Good day, and thank you for standing by. Welcome to Charter Hall Retail REIT 2022 full year results briefing. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Mr. Ben Ellis, Retail CEO. Thank you, sir. Please go ahead.
Good morning, and welcome to CQR's FY 2022 results. My name is Ben Ellis, and I'm the Retail CEO for Charter Hall and Executive Director of CQR. Joining me this morning is Christine Kelly, Head of Retail Finance and Deputy Fund Manager of CQR. I'd like to commence today's presentation with an acknowledgement of country. Charter Hall is proud to work with our customers and communities to invest in and create places on lands across Australia. We pay our respects to the traditional owners, their elders past and present, and value their care and custodianship of these lands. Turning now to slide five and our portfolio highlights for the period. CQR continues to deliver a resilient and growing income stream for our investors. The operating and financial performance of CQR has remained strong throughout FY 2022.
Operating earnings per unit were up 4% to AUD 0.284 for the year, and distributions per unit were up 4.7% to AUD 0.245. For the full year, we completed 480 leasing transactions, and we again achieved positive leasing spreads of positive 2.3%, up from 1.6% at June 2021. This strong leasing activity translated into portfolio occupancy of 98.5%, up from 98.3% at June 2021. Valuation growth across the portfolio was strong and increased by 13.1% or AUD 498 million, reflecting the attractive nature of the portfolio and the benefit of active portfolio curation towards higher quality assets, generating higher quality income growth.
This drove a significant lift in net tangible assets up 22.4% to AUD 4.91. Looking forward, we expect to see continued strong demand for convenience and long WALE retail assets as investors continue to see the value associated with their resilient income streams and inflation-linked rental growth as characterized in the CQR portfolio. As a result, today, I'm pleased to announce earnings guidance for FY 2023 of no less than AUD 0.286 per unit, representing growth of 0.7%, and distributions per unit of no less than AUD 0.257, representing growth of 4.9%. Turning to slide six and the REIT strategy. CQR's strategy is to be the leading owner of convenience retail property.
We achieve this by enhancing the portfolio quality through curation of assets we own, active asset management to drive strong rental growth, and maintaining as prudent capital position through a strong and flexible balance sheet. The result of our strategy is that we will continue to deliver a high quality, resilient and growing income stream for our investors, benefiting from an increased exposure to CPI-linked rental growth and CapEx-efficient triple-net leased long WALE retail convenience assets. Slide seven demonstrates the active curation of the CQR portfolio. Since 2017, we have divested 28 non-core assets valued at AUD 611 million. These assets were predominantly located in regional areas with single industry economies, had supermarket turnovers well below the CQR average, and faced both specialty and major tenant vacancy risk.
The proceeds from these asset sales were invested into eight high-quality metro and commuter metro convenience-based retail assets, dominant within their catchments. These properties benefit from high supermarket sales, strong specialty tenant rental growth, and surplus land allowing for pad site opportunities. Most importantly, since acquisition, these properties have delivered unlevered returns of 10.8% with NPI growth of 3.5% per annum. We will continue to explore opportunities to curate the portfolio towards higher quality convenience-based retail assets benefiting from higher quality and resilient income growth. Slide eight outlines how delivering on our convenience strategy has also driven strong income growth through our major tenant partnerships. Supermarkets have always been and remain the cornerstone of CQR's convenience retail portfolio.
They represent a significant portion of the REIT's income, and with CQR's above average turnover levels from both Coles and Woolworths draw significant footfall to our centers and support the trading potential of our specialty tenants. Five years ago, CQR had three leading convenience retailers, with Woolworths and Wesfarmers representing 98% of the REIT's majors income. Along with Aldi, these three tenant customers represented approximately 50% of the REIT's portfolio rental income, and there were no triple-net lease assets within the CQR portfolio. At the time, the percentage of supermarkets in turnover was a market-leading 53%, which even by 2022 standards, is still higher than our peer set.
In the five years since then, our supermarket sales have grown by 3% per annum, and the percentage of supermarkets in turnover rent has increased to a market-leading 62% with a further 18% within 10% of their turnover rent thresholds. Through active portfolio curation, today, the portfolio and major tenant rental growth profile looks significantly different. We now have seven major convenience retailers that collectively make up 56% of portfolio rental income. When adding annual CPI rent growth associated with the long WALE convenience retail portfolio to the average supermarket rent growth, our major tenants will deliver 2.5% rental growth in FY 2023. The addition of long WALE convenience retail assets to the portfolio now means that 31% of our majors rental income is linked to annual CPI rent reviews, and 28% of majors leases are CapEx efficient triple net.
Benefiting from the deep tenant customer relationships within the Charter Hall Group, we've actively curated the portfolio to increase our exposure to these major convenience retailers, positioning CQR to deliver stronger underlying rental growth from all tenant categories. Charter Hall's ability to access off-market opportunities like the BP, Ampol, and Gull portfolios, and to partner with other Charter Hall funds to diversify our exposure to leading major tenants is a clear competitive advantage. The CQR portfolio now stands apart from peers, given the REIT's broader exposure to a more diversified pool of major convenience retailers with a lower CapEx intensity due to the exposure to triple net leases and superior long-term growth characteristics through the security of our high-quality CPI-linked rental growth. Turning to slide nine and our most recent acquisitions.
In December, we were pleased to announce the off-market acquisition of a stake in 20 high-quality Ampol sites in partnership with Ampol. In June, we increased our exposure to Ampol through acquiring an interest in a Charter Hall partnership that earns a further 205 Ampol service stations. Importantly, these two investments introduce Ampol as another major convenience retailer to CQR's portfolio, increasing the fund's income from CPI-linked triple net leases and lifting the portfolio WALE. Ampol is now CQR's sixth-largest tenant customer and represents 1.8% of portfolio income. Post-balance date, CQR has also been successful in further increasing the long WALE convenience retail portfolio with the off-market sale and leaseback acquisition of the Gull portfolio in New Zealand.
This portfolio of 18 properties was acquired on a very attractive 6.4% weighted average cap rate and has annual CPI-linked rent reviews, a triple net lease structure, and is predominantly located in metro and commuter metro locations. Following settlement, Gull will be CQR's eighth-largest tenant customer and represent 1.4% of portfolio income. These two transactions continue to grow CQR's long WALE convenience retail strategy, and in doing so, enhance the growth and resilience of the REIT's income. All of CQR's acquisitions completed in FY 2022, including the Woolworths-developed and anchored Butler Central in Perth, were secured off-market by Charter Hall and directly from our major tenant customers, demonstrating the value of Charter Hall's management of CQR in providing access to opportunities unavailable to other REITs. Turning now to slide 10 in ESG.
CQR continues to be focused on managing our portfolio in a sustainable way that benefits the communities in which we operate and for our unit holders. We continue to make positive progress on a commitment to net zero carbon emissions by 2025. We now have 21 MW of solar installations commissioned, including 3 MW installed in partnership with Coles and Woolworths. We have also commenced our battery rollout program with 7 MW installed, maximizing our on-site solar utilization. CQR has also participated in Charter Hall's group-wide 7-year power purchase agreement with global renewable energy giant ENGIE to integrate grid supply renewables with on-site solar. Now turning to slide 11 and our social achievements. Our ESG commitments extend to recognizing the important role our centers play within their respective communities. Over the period, we continued to undertake a range of localized community initiatives.
In particular, we supported the Murwillumbah community following the devastating floods, providing weekly lunches to 699 primary school students across six primary schools over a period of 12 weeks. Once again, we celebrated NAIDOC Week across 74 schools and in collaboration with 1,300 students to acknowledge the importance of the history, culture, and achievements of Aboriginal and Torres Strait Islander peoples. We also continued our important partnership with the Two Good Co, supporting them in their vision of making a difference to every woman and child impacted by domestic violence and to bring harmony and security to every Australian. All these initiatives support social value outcomes that build resilient, healthy, and happy communities. I'll now hand over to Christine to talk through the financial results for the period before moving on to the operational performance in more detail.
Thanks, Ben. Our operating earnings and distributions can be found on slide 13. We delivered operating earnings of AUD 164.4 million or AUD 0.284 per unit, and distributions of AUD 142.1 million or AUD 0.245 per unit for the 12 months to 30 June 2022. This reflects growth of 4% and 4.7% respectively on PCP. Our operating earnings payout ratio of 86.3% accounts for adjustments to operating earnings for COVID-19 support and capital expenditure during the period. Absent of COVID-19 support, the payout ratio would have been 91%. Total net property income has risen 7.1% to AUD 221.6 million.
This income growth has been driven by same property NPI growth of 3.5% and our off-market investments in Butler Central and Ampol portfolio in FY22, and the full year impact of the BP New Zealand portfolio acquisition in December 2020. The 3.5% same property NPI growth reflects strong specialty performance, delivering a reduction in loss rent and continued positive leasing spreads, coupled with the solid performance of our major tenants, resulting in both base rent and turnover rent increases. Finance costs and other expenses have increased, reflecting the net portfolio growth of off-market acquisitions, capital spend, and valuation growth. Consistent with prior reporting periods, our operating earnings includes recognition of income for those tenants that were provided COVID-19 tenant support. The AUD 5.4 million of rent-free incentives agreed are included in operating earnings and have been capitalized.
The AUD 2.7 million of rent deferrals, offset by a AUD 0.6 million increase in expected credit loss, has been included in operating earnings and recognized in property income. The AUD 0.6 million remains unchanged from December 2021 and remains low, reflecting our strong debt collections. Only 0.3% of FY 2022 billings remain outstanding, and over 70% of the deferred rent provided since FY 2020 has been repaid. For the period, the primary increase in statutory profit is due to the positive valuation movements. A reconciliation of statutory profit to operating earnings and distributions can be found in Annexure 2 of the presentation. Turning now to slide 14 and the balance sheet.
Our total property portfolio value increased by AUD 652 million over the year, with positive valuation movement of AUD 498 million and the AUD 154 million of off-market acquisitions. Borrowings have increased to AUD 176 million, primarily due to the acquisitions and capital investment, offset by DRP proceeds for the period. The primary impact on other assets and other liabilities is the movement in derivatives. The NTA has increased 22.4%, or AUD 0.90, from AUD 4.01 to AUD 4.91. Over 80%, or AUD 0.74 of the NTA growth, is driven by the strong valuation gains over the period, with the mark-to-market movements on our interest rate hedges contributing AUD 0.12 to NTA. Our key valuation metrics are shown on slide 15.
100% of the portfolio was revalued externally as at 30 June 2022, with the portfolio value increasing from AUD 3.6 billion-AUD 4.3 billion. Portfolio valuation growth of 13.1%, or AUD 498 million, was split 40% from income growth and 60% from cap rate movement, demonstrating the quality and resilience of the portfolio and our continued commitment to active asset management. The shopping center portfolio delivered 13.8%, or AUD 406 million of valuation growth, and the Long WALE Convenience Retail portfolio, 10.6%, or AUD 92 million. Both segments experienced cap rate compression, with 67 basis points compression in the shopping center portfolio and 36 basis points in the Long WALE portfolio, resulting in a total portfolio cap rate of 5.2% as at 30 June.
With continued income growth from our convenience-based shopping centers and the majority of our Long WALE Convenience Retail having annual CPI reviews based off September 2022 CPI, we expect valuations to be well-supported going forward. Slide 16 shows the key highlights of our capital management. Our AUD 245 million of liquidity at 30 June remains strong at AUD 187 million post the acquisition of the Gull portfolio in August. The weighted average debt cost over FY 2022 was 2.7%, with our forecast weighted average cost of debt for FY 2023 increasing 50 basis points to 3.2%. The 3.2% is a reflection of existing 83% hedging in FY 2023 and forecast BBSY of 2.7%, reflecting three months of debt already rolled, plus nine months forecast average of 2.9%.
Multiple refinancing totaling AUD 570 million over FY 2022 reduced FY 2024 maturities by AUD 320 million, with only AUD 50 million outstanding in FY 2024, with a weighted average debt maturity of 3.9 years. We also increased our debt capacity by AUD 100 million. Weighted average drawn margin across the portfolio is now 1.5%. Our interest rate hedging reflects the REIT putting in place proactive hedging in February this year at market rates. Hedging for FY 2023 is at 83%, with our average hedging over the next three years at 56%. We continue to monitor the hedging market to ensure that we deliver growing returns for our unit holders.
Our balance sheet gearing remains low at 25.5%, and look-through gearing is at the low end of the 30%-40% range at 32.1%. The gearing levels have increased approximately 1% following the off-market acquisition of the 18 Gull sites in August. We are comfortably within our gearing and ICR covenants, and during the period, Moody's reaffirmed our Baa1 issuer rating with a stable outlook. Now back to Ben to present the operational performance of the fund and our outlook.
Thanks, Christine. Turning now to slide 18 and the portfolio summary. While some COVID-19 disruptions continued in FY 2022, the resilience of CQR's assets remain evident, and we continue to benefit from our strategy of being the leading owner of convenience retail properties. During the period, our shopping center occupancy improved from 98.3% to 98.5%. Portfolio MAT growth remained positive at 0.4%, despite the impact of government-mandated store closures. This is a strong result when considering that 67% of the retail specialty and DDS sales are generated from Victoria and New South Wales, which were heavily impacted by mandated store closures between July and October 2021. Pleasingly, retail sales continue to rebound with Q4 FY 2022 total portfolio sales growth of 13.8% above pre-COVID levels.
Portfolio WALE remains stable at 7.4 years from the off-market acquisitions of Ampol, specialty leasing activity, and majors lease extensions. Christine's outlined, strong valuation growth, coupled with off-market acquisitions, has seen the portfolio value increase 18% to AUD 4.3 billion. Importantly, the portfolio now has 19% of total income growth directly linked to CPI, with a further 36% of total income growth indirectly linked to inflation through turnover rent mechanisms. Moving now to slide 19, outlining our tenant customer composition in more detail. We are pleased to have added Ampol and Gull to our portfolio, increasing the diversity of our major tenant customers and increasing our total portfolio income from major tenant customers to 56%, strengthening the resilience and certainty of CQR's income stream.
As mentioned earlier in the presentation, as a result of this active portfolio curation, major tenant rental growth is expected to grow at 2.5% in FY 2023, up from an average of 1.2% over the past five years, providing a significant earnings benefit for CQR unit holders. Across the major supermarket providers, we remain well-balanced between Coles and Woolworths and continue to partner with Aldi to expand their footprint within the portfolio. Wesfarmers now represents 7.7% of portfolio income with the successful acquisition of API. Importantly, when we look at our exposure to any one specialty retailer, it remains limited, and we retain a clear bias towards everyday needs and convenience-based retail, food, and services. Turning now to slide 20 and our long WALE convenience retail portfolio.
Our Long WALE convenience retail assets now represent 23.4% of CQR's portfolio value and 18% of total portfolio income. These assets are predominantly all triple net, meaning they are CapEx efficient and provide a true AFFO yield for CQR investors. Their rent review mechanisms are majority CPI-linked, delivering meaningful income growth to the portfolio, with the Long WALE convenience retail major tenant growth forecast to be 5.1% in FY 2023. These Long WALE convenience retail assets complement CQR's existing convenience-based portfolio and provide valuable diversification benefits, enhanced WALE, and strong major tenant income growth. Turning now to slide 21 and discussing our supermarkets in more detail. Supermarkets remain the foundation of CQR's convenience-based shopping center portfolio. During the period, supermarkets delivered MAT growth of 3.2%.
The number of supermarkets in turnover remains high at 62% with a further 18% within 10% of their turnover rent threshold. In an ongoing and elevated inflationary environment, turnover rent and CQR's high percentage of stores paying within 10% of turnover thresholds provides valuable earnings growth exposure to inflation. This is unique to CQR and not as readily available in less mature portfolios. We continue to work closely with our anchor tenants, and during the year, we completed nine new supermarket leases and term extensions. Charter Hall's tenant customer relationship focus has also helped Coles and Woolworths deliver direct-to-boot facilities across the portfolio. We now have 95% coverage for these major tenant customers, and this ensures we capture online sales as part of our partnership with Coles and Woolworths. Turning now to slide 22 on our specialty tenants.
The desirable nature of our convenience-based centers saw continued strong leasing activity with 480 leases completed during the period, achieving positive leasing spreads of 2.3%. 169 new leases were transacted, delivering a positive leasing spread of 3.7% and 311 renewals, achieving a 1.8% positive leasing spread. Our percentage of tenant customers on holdover remains low at 1.5% of total income, and pleasingly, our retention rate increased from 80% to 89% as retailers continue to see the attraction of our centers and their dominant positions within their respective catchments. While specialty sales were down 3.7% in the period, this reflects that 29% of specialty tenant sales were impacted by government store-mandated closures.
Pleasingly, sales growth has rebounded strongly with specialty sales growth in Q4 FY22 +2.9% or +9.8% compared to pre-COVID levels. Specialty productivity was moderately impacted by mandated store closures and trading restrictions, but remained strong at AUD 9,894 per sq m. Similarly, occupancy costs remained stable at 11.5%, and when adjusted for COVID-19 rental support, the occupancy cost normalized to a very sustainable 10.8%. The portfolio's strong sales productivity, sustainable occupancy costs, continued positive leasing spreads, and high tenant retention demonstrates the ongoing defensive and resilient nature of CQR's income. Now turn to slide 23 and our asset enhancement projects. Charter Hall's focus on active asset enhancement ensures we proactively invest in our centers and maintain their position as the dominant convenience centers within their respective catchments.
We do this by investing alongside our major tenant customers and aligning our capital works with their store refurbishments that in turn help secure lease extensions and drives center MAT. Utilizing Charter Hall's strong tenant customer relationships, we recently replaced eight Target stores with 10 high-quality tenants, resulting in a 17% uplift in rent. Our redevelopment of Rosebud Plaza in Victoria is now well underway to deliver a new Woolworths and Dan Murphy's, as well as an improved shopping experience for the community. We also proactively unlock additional development opportunities on surplus land where site coverage is low and adjacent usages can generate additional income. During the year, we completed pad site food developments with KFC at Landsdale Square and GYG at Campbellfield Plaza in Victoria.
We've also accessed the in-house early learning capabilities of the Charter Hall social infrastructure team to add our third childcare development to the portfolio, further enhancing the amenity of our assets. Again, this demonstrates the value of Charter Hall's management and its multi-sector capabilities, and our capital works program continues to future-proof our assets through sustainability and asset management initiatives that generate real benefits for our tenant customers, communities, and CQR unit holders. Now moving to slide 24 and a look at our tenant customer relationships. Annually, we engage Monash University to survey our center-based tenant customers regarding their satisfaction levels within the CQR portfolio and their dealings with the Charter Hall team. For our annual CentreSat survey, we again achieved a market-leading 95% participation rate from our tenant customers. Notably, our tenant customers ranked us first in likely to recommend for the second consecutive year.
Additionally, we maintain high satisfaction on all key metrics, and once again, our tenant customers told us that it is our people and the way we communicate that are our greatest strengths. Throughout the past 12 months, it's the Charter Hall team and their commitment to maintaining strong tenant customer partnerships that has been critical in the ongoing delivery of CQR strategy. I'd like to acknowledge and thank our team for their continued efforts. Finally, turn to slide 26 for outlook and guidance. CQR strategy remains consistent and is focused on being the leading owner of convenience retail property to deliver a resilient and growing income stream for our investors. As I've outlined today, we continue to enhance the portfolio quality through curation and active asset management, and this is central to how we deliver growth.
Our expectation is that strong MAT growth, positive leasing spreads, and high occupancy levels will continue. We also expect our portfolio to benefit from direct and indirect inflation-linked rental growth and the CapEx-efficient triple net lease exposure making up 28% of the portfolio. Barring any unforeseen events, FY 2023 earnings per unit is expected to be no less than AUD 0.286 per unit, representing growth of no less than 0.7% over FY 2022 earnings per unit. FY 2023 distributions per unit are expected to be no less than AUD 0.257 per unit, representing growth of no less than 4.9% over FY 2022 distributions per unit. That ends the full presentation. With that, I now invite questions.
Thank you. As a reminder, to ask a question, you need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Once again, to ask a question, please press star one one on your telephone. Our first question comes from the line of Ben Brayshaw from Barrenjoey. Please go ahead.
Oh, hi, Ben. Thanks for the presentation. I was wondering if you could comment on a couple of things, please. You mentioned that specialty occupancy costs have reduced to be below 11%, obviously tracking above 11% pre-pandemic. I was wondering if you could talk about your expectations for those going forward and whether you think there's opportunity to extract positive reversion in resetting those.
Yeah, thanks, Ben. Good morning. Look, we've maintained occupancy costs at pretty sustainable levels for a long period of time, and we feel that occupancy costs in the sort of mid-teens to 11% is a good spot for us to be in. As sales rebound post-pandemic, we'll be able to access positive leasing spreads as the rate has done consistently for a number of years.
Good. Great. Thanks, Ben. Just, secondly, around the hedging profile, I was wondering if you could talk about the average hedge rate, year-on-year looking forward. I noticed that the weighted average hedge duration has reduced over the last six months. As part of that, could you clarify as to whether you've restructured any of your, I suppose, your hedge positions?
Yeah, Ben, I'll quickly answer that one. We mentioned at our half-year results that we took out some hedging in February, which increased our FY 2023 hedging to 83%. We haven't done anything else in there, and that was at market at no cost, mate. That was proactive hedging back then.
Can you just clarify the look-through hedge rate there, Ben, is 1.2%?
Operator, are you there?
Thank you. Our next question comes from the line of Grant McCasker from UBS. Please ask your question. The line is open. Please ask your question.
Hello, it's Grant. Can you hear me?
Yes, Grant McCasker. Hi, good morning.
Sorry, I don't know what was happening there, but sorry, but did you clarify there, just following on from Ben's comment, the reason why we've seen a reduction in the hedge duration?
The reduction in the hedge duration is the hedge that we took out in February was a hedge that matures in June 2023. It's just a weighted average impact of that. You can see we are highly hedged in the next 12 months at 83% and then drop down to 50% in the following period. You can see in the back of the pack the hedge profile as well. We didn't restructure any existing hedges. We just put in a AUD 325 million dollar hedge that matures in June 2023.
Yeah, that was undertaken in February, Grant.
Okay. Just looking at the guidance, just on your turnover rent assumptions as we move into 2023, how does that compare versus 2022?
Yeah, look, we're still seeing positive supermarket sales growth as we're talking about. We don't see any reason for our turnover rent to drop off significantly as we move forward. We're pretty positive about the supermarket environment given, you know, the inflationary period we're going through and the flow on to food prices.
Okay. Excellent. Thank you.
Our next question comes from the line of Stuart McLean from Macquarie. Stuart, your line is open. Please go ahead.
Good morning. Thanks for your time. The first question, just on the 5.1% NPI growth you're expecting into 2023, can you just confirm that's underlying and excludes acquisitions?
Are you referring to the bridge at the back of the pack, Stuart?
I think on one of the slides there's a comment, slide 20, that says 5.1%.
Yeah. That refers to our long WALE retail convenience portfolio, Stuart. That's a reflection of both of the BP, Ampol, Gull and Coles Distribution Center, which have predominantly CPI distribution center at 2.75%, which gives us a weighted growth rate of 5.1% for the year.
Apologies, and thanks for clearing that up. Second question. Just on the CapEx requirements going forward, you called out about the triple net leases becoming a larger portion of the portfolio. Just what does that mean in terms of NC and TI spend and how it leads through to AFFO, FFO please? Are we expecting a reduction in NC and TI relative to FFO going forward?
As far as what we adjust FFO to AFFO, that's a combination of operational and leasing capital. You can see, you know, that's obviously a reflection of the volume of leasing that we do each year. Going forward, you know, depending on the volume of leasing transactions, that's the biggest drive of that adjustment there. At the moment, it's for FY 2022 in combination with operational capital at AUD 17 million. We expect that sort of AUD 15-20 million going forward.
Okay. Thank you. Then final one, just talked about Ben, your remarks, some of the initiatives to enhance the assets. I was wondering what's the capital spend we should expect per annum going forward on these sorts of development type of initiatives? What returns do you target as well?
Yeah, sure. Look, we've been pretty consistent, and we think that our asset enhancement initiatives are sort of in the AUD 20 million-AUD 30 million a year. It'll depend on what opportunities are in front of us. Looking at the pad sites, they're incredibly attractive opportunities for us. They're utilizing the low site coverage of our portfolio. It's on additional land or surplus land we have within our existing footprints. You know, realistically, returns of 10%-15% are very achievable for those sort of opportunities, and we'll continue to look for them.
If we were to do a bit more of a kind of an average, 'cause not everything will be the pad site, what's maybe at the lower end of your return expectations then?
It's hard to say. It's opportunity driven. Look, we only got one significant development underway at the moment in Rosebud, in Victoria, which is a replacement of Target to add Dan Murphy's and Woolworths to the shopping center portfolio. Look, it's obviously not a 10%-15% return, but it's, you know, higher single digits, and we think that's a good place for us to target. You know, we'll be very proactive and make sure we focus on total return from all CapEx spend, and we'll be looking at things that are obviously more profitable for us going forward.
Great. Thank you.
Thank you.
Next question comes from the line of Sholto Maconochie from Jefferies. Sholto, your line is open. Please ask your question.
Sholto's question. What is the yield on cost for those pad sites? Are they 10%-15% to the unlevered? Is that the unlevered?
That's the yield on cost, Sholto.
Yield on cost.
That's the yield on cost.
Oh, 10-15. Okay.
Yeah, you've got no land input costs 'cause we're utilizing the low site coverage of our portfolio to access these opportunities.
Okay. Sounds good. Okay. Just how much benefit do you expect to get in 2023 from the turnover rent moving into base rent? Have you got a quantification of that? I haven't done the calc, but have you got.
Yeah. What we have said previously is that during that pandemic period, we had approximately 22 supermarkets that went through a rent review mechanism. What that enabled us to do in that time was to crystallize AUD 2.1 million of turnover rent into base rent. You know, with a portfolio as mature as ours and with the sort of breadth of lease expiries, I'd expect that run rate over a number of years to continue, particularly as we're coming off higher volume sales activity resulted from the COVID period and ongoing MAT growth.
Circa AUD 2 million+ for the next, at least year, at least?
Well, that was over a couple of years, but yeah, look, that's a reasonable assumption. Look, ultimately, Sholto, you're taking turnover rent converted to base rent, so it's a certain income stream, which we love, but we're not double down on the income there, so.
The servos or our service stations are around 15% of rent, just rounding up. Now is this a sort of limit for you guys? Obviously, they attract your triple net CPI linked. What's the sort of limit do you think in the portfolio for service station? Would you be willing to increase that exposure?
I think it'll be opportunity driven. I mean, our acquisitions to date have been opportunistic and as a result of Charter Hall accessing these off-market opportunities for CQR. We'll look at all long WALE retail categories. If that meant some more servos with our existing tenant customers, we'd consider that. Ultimately, the long WALE convenience retail, you know, universe is quite large and there are other tenant customers we'd love to sort of get further exposure to going forward.
Is there any sort of other sort of asset classes that you're looking at? Obviously, you've got, you know, quite a good mix of tenants, but that you're looking at, going forward outside of your current sort of long WALE and other retail assets?
Yeah, I think we look, we'd love to continue to grow both high quality shopping center assets. We did the off-market acquisition of Butler during the year. Likewise, you know, we've been able to expand our long WALE retail convenience portfolio. You know, it's no secret, we've talked about it previously, that tenants of the caliber of Bunnings and Dan Murphy's remain really attractive to us. I see them as high quality convenience retailers, and we'd love to continue to grow our exposure to both of those, subject to pricing and availability, of course, going forward.
Just finally, on the guidance, like if you backed out Gull, it would have probably been the post-balance date broadly flat. Was that a fair comment if you just back-of-the-envelope?
Gull's contributed about 0.1, yeah?
Yeah, AUD 0.001.
Yeah.
Okay. Thanks very much. That's it from me.
Thank you. Our next question comes from the line of Annabelle Atkins from J.P. Morgan . Annabelle, please go ahead.
Hi, Ben and Christine. Christine, just wanna. This one's for you. Just, can you just clarify what you did in July regarding that New Zealand debt restructure? Just looks like you've repaid New Zealand debt and replaced it with AUD debt in a cross-currency swap. I just wanna know what's happened there.
Yeah. What we've done historically is to provide the capital hedge around New Zealand exposures. We've drawn New Zealand debt. We restructured that in July and repaid the New Zealand debt and re-drew Aussie debt and put in place forward exchange contracts. The economic effect is identical. We've just done it through a different structure.
Just wanted to confirm from the COVID support, you've got no COVID allowances in FY 2023?
Correct. The only COVID-related is that we do have some ECLs still in place regarding again some of the deferred rent that hasn't been repaid. But it's quite low considering 70% of the deferred rent that we provided over since FY 2020 has been repaid.
Do you expect to get back that 30%?
We would like to. Obviously, we've been very successful up until now, but obviously, we've been conservative to make sure we do have some provision against that in the event that it is not.
Just another question on, in terms of those, new lease structures following a store expansion or incorporating a back-of-house facility. Can you just talk a bit about the deal done there, how the new leases look, and, you know, who pays the CapEx?
It doesn't really change, Annabelle, from our usual structure. We've got pretty consistent leases across our portfolio given our tenant relationship with both Coles and Woolworths. You know, in most cases, Woolworths or Coles will fund the CapEx. In the event that there's some CapEx works we're doing in the center as well, we may look to assist with those works, but that'll be rentalized. It's pretty consistent.
Okay. Thanks, guys. That's it.
Thank you. Our next question comes from the line of Murray Connellan from Moelis Australia. Murray, your line is open. Please go ahead.
Was wondering whether I could just find out what your thoughts are around your gearing levels at the moment, where that currently sits, and to what extent your focus at the moment is on the balance sheet gearing number versus the look-through.
Yeah. Our look-through gearing is our range of 30%-40%. Post the Gull acquisition, we're at 33%. I think in the near term, we'd be looking to keeping in the lower half of that 30%-40%. On the balance sheet gearing, obviously low there at mid-20s%. We're comfortable with that.
Thanks very much.
Once again, ladies and gentlemen, to ask a question, please press star one one on your telephone. No further question. I'll now turn the call back to Ben for closing remarks.
Thank you all. We look forward to catching up with a number of you in the coming days. I hope you enjoy the rest of your day. Thank you.