed to ensure we are invested in assets that can outperform their peer set. As Evan mentioned earlier, we settled during the year on the sale of Market Central Lutwyche for AUD 60 million.
We remain committed to realizing a further AUD 200 - AUD 300 million of non-core asset sales over the next 12 - 18 months in order to provide capacity to pursue higher returning opportunities in both office and retail as they arise. Finally, we have embarked upon several platform initiatives to improve our efficiency moving forward and increase our ability to scale profitably. The most significant being the recent consolidation of 14 operating systems to 4, with the primary platform being Yardi, which was successfully introduced throughout the business last month, and the team is transitioning well to the new ways of working. The group's office assets performed well in the period, with like-for-like rent growth of 4.3%, driven by net face leasing spreads of 5.8% and average rent reviews of 3.7%.
Our weighted average lease expiry of 3.6 years reflects our customer profile skew to SMEs, 60% of tenants by count, who generally commit to leases in the three to five-year range. We've made a solid start to FY 2026 leasing, with over 50% of the current vacancy already leased or in advanced negotiations, and over 60% of FY 2026 expiry also in advanced negotiations or under heads for agreements. The group leased nearly 45,000 square meters of space in the period. As I mentioned previously, the strong leasing spreads of 5.8% included spreads of 7.9% on new deals. The 10% step up in leasing in the period was driven by the reintroduction of 11 floors at 201 Elizabeth Street in the first half. These floors were previously being held for development.
Incentives were higher in the period, skewed by 201 Elizabeth Street, with average incentives of 42% versus the balance of the portfolio, which averaged 30% on new deals. We expect incentives to moderate moving forward, particularly in Sydney and Brisbane, where vacancy rates in prime-grade assets continue to tighten, and we expect that to filter through to A grade, where Abacus' East and Seaboard portfolio is focused. When we look at our top five office assets by value, we've progressed several asset strategies designed to enhance short and medium-term returns. The flex space at 99 Walker Street continues to perform well, with conventional tenants utilizing it as a shared amenity. A new whole floor spec fit-out on Level 14 was completed in December 2024, and we have heads of agreement on this space.
Period end occupancy for 99 Walker Street was 86.1% and will increase to over 90% with the Level 14 lease. Recent spec fit-outs and the completion of end-of-trip facilities have supported leasing momentum at 77 Castlereagh Street, with Motorola securing the final vacancy of 658 square meters on a six-year lease. 77 Castlereagh Street is now fully occupied. The new end-of-trip facility at 14 Martin Place has supported leasing momentum, with flex by Abacus on Level 7 nearing 90% occupancy and all retail tenancies now committed. Period end occupancy for 14 Martin Place was 90.1%. The recently completed lobby refresh and end-of-trip upgrades at 201 Elizabeth Street have also driven strong leasing outcomes at the asset, with occupancy now 82.5%, up from 54.6% in FY 2024. Finally, recent leasing activity at 324 Queen Street has driven high occupancy, with the asset now close to fully occupied.
Incentives have continued to reduce, now sitting below 30% for new deals. Turning now to our lease expiry profile. Of the 9% current vacancy you can see on the slide, a third of that is attributable to 710 Collins Street in Melbourne. The Goodshed North, as it is known, was vacated by two separate Victorian government departments during the period, leasing 6,400 sqm and 3,900 sqm of space respectively. We are well progressed on our leasing campaign for the building on an existing refurbished basis. There are a number of potentially suitable parties for the space, and we hope to report further leasing at the half-year result. In our non-core portfolio, we're actively managing lease expos to protect value and supporting our support repositioning.
At 51 Alara Street, Canberra, we're planning for major government lease transitions, including a short-term extension for the Department of Foreign Affairs and Trade and DQ's departure in mid-2026. At 11 Bowden Street, we're targeting lease up of the remaining vacancy and replacing some ACP cladding. At Camelia, we are pursuing a DA for logistics facilities and are currently preparing the site to lease as hardstand to generate short-term rental income. The retail portfolio continues to perform well. The growth in our retail operating earnings was driven by a strong step up in rent-paying occupancy during the period, as well as strong turnover rent growth at Oasis. Solid rent reviews are also supporting operating earnings. Oasis highlights from the period include MAT growth of 2.7% on FY 2024, and, pleasingly, MAT has grown at a compound annual growth rate of 6.1% since 2019.
We continue to benefit from our 4% per annum reviews at Myer Melbourne on Bourke Street, an iconic Melbourne asset with a six and a half year WALE and is 100% occupied. Our allocation to the self-storage sector through our 19.8% stake in ASK provides the portfolio with a very stable income stream, with low CapEx and a strong earnings outlook. The group's return on investment earnings of AUD 16.8 million in FY 2025 were driven by ASK's established portfolio REP/PEM growth of 4.5% year-on-year, with average rents of AUD 373 per square meter, up 4.1% on FY 2024, and strong occupancy of 91.2%. In addition, as the fund manager of the AUD 3.6 billion vehicle, Abacus Group earned a further AUD 18.1 million in ASK fees, and we continue to view the self-storage sector favorably, with the group enacting multiple growth initiatives throughout the year, ranging from real estate development and acquisitions to platform enhancements.
Thank you. I'll now hand you back to Steven for the concluding remarks.
Thanks, Kevin and Evan, for the information. It's been an exciting and transformative few years for Abacus , and looking ahead, we're confident that we're now well positioned to leverage our platform and key enablers to deliver recurring income and value creation over the medium to longer term. Our commercial portfolio continues to perform well, and the group also has a scalable platform. As Kevin mentioned, we're exploring further opportunities, including capital partnering. We remain interested as the capital market activity plays out and are busy with a host of positive growth strategies, as well as our ongoing management of the ASK business.
We're pleased to provide investors distribution guidance for the FY 2026 year of AUD 0.085 per security, which will be a payout ratio in the range of 85%- 95% of FFO, assuming no material decline in the current business conditions, and also the management and 19.8% ownership of ASK. Many of you will be aware of the recent capital market activity regarding an offer by a major investor in consortium with one of the world's largest self-storage REITs to acquire ASK. Abacus Group is currently a 19.8% security holder of ASK and also the fund manager. Most recently, after receiving the revised proposal of AUD 1.65 per security, the ASK Independent Board Committee elected to grant the consortium due diligence for a period of six weeks, which is ongoing.
At this stage, we have no further information to update the market with, but we'll do so as and when new information becomes available. That ends the formal remarks of the presentation today. I now look forward with Evan and Kevin and the team in taking any questions that you may have, or alternatively meeting with you in person in the weeks to come. I'll now hand back to the operator.
Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the ask a question box. The first question from the audio side will come from Howard Peeny with Citi. Please go ahead.
Thank you very much, and thanks for the presentation. Just a question on recycling of capital. There are a few assets that are marked for potential recycling, as well as potentially some of the proceeds from ASK. Just looking ahead and thinking strategically on where you could reinvest that capital, are you able to share any ideas or thoughts on how you would see that being redeployed?
Yeah, thanks, Howard. As I said in my piece, our focus at the moment is the office and retail sector, and that's where we're primarily looking at the moment with partners to deploy. We're open to other opportunities if we think we can, and other sectors if we think we can develop sufficient scale. We're progressing some conversations on some of those as we speak. I think primary focus is office and retail in the space we're already in.
Thank you very much. Maybe just one extra question. Just on office insights, we've seen that the incentives seem stable and occupancy increasing and improving. Are you seeing a change from tenants at the moment into your portfolio, and any new sort of developments in the market that you see in your portfolio in office segments?
I think our general observation is that office demand has been relatively healthy. I think the work-from-home phenomena is somewhat sort of losing headlines from what's happening on the ground perspective. There are lots of headlines in Victoria about legislation on work-from-home, but I think the experience generally in the market is that more companies are returning more of their people more regularly. That sort of conversation now is shifting more to the workplace growth, efficiency, productivity, and you know I think our view for a long time has been here that if we provide a really good, cost-effective real estate infrastructure for the businesses that we're seeking to attract, that should over time generate good rental growth and good returns for our investors.
We are just looking to create really good value propositions in the assets we own, and the SME market particularly, which has been relatively strong, is supporting our assets, and you've seen that in the numbers we've put up today.
I think as well, Howard, we'd add that particularly here in Sydney, the opening of the metro stations, which is opposite 201 Elizabeth Street, a short walk away from 77 Castlereagh and Martin Place, and over in North Sydney, have had a very positive effect on the leasing momentum at those locations, which again supports the thesis that Kevin just outlined as far as proximity to transport infrastructure is part of the value proposition that very much is driving behaviors for tenants.
Thank you very much.
Your next question will come from Solomon Zhang with JPMorgan. Please go ahead.
Morning, Steven, Evan, Kevin. Thanks for your time. First question for me was perhaps just on the medium-term potential of 201 Elizabeth Street as a resident development. Be interested in, especially in the context of land lease going live on 175 Liverpool Street nearby. It'd be good to get your thoughts there, please.
Sure. Look, 201 Elizabeth Street is an interesting proposition from a resi perspective. I think it's not as clear-cut as Liverpool Street on the basis that there are a number of leases which go beyond the current DA approval window. The cost to achieve vacant possession is not known and not easily quantified. It's, you know, to look at it from the right now, I would say that its highest and best use from a value perspective is office, not to say it wouldn't be residential at a point in time in the future. At the moment, we are committed to its medium-term future as an office investment, not discounting the resi potential longer term.
Great. The next question just on 710 Collins Street. It's obviously a fairly challenged pocket of the market and a fairly large vacancy there. How are you thinking about the prospects of leasing that up throughout FY 2026?
Yeah, look, as I said in my segment, we've got a number of interested groups in fairly advanced discussions with a couple of them. It's really interesting to me that in Melbourne and particularly Docklands, where there's been a lot of space, there's been a lot of large leasing transactions as well in the last six months or 12 months. We're reasonably optimistic that we'll be able to report some good news at the house. I think on the couple of prospects that we are in discussions with, both could see some income in that asset, a substantial part of that asset, if not all, by the back end of the financial year. We might see one or two months of income potentially from that asset. They're big tenancies, and they'll take time to fit out. We're hoping we might generate a little bit of upside.
I think the key differentiator to appreciate, Solomon, is that that tenancy is not a regular office tenancy. It's a historic building, two levels, very large floor plate in a basically a revitalized Goodshed historic building. I think it stands apart from our traditional, you know, multi-story office tenancy. That's what we have noticed. There's been some appeal by prospective tenants because of that differentiated nature of the tenancy.
Hopefully we'll have some more update at the house. We're hoping.
Great. Maybe just final question on the capital partnering side of things. I know that it is still a priority for the group, but would you anticipate transactions in FY 2026 on this front?
That is the intent and the hope. We are progressing a couple of things at the moment. I think hopefully we can see some more color on that at the house. If not, you'll maybe see some announcements before. That is the intention.
Thank you.
I would now like to pass the call over to management for any webcast questions. Please go ahead.
Yeah, we have a couple of questions on the line, which I've just got rid of the screen. An update on continuing to divest non-core assets. That's a constant focus. I think as every six months, 12 months go by, we look at business plans for assets, understand how they're sitting in the market, what their leasing challenges or opportunities are, and where we can best place potentially that equity. You know, we've talked often about our building in Alara Street in Canberra. It's the only building we have in Canberra. As Kevin mentioned, that's got some federal government agencies that are in discussions about extensions and/or exiting.
We do have a number of other buildings, the Brisbane Club asset in Brisbane, the Alexandra asset, which are smaller scale assets, all of which are in the mix as non-core assets that could potentially be disposed of over the next 12 or 24 months. You know, we also obviously have a keen eye on the strategic stake that we have in ASK. That's a very large asset for the balance sheet and potentially, you know, provides enormous capacity back onto the balance sheet if and when that was to be realized. One of the other questions we have is in respect of surrender fees. We're not budgeting for additional surrender fees over and above. However, we do note, and I think we did discuss this at the house.
We do see this as part of the active asset management leasing strategy, where we have the capacity to negotiate with tenants, taking space back earlier and releasing it at or above those existing face rent operating metrics. I think those were the main questions that we have on the web. If that's the end of all the questions, I will draw the call to a close. Thank everybody for their attendance and happy Monday. Thank you.