Thank you for standing by, and welcome to the GDI half-year 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'll 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 Dave Williams, our CFO. A key theme has been our leasing efforts, and with over 16,000 sq m of office space leased in the December half, we're continuing to deliver on what we said we would do. Notwithstanding a slower market of overall leasing inquiry in the December half, we were able to achieve a very good result, and leasing and inquiry deals have started calendar 2025 on a very strong note. Anecdotally, CBRE put out a recent release showing that 11 deals had been done this year, which compared with 42 for the whole of calendar 2024. Strong outcomes so far this year. We recorded a 26% increase in FFO on the PCP. Importantly, property FFO increased by some 38%, reflecting our leasing efforts and the dropping of the income.
We achieved a premium to book on some car yard asset sales, which are ongoing, as is the non-core asset recycling program, and we're actively engaged on a number of assets. WS2 won a number of awards and reinforces our desire to provide boutique office space utilizing the timber and adaptive reuse method. NTA stable at AUD 1.19 per security, with Wes tralia Square and WS2 amongst the assets valued at the end of December. Co-living is providing returns in line with our 20% hurdle, and the distribution guidance of AUD 0.05 for FY 2025 is still intact. Just turning on to page four. With regard to core assets and strategic direction, WS2 is proving up to be a very good way to provide boutique office space, and during the period it won, a global award for structural engineering.
We think that it's a really important message to push, given that the break-even rent and cost advantages that arise from working with the hybrid timber, lightweight steel, and building on top of core assets while still producing income is a very important one for what we do. We have got two floors of unleased space remaining in WS2, and we are putting in place a high-end GDI fit-out on one of the floors, which we hope to use as a test base for future projects. At the moment, it is worth remembering we are achieving very good rents and, in some cases, premium rents within the WS2 building. There is very moderate office supply in terms of outlook for Perth over the next four years, which is a bit of a message from this presentation.
It's well below the 20-year average, and I think that's very encouraging on a number of fronts because the provision of well-timed boutique office could work well. We're not rushing out to do it, but what's important is there's four or five years to be able to accomplish that, which is what the supply gap is looking like, which should allow for rental growth, declining vacancy, and accumulation and build-up of tenant demand, if you like. Turning on to the next page and really focusing just in on the Mill Green complex, it's important to report that we're able to take occupancy at 197 from 69%- 82% during the year to December, and really it is a reflection of our targeted fit-out strategy.
We were able to play off a strong interplay between some of our cluster of assets at 5 Mill, for example, where we have expanding tenants that are able to move to a bigger floor plate and accomplish that by moving to 197. 5 Mill, in turn, attracts smaller tenants at a very good price point and has proven to be a very good lease-up story. We're able to reuse the fit-out a lot there. Overall, our leasing team has been very busy and outperformed the market in terms of transaction volumes. In other words, we've been able to lease a lot more than our competitors percentage-wise. The Mill Green site lends itself to a staged development plan over time, which would accommodate retail amenity, foyer upgrades, and longer-term a timber and adaptive reuse office boutique building.
Don't worry, we wouldn't do that without an agreement for lease or working out that we had a competitive advantage. Our focus remains very much on the lease-up strategy and scoping out the future staged improvements. If we turn to the next page, just quickly on asset sales, we've been working hard on the non-core asset sales, as you know. We've now sold over AUD 20 million worth of car yards. Importantly, to us, price is really important, and the premium to book value, which was implied on the AUD 140.6 million worth of asset value pre-sales, was really important to us. We've got ongoing sales with good inbound interest, and it tends to appeal to that market, which can be impacted by a decline in interest rates for super funds and so forth.
We own 47% of the car yard fund, and we're working on a number of other asset sales across the group. If we turn across to the co-living page on page seven, during the period we bedded down our third asset, which is at Newman, the repositioning has been well received and occupancy increased since purchase and subsequent refurbishment. At Northbridge, we're working with Pantoro to supply an additional 40 rooms for their future requirements. They were recapitalized during the year and are very focused on growth ambitions. We're focused very much on the operational returns and carefully targeting acquisitions. We do look a lot. We purchase very rarely. The value of the JV is about AUD 39.9 million being GDI share, representing some 3.4% of our total assets. We're on track to deliver on our target of 20% of our initial invested capital.
Turning over to the next page, I'll hand over to Dave.
Afternoon, everyone. As Stephen mentioned before, NTA was stable at AUD 1.19. We had the Wes tralia Square complex. It is Wes tralia Square and WS2, and our two car parks revalued at December. Wes tralia Square, the main building's valuation went from AUD 379 million- AUD 395 million. That is notwithstanding an increase in its capitalization rate from 6%- 6.375%. Not unexpectedly, WS2's valuation increased given the amount of leasing that has been done there. It went from AUD 94 million- AUD 105 million, and its cap rate tightened slightly from 6.5% also to 6.375%. There was minimal movement, slightly up on both the car parks. The cap rate in Murray Street, one, remained at 6%. Wellington went out slightly from 6%- 6.25%. That means we now have a weighted average capitalization rate on the independent values of 6.7% and an average rate per square meter of NLA of about AUD 8,300.
The FFO, as also Stephen mentioned, was AUD 3.07 . You can see the very steep increase from the December 2023. Year-end is at 34%, and we're well compliant with our indicated facility covenants on an LVR and ICR basis, and we determined a distribution of AUD 2.5 and confirmed the intent for AUD 5 for the year. The big driver to the increase in FFO has been at the property business, the Wes tralia Square complex. The FFO was up 5.6 million. Mill Green, 1.1 million, and the car parks up slightly. That's just the result of past leasing efforts that are now dropping in, and that continues as the income continues to grow, so leasing efforts continue to fill the buildings.
The funds business, funds and FFO had a couple of transactional fees in it just on the dealerships and also had full distributions for the six months in the previous corresponding period. One of them had a cutback in the distribution, and that's on the two that we consolidate where we own 40%-ish stakes. No material change on the co-living. Offsetting all those gains is obviously a higher interest expense, but when you are looking period on period, the index 2023, we capitalized AUD 1.7 million of the interest relating to WS2. Corporate and admin expenses were flat. On our syndicated facility, not much to see here. AUD 35 million undrawn. We remain pretty happy with our hedge profile. We're very hedged till June. It's about 70% to debt.
We're paying below cash on most of it, and we've got caps on a good chunk, so if the rates do come down, we get to benefit. I'll hand back over to Stephen.
In terms of the market snippets, the positive absorption story continues in Perth with over 25,000 sq m achieved in the six-month period ending January 2025. Overall, the vacancy of 15.1% is down marginally from 15.5% in July 2024. The tenants are very focused on the value side of the equation and definitely have a preference for fitted-out space. Most tenants are still expanding, so there's a good mix of tenant demands for greater space. Our spec fit-out strategy is definitely working well for us, and it's helping to deliver on the better economics. I did mention that CBRE picked up on the increased activity so far this year. A lot of that has been centered around the smaller segment, 150-600 sq m in terms of tenant requirements, and our team is very focused on hitting as much of that inquiry as possible, and they're definitely achieving that.
Turning on to the next page, the Perth and WA macro dynamics remain robust. Exports still representing a very healthy chunk of circa 44%. We've got very strong population and employment growth figures. Also on the downside, we're actively managing any tenants impacted by changes in the commodity cycle, and there are pockets, and we just make sure that with the leasing term, we get onto them very early. There's good examples across our portfolio where we've helped to manage tenants, and I think it's a very important part of what we actually do to ensure that we hit any potential problems beforehand and help the tenants out. That's been done on a profitable basis from our perspective, but also a very meaningful basis from a number of those tenants.
We do not have much exposure to those difficult segments, but we are always awake to it within our portfolio. If we turn on to the next page, Perth, strongest market for two years based on the net absorption figures, and we continue to experience very good inquiry for leasing, particularly at the core assets. The two core located clusters provide very good price points and variation, and the leasing teams are very focused on targeting any inquiry or movement in and amongst those two clusters. If we look at headline vacancy, it has obviously declined. The tenants are still expanding. We have very high work-from-office stats, if you like, in Perth. That maintains the same. There is no change to that. Office occupancy in terms of square meter terms is actually establishing a new peak in terms of the number of people occupying space back in the city.
It is a healthy environment in Perth, and combined with that sort of supply gap that is emerging, it is a very interesting dynamic. JLL and a number of the agents are predicting quite strong real growth. We will leave that aside. We are just making sure we can get as much of it as we can and fill our buildings. This supply gap looks like four years in duration. If you look at the chart on page 15, you will see that the additional supply in those intervening four years is well below the levels of the 20-year average. The cost of construction is still very high. There are a lot fewer major tenant moves, and there are hardly any in the four-year period. Perth has been defined by a couple of well-known names moving around. There are not many of them.
You can see on the chart there's potentially one out there in 2030, but at the moment, it looks pretty meager on the large front. Apart from that, four to five years should allow for rents to get to required break-even levels to justify construction, assuming that supply stays orderly. The next chart really focuses more on the reduced vacancy and just gives a couple of scenarios. If you start assuming the historical average of 20,000 sq m, you end up with some very good occupancy figures or low vacancy numbers. It should be pointed out, it'd be very difficult to deliver buildings of scale inside of three to four years, realistically. Some can say they'll do it. It's very, very difficult to do.
By the time you press the button and achieve your DA, the build times, the pre-leases, etc., it's highly unlikely to deliver a building of traditional scale of 60,000 sq m or so forth. Four years would be very difficult to achieve. I guess the message in all that is that the supply side to Perth core office real estate looks pretty favorable from our viewpoint. If we turn to the portfolio, there was basically four assets valued at December, which accounted for about 54% of the value of investment properties. The portfolio reflects an average cap rate of 6.7%, as mentioned by Dave, a WALE of 5.2 years and an average value of circa AUD 8,300 per sq m.
Dave mentioned the movement in the Wes tralia Square cap rate, which was out by 37.5 basis points, and we have experienced or we are anticipating about a 25 basis point move across the year in terms of cap rates. We are feeling like the lower end of the portfolio, things are bottoming out, and with the advent of interest rates, some sales, and just the general activity in the market, that we cannot be too far from the bottom, so values should start to rebound or at least hold. I think in terms of 197, the important thing there was boosting that occupancy from 69%- 82%, showing that it can be done. If we look at this table, our core assets, effectively Wes tralia One, Wes tralia Two, and then effectively the Mill Green Complex, which is the top five assets there.
They're in good health, and we'd expect that when the Mill Green Complex is valued up at June, there shouldn't be too much movement. I think we might have seen the bottom of that to date. A reminder that we're sitting at about 82% office assets with the car yards and the car parks making up the balance of 18.4%. That's really it on the table there. The next page, page 18, summary of the overall stats, again emphasizing the lack of supply coming onto the market. We can actively deal with our vacancies and push quite hard. The fit-out strategy is the way to go, particularly on the Mill Green properties. I'm then going to turn quickly through to page 22, which reflects a fund business highlight page, and we've been very active on the funds management front, working with existing assets.
We've had lease extensions at One Adelaide Terrace, and together with refinancings and tenant amenity improvements, there's been a lot of work going on at One Adelaide Terrace. We've been working through right of use and title issues for IKEA against the backdrop of a number of retail or large retail asset transactions. We've been working very hard on the IKEA asset and feel good about that one. Progressively selling some targeted car yard assets, and what's been surprising there is the amount of inbound interest, if you like. We've been achieving premiums to book value for the car yards, and we've been utilizing auction and direct sale method as applicable. We've focused on providing effectively liquidity to our unlisted investors, our syndicate investors, and realizing the right values. We're very, very selective on the acquisition front, but we're always looking.
If we turn to the update on strategy and guidance, it's really a reiteration of what we try to do, which we're very focused on having a clear strategy and doing what we said we will do. We are executing on strategy. Leasing is key, and we have a very active in-house team that has done more than GDI share in the Perth market, and we expect to maintain that focus. FY 2025 has started strongly, but that means we need to be more aggressive as competitors start to work out what's going on. We want to ensure that we're very true to our fit-out strategy and optimizing our terms with tenants, but also looking after them and servicing any problems they may have. Our finances have been boosted by the strong increase in property FFO in line with the leasing strategy.
Recycling is underway, and the bottoming out sentiment for the office market is encouraging. I think we're working on a number of growth initiatives, which we look forward to fund with recycling proceeds and third-party capital when appropriate. If we turn now just on to page 25, which is the strategy and guidance page, I'd like to say in closing that we maintain our DPU guidance at AUD 0.05 for FY 2025. We're well positioned for FY 2025 and onwards more generally, and the property FFO increasing on the back of leasing efforts is key to that, and we're very focused, as I've said, on executing on strategy and delivering for our investors. Thanks very much, and speak to you at Q&A time.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, then please press star two, and if you are on a speakerphone, please pick up your handset before asking your question. Your first question today comes from Andy MacFarlane at Bell Potter. Please go ahead.
Afternoon, guys. Yeah, very good. How are you in terms of the market backdrop? Thanks. Just interested in terms of what you're seeing regarding incentives and what you're kind of seeing there trend-wise across the market.
Yeah, I think the best thing, you've got to be a little selective and very individual on incentives because I can name big numbers. I know, for example, our valuer used a lot higher numbers than we're achieving, which is in part why we got comfortable, Andy, with some of the assets not being valued at December. We out-achieved on rents, on incentives, on lease time, on CapEx. Basically, I think incentives have been, in some cases, increasing, but where you provide the fit-out space, you have a lot more control over that outcome, and we've been in a position to say no to potential inquiry where they've just demanded higher market incentives. I think it's a mixed bag. I'd say on the whole, we've been able to hold the line on incentives for the better space.
In fact, for shorter- term, and remember the fit-out strategy we've got, Andy, which really helps here, is if we provide a fit-out, we expect to give away a lower incentive. In some cases, we can get well below market, in some cases, market, but a lot of the time we're achieving, and that's part of the benefit of having our own team. We can actually get quite aggressive on that front.
Helpful. Just in terms of the valuers, yeah, you made some comments just around resource and CapEx expansion. What are the valuers kind of saying at the moment just in terms of expectations? Is that taking through what they really think gets it all done, or are they still expecting that we might see some expansion over the next 12 months or so?
Look, I don't think they know, first of all. I think like everybody across Australia, they're looking for a bottoming of the office asset cycle. I think the real pressure, there was real pressure last year, fair to say, probably around June, with the expectation of an interest rate cut, things started to improve, but then it didn't happen. Now you've had the interest rate cut, it starts to just help sentiment a little bit. I think in terms of what we saw across our assets, we've probably hit the bottom intuitively across a number of the assets. What was interesting, we're seeing effectively Wes tralia Square, it hit six and then it bounced up a bit, but because of the amount of income flowing in it, the overall valuation went up. I think you've got to look at it as a mixed bag.
As much as valuers like to target CapEx, I think you've got to blend the two dynamics together. To be fair. Dave, did you want to?
I'll just add that remember Perth didn't have anywhere near the same level of CapEx tightening because when CapEx really started to run on the East Coast, Perth's occupancy market was quite weak. It was pretty stagnant. We wouldn't anticipate, sort of, it didn't come down, it won't go out as much. JLL quoted a 25% widening last year. That was reflected in essentially our assets other than something like WS2, which you would anticipate given the occupancy and the rent and the quality of the leases. It would have had to have tightened from 6.5%- 6.375%. I wouldn't have thought there would be much of a widening, particularly in the backdrop of potential interest rate cuts. Yeah. Just a final one for me. To expect to.
You just mentioned there in the deck, just in terms of for the outlook, just the proportion of distribution potentially to be paid out in capital. Just wondering if you could give a little bit more color on that and also just what you're assuming in kind of FY 2025 for widened average cost of debt.
Just that the answer on out of capital is very tax-driven. Because we are front-running tenants and putting in spec fit-outs, we do have quite a big tax depreciation charge. If you have a look at the half-year distribution, from a tax point of view, it is all out of capital. The way we look at it is, and we have various methods of funding everything we do, rent being the predominant one, fees from managing the funds, and distributions and dividends out of the co-living. They will go into the mix. Going out the other side is interest, a few op costs, distribution, and CapEx. We balance that. You can call whichever item you want CapEx, but from a tax, I mean, capital.
From a tax point of view, the depreciation charge is meaning that there's not a lot of income from a tax point of view. Weighted average cost, you can see we've basically got AUD 175 million with a 3.6% rate. We've got a AUD 75 million swap at 4.55%. Until June, we've got a AUD 100 million cap at 4.25%. Besides that, the rest of it is floating. Not a lot of floating now, except we've got the cap at 4.25%. From June, that cap falls away.
Excellent. That's all for me. Thanks, guys.
Thank you. Your next question comes from Edward Day at MA Financial. Please go ahead.
Good afternoon, Stephen and David. Thanks for your time. Just interested in your comments around asset sales. You clearly made some good progress with some of the car dealerships. Just wondering if you can provide some color around active campaigns that you have at the moment or are planning and what that might equate to from a dollar revenue this half.
We've definitely got more car yards that we will sell. We're active on a number of them. We've got some non-office assets that we're active on as we speak, Ed. In terms of JVing core assets or selling a chunky non-core office asset, there's nothing imminent. I think part of that is we haven't wanted to throw stuff out at the wrong prices, and we will die in a ditch over that because we don't have to. We're going to be very price-sensitive to what we believe is the right value. That's the strategy we're taking. We do have a belief that there's going to be a more balanced hand in negotiations from a landlord perspective, particularly as that market starts to tighten. We think that we'll start to see some decent interest and have some proper conversations very soon.
Okay. Thanks. Just one more on your, I guess, your fit-out strategy. That is really coming through 197 St Georges and WS2. Can you just talk to the capital requirement still to outlay there?
We tend to use a number of 10-15. That's basically for a non-significant project that we haven't announced.
That's a 12-month time frame, is it?
Yeah.
Okay. Thanks, Stephen. That's all.
Thank you. Once again, if you would like to ask a question, please register by pressing star then one on your phone. Your next question comes from Selwyn Chong at Core Property. Please go ahead. Pardon me, Selwyn Chong, your line is open. You might be on mute. We are currently not getting any audio from Mr. Chong's line. We do have a question.
Hey, guys. Sorry, guys.
Yeah. Please go ahead.
My questions have already been answered. Thanks anyway.
Thank you.
Thank you. Your next question comes from Peter Davidson at Pendal. Please go ahead.
Stephen, just a query. Would you not consider selling one of these major buildings and just significantly buying back stock? I mean, you're trying to get a huge discount to what appears to be a reasonably robust NTA. You've tested it. I am just wondering whether you could maybe execute a major sale and buy back quite a chunk of stock.
Dave, I'd do it tomorrow. You got a bid for us? I mean, it's just a matter of getting someone interested to buy that volume of property. As you've seen, there's been a dearth of sales in Perth. We're hoping it turns soon, but it's just on you haven't been able to transact, but we'd love to see a real bid.
Okay. It's good to know the lines are open, are they, Stephen?
Absolutely, mate.
Now I'm clear. While the market is improving, what we can do is make the assets look better by increasing the occupancy in the whale, which is what we're doing, making them more attractive.
Very good. Thanks, David. Look forward to progress.
Thanks, Dave.
Cheers. All the best.
Thank you. We are showing no further questions at this time, so I will hand the call back for closing remarks.
Thank you. Thank you very much, everybody, for joining the call. Good luck with the rest of the reporting . Thank you.
Thank you. That concludes the conference for today. You may now disconnect your lines.