Thank you, and 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 2025 full-year result. I'd like to begin by acknowledging the traditional custodians of the lands and waterways on which we meet today, the Gadigal people of the Eora Nation, and pay our respects to Elders past and present. Today, I will talk to key highlights for the FY 2025 period, financial outcomes, trends we're seeing in the broader market, and the outlook for FY 2026. Moving to slide five, DXC provides investors with access to a high-quality, strategic national network of convenience retail assets, with significant diversity of over 90 assets valued at over AUS 700 million, strong exposure to the Aussie car fleet daily, and 2.6 million people living within a three-kilometer radius of our asset base.
These attributes are of high value to our fuel and convenience retail customer base. We also have a significant amount of land, over 600,000 sq m, with circa 90% zoned to high-value uses of commercial, industrial, mixed use, and retail, providing investors with access to a high-yielding land bank with alternative use options over time. That yield is underpinned by defensive income attributes with embedded growth. We have lease certainty, reflected by a long WALE of 7.9 years and close to 100% occupancy, exposure to strong tenant credit quality, with 95% of tenants being either major national or international brands, and consistency of growth, reflected by a balanced exposure of fixed and CPI-linked escalators currently generating over 3% growth per annum.
Our portfolio is skewed towards metro and highway locations on major roads with strong traffic volumes, and this means our sites will play a critical role in supporting commuters, transport, and long-haul travel over the long term. Our development of Glass House Mountains will further increase our exposure to highway sites, which benefit from high traffic volumes and large land sizes that allow for evolution of the overall offering over time. As a manager, we deliver on our investment proposition by continually providing investors with a portfolio that generates defensive income with embedded growth. We take an active but disciplined approach to real estate portfolio management, including portfolio curation and asset recycling into strategic growth opportunities, and we actively manage a prudent capital structure that has regard to shifts in the broader macroeconomic environment.
Now, turning to highlights for the period, we delivered FFO and DPS of AUS 0.207 per security, slightly above guidance. Our portfolio continues to deliver resilient income with like-for-like income growth of 2.9%, edging up on the back of increased occupancy over the period to 99.9%. We executed AUS 38.8 million of divestments over the first half, which has improved portfolio quality and provided balance sheet capacity for future growth. Gearing of 29.4% sits at the lower end of our target range, which will increase as we continue to deploy capital into growth opportunities. We commenced our fully pre-lease redevelopment of the northbound site at Glass House Mountains, which is expected to generate attractive returns above DXC's cost of capital. We continue to progress planning and lease negotiations at the southbound site and are actively pursuing opportunities to restock the development pipeline beyond the Glass House Mountains project.
NTA recommenced growth over the period, supported by underlying rental growth and cap rate compression informed by continued liquidity in the underlying direct market. DXC's income base is diverse and is backed by some of the highest quality national and international tenant covenants in the market. The majority of operators in DXC have committed to long-term reinvestment of their networks, including material enhancement of the convenience retail offering. Turning to sustainability, our approach aligns to the Dexus sustainability strategy. We continue to source 100% renewable electricity and maintain a carbon-neutral position across our controlled assets. We also actively engage with tenants to support their varied ESG objectives, such as solar installation and electric vehicle charging.
Environmental initiatives are a core part of our approach to development, with stage one of the Glass House Mountains redevelopment to include EV charging bays, rooftop solar, rainwater harvesting, greywater reuse, and new fuel tank technology. Turning to the financials, FFO and distributions of AUS 0.207 per security were slightly above guidance of AUS 0.206 due to lower than expected floating rates over the second half. The FFO result was 1.5% below the prior period, primarily due to a 30 basis point increase in our average cost of debt and moderate dilution from asset divestments, which was partly offset by a solid like-for-like income growth of 2.9%. NTA per security has grown by AUS 0.08, or 2.2%, to AUS 3.64. Over the year, we've taken a proactive approach to managing our capital position.
We extended AUS 189 million of facilities on improved margins, demonstrating lender appetite for the asset class and the strength of Dexus platform relationships with lenders. We undertook AUS 66 million of additional hedging at attractive rates, providing greater interest cost certainty beyond FY 2026. Our low gearing positions us well for capital deployment options above and beyond the current development at Glass House Mountains. 98% of the portfolio was independently valued during the year. Property valuations increased by 2.3%, driven by rental growth and cap rate compression of 8 basis points. Shifts in the headline cap rate across our highway portfolio partly reflect the removal of Glass House Mountains northbound for the June calculation. While the site is under construction, it will be included post-completion ahead of the FY 2026 result.
The portfolio capitalisation rate of 6.32% is supported by continued strength in the underlying transaction market and remains comfortably above the marginal cost of debt, which we believe will provide ongoing support to valuations. Transaction markets showed strong levels of liquidity during the year. The strong momentum seen in the first half slowed as we approached the federal election in May. Post-election, there has been a strong increase in volumes, and moderate levels of cap rate compression are evident within the asset class. We continue to see very strong pricing for assets with QSR retailing attached, supporting our underwrite assumptions for the redevelopment of Glass House Mountains northbound. The broader Glass House Mountains project presents an opportunity to significantly enhance overall portfolio quality and increase our strategic weighting to highway assets.
Construction at the northbound site remains on track for completion by early 2026, which will include a new expanded on-the-run convenience retail offering focused on food on the go, grocery, and will include an internal Hungry Jack’s QSR. In addition, there will be three QSR pad sites with direct leases with McDonald's, GYG, and KFC, which will drive additional customer traffic to the site. The Glass House Mountains site benefits from exposure to approximately 150,000 passing commuters and transport vehicles every day, and we are confident the position of this asset in the market will command a cap rate comfortably below the project's yield on cost, delivering an attractive return. We continue to progress planning and lease negotiations at the southbound site and expect to commence the project post-completion of northbound. In summary, we are well placed to continue delivering defensive and growing property income.
Over FY 2025, we finalized meaningful capital recycling activity that has materially enhanced portfolio quality and reset the balance sheet, allowing us to focus on growth. We are targeting the execution of growth-based portfolio initiatives, including progressing the redevelopment of Glass House Mountains southbound and securing other growth opportunities, including development pipeline restocking. In relation to FY 2026 guidance, we expect to deliver FFO and distributions per security of AUS 0.209, reflecting year-on-year growth of 1.2%. Guidance reflects an attractive distribution yield of over 7% for investors, backed by strong income visibility. 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 speaker phone, please pick up the handset to ask your question. Your first question comes from Andy McFarlane from Bell Potter. Please go ahead. Andy, your line is live. You may be on mute.
Yes. Can you hear me now?
Yes, we can.
Thank you.
Yeah, good morning. Just a couple of quick questions for me. Number one, could you walk us through the bridge in the FY 2026, just in terms of the key moving parts and drivers?
Sure. Maybe starting at the property line, we are assuming similar levels of like-for-like NOI growth in FY 2026. That will be partly offset by a moderate increase in all-in cost of debt year-on-year, but also the full period dilution associated with asset sales that were finalized in first half FY 2025. They're probably the key moving parts that you need to think about into FY 2026.
It's helpful just in terms of capital deployment. Maybe are you assuming any more capital deployment during the period?
Guidance does not assume capital deployment above and beyond Glass House Mountains northbound.
Yep, yep, makes sense. Just on the pipeline, you've just mentioned you're restocking a little bit in your presentation. Can you just remind us what you're focused on there?
Sure thing. Look, we're primarily focused on two types of assets within the broader fuel and convenience segment. The first one is convenience retail hubs with multiple uses. An example of that could be, you know, let's say within a residential growth corridor that may include uses like fuel with QSR attached, potentially needs-based grocery retail and/or large format retail, and potentially the co-location of services such as health. The second category we're looking at is highway sites with truck stop facilities. Many operators in this space are currently under indexed to their highway sites, and they're looking to increase their exposure to that segment within the asset class. They want to do deals.
Very helpful. Just on that, I guess the question from that would be how much are you willing to spend, and how progressed, I guess, is that kind of thinking?
Sure. I mean, obviously, we currently have gearing at below the midpoint of the target range, and that means we are fully funded to complete Glass House Mountains stages one and two. If we were to assume completion of those on a pro forma basis, that would take gearing up to about 33% - 34%. We think we've got another, let's call it AUS 50 million- AUS 60 million worth of buying capacity while still remaining comfortably within our target gearing range. In terms of where we are in the process, we are in discussions with multiple third-party developers to restock with projects.
Maybe not in the similar way in which we have done Glass House Mountains, but a lot of the projects we're looking at are in the planning stages with discussions with anchor tenants that are ongoing, and they take time, and there's a decent gestation period between discussions with developers to actually landing on a commitment for a site. We'd love to be in a position where we've secured another one to two projects during FY 2026.
Perfect. That makes sense. Just a final one for me from a development. You're talking to stage one being above cost of capital. Can you just remind us what the key metrics are here?
Yes. I'll probably look at that a couple of ways. I mean, one is how we think about the development IRR of that project, and we're expecting something around the 20% mark for a development IRR. Alternatively, if you were to think about it on a long-term hold, like for 10 years, then we expect that IRR to be around about 10%.
Perfect. Excellent. Thanks for your time, Jason.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Murray Connelly from Moelis Australia. Please go ahead.
Morning, Jason. I was hoping you could just unpack that outcome with regards to the additional facilities that have been refinanced. Keen to hear, if possible, whether you could give us a little bit more color on, I guess, how much better pricing looked versus previous.
Sure. We've undertaken extensions across three of our four lenders, and I'm happy to say that the margin savings that we've been able to crystallize across those lenders is around about 0.08%.
Would that have been done towards the start or the end of the previous period?
Good question. They were undertaken in the second half, but it was pre some of the volatility that has emerged post-Liberation Day. We struck a fine balance of getting all of that executed before some incremental volatility crept into the market.
Gotcha. That's clear. Thanks, Jason.
Thanks, Murray.
Thank you. Thank you. Once again, if you wish to ask a question, please press star one. We'll now pause a moment to allow for any final questions to register. There are no further phone questions at this time. I'll now hand back to Mr. Weate for closing remarks.
Thank you, everyone, for taking the time to dial in this morning. I look forward to meeting many of you over the coming days and weeks. Thank you again.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.