Thank you for standing by, and welcome to the Australian Unity Office Fund half-year results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you do wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Ms. Nikki Panagopoulos, Fund Manager. Go ahead, thank you.
Good morning, thank you. Good morning, everyone. Thank you for joining us, and welcome to Financial Year 2024 half-year results announcement for the Australian Unity Office Fund. My name is Nikki Panagopoulos, and I'm the Fund Manager for AOF. I am joined by Simon Beake, the Portfolio Manager. Earlier today, we published various documents on the ASX, including the interim report for the half-year ended 31 December 2023, Appendix 4D, AOF's property book, and the investor presentation, which we'll go through this morning. Following the presentation, we will have time for Q&A. Turning to slide 2. Before we start, I would like to take this opportunity to acknowledge the traditional owners of the lands and waters within Australia and recognize the important connection to Country that Aboriginal and Torres Strait Islander people have.
Today, I will provide you with an overview of the half-year 2024 activities, including the financial results, and provide the outlook and guidance. I will also discuss the various alternate use strategies being investigated for all assets as a way to maximize value for unit holders. Turning to slide 3. During the half-year, AOF continued to deliver on its strategies. From a portfolio perspective, we sold 96 York Street, Beenleigh in January 2024, with settlement expected over the coming months. The settlement proceeds will continue to strengthen the balance sheet. We independently valued four remaining assets as of 31 December 2023, resulting in a weighted average capitalization rate of 7.13% and a net tangible asset of AUD 1.72 per unit. From an asset perspective, at 10 Valentine Avenue, Parramatta, the refurbishment works are well underway, with completion anticipated this financial year.
At 150 Charlotte Street, Brisbane, the refurbishment plans are finalized, with design documentation and early contractor engagement progressing. Distributions for the half-year to December 2023 total AUD 0.028 per unit, and distribution guidance of AUD 0.015 per unit is provided for the March 2024 quarter. AOF's capital position remains robust, with AUD 5 million of debt drawn against a debt facility limit of AUD 81 million. The drawn debt is expected to be repaid from the settlement proceeds of 96 York Street, Beenleigh, and the debt facility limit is expected to reduce to AUD 60 million from AUD 81 million. Turning to slide 4. Following the settlement of 96 York Street, Beenleigh, AOF's portfolio will consist of four assets. All four assets were valued at 31 December 2023, with the portfolio weighted average capitalization rate expanding to 7.13%, representing value of circa AUD 5,800 per square meter.
AOF's occupancy is 93% by net lettable area. This excludes 10 Valentine Avenue, Parramatta, which is undergoing refurbishment and is vacant. Portfolio occupancy inclusive of 10 Valentine Avenue, Parramatta, is circa 60%. Turning to slide 5. At 10 Valentine Avenue, Parramatta, the refurbishment works to upgrade the property and introduce a new state-of-the-art end-of-trip lobby, and enhanced new entry of Valentine Avenue are well underway with 65% of the project completed. The on-floor works have been completed, and the end-of-trip lobby works and new entry are anticipated to be finalized by April 2024, with a services upgrade and external works this financial year. At 2 Valentine Avenue, the adjoining car park, 113 car parking bays have been licensed to the New South Wales Government, of which 94 bays are on a five-year term and 19 bays are on monthly terms.
The remaining car parking bays are rented to Secure Parking with flexibility to take back the bays for 10 Valentine Avenue future leasing requirements. The Parramatta office market vacancy rate remains high at circa 24%. However, positive net absorption was witnessed in the December 2023 quarter. Prime yields currently sit between 5.9%-7.25%, with secondary yields between 6.5%-7.5%. Turning to slide 6. At 2 to 10 Valentine Avenue, various development approvals are in place to create a precinct Valentine Place.
These are: a development approval to build a 28,000 square meter office tower at 2 Valentine Avenue, which is currently a car park. A development approval to reclad and extend the existing office floor plates at 10 Valentine Avenue by a total of circa 5,000 square meters to a maximum of circa 20,000 square meters. And a development approval to integrate 2 and 10 Valentine Avenue with an enhanced ground floor lobby and podium. Amalgamated, the development approvals would create Valentine Place, a precinct of circa 48,000 square meters of net lettable area of A-grade office cementing the southeast corridor of the Parramatta Central Business District. We have also considered alternate uses for 2 Valentine Avenue as a way to maximize value for unit holders.
These include: an opportunity to reposition 2 Valentine Avenue as a build-to-rent development via a design competition planning process with the Government Architect NSW. The build-to-rent planning is being progressed, with a competition process expected to be concluded late April 2024. A state-significant development application will need to commence thereafter. The plan will consist of a maximum allowable gross floor area of circa 37,000 sq m on the southern end of the site and may elect to pursue the state's newly released affordable housing incentive. The affordable housing incentive consists of a 30% increase in the residential floor space ratio and height in exchange for a 15% affordable housing provision.
Key features of the plan would include high-quality build-to-rent and co-leasing apartments, studios, 1, 2, and 3 bedrooms, and associated communal areas. Retail and lobby floor space in the lower levels. Basement parking, which would also replace the existing car parking for 10 Valentine Avenue. Turning to Slide 7. At 150 Charlotte Street, Brisbane, concept plans for the refurbishment works enhancing the ground floor amenity, including the introduction of third space, podium level, end-of-trip facilities, meeting rooms, and wellness centre, have been finalized, and detailed design is progressing. The tender process has concluded, and early contractor involvement commenced. The refurbishment works have target completion dates of mid-2024 for the end-of-trip wellness centre and podium and quarter 3 2024 for the lobby and external façade. The property is 97% occupied, and a new short-term lease over 2 floors has been agreed with Boeing Defence Australia. The lease commences 1 July 2024.
Brisbane market fundamentals remain strong. The CBD total vacancy rate reduced to 11.1% as of December 2023, down from 13.9% as of December 2022, with circa 40,000 square meters of net absorption for the year. Prime yields currently sit between 5.5%-7%. 150 Charlotte Street has potential alternate use opportunities. Subject to council approval, an opportunity exists for an office redevelopment which would increase the site area by 65%, with current planning regulations allowing for the height to be increased to approximately 170 meters. This would result in approximately 36,000 square meters of total net lettable area and additional 25,000 square meters. Alternatively and concurrently with the refurbishment strategy, a concept design for up to 40,000 square meter build-to-rent development is being progressed, with the concept design and feasibility analysis to be completed. Turning to slide 8. At 468 St Kilda Road.
Kilda Road, Melbourne, concept plans to refurbish the entry lobby, introducing new third space including meeting rooms, and a repositioned and upgraded end-of-trip facility are underway. Speculative fit-out concept designs to achieve enhanced leasing outcomes are also progressing. The property is currently 83.5% leased, with a weighted average lease expiry of 3.6 years at 31 December 2023. The St Kilda Road vacancy rate was 18.4% as of December 2023, with negative net absorption of circa 24,000 square meters over the six months to December 2023. 468 St Kilda Road has alternate use opportunities, with the concept design for build-to-rent proposal being progressed. Investigations are underway to both repurpose the existing concrete structure with additional levels and extended floor plates, in addition to a complete demolition and rebuild. The site would yield between 18,000-21,000 square meters of gross floor area, respectively approximately 350 apartments with communal amenity.
Concept design completion is anticipated in March 2024. Turning to Slide 9. 64 Northbourne Avenue, Canberra, is located on a prominent corner in the Canberra CBD, within the Prime Retail Precinct and near the city bus interchange and the main station of the Canberra Light Rail Network. Concept plans are underway to refurbish the ground floor lobby, creating an integrated café and third space amenity. The property is currently 98.5% occupied. The Canberra CBD vacancy rate is the lowest nationally at 8.3% as of December 2023 and well below the 10-year average of 11.1%. The CBD market witnessed positive net absorption for the 12 months to December 2023. Prime office yields range from 6%-7.5%. 64 Northbourne, Canberra, has potential alternate use strategies subject to council approval.
The zoning within the city center allows for various uses, including build-to-rent, residential, retail, and hotel, and an opportunity exists to introduce between 12,000-14,000 square meter mixed-use developments. Feasibility analysis to determine the best and highest use for the site, likely being refurbishment of the existing office asset or build-to-rent, is progressing. Additionally, potential site amalgamation offers further redevelopment options. Turning to Slide 10. AOF's Funds From Operations for AUD 0.04 per unit with ordinary distributions of AUD 0.028 per unit. FFO reflects the refurbishment of 10 Valentine Avenue, which was vacant during the half-year. Net tangible assets of AUD 1.72 per unit reflects the independent valuations as of 31 December 2023, with 96 York Street, Beenleigh carried at its sale price. AUD 5 million of debt was drawn at 31 December 2023.
The drawn debt is expected to be repaid from the settlement proceeds of 96 York Street, with the balance to be held as cash. Post-settlement, the debt facility limit is expected to reduce to AUD 60 million from AUD 81 million. The debt facility expires in March 2025. AOF had 0.3% gearing as of 31 December 2023, with interest cover ratio 9.2 times against a minimum of 2 times covenant and the loan-to-value ratio of 1.7% against the 50% maximum covenant. Turning to slide 11. We remain focused on maximizing returns for investors, including being opportunistic with asset sales and delivering on refurbishment outcomes, leasing, and occupancy. AOF provides distribution guidance of AUD 0.015 per unit for the March 2024 quarter and will continue to provide guidance on a quarterly basis. In closing, I thank you for your time today and for your investment in AOF.
We look forward to continuing to advance the priorities listed and providing an update to investors in due course with a focus on maximizing unit holder returns. This concludes the formal part of our presentation. I will now pass you back to the moderator for Q&A.
Thank you. If you do wish to ask a question, please press the star key, then one, on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the star key, then two. If you are on a speakerphone, please pick up the handset to ask your question. Thank you. Your first question is from Leanne Truong from Ord Minnett. Go ahead. Thank you.
Good morning, Nikki. First question, just with 96 York Street. Is that unconditional now, or are you still waiting for approvals there?
We're still waiting for the minister's consent for the contract to go unconditional, essentially. And that's underway. So the minister and the purchaser are discussing that. And what's the likelihood of that being approved?
Look, it's just a matter of process, Leanne. It is just a process aspect that is part of the Queensland transaction. So we don't expect it not being approved. It's just about timing. It needs to work within the timing of the minister's approval process.
And then obviously, when that settles, can you just run through what, I guess, your cash flows will be? I mean, obviously, you've still got some refurbishment to go on 10 Valentine Avenue and then also maybe leasing CapEx expectations for that asset.
Yes. I'll pass over to oh, I was going to pass over to Simon just to bring him in.
But I'll just say that we're expecting net proceeds of roughly AUD 28 million. We will use those proceeds to repay the debt, which will be 10 Valentine, the remainder of the 10 Valentine refurbishment. So we assume that roughly AUD 20 million will be repaid, which probably leaves us with a remaining AUD 8 million in cash. We then have roughly AUD 20 million for leasing incentives at 10 Valentine Avenue, refurbishment and leasing at 150 Charlotte of another roughly AUD 20 million and just other general CapEx for refurbishments at 64 Northbourne and 468. And that will all be covered under the debt facility.
And just the final question from me. Are you expecting any make-good payments for 150 Charlotte? And if so, how much? And when do you expect to receive that, I guess?
Well, the Boeing lease has got limited make-good, and it just references specialized areas.
And we've worked through what those specialized areas are and in line with their lease expiry that Boeing are able to make good or in lieu of making good, make a payment. So we're just working through that at the moment. And that will sort of come through in line with their lease expiry at 30 June 2024.
Yep. Thank you. That's it from me.
Thank you. Your next question is from Murray Connellan from Moelis Australia. Go ahead. Thank you.
Morning, Nikki. I was wondering whether you could just give us a bit of color on the early-stage plans that you've outlined on the alternative use studies that you're doing at 2 Valentine and 468 St Kilda Road.
Are there any sort of near-to-medium-term capital implications that are being considered on AOF's balance sheet, or is this more just exploring the optionality of these assets that could potentially be executed by someone else?
Yeah. Thank you, Murray. Good question. Yes. At this stage, and it is just exploring the optionality, there's no expected cost application to AOF to undertake these works. But as part of maximizing unit holder returns, just understanding what those assets, highest invest use, could be. And we're just exploring if the build-to-rent options are available and it's been identified that they are and just working through what that means from a feasibility and just early design concepts to determine that feasibility aspect as well.
Thanks. That's it from me. Thank you.
Once again, if you do wish to ask a question, please press the star key, then one, on your telephone and wait for your name to be announced. Thank you. There are no further questions at this time. I will hand back to Miss Panagopoulos for closing remarks.
Thank you, everyone, for your time today. That completes the presentation. We'll make this webcast and audio call available on AOF's website, australianunityofficefund.com.au, as soon as possible. Thank you again for your investment and your time.
Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.