Good morning, everybody. Thanks for taking the time to join us for the half year 2026 results for Abacus Group. I'm joined here today by Evan Goodridge, the CFO for the group, and Kevin George, General Manager, Commercial and Fund Manager, as well as the Investor Relations team. Abacus Group remains a diversified commercial REIT, with a portfolio of office and retail assets, alongside our strategic stake, 19.7% investment in Abacus Storage King. As at 31 December 2025, the portfolio was valued at AUD 2.6 billion, with a weighted average cap rate now sitting at 6.81%. During the period, we saw several positive trends. Underlying office operating earnings grew 5.8% year-on-year.
When excluding surrender fees, when excluding surrender fees, retail earnings grew 4.5%, and administrative and other expenses declined 8.1% as the business further right sizes to support our future earnings growth. We were pleased to declare a AUD 0.0425 per share distribution in line with HY 2025, and gearing of 34.5% remains within our target range and appropriate, we believe, for this stage of the cycle. Our vision and strategy for Abacus Group remains clear: to create long-term value for customers and stakeholders by identifying, identifying, owning, and managing a focused portfolio of real estate investments. In delivering this, we remain disciplined in our strategy, concentrating on select real estate sectors where we have capability and see sustainable income growth.
Underpinning all of this are our values: being entrepreneurial in our approach, responsible in how we act, and accountable for the outcomes we deliver. These principles guide how we deploy capital and how we operate the business day-to-day. Building on that strategy, our focus now is applying that framework to close the gap between our security price and the net asset backing of the group. Our NTA per security stands at AUD 1.73, up 0.6% on FY 2025. In terms of composition, our office portfolio contributes AUD 1.65 per security, retail assets AUD 0.47, our ASK ownership AUD 0.52, and other tangible assets, such as cash, contribute AUD 0.24 per security.
A key part of narrowing the gap will be our continued portfolio curation and simplification, concentrating our capital in institutional, predominantly A-grade office and select retail assets that offer sustainable income growth and long-term liquidity. To support this, we will continue to sell non-core assets and recycle this capital into higher quality A-grade office, with strong tenant amenity and connectivity, consistent with what institutional investors are seeking in the current market. Assets such as our office here in Sydney at 77 Castlereagh Street and our single asset in North Sydney at 99 Walker Street, are both great examples of the type of high-quality holdings we see forming the foundation for future capital deployment and supporting a clearer path forward towards closing the security price gap to NTA. Turning to the highlights for the half year. We delivered a solid performance across our commercial portfolio.
Our underlying office performance was supported by strong leasing metrics, including 7.2% positive average leasing spreads, with 9.8% leasing spreads on new deals. Our portfolio in retail performed well, again, supported by positive leasing spreads of 5.3% growth and strong occupancy. Our Gold Coast Shopping Centre asset, the Oasis, continued its strong recent momentum, driven by the increased tourism and traffic activity through Broadbeach and the wider Gold Coast region. Our self-storage return on investment earnings and fee income from ASK continued to contribute meaningfully to the group's results, complementing the performance of office and retail. As many of you would have seen, we've announced on the fourth of February that ABG has commenced discussions with ASK regarding the potential internalization of ASK's management functions.
These discussions remain at an early stage, and there is no certainty today that a transaction will eventuate. We will continue to update the market as appropriate throughout this process. We continued to progress non-core asset sales, and during the period, exchange contracts on 241 Adelaide Street in Brisbane and the Camellia Block in Parramatta. 241 Adelaide is now settled post-balance date, and Camellia is expected to settle in the third quarter of this calendar year. Once these assets settle, it will support a reduction in gearing of almost 2%. I'll now hand over to Evan to discuss the financials.
Thanks, Steven. Good morning. The first half of financial year 2026 has been a period of operational discipline 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, self-storage investment returns, and investment management fees.... Breaking this down. Reported office earnings increased by 0.6%, with the growth impacted by lower one-off surrender fees of AUD 0.3 million in HY 2026, compared to AUD 2.4 million in HY 2025. Excluding surrender fees, office operating earnings grew 5.8%. This underlying growth was driven by improved leasing fundamentals and active management, particularly in our two Sydney CBD holdings at 201 Elizabeth Street and 77 Castlereagh Street.
An important swing factor for second half earnings will be the pace at which we continue to lease up existing and ensuing vacant space across the portfolio, which Kevin will shortly update you on. Retail delivered like-for-like growth of 4.5%, driven by strong underlying leasing fundamentals, our Oasis Shopping Centre Broadbeach. Self-storage contributed AUD 8 million in earnings from our 19.7% ownership of Abacus Storage King, or ASK, down 7% on HY 2025. ASK has increased its investment in stabilizing and development assets, impacting current period returns, albeit driving medium-term growth. Investment management and other income contributed AUD 13.1 million, with the vast majority of our fees derived from our management of ASK. We are currently forecasting higher development management fees in the second half of approximately AUD 3 million, with several larger self-storage projects anticipated to reach completion.
Total operating earnings for the period were AUD 80.4 million, down 2% on HY 2025, primarily due to the lower surrender fees and divestment of non-core retail assets in the prior period. What is particularly pleasing is the improvement in our administrative and other expenses. Our admin costs have decreased by 8.1% to AUD 15.8 million, driven by reduced headcount, streamlining of systems and improved operating efficiency. This reduction demonstrates our commitment to operational discipline and building a more scalable platform for future growth. The group's average cost of debt for HY 2026 was 4.5%, down from 5.1% in HY 2025. Looking forward, while there remains uncertainty around the interest rate outlook, our strong hedging position at 81% provides material protection against potential rate movements.
For the six-month period to December, the group delivered funds from operations of AUD 0.0449 and a distribution of AUD 0.0425, of which 50% is fully franked, in line with HY 2025. For the half, we were at the top of our payout ratio range of 85%-95% of FFO and are currently forecasting that our full-year FY 2026 results will provide a similar payout ratio. This forecast is subject to the continued success of our re-leasing program and no material deterioration in current business conditions, including the ongoing management of Abacus Storage King. Steven will further discuss the group's outlook and guidance later in the presentation. We continue to adopt a disciplined approach to capital management.
We have significant financial flexibility with gearing at 34.5%, comfortably below our target ceiling of 40%, and acquisition capacity of over AUD 200 million. Our hedge cover sits at 81%, providing material insulation against potential interest rate volatility. We are forecasting an all-in cost of debt over the next 12 months of 4.5%, and our hedging profile means we are well protected against potential rate rises in the period ahead. We have no near-term refinancing requirements and remain well supported by our core lenders. As Steven mentioned, we exchanged contracts to divest two non-core assets, 241 Adelaide Street in Queensland and Camellia Site in New South Wales, for total consideration of approximately AUD 75 million.
These divestments continue our disciplined approach of rightsizing the balance sheet and will contribute to a pro forma gearing reduction of approximately 2%, assuming proceeds are directed toward debt reduction. Our limited short-term capital requirements, with no committed developments, provide us with significant capacity and flexibility as we evaluate opportunities in the market. Turning to valuations. Half-year valuations have been impacted by a 4 basis point expansion in cap rates, partially offset by solid income growth, resulting in an overall value movement that was broadly flat for the period. Since pre-COVID, our office values have reduced by around 30%, with our weighted average cap rate now sitting at 6.81%. While we remain mindful of the potential for valuation variability in a rising interest rate environment, leasing activity has improved and current indicators suggest market stabilization.
Against this backdrop, our focus remains on executing our strategy, rightsizing the portfolio, driving operational efficiencies, and positioning ourselves to capitalize on market opportunities as they emerge. I'll now hand over to Kevin, who will discuss the group's operating performance.
Thanks, Evan. Our office portfolio remains resilient, supported by the continued SME flight to value thematic, demand for flexible fitted space and stronger tenant engagement across our assets. The portfolio delivered 2.3% like-for-like rent growth at the half, driven by 7.2% leasing spreads, 3.6% average rent reviews, which was partially offset by lower physical occupancy compared to the prior period. Occupancy of 89.5% was slightly down from FY 2025 as a result of the surrendered space at 99 Walker Street and 324 Queen Street, being 850 sqm and 3,500 sqm respectively. At 324 Queen Street, around 80% of this rented space was re-leased during the half.
At 99 Walker Street, the floor has been subdivided into three suites, with work completed in December, active marketing now underway, and three of the four suites at heads of agreement. We completed 28 leasing deals covering 15,000 sqm , excluding Virginia Park in the half, with an average deal size of 520 square meters in the investment portfolio. A weighted average lease expiry of 3.4 years remains consistent with our 60% SME weighted customer base, who typically commit to three to five year terms. Moving to our office leasing metrics. New deal incentives remain elevated, particularly on larger spaces, but we are encouraged by a reduction in our renewal incentives as competing supply continues to tighten. New deal incentives averaged 37% for the half, compared with 14% for renewals, skewed by a retail renewal at 324 Queen Street.
Excluding this renewal, incentives were 26%, down from 31% in half 2025. The higher new deal incentive average reflects several larger transactions that included early surrender fees. Looking ahead, we expect incentives to continue moderating, particularly in Sydney and Brisbane, where prime CBD vacancy is tightening and new supply remains limited. Turning now to our lease expiry profile. Around one-third, our total vacancy relates to 710 Collins Street in Melbourne, where two Victorian Government departments vacated 6,400 sqm and 3,900 sqm respectively. Our leasing campaign for this space is progressing, with further fit-out enhancements scheduled to commence soon. We've made a good start to leasing in the second half of FY 2026, with approximately 25%-30% of current vacancy at heads of agreement or in advanced negotiations.
Notably, 83% of vacant spaces are either spec fitted or fitted with recycled existing fit outs, providing us with an opportunity to minimize downtime. Now to our retail assets, which remain a small but stable part of the commercial portfolio, representing 16% of our balance sheet at 31 December. Two high quality assets, the flagship Myer Melbourne and Oasis on the Gold Coast, enjoy an average occupancy of 97.1% and offer strong long-term income potential. Retail operating earnings grew 4.5% in half 2026, supported by higher occupancy and solid net face leasing spreads. At Oasis, strong tourism and event activity across Broadbeach and the wider Gold Coast continues to underpin demand, reflected in consistent MAT growth over the past five years. This strength contributed to a 25 basis point cap rate tightening in half 2026.
At Myer Melbourne, we continue to benefit from fixed 4% annual rent reviews, and the asset remains 100% occupied with a six-year WALE. Abacus continues to view Myer's triple net lease favorably. Finally, turning to self-storage. Our 19.7% stake in ASK continues to provide a stable income stream and represents a highly liquid investment of approximately AUD 400 million within the portfolio. In half 2026, the group generated AUD 8 million in ROI earnings from ASK, supported by RevPAM growth of 1.5% or 2.9% when excluding New Zealand, with average rents increasing to AUD 377 per square meter and occupancy remaining strong, 19.5%. Thank you. I'm going to hand back to Steven for his concluding remarks.
Thanks, KG and Evan. As Kevin outlined, our commercial portfolio continues to perform well. The group has a scalable platform that we continue to review and monitor where we can make efficiencies. The group sits in an exciting juncture to consider our focus for the medium term. We're pleased to affirm FY 2026 distribution guidance of AUD 0.085 per security. That will reflect a payout ratio in a range of 85%-95% of FFO, assuming no material decline in current business conditions, including the management of ASK. As I mentioned, we have announced on the 4th of February that the group has commenced discussions regarding the internalization. We will continue to update the market in accordance with our continuous disclosure obligations. That ends the formal remarks of the presentation. I look forward to taking any questions or alternatively, meeting with you in person in the weeks to come.
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 and click Submit. The first phone question today comes from Larry Gandler from Shaw and Partners. Please go ahead.
Thanks, guys. Well done on the result. A few questions from me. Stephen, just as you monetize a couple of assets there, what sort of opportunities do you think you could put that into? I'm particularly thinking Melbourne. How do you feel about the Melbourne market at the moment?
Yeah, I think in order of priority, we would be more inclined to go to Queensland and New South Wales. I think, you know, when we look at the medium to long-term growth prospects, they're the markets that we see, and certainly from a leasing positive trajectory, that's where we would see most tenant demand coming through. I don't think we would be an active investor into the Victorian market at the moment.
Okay, that's great. Evan, my other question pertains to the cash flow statement. CapEx has come way down, and I'm just wondering if that is related to the fact that you've got a large portion of your available space already spec'd out, and also that maybe incentives are starting to diminish. If not, is there some sort of timing element there?
In part, it is because we've fitted out a lot of the, the space. Part of it as well is we had legacy retail assets that we sold last year, and retail is quite CapEx intensive, and it is part timing. We do see more maintenance CapEx in the second half of the year compared to the first half of the year.
Okay, perfect. Thanks, guys. That's it for me.
Thank you. Once again, to ask a question via the phones, please press star one. The next phone question comes from Callum Bramah from Macquarie. Please go ahead.
Morning. I was just hoping you could maybe give us a little bit of color about what, if any, outstanding swing factors there are going into the second half with your guidance. I, I took from it, I guess, Evan's comment that you're expecting to be at that upper end of the payout, right, at 95% of FFO? Just if there's anything that you see as a key swing?
Yeah. Thanks, Callum, it's Evan. One of the things that I said in my speech was, we expect development management fees for ASK to be about double that of the first period. The first period was about AUD 1.6 million, and we're approximately AUD 3 million, maybe even slightly higher than that in the second half. Probably the other factor is, as I just said to Larry, about the maintenance CapEx and the tenant incentives. As I look forward, obviously, tenant incentives will be dependent on the success of the leasing, but the maintenance CapEx just looks to be a little bit back-ended in the second half.
Okay. Are you able to give us some idea of maybe what you are factoring in the way of leasing, into the second half?
Yeah. In, in the presentation at the back, we, we sort of break down for you what the maintenance CapEx, the tenant incentives CapEx, and the tenant incentives are for the half. You can see that that maintenance CapEx is only AUD 4.5 million compared to the prior period of AUD 7 million. I think that'll come close to what we did for the full-year 2025 again in FY 2026.
Okay. Do you mind just commenting around what the asset sales that were completed were done at relative to book value?
Can. 241 Adelaide Street was sold at book value compared to what it was at 30 June. Camellia was a reduction. We had that in the books at about 60, and it's been reduced to AUD 55 million.
Yeah. Maybe just one last one, just in relation to other non-core asset sales, just how you're seeing market conditions at the moment and, and, you know, activity and, and pricing, et cetera. That'd be handy. Thank you.
Yeah, I think we're starting to see signs of people getting interested in, in office. I think it is predominantly in Queensland, New South Wales, a little bit in Canberra. We only have obviously one asset in Canberra. We have half an asset in Adelaide, and one or two of the smaller scale assets that sort of sit in that non-core sales. But I think, you know, pricing at this level of cap rates, there does seem to be a heightened level of interest from whether it be institutional capital syndicates, as well as some of the private capital players. We are seeing quite positive activity on that front and have some, some good discussions underway.
Thank you.
Thank you. At this time, we're showing no further phone questions. I'll hand the conference back to management.
Yeah, there was another question that came through the web, just on any further details on the internalization. I think as I mentioned in, in the presentation, it is very early days. The, the two independent boards, are scheduled to meet within the next week or 10 days. I think, you know, we will continue to update the market as and when, as and when those discussions, progress. Unfortunately, no other further details can be provided at this stage. I think that ends the presentation. We thank you all for dialing in, and, hope you have a great day.