you, and good morning, everyone joining in on the call. I'm Jason Weate, Fund Manager of Dexus Convenience Retail REIT, and I'm pleased to be delivering the 2024 full-year results. I'd like to start proceedings by acknowledging the traditional custodians across the many lands on which we operate across Australia. We pay our respects to their elders, past and present, and remain committed to supporting reconciliation across our business. Today, I will touch on DXC's investment proposition, key highlights for the period, the financial outcomes, as well as trends we are seeing in the broader market. DXC's investment proposition is to provide investors with defensive income, with embedded growth through the cycle. We deliver this, firstly, by enhancing portfolio metrics that deliver high-income certainty and growth. Secondly, we maintain a prudent capital structure, having regard to the broader macroeconomic environment and property valuation cycle.
And thirdly, we take an active but disciplined approach to portfolio management, including the assessment of strategic growth opportunities beyond fuel and convenience. Supporting us in executing these pillars is an aligned manager with Dexus, committed to delivering long-term performance for investors across its entire fund management platform. Turning to the highlights for the period. We delivered FFO and distributions at the upper end of our guidance range of AUD 0.208-AUD 0.211 per security. As our portfolio continues to deliver a resilient income, backed by high-quality tenant covenants. We executed AUD 23 million of divestments to support the fund's capital position, with gearing maintained at around the midpoint of our target range of 25%-40%.
Post-balance date, we also exchanged contracts to sell two assets for AUD 5.9 million at an average premium of 2.4% to June book values, which will reduce pro forma gearing by an additional 50 basis points. We continue to explore additional asset sales to support capital redeployment into higher returning opportunities, with the sale of up to an additional AUD 40 million of assets under negotiation, subject to successful equity raise by the purchaser. The DXC portfolio reflects a high-yielding, valuable land bank with a majority weighting to metro and highway locations. These sites will play a critical role in supporting long-haul travel and transport over the long term, and to capitalize on 1.2 million new fuel-reliant car sales over FY 2024, reflecting year-on-year growth of 11%.
We are also well-placed to support tenants in evolving their strategies in light of the continued shift in the energy mix. As mentioned within our highlights, 89% of DXC's portfolio is zoned to high-value uses of commercial, industrial, residential, and mixed-use, providing flexibility in our on-site offering over time. We continue to explore broader alternate use and redevelopment opportunities with approximately 20 value-add opportunities identified to date. Our income is backed by some of the highest quality tenant covenants in the market, with 95% of income derived from experienced national and international operators. Our top tenants continue to publicly commit and invest in the long-term performance of their sites, with 3 of our major tenants investing in convenience retail capability via acquisitions. BP's acquisition of X Convenience is the most recent example of this.
Turning to sustainability, our approach aligns to the Dexus sustainability strategy, which includes three priority areas, being customer prosperity, climate action, and enhancing communities. We continue to source 100% renewable electricity and maintain a carbon-neutral position across our controlled assets. We also actively engage with the tenants to support their varied ESG initiatives, and currently, we're in discussions with 5 major tenants on solar initiatives, and we have electric vehicle charging rollout across 22 sites within our network. Turning to the financials. We achieved FFO at the top end of our guidance range, as solid property operating performance was somewhat impacted by continued increases in interest expense. NTA per security decreased 5.1% to AUD 3.56, the majority of which was attributed to asset valuation declines.
As I touched on earlier, gearing remained around the midpoint of our target range despite further asset devaluations. Including 2 post-balance date sales, gearing will decline by 50 basis points, and were we to include additional asset sales currently under negotiation, it would decline towards the bottom end of our 25%-40% target range. This positions us well to consider various strategic capital deployment options. We also enhanced our debt book during the year, having extended AUD 130 million of facilities at sharper pricing, which will deliver incremental savings in the future. The Glass House Mountains project presents an opportunity to significantly enhance the convenience retail offering.
The northbound project is expected to commence 6 months later than planned, as we worked with Viva Energy over the second half to finalize the design of a new, expanded On The Run format, which will be focused on food on the go, grocery convenience, and will include an internal QSR. Construction is expected to begin this quarter for a period of 12 months. As the project is a fund through, the later than planned commencement has no financial impact for DXC, and we continue to expect strong development returns. Independent valuations were undertaken across 96 assets in the portfolio. In total, property valuations decreased 3.1% over the 12-month period. Valuations continue to be supported by predictable cash flows, with contracted rental growth partly offsetting the impact of cap rate expansion.
Our average cap rate expanded to 6.4%, which remains above the marginal cost of debt, with broad-based appeal to direct property market investors. Despite a challenging interest rate environment, fuel and convenience transaction volumes have remained relatively robust, allowing for material price discovery to inform asset valuations and NTA. We have seen this in our portfolio, with 20 basis points of cap rate expansion experienced in the first half, reducing to 10 basis points over the second half. We're seeing investors continue to take a long-term view on underlying land value growth and tenant loss renewal potential, supporting interest in the sector. Additionally, we are seeing increasingly strong pricing for assets with QSR retail attached, providing indicative valuation support for the Glass House Mountains development on completion.
In summary, we are well placed to deliver defensive and growing property income and will retain our focus on enhancing portfolio attributes that deliver certainty and growth of income, preserving balance sheet strength, executing portfolio optimization initiatives, including the Glass House Mountains redevelopment, and leveraging Dexus' market-leading capabilities. In relation to FY 2025 guidance, we expect to deliver FFO and distributions per security of AUD 0.206, impacted by dilution associated with AUD 40 million of asset sales currently under negotiation. Our FY 2025 guidance reflects an attractive distribution yield of over 7% for investors, backed by strong income visibility. In the current macroeconomic environment, whereby there is an increasing bias towards rate cuts over the near term, DXC represents an attractive investment opportunity, coupled with strong underlying exposure to non-discretionary income and an NTA base that is well-validated by recent transaction activity.
Thank you for joining the presentation today, and with that, I'll hand back over to the moderator for Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Andy MacFarlane with Bell Potter. Please go ahead.
Morning, Jason team. Just first question, just wondering if you could walk us through how you're thinking about guidance for your year ahead and the, the components of it.
Yeah, sure. So, if we think about a bridge from FY 2024 to FY 2025, you should probably think about like-for-like income growth being offset by the increase in interest expense, so flat after those two things, and I guess the way to think about the vast majority of the decline from there is the full period impact of asset sales undertaken in FY 2024, and also the additional AUD 40 million of sales currently under negotiation.
That makes sense. Just in terms of the cost of debt, just wondering what you're assuming in terms of the variable component of it for FY 2025?
So, the floating rate that we've assumed was, you know, had regard to the market curve. Obviously, the time of setting guidance, later last week. Appreciate there's been a bit of volatility in the market, but the floating rate is implicitly assumed and is in the mid-fours.
Okay. That's helpful. In terms of the asset sales that you've announced today that are underway, the 40-odd million, can you just give us a little bit more color on, you know, what they are and the pricing for those assets?
Yes. So, firstly, the portfolio is skewed to regional and regional city locations in Queensland. As far as pricing is concerned, the overall discount to December 2023 book values is at about 2.8%. And I guess were we to apply broader external valuation inputs as at June, a discount would look more like being under 2% to June, an assessment of June valuations. From our perspective, that does reflect the cost of liquidity, I guess, across the larger scale portfolio in the current environment, and we've had regard to capital redeployment returns on offer in accepting that discount.
I guess just following, is there any other asset sales that you're thinking about kind of looking forward?
Well, I guess, you know, our gearing operating range is 25%-40%, and that's to facilitate, you know, flexibility during various stages of the valuation cycle. And so with the extent of interest rate volatility that's still in the market. My preference is to continue managing gearing at around that midpoint. And so, if you think about balance sheet, or sorry, pro forma gearing, including asset sales underway, but also full redeployment into Glasshouse Mountains developments, stage one and two, then gearing would be sort of back at the midpoint of the target gearing range. So, you know, I think that these asset sales place us in a position where we're well-funded with near-term capital deployment opportunities. And I guess any asset sales above and beyond that would be to fund additional opportunities.
Final one, if I may, just on that, on Glasshouse Mountains. Just wondering what the reason is for the delay. I'm just wondering if you could give us a little bit more color around it and the impact to the financials.
Yeah. So, I mean, the reason for the delay really is just to accommodate a redesign of the Viva OTR box, you know, and the layout and parking layout. And, there's also some provision of extra EV charging. There'll be, like, 10 EV chargers on that site. So, and there's council approvals required for those changes, which takes time. You asked about financials. I mean, most importantly, there is no FFO or development profit impact resulting from the delay. And what we get as a landlord is increased prospects for tenant longevity via the creation of the most up-to-date and highest quality offering OTR has in the market.
Very good. Thanks, guys.
Thanks, Andrew.
Thank you. Your next question comes from Murray Conallin with Moelis Australia. Please go ahead.
Good day, Jason. Was wondering whether you could just give us a little bit more color on how you're seeing the broader direct market at the moment. Appreciate that there's a bit of disclosure in the presentation. But if we just sort of zoom in to the last sort of 6-12 months in particular, and you know, I guess, how you're seeing transaction yields tracking on a like-for-like basis, and how that informs how you're thinking about the valuations in your own portfolio over the next sort of 6-12 months. And I guess how that informs you thinking about the balance sheet as well.
Thanks, Murray. Well, look, firstly, just on the transaction market itself, I mean, I think calendar year 2024, year to date, I think we're very much on track to exceed, you know, very reasonable levels of transaction volumes in calendar year 2023. And over the last month, there's been another, you know, 7 transactions, so above and beyond what we've disclosed in the presentation materials. And I think, you know, the overall drivers for buyers in the market really are, you know, positive cap rate spreads to the marginal cost of debt, generally improving outlook for interest rates, and positive themes from fuel and convenience tenants, including meaningful reinvestment into their operations and sites.
And so in that context, I feel really comfortable with our positioning in the market with a portfolio average cap rate of 6.4%. I think that's an undemanding cap rate in the context of a number of the yields that we've seen transact in the direct property market over the last six months or so. And, you know, from a valuation perspective going forward, I guess if, well, if you have regard to the current interest rate curve, you know, which does have a rate-cutting bias, I'd say we're pretty much there based on what we're seeing in the transaction market. Murray, there's a healthy spread, you know, as I mentioned, to the cost of debt. And, you know, there's material price discovery in that transaction market that's ultimately underpinning NTA for the book.
Gotcha. That's clear. Thanks. And then maybe just touching on commentary around diversifying income sources away from fuel, is the way to think about that still around the the sort of broadening convenience offering that's attached to the existing portfolio? Or do you think there's a strategic slant towards non-service station-type assets as we look forward into the sort of medium to longer term?
Sure, Murray. So look, I mean, I guess our investment proposition is income-based. So where there are opportunities that have attributes such as income resilience and growth of income, strong tenant credit quality and industry relevance on land that has strong barriers to entry and long-term prospects for growth, we will look at, and I guess by asset class, you know, what that means is, you know, we'll continue to look at fuel and convenience with QSR attached, like Glasshouse Mountains. That's a really core part of how we think about growing the fuel and convenience portfolio, but also, you know, other essential services-based retail, so grocery-anchored retail, needs-based LFR, and possibly the provision of co-located services in and around our convenience retail centers, and, you know, potentially that could extend into the health and medical sectors as well.
Gotcha. Thanks very much, Jason.
Thanks, Murray.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Adam Calvetti with CLSA. Please go ahead.
Hi, Jason and team, and congrats on the result. Just keeping on Glasshouse Mountains-
... So AUD 20 million, and AUD 25 million on stage two for the, it's valued at, both sites are valued at AUD 20 million at the moment. What does the, AUD 20 million in stage one cover, from a construction cost front? And I guess where's the bulk of that money being spent?
So, I mean, if you think about the scope of works for Glasshouse Mountains stage one, it's a complete leveling of the site. So if we think about the incremental cost attached to that, is essentially the vast majority of that is in construction costs. But they're also, you know, it is being developed by a third-party developer, and there is a development management fee that's attached to that as well. So they're the two key components, but the vast majority is construction costs for basically a brand new offering, service center offering, but also including three additional QSR pad sites.
Yeah, okay, that makes sense. And, you've mentioned here that based on the independent, valuation on completion, so you, you've managed to, just knock down a, a cap rate on completion. Are you able to disclose that?
Look, we're not currently in a position to disclose specific cap rates at this juncture, but I guess any development commencement would be premised on an expectation for a comfortable cap rate spread below the incremental yield on costs.
Yeah, okay. And did this with Viva Energy, when they elected to redevelop the site, did it trigger the major capital works clause in the Viva Energy leases?
Sorry, Adam, can you just, just repeat that? I know I just, it's been a bit late.
So, when Viva approached you to redevelop the site, did it trigger the major capital works clause in the Viva Energy lease for works above AUD 250,000?
So, I mean, the way in which the development was brought about was us approaching the major tenant in Viva. So the site was optioned up and secured by a third-party developer. We came alongside that third-party developer and commenced the negotiation process to essentially, you know, not terminate, but sort of Viva reaching a point where it would surrender the balance of its lease tail in place of commencing a brand new lease on that site as part of the commercials that ultimately drive the decision-making to proceed. So that's the context around how that development opportunity came to light.
Yeah, okay. And one more, if I may. As I understand, it's a fund through redevelopment. Why is there a spread on the yield on cost, and it should be the cap rate?
So it's really to reflect finalization of commercial terms with the external developer. So, that continues to move around a little bit until we have all the agreement for leases secured, and at which point that yield on cost will be locked in. But I think it's fair to assume that it would be towards the upper end of that range that we've disclosed.
Okay, great. Thanks. That's all from me.
Thanks, Adam. Cheers.
Thank you. Your next question comes from Fiona Buchanan with Morgans. Please go ahead.
Oh, hi, Jason. Actually, my question got answered because it was around all the transactional, so I'll jump off the queue. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Weate for closing remarks.
Well, thanks, everyone, for taking the time to join the call this morning, and I look forward to catching up with a lot of you over the coming days and weeks.