I would now like to hand the conference over to Mr. Jason Weate, Fund Manager. Please go ahead.
Thank you. Good morning, everyone joining on the call. I'm Jason Weate, Fund Manager of Dexus Convenience Retail REIT, and I'm pleased to be delivering the 2023 half-year result. Following the presentation, I will be joined by Joseph De Rango, Head of Finance for Real Estate Funds for the Q&A part of the session. 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, present, and emerging, and remain committed to supporting reconciliation across our business. Moving to slide five. Our results for the half reflect the resilient nature of the portfolio, which offers secure portfolio income underpinned by a long WALE, attractive average rent reviews, and high-quality tenant covenants.
In terms of financial performance, we delivered like-for-like income growth of 2.4% and narrowed our FY 2023 guidance range to FFO and distributions of AUD 0.214-AUD 0.218 per security. We've been focused on pursuing asset sales and have announced six divestments for AUD 25.4 million in the financial year to date, reflecting an average discount to book of 1.3%. The sales have also strengthened our balance sheet with pro forma gearing of 33.5%, broadly in line with the midpoint of our 25%-40% target range. The DXC portfolio is characterized by high income certainty, backed by some of the highest quality tenant covenants amongst A-REITs.
Our income resilience is reflected in occupancy remaining above 99%, We remain predominantly exposed to metro and highway assets, which are expected to perform better in the long term as tenants seek to evolve their product offering in line with alternative energy vehicle technology and the associated convenience retail offering. We derive 89% of our income from 10 major tenants, all of which operate on a national scale and some internationally. We continue to work closely with each tenant to enhance the performance and sustainability of their sites. Most of our portfolio benefits from contracted fixed rental increases each year, with a balance reflecting a combination of CPI-linked increases. These rent reviews, combined with our WALE of more than 10 years, makes our property income stream one of the most defensive in the sector with strong growth prospects. Turning to the financials.
This half, FFO increased 2.0% to AUD 15.6 million. Compositionally, Property FFO increased 12.1% to AUD 23.9 million, reflecting full period contributions from acquisitions undertaken in first half 2022 and like-for-like income growth of 2.4%. Finance costs did increase significantly due to higher floating interest rates and a high average debt balance. Overall, on a per security basis, FFO was down 0.8% to AUD 0.113 per share, largely due to higher average securities on issue. As flagged at our last result, our 2022 half year FFO metrics have been restated to include amortized borrowing costs in FFO to align with PCA guidelines. For this half, distributions were AUD 0.106 per security, reflecting the payout of 93.9% of FFO.
For the full year, our FY 2023 distribution payout ratio is expected to fall within our 95%-100% policy range. While the first half distributions were conservatively set with reference to the low end of our prior guidance range. NTA per security decreased 2.1% to AUD 3.94, the majority of which was attributable to AUD 14.9 million in asset valuation declines. Moving on to capital management. Reported gearing was 34.1% or 33.5% on a pro forma basis, which broadly sits at the midpoint of our target gearing range of 25%-40%. We continue to target further asset sales to enhance our balance sheet strength.
Our cost of debt increased to 3.4% in line with the increase in floating rates, which averaged 2.8% for the period. 63% of debt was hedged during the half, and our average maturity of hedges sits at 3.7 years. Independent valuations were undertaken across 25 assets in the portfolio over the period, resulting in a decrease of 1.8% or AUD 14.9 million on prior book values. Although contracted rental growth partially offset the impact of cap rate expansion of 16 basis points. In the direct market, fuel and convenience transaction sales volumes are on balance down by around 50% due to cautious buyer sentiment in response to changes in the market cost of capital.
Notwithstanding this, we expect relative valuation resilience for fuel and convenience retail assets based on the non-discretionary nature of retail and fuel spending, predictable cash flows underpinned by long leases to well-capitalized tenants and average asset sizes appealing to a broad range of investors. As I mentioned earlier, we have divested six assets in the financial year to date at an average discount to book of 1.3%. This includes AUD 10.1 million of proceeds, which are expected to be received in the coming months, which will further enhance balance sheet strength through reducing gearing and increasing hedging levels. The divestments have also enhanced the quality of our portfolio by meaningfully reducing our exposure to older tank infrastructure, as well as our exposure to regionally located assets, which is expected to reduce to 15%, while our income derived from non-fuel tenants now stands at 13%.
DXC offers strong portfolio income visibility amidst an uncertain economic backdrop. This makes us well-placed to deliver consistent property income growth over the long term, underpinned by high quality international and national tenants, generating over 3% average rent growth per annum. We remain focused on strengthening our balance sheet, including through exploring additional asset sales to increase redeployment optionality. In relation to FY 2023 guidance, we have narrowed our FFO and distribution range to AUD 0.214-AUD 0.218 per security, assuming average floating interest rates of circa 3.25% for the year. Thank you for joining the presentation today. 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. Please limit your questions to two per person. If you wish to ask further questions, please rejoin the queue. Your first question comes from Murray Connellan from Moelis Australia. Please go ahead.
Good morning, Jason. Was wondering whether you could unpack the sales process in a bit more detail for us, and maybe just give a bit of commentary on what the direct market looks like right now versus six months ago, and then maybe just also any scope for further asset sales in the coming months, and yeah, I guess what sort of bidders remain in the market at the moment?
Thanks, Murray. I'm not sure if all those questions exceed the two limit or whether. In any case I'll try and get through all of those. I might start just on sort of transaction markets more broadly. You know, I think the full effects of the interest rate and inflationary environment are yet to play through. I guess depending on where the short and long end of the yield curve ultimately lands, you know, I wouldn't be surprised to see cap rates continue to expand from here. As it relates to the revenue side of DXC's assets, I mean, they will continue to drive locked-in rent growth of over 3% per annum. That does provide a positive offset equivalent to around about 25, 20...
Sorry, 20 basis points of cap rate expansion. I think that sort of talks to where the transaction markets are and how DXC assets are positioned. As it relates to the EOI campaign itself, I mean, we have announced a few additional sales as part of today's release. As it relates to pricing, I mean, that was struck at pricing well within 5% of June 2022 book values. Negotiations do remain ongoing on a number of other assets, but there is a lot of buyer caution out there in the market and transactions are taking longer to finalize. We will continue to assess the merit in offers that we continue to look at on a case-by-case basis.
In terms of, you know, further asset sales, if you're looking for a quantification at this stage, that's probably a difficult thing to provide, Murray. I guess it really does depend on how the market continues to evolve. We do remain very mindful of NTA, and, you know, we do have an overarched balanced view on proceeding with transactions that we believe will add value for all security holders.
Sure, appreciate that. Thanks for the color, Jason.
Thank you. Your next question comes from Leanne Truong from Ord Minnett. Please go ahead.
Yeah. Good morning, everybody. Just a follow-up on those asset sales. You took 14 assets to market. How many are you expecting to sell? And I guess are you still looking at that, like, 5% discount, I guess range? What, I guess, where would you sell the assets at?
Yeah. We did take 14 assets to market, Leanne, and that was to entice obviously the broadest mix of investors as possible to participate in the process. By no means, was that a sale target. As far as how we're thinking about discounts on offers potentially coming in, look, we're not ruling anything in or out. It ultimately depends on how the market continues to evolve. Again, I think as I alluded to in my comments to Murray, we will transact on terms that we believe will add value for all security holders. We don't have a prescriptive discount number in mind that would place a limit on what we're willing to accept.
Depending on where the market is at, you know, it has to make sense in the eyes of all security holders.
Yeah. I mean, you just mentioned before that you're looking beyond the original 14 that you put to market. I guess how many do you consider non-core? Are you going into your core assets and looking at selling them?
The 14 assets that formed the part of the EOI campaign, you know, reflected a mix of, you know, what we viewed as being lower tiered assets, and some of which were non-core, but it also did include a mix of assets that probably, you know, rank more mid-pack in terms of the quality mix of the portfolio. We are looking at a broad-based mix of assets, again, to really entice as much investor interest to participate as we can.
I just want to clarify. The assets that you didn't include in the EOI campaign, are they core or non-core assets? Sorry.
The assets that we did not include?
Yeah. 'Cause it looks like you've sold, for example, South Hedland. That doesn't look like it's part of the EOI campaign. It sounds like you're going beyond assets in the EOI campaign. I'm just wondering, of those, how many are they core or non-core assets?
I guess maybe the way to answer it is to really talk about more how we think about some of the key filters that we look at in the assets, the nature of the assets that we take to market. Whether they form part of the EOI campaign or whether they're assets that we're talking to prospective investors that fall outside of that EOI campaign, I think a lot of the features or attributes are very similar. They're generally smaller sites, you know, that lend itself to probably more private style/syndicated style investors. They typically have full site utilization, and generally are, you know, do not include, you know, highway assets.
Yeah. Thanks for that.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question is a follow-up question from Murray Connellan with Moelis Australia. Please go ahead.
Hi there. Maybe just one more. Would you mind commenting on the balance sheet and how it looks now versus versus where you'd like to have it in the context of capital requirements? Maybe as a follow-up to that, just at what level you might consider deploying capital into a share buyback.
Yeah. Thanks, Murray. I mean, obviously, as I mentioned earlier today, we do have a target operating gearing range through the cycle of 25%-40%. That is to provide obviously flexibility to capitalize on opportunities as they arise. At this juncture, however, our current focus, you know, remains on divestments to provide, you know, further balance sheet strength and increase redeployment optionality. As such, you know, we're targeting at a managing gearing at this point in the cycle at a level that is either, you know, at or below the midpoint of that target gearing range. In terms of where does gearing need to get to, look, we don't have a specific number that we are wedded to.
We do remain focused on asset sales for now, and it really depends on the timing and order of magnitude with which we can execute on incremental sales. That will ultimately inform the relative attractiveness of redeployment options available to us at that time, including the buyback.
Thanks. Maybe you could also just give us an update on the Glass House Mountain project and how that's progressing in terms of new potential tenancies and, you know, I guess just what the timing looks like on that redevelopment.
Sure, Murray. Look, the Glass House Mountains development is, goes without saying, is a very high quality property with considerable upside, with through development potential. We are working progressively through the planning and leasing phase, and once all relevant DA approvals and AFLs are in place, we'd have the option to commit at that stage. That stage at the moment looks like it will be, you know, at or around August later this year. Regardless of, you know, where our balance sheet is at and what ultimately asset sales look like at that time, you know, we think it's a high quality asset, you know, with a very strong level of appeal to a wide range of potential owners.
Thanks very much.