Thank you for standing by, and welcome to the GDI Annual Results Teleconference. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Stephen Burns, Managing Director and CEO. Please go ahead.
Good afternoon, and thanks for joining the GDI call. I'm joined by David Williams, our CFO. With the presentation, I'm basically starting on the first section, zero one. A key theme has been our leasing efforts with over 37,000 square meters of space leased in the financial year. We managed to capture some of the larger deals done in the Perth market for office space, and importantly, the momentum has continued through into FY 2025. WS2 is officially opened. It was opened by the Deputy Premier a few weeks ago, and makes the launch of Perth's first timber and adaptive reuse office building.
All assets have been independently valued during the period, resulting in an NTA per security of AUD 1.19, with our leasing efforts bolstering our property FFO and WALE during the period. Our new co-living JV performed well, delivering AUD 6.8 million in FFO for FY 2024, and in excess of our 20% return on invested capital. We announced an AUD 0.05 distribution for FY 2024, and guidance of AUD 0.05 for FY 2025. Turning to the next page. Look, a feature of FY 2024 has been the strength of our core assets, and a key lease deal done in the year needs to be mentioned again.
That was for WAPOL at basically WS1, and it encompassed over half the building, 16,300-odd square meters, and it pushed the renewal out for the 9 levels, and we're very comfortable with that. Now, we've got over 7.7 years of WALE, 98% occupancy, and we're fielding competitive inquiries on the remaining 700 square meters, which is part of level 15. On to the next, WS2. We recently held the launch and you know to welcome most of the tenants taking occupation. There's still several floors of fit-out work going on at financial year end in particular. But since balance date, we've completed the conferencing facility, which has been eagerly sought by our tenants.
This boutique timber and adaptive reuse building really does give GDI a clever point of difference and a competitive model to apply to our growth opportunities, which includes the Mill Green complex. In terms of the Mill Green concept. During the year, we made good progress on our fit-out re-leasing strategy at 197. I mean, we sized the task at circa 9,500 sq m and have leased over 6,000 with good momentum on the balance. We've been very active on renewing tenants at 5 Mill, the smaller building. Quite a few of the expanding tenants have opted to take up space at 197. The bigger opportunity is really for a staged master plan across the three-building Mill Green site.
This will feature timber and adaptive reuse, similar to WS2, and the longer term vision will increase property income from a variety of mixed-use contributions. In terms of the co-living, during the year, we bedded down our initial co-living assets and acquired a third asset at Newman. We now have circa 600 rooms. With our operational focus, we achieved our plus 20% return on the initial invested capital. Each asset has a different client emphasis, with Norseman largely catering to Pantoro, who incidentally recapitalized by over AUD 100 million during the year. South Hedland has an infrastructure bent and also taps into the top-tier subcontractors. Newman will be upgraded and repositioned to lift the occupancy. Importantly, the core focus remains on operational returns and carefully targeted acquisitions.
The value of the JV is now AUD 39.4 million, being GDI's share, and representing 3.4% of our total assets. If we go to the financing front, Dave will spend more time on this, but we've converted the principal facility to a syndicated facility by introducing a second tier one bank. We increased the capacity by AUD 50 million, and we have surplus capacity or unutilized of AUD 50 million. The maturity was extended, the hedging profile is described there, and we're comfortable with that because it will dovetail with our recycling strategy. And I'll now hand over to Dave to give a financial snapshot.
Afternoon, everyone. I will be relatively brief. You turn to page nine, section three. As Steve mentioned, all assets were independently valued during the year. We have a weighted average capitalization rate of 6.6...
... an average rate per sq m of NLA of just over AUD 8,000. Our NTA decreased one cent from December, from AUD 1.20 to AUD 1.19. Gearing sits at 33%. We're well within the new covenants of the syndicated facility, and we have high levels of interest rate protection that are particularly ability to participate in any interest rate reductions, which I'll talk through in a couple of slides. FFO per security of AUD 0.0552. Nice little chart there showing that it's starting to head north again after the resultant from the leasing successes and the contribution from the JV, and as Steve said, paid AUD 0.05 and the objective of holding AUD 0.05 through cycle.
Just really briefly on what drove that FFO higher, Westralia Square and WS2 contributed AUD 23.7 million, up from just over AUD 18 million the year before. Based on contracted leases only, that is expected to continue to go north in the vicinity of AUD 29 million for FY 2025. Mill Green was AUD 14 million, so we're going through that re-leasing phase. It also is anticipated to be heading north again into FY 2025 just on contracted rents only. Car parks performed largely in line, as they did the year before, similar with the funds management business, and we of course got to participate from the full year of the co-living JV. All of those ups were impacted by a significantly higher interest rate expense. Over to the what was the principal facility, now the syndicated facility.
We've got, so you can see there, we've got AUD 49.2 million of capacity sitting in that facility. Just briefly on interest rate hedging, the bulk of that, as you can see, is protected from 94% to December 2024, 79% in drawn debt to June 2025, and 50% to 2031. The bulk of that is through interest rate caps that are set at a small amount of 3%, the rest at 4.25%, so we will get the benefit from interest rate cuts if there are any, but we are protected from rises. Back to Steve.
Just in terms of the Perth market, the positive absorption story continues with around 12,000 square meters positive in Q2. An interesting feature was really the slight decline in A-grade vacancy from around 15.6 to 13.9. Tenants continue to expand. In many cases, they're expanding, and there's also been a what we would describe as a flight to value from just merely a flight to quality, because we've seen the premium vacancy increase marginally from 7.8% to 12.5%.
You know, the fitted out part floor space strategy is working for us, and that's really enabling us to shorten up the lease commencement dates, lower the incentives, strike better rents, and we have the advantage of being able to offer multiple price points amongst our cluster of properties, and as mentioned, the momentum continues into FY 2025. I think in terms of you know, the Perth and the WA dynamics, they remain robust, with exports from WA representing 46% of all Australian merchandise exports, representing a true producer economy. Employment and population growth are both strong. Infrastructure spend, notably, is AUD 207+ billion over the next five years, and we remain mindful of a slowing in the commodity cycle and exposure to specific segments. We turn the page.
Net absorption, graphically shown, is very strong, especially compared to markets like Sydney and Melbourne, and this is expected to continue and, there's still, a lot of expected resource and government sector activity. Turning over once more, and just looking at the charts, we note, you know, the Perth leasing inquiry levels dipped and have rebounded, and given the lag, we expect that it will be reflected in additional leasing. The work from home factor is not as prevalent in Perth, and therefore, higher sustainable occupancies than some East Coast markets. There's not a lot of, construction to add excessive space over the next two years, and mooted construction projects will need to meet their higher break even rent thresholds, given the increase in construction costs. Turning on to the portfolio, you'll see that they're tabled there.
In summary, all assets were independently valued during the year, reflecting an average cap rate of 6.63%, a WALE of 5.3 years, and an average value per square meter of around AUD 8,000. Most cap rates moved out between 25 basis points and 75 basis points. Assets are now at a considerable discount to peak valuation, the exception being Westralia Square, where the cap rate tightened on the back of the large government leasing deal, and WS2, the cap rate remained still at 6.5, but at better rents, lifting the valuation slightly. Might just quickly turn to save me raving through each property by property. We will go on to the highlights just on the funds management side.
If we go to section seven, the funds management business, it's been very busy on the funds management front, dealing with the existing assets, and the key feature has been additional leasing at our UGL portfolio at Broadmeadow, New South Wales, and also Bassendean in WA. Very focused on leasing extensions at One Adelaide Terrace. We've also been able to do the refinancing at One Adelaide Terrace to enable future funding for leasing initiatives, which are going full bore. In terms of other situations, improving by way of removing easements and use at our IKEA asset at Innaloo. We've done a lot of work there. Worth noting, it's the only IKEA asset not owned by IKEA in Australia.
We've been very selective on the acquisition front, and the focus remains on providing liquidity to our investors and realizing the right value. If we turn now just to a recap on strategy and emphasizing the point, we're very focused on having a clear strategy and then doing what we said we were targeting. We are executing on strategy. The leasing results are key, and the focus is relentless. Our in-house team have done some of the biggest deals in the Perth market in FY 2024, and FY 2025 is off to a good start. We're very aggressive in terms of the leasing targets in front of us. We delivered on our financial targets for FY 2024 , but FY 2025 calls for more revenue from each key segment, particularly the property FFO.
The refinancing has provided flexibility with the timing of our recycling efforts and allows for the strategically directed CapEx program and staged growth objectives. Legacy issues are in the past, and the team is very focused and accountable, and senior management sign up to our agreed strategic objectives, and these objectives must be completed. In terms of the board, it's been renewed, and we're very pleased with our two new directors, Patrea Harris and Susan Hilliard, who are working seamlessly with our new chairman, Giles Woodgate, and thank you to Gina, if you're on the line. You know, another point is the co-living JV has been very pleasing, and we continue to take a measured, operational approach. We're always looking for complementary acquisitions, but we're very patient and thoughtful.
Recycling is underway, and we will maintain a patient approach to realize the appropriate value. We do have over a hundred mil of non-core assets to consider, and we're also pursuing a joint venture approach and strategy on a very selective basis. But in terms of, you know, the growth outlook and how we feel about the opportunities to add income, the timber and adaptive reuse space is an exciting area for GDI. The model is profitable and competitive, has a very good point of difference. It's well suited to our existing sites and potential sites, and it involves working with our best-in-class partners.
So with that, I'd just quickly talk you know to our guidance and you know in closing, we feel well positioned for FY 2025 on the back of leasing efforts and property FFO. So we're able to provide that guidance on the distribution of AUD 0.05. I think we're now heading to Q&A, so I'd like to thank you all for listening.
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 Andrew McFarlane with Bell Potter. Please go ahead.
Maybe just starting on the asset side, you're talking of AUD 100 million still. Yeah, just interested in a little bit of color on that and where you think that might kind of get to over the next twelve months.
Good question, Andy. I don't have that good a crystal ball to nominate which asset, and I wouldn't specifically state which ones they were in case there were any buyers sitting on the phone. But you, you have a good idea for which our non-core assets are. Another way to think about it is you can tell very simply which our core ones are. They all sit in a cluster.
... One thing that Steve didn't mention is we have sold a small one of the 17 assets. It's exchanged that were held by GDI number forty-six, the dealerships. Went through one of the Burgess Rawson auctions. There was plenty of bidders, and they've got a 2.3% premium to book. So that's it, expected to settle in November.
Okay, thank you. On the, maybe on the, you know, capital partnering side of things, you've kind of talked about, you know, looking towards, you know, achieving, you know, that kind of going forward. Just wondering if there's any kind of color you can give in terms of the direction on that in time?
The direction is based on someone liking the asset and then wanting to invest with us going forward, and I wouldn't be able to identify a name even if I had one, Andy, on a call.
Yeah, no worries. I'm just thinking more broadly, just in terms of, you know, capital partnering, that's something you're kind of still exploring and, and trying to do.
Of course we are.
Just on other JV side of things, just wondering, how the joint ventures kind of going in terms of expanding out that on the co-living side of things? Sounds like, you know, it's tracking ahead of where you're expecting it to be at this point. Looks good. Just wondering what you're kind of thinking there in terms of expanding that relationship.
Yeah, measured. We've as stipulated, we're not just gonna rush the balance sheet out and enlarge that exposure. We do get good cash flow out of that JV, so that gives us an ability to gear up and to spend without expanding the balance sheet, but increasing the assets within the JV. So that's one approach. The other approach, Andy, is really if we have something meaningful, we will look at external capital, and we do have a number of those opportunities to look at.
Very good. Just one last one for me, specific one, but just wondering what the weighted average cost of debt was at the end of the year, David, and what the expectations are for that for 2025?
You can see what our hedging profile is. So we're largely hedged, mate. It's till for the next six months.
Yep, so-
Can't go above four point two five. There's an interest rate swap at four point five five, and two callable swaps that are below four. They start next year.
Understood.
So we're largely protected, we're not sitting here banking interest rate cuts.
Yeah.
But we do get the benefit if they come.
Good talk, mate. Thank you, guys.
Your next question comes from Edward Day with MA Financial. Please go ahead.
Good afternoon, Steve and David. Just wanna talk about the leasing you've done at 197 St Georges Terrace. And I guess, yeah, if you can provide a bit more detail on how many floors you have left and whether, you know, we can kind of expect that velocity of leasing to persist in FY 2025?
Yeah, we're hopeful, Ed. I think in terms of the specifics, there's... I'd have to actually go to a floor by floor. I'd probably do that separately, Ed, 'cause there's also part floors and whatever, but simply speaking, you remember we had a task of around nine and a half thousand square meters, and we've done about six. There has been some leasing coming on that we had to renew, which increases that number a little bit, but we're probably halfway, and this was a circa two-year program, so we're feeling pretty good about where we have got to. But it's the same philosophy.
We've got a number of floors that we're actually working on as we speak, which are being fitted out, and they're, some are being split three ways, some are being four ways, some in half, so I'd have to go through that in detail with you to make any sense, and it's probably too long for the call.
Okay, thank you. Then, just on that, that asset sale that you did through the Burgess Rawson auction, given the outcome there, you know, is it fair to say you might chip away at some smaller or some similar transactions?
Point one, we've got inbound for more. But from our perspective, Ed, it's really around the value. We're not inclined to offer a discount on such a good cash flow asset and such a rare asset. We like the fact that we've got a few additional buyers wanting to bid for them, and we'll probably look to take advantage of that.
Okay. And sorry, just one more, if I may. Just on the vacancy at WS2, yeah, can you give a feel for progress on leasing there?
Yeah, sure. We've got two floors, level eight and level ten. Level eight, we've decided we wanna do a GDI style fit out on it, which at the end of the day means putting in something fairly similar to what we've got on level one. We'll probably go for a dominant-sided tenant with a small amount cut off for a small office. And in doing that, what we wanna do is to really showcase the timber and take advantage of the natural qualities that we have within the building. And in doing that, we think that we'll be able to achieve really good rents on it. Keeping in mind that we're getting, you know, we're getting in the high eight hundreds, which is better than premium in parts of the building.
So we've lifted the profile overall, well in excess of our break even rent that was set for the development, and we're just finding that it's a very attractive space, and we do have some expanding tenants already within the building. Level ten, we probably won't fit that out without inquiry, so we'll see how that goes. But I'm thinking that the level eight fit out will probably lead us to wanting to do that for someone on level ten. But we'll just see how that goes.
So in terms of inquiry on level ten, do I take it that there's active but not advanced discussions?
Oh, we're not pushing. We're very rent sensitive on that. So if people don't want to pay, we don't talk to them. We're a price setter on this product.
Okay, thank you.
Once again, if you wish to ask a question, please press star one on your telephone. We'll now pause a short moment to allow questions to be registered. Your next question comes from John Goldson with DP Wealth Advisory. Please go ahead.
G'day, guys, from Queensland. With the number 33 in Brisbane, I noticed in the note there that pretty well all the strata has been sold now. Have we got any idea of timeframe there when wind up will be achieved?
John, that is correct. They're all under contract, and if they settle when they're meant to, it should be this year, calendar year.
Great, well done. And of course, no more refurbishments required there, so,
Some of them, that's some of the hold-up. We still need to position some of the suites.
Right.
So they've been contracted, but we still have to do some work, so that, that's all in play.
But we'd anticipate that predominantly will be return of capital rather than spending on the loan. The loan is paid out now, isn't it?
Loan is paid out, yeah.
Yeah.
The unit price that we disclosed is after all costs of getting to the finish line.
Thank you.
There are no further questions at this time. I'll now hand back to Mr. Burns for closing remarks.
Thank you very much for joining the call, and look forward to catching up, individually or in small groups as appropriate. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.