You're standing by and welcome to the GDI full-year results telco. All participants are in a listen-only mode, and 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, and I'm going to start on page three, which is effectively the introduction. Our key theme for FY 2025 has been our leasing efforts. We've been able to achieve over 32,000 sq meters of leased space with over 21,000 sq meters of that coming from office leasing. This is a continued theme. We're very focused on our leasing efforts and have been for the last few years. Importantly, momentum continues into FY 2026, and we're very focused on leasing strategies next season. We're delivering a robust total FFO, which drove up 20%. Importantly, the property line is up 22%. Both categories have increased considerably since FY 2023. In particular, as you can see on the chart, the property is above and again confirming our leasing execution.
Recycling is well underway in the fund business with the sale of the Skyyards asset. We've been able to maintain and marginally increase our NTA, suggesting that value is bottoming. WS2 continues to be recognized for our good point of difference, which basically centers around timber and adaptive reuse, getting us better broker than rent. Our co-living segment delivered $6.5 million to FFO in line with our 20% return hurdle. Just turning the page, we've had a good start for FY 2026. Skyyards, we've just exchanged a sale contract for six dealerships for $74 million, representing 50% increase over our purchase price. The six Skyyards remain after this sale. We've refinanced the syndicated facility with a limit increase of $25 million, and there's over $57 million of undrawn. We extended the term, and we've got margin compression and anticipate further rate cuts to reduce FY 2026 interest expense.
The leasing activity continues, and the key theme in the market is the impending supply gap. We're very focused on capturing rental growth with our speculative fit-out strategy. Again, turning onto the next page, and in terms of delivering on our repositioning of the core properties at Mill Green, we've helped nine tenants either expand or relocate or consolidate within the precinct, and our fit-out strategy has been successful, as evidenced by our leasing results in the sub-600 sq meter premises with faster and lower incentives. At 197 , we did deals accounting for over 8,000 sq meters of NLA, and we've taken occupancy to 88%. Basically, that was from 71% in June 2023. We're relentlessly focused on the balance and working through active inquiry. We're also working through longer-term site optimization plans for the three assets that sit on Mill Green.
The combined site is highly attractive and amenable to next use at a staged approach. Anything we do here will be carefully staged and funded. The focus remains very much on the successful fit-out strategy and minor amenity improvements. Turning over again, at West ralia Square and WS2, we've taken occupancy to 95% and focused on extracting target rents on the balance. With the supply gap dynamics likely to deliver rental increases in 2026-2027, tenants are going to be very focused on accessing their needs beforehand. We're looking at extracting additional income from pockets of opportunity with additional NLA suitable for retail in particular, and Level 8 at WS2 has now a code suite showing that we can do with our boutique structure and set this up for future leasing within the building and outside of the building.
We're really bulletproofing West ralia Square by effectively leasing over 18,000 sq meters to the state government for over 8.6 years and leaving a staggered lease profile on the balance to access river growth going forward. Turning over again and just calling out our car parks, which don't often get mentioned, but their contribution increased by 15%. Categorically, equal profit in this segment, and we're benefiting from the high city patronage. There are no work-from-home issues in Perth, and the majority like to drive. Murray and Pierce Street are parked for both prospective redevelopment opportunities as their precincts evolve. Murray Street sits in emerging entertainment and dining precinct, as well as education, and Pierce Street, also known as Wellington Street, is damaged between the Perth Hospital, which has some expansion, and a 30-story UniLodge student accommodation campus opening in 2026.
We built WS2 on a five-level car park, and it has been very successful with the car park underneath WS2 producing $2.5 million of net revenue in FY 2025. Turning on for the next page, we've been very active on the fund side of the business, helping with investor liquidity, which has been a key theme we've had to address over the past two years. We've now sold over $250 million of assets in a very disciplined manner. People were calling out for us to sell at much lower prices, and we held back and we've delivered the investors the right outcome. We actively pursue future asset opportunities on a total return basis, as well as looking to maximize existing assets across the segments. Turning over again, our co-living business continues to progress with it's operationally led strategy to improve occupancy and cash flow.
FFO is $6.5 million and in line with our 20% return on initial invested capital. Going through the assets, Norseman has benefited from our intense operating approach, which is reflected in the 50% increase in value. Norseman is also traveling well, with Santoro pursuing strong production and expansion, reflected in their demand for additional rooms, 34 part-time mine site rooms, and 64 for a full-time expansion. We actively review growth opportunities in this segment very much through an operational improvement lens, but we're very careful and we're not looking to expand GDI balance sheet. As we continue to mention, we would structure funding accordingly. Turning on to the next page and again delivering on strategy within the funds management side of the business, we're very focused on unlocking value in one of our rather more exciting assets that's located at Broadmeadow in Newcastle.
Our fund member 38 owns a 16-hectare property opposite the McDonald's stadium, Allah the Knight. The property sits within a designated growth area for urban density of commercial and residential, currently industrial. The rezoning is in process and expected to be launched in FY 2026. It's likely to produce a very considerable uplift in value, lowering quality rezoning. In essence, it represents a very strong outcome for current investors on exit, as well as, you know, up to 10 years of profit and more opportunities for GDI to facilitate the hire of better use. We're excited about that one, and it progresses very well. Turning on now to the finance side, I'm going to hand it across to David Williams.
Afternoon, everyone. Stephen's already mentioned a lot of these, but I'll just go over them in a little bit more detail. Page 11. NTA is now $1.20, up from $1.19 last year and December. All balance sheet assets were valued in the year. Cap rates on average expanded a little bit out to 6.7%, but values went up notwithstanding, and the average rate per square meter of our portfolios hit under [$8,500], which is well below replacement. FFO per security is $0.0662, a stop from nearly over a cent from 12 months ago. Gearing has been steady at 34%. The LVR, which is measured as the drawn debt on the syndicated facility over the assets of which they have security, which is the wholly owned assets, is also steady at 41%, and the ICR is comfortably away from its covenant at 2.1 versus the covenant of 1.5.
Maintained the distribution of $0.05 per security for the year and has an intent to do the same next year. Breaking down that FFO in a little bit more detail on the next page, page 12, Stephen already mentioned the 22% increase in the property division FFOs. The big drivers of that were West ralia Square. It's reflecting the full-year contribution as the building's being filled to the top of it. There's only 500 sq meters to go in that building. WS2, again, reflecting stabilized occupancy; there's only two floors to go. That is not a full year's contribution from every tenant that came in during FY 2024, so 2025 will be up again. 197's obviously benefiting from the fit-out strategy, and they're driving that occupancy up over the last two years from 71%- 87%.
The car parks had an outstanding year, just high average occupancy driven by its great locations and high occupancy in the Perth office market. The funds management FFO was also up. That was predominantly due to the one-offs in the transaction fees for the sale of the dealerships and IKEA. Co-living was flat. The added cruciate expense was considerably high, but the previous year included $2.9 million of capitalized interest. We do expect, as Stephen mentioned, through some margin compression and our hedging structure, which I'll talk about, we should be able to see that reduce through FY 2026. Corporate and admin expenses were largely flat. The prior year had $400,000 reversal of previous year's expenses from corporate performance rates. Turning over to page 13, we're very pleased to have the support of our syndicate banks.
They extended the increase to the facilities by another $25 million back to straight to undrawn debt. Today's $57.2 million. We've extended 60% of it through to February 2028. The other 50% is February 2027. The swap, we have an awful 4.55% swap that expires at 31 December. We'll be glad to see the end of that for $75 million. The more interesting thing we've got, we had a zero-cost cap and collar structure wherever you pay between 3.75% and 2.65%. We're floating these for $100 million, and we've got $175 million of callable at 3.43% average. Come January, we'll have a cost of debt where we'll see the FY pick straight on 3.43% on $175 million, and the rest is floating with that overlaying that cap and collar structure. Back to Stephen.
Just reflecting on the Perth market and the WA economy, the dynamics appear very robust to us. State final demand of over 3.6% year- on- year. Strong business investment still up 8.7%. The strongest unemployment trend, which is up 3.5% and 32% below the decade average level. Unemployment is not a concern in WA. We've got the strongest population growth of over 2.4%. Interestingly, the retail spending is very strong at over 11%, and it's 11% above the decade average. It feels robust from the economic side. In terms of the office market trends on the next page, we're seeing good leasing inquiry levels. The major theme is the supply gap, which is emerging. Most people have got it at four years. There's virtually no space coming through. The market rents need to rise, in the order of 40% to justify construction.
We're probably entering the lowest supply gap in 25 years if these numbers prove correct and we don't get supply. Year 2030 looks like the earliest supply period, and tenants, as mentioned before, are likely to focus on not being exposed to the large rental increases, which are most likely to start coming through in late '26 and early '27. It's an issue for the tenants because they're still expanding. They're still getting moved to the CBDs. Our speculative fit-out strategy helps us catch the tenants that are very budget sensitive because not all the landlords are doing fit-out, but it's first up in our buildings. On the sales front, there are five to six campaigns that have been running, noting interest from high net worth, domestic and international syndicates, and a few instos. The depth of interest has increased, but as you can see, minimal transactions have completed.
At some point, this will turn. I dare say that reduced rates help the equation, and the stronger leasing plus the supply gap should help final demand. Turning the page, if we look at, again, the charts, they're suggesting that Perth has the strongest three-year net absorption stats in the market nationally. We've also got a new peak in Perth occupancy by area, again, confirming it's not affected by the work-from-home issues. If we turn over again, there's the supply gap that can be seen there with only little bits of space. Most of that is backfill before you get to the big column on the right, which is only mooted at this point. I'll be very interested to see where the site comes from for such an expansion. I don't think it's easy to be able to produce 60,000 sq meters out of nowhere.
Turning on to the property portfolio, netting our investment portfolio includes exposure to the car yards and the car parks, representing 18 tenants' value and, importantly, very cash-generative, minimal CapEx, as we like to highlight. Very important to GDI whilst we're being in retail phase. I think in terms of our valuation, it's resulted in independent valuations, effectively for Mill Green. The carrying value is up in the order of $36 million, due largely to the income growth at 197 Georges Terrace. 180 was marginally down. The car parks were marginally up. They're at carrying values, though no independents there, but the income numbers support our view of keeping that static. They'll be valued again at the end of the year. We've basically experienced good income growth across the assets. We feel that the values underpin somewhat the portfolio.
Turning on to the next page, it's really just a key stats page showing the occupancy and the Wale and the weighted cap. Again, the market inside price suggests something in the order of $6,000 per sq meter, which is, in Sydney, less than people probably spend on fit-out. We don't think that the values are terribly high, as implied by the market value, significantly ignoring any income growth that we expect to see accrue from the supply gap, replacement cost, as well as basically the theme in the most market, which seems positive on the whole and the bottoming out of office values. I think I'll turn now just quickly to the last page, which is page 24. Just really wanting to highlight that in terms of strategy, we are very focused on doing what we say we will do, and nothing will change there.
It's very important to the way that we operate. We are executing on that strategy, as evidenced, one, by our leasing results. We remain relentlessly focused on additional lease-up and speculative fit-out strategy. On the financial front, we want to be very transparent. We're driven by a strong strategic goal to grow FFO, balance our liquidity requirements, and deliver high-tenanted distribution. We have recycled assets with over $250 million sold. We won't stop there. Very focused on bringing the performance-free outcomes to account, utilizing our adaptive reuse and boutique timber, outsource building skills, and carefully managing strategic growth plans at both the property and a business level. We're always looking at the opportunity to optimize shareholder value with friendly actions and narrowing the value gap. We believe we are well placed for FY 2026, and I'd like to thank you and hand back to all 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 are on the speakerphone, please pick up the handset to ask your question. Your first question comes from Andy Maxwelline with Bellwater. Please go ahead.
I see it's transiting through time. I've got some deeper analytics, which is a little bit on what do you have in terms of, you know, having an agreement on the foot at the moment. Just some color, I guess, around the inquiry coming at $5 million when it hits in 2026, and maybe just a little bit of color on 197 St Georges Terrace as well, if that's right.
Yeah, I'm happy to. I mean, in terms of $5 million, look, there's only less than 900 sq meters here, but we tend to have a real crack at reutilizing the old fleets there. It's just really a question of the best terms we can extract and who the tenant might be. We're very actively ahead of the curve on that sort of stuff in $5 million because we find if the tenants are expanding, then we can offer them space while it still exists in 197. We feel that we're pretty happy with that. What was the other foot, James? Did you want to?
I just think the amount of heads, it's not that material because it's all relating to 197 St Georges Terrace spec fit-out. They basically, the gap from hedge to lease is pretty short.
Cool. We're pretty, Andy, on that front. We're pretty conservative when it comes to heads because we don't like them ever falling over, and they really do. We've got some good active inquiry both on whole floor and on the floor, keeping in mind that there's only, look, there's only two floors at 197 , two floors at WS2, part floor at West ralia Square, and as I mentioned before, the equivalent of one floor on $5 million. We're right across the whole floor, but personally, before we split a floor, we want to make sure we've exhausted the opportunity. We're looking at saving every dollar we can on the fit-out strategy.
On the call on WS2, it just mentions, yeah, a little bit of vacancy, but two floors above standard. I'm just wondering how the leasing is kind of progressing there.
We're good, good, 197. Good. Yeah, we've got active inquiry. In fact, if we keep going the way we're going there, we'll be running out of office space. That doesn't mean we deserve a medal. Part of it is the terms we've signed, and as buildings age, you've got to put more into them. We feel pretty confident with our active saying that we're going to make good inroads in that. It's nowhere near the sort of problem it was two years ago.
Oh, I think they're just saying WS2, you mean one?
Yeah, WS2.
Yeah.
We are most focused on extracting the right rent there. This gap, this supply gap, will have people jumping for quality space because there's probably not going to be as much of it around. We are not rushing to put that space out the door. We'd rather get the rents right.
Maybe some mill grain you talked a little bit about in your presentation just in terms of land, and you've articulated a little bit in the past, but just wondering what the lay of the land is at the moment just in terms of development and options available to you there.
Yeah, it's doing this around the research phase at the moment. Our research has uncovered a few interesting things. Basically, with the whole Mill Green concept, it's about trying to optimize the site, in other words, the value for the three buildings. To do that, you've got to look at it in total. The obvious thing that comes up is that there's a lot of work to do at the base level. Basically, there's a whole retail amenity that can be improved. We think if you put it, you've got to earn the right to go up. Before you start doing any towers or mixed use or whatever it is, you've got to get that ground plane right. We've got a fair bit of work going into the F&B side and the retail side, and our research indicates that there's a real shortage of the offer.
Before we did anything, we'd be soaking up the funding and doing it separately. It's not like we're just going to put that on investors, so they don't need to worry. That's where our intuition and our research takes us. The other thing that's obviously interesting from a whole of site perspective is what you can put there. Perth is very pro putting living into the city, so that opens up a lot of options for higher investors. We take a very flexible approach to that. It's very much going to be based around the returns and the timing of when we can do it. If we did anything office, we'd be looking at obviously getting an agreement for lease first and all that sort of stuff. In terms of where places and rents need to get, they've got to get 40% above where they are now.
Not necessarily for our buildings, but just in general. Some of our buildings, WS2, the rents there are getting pretty close to breakdown rents that you would require. To do it for a whole building is another, is a whole other thing, right? We'd be very careful about that, and we'd be right-sizing it and thinking about it and underwriting it with the right cap rate, etc. It would be a very careful process, and it's not something that's going to happen tomorrow.
Understood. From how we're living here, you called out your remarks just in terms of things done well so far in 2026. Just wondering, how are things going so far? I guess for the plans for a couple of years as they're over 20 km
It's basically our dazzling. We're feeling good about it, and we're still looking all the time at acquisitions, but we're very disciplined. David's got a good line of sight into the current occupancy, excessive dilating takeover.
You spoke about the expansion of Norseman. Santoro, the counterparty there, is looking for us to put 64 more rooms in. We're working through that planning approval process. We had excess rooms that were sitting in the pile that had been moved and refurbished. We've also got another 36 sitting on the line site, temporarily. That Norseman asset's going very well. Newman, since we bought it, Steve mentioned that we didn't, the team did an outstanding job last year, drove revenue well beyond our acquisition assumptions and had a value for the first time at $9.4 million. That was 45% more than what we paid for it. Headland was a bit softer in 2025 than it was in 2024, but we're still talking, you know, plus or - $9 million of EBIT on a $27 million acquisition price. So it's 20 factor with $400,000 between the two years.
They had a real benefit the first half of FY 2024 of a high-yielding contract for five months. Occupancy has been really good up there for the first month and a bit. It's going well at the moment. Yep.
Last question, if I may, just on Fund 38 you've talked about as well. Just interested in the thought on timing to realize value there and if or where what that might mean for performance fees in 2027 or years onwards, if so.
The existing investors invested into our fund in 2014. They've had $0.53 of capital return to them. That's $0.37 they've got in, and it is yielding over 20%. It's valued at the moment on an industrial use basis at $0.95. That's the remaining $0.37. Our job for those investors is to maximize that value. That'll be when we're certain that there's no more value extraction from the DA process. We, as Stephen said, intend to launch a DA in accordance with the Broadmeadow strategy. That will be at some stage this year. We would anticipate a DA would be between one and two years. At some stage, maybe before the DA, we feel as though there's enough certainty that we can actually roll that fund into some other form of capital that it would participate more in a development play than a yield growth.
Okay. We think performance fees, even though it's 2016, but maybe even 2017 onwards, would you say?
It'll be when we feel that the value has been extracted for the existing investors in that fund.
So good.
On the DA certainty, Andy, the Broadmeadow strategy is very definitive about what they want to do on this site.
Yeah, the increase in density, like it's huge, you know, you could over 4,000 living units, etc., and a massive site, but also mixed-use access. We've got heritage, so we can put up all sorts of interesting structures and so forth, as well as a number of things to assist the tenant that does have rights to that piece of dirt for a while. There's a staged approach, which would also help our RRRs. It's a large amount of money to us and a large uplift, obviously. Performance fees would be considerable, but we're not going to forecast them. Andy, we can simulate them, but until they happen, we don't count them.
Excellent. Still coming from the side.
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 comes from Joshua Chan with ICBM Capital. Please go ahead. Please go ahead, Joshua, and unmute yourself in case you're on mute. Joshua, you're not quite audible. Are you there, Joshua?
Can you hear me?
Your voice is breaking up.
Can you hear me now? Yeah.
Yes, please go ahead.
Hi guys. Congrats on the good result. I might have missed it, but I was just wondering, what do you expect your average cost of debt to be in FY2026? With the transactions that you've announced, what do you intend to do with the sales proceeds? The third question would be, is there any intention to raise the distribution payout going forward? Thanks.
I'll answer the second one of those first. The transaction that was announced on Friday, it was that June's which you were talking in, you're sitting in one of our unlisted funds. It's $74 million. It's currently got $23.5 million of debt. If we leave the gearing, we haven't discussed what the debt profile is going to look like with the funding bank at the moment. If we leave the LVR at 20%, which it currently is, it would enable about 75% distribution to the investors in that fund. On our floor, that would be $26 million. That would be taking the debt down from $23.5 million to sort of circa $10 million in that fund. You don't actually disclose our weighted average cost of debt through FY 2026. I think I explained that we are floating for a lot of it, certainly from January 1.
We only have, we have $175 million with a hedge at 3.43%. The rest is floating, so the target of which is between that band of 2.65% and 3.75%. We did get some margin compression, and we were planning a margin based on developing WS2 with our tenants. There was a development element in our pricing. A very kind syndicate banks, when it was part of the extension, they did look at the margin. There has been a little bit of margin compression, but reflective of the nature of the better lease portfolio. You can work out what last year's average cost of debt was. It was a tick over 6.1%.
Yeah. The distribution. Yeah. We're very careful on the distribution front to say we want to focus on a, you know, three cycle five-tenths. The key to that, Joshua, is we're not like another REIT. We're kind of return-focused, so at some point, we could sell a large part of the portfolio. We've just changed the, you know, the sale. We don't do that. We pick five-tenths for a reason. We'd like to keep it there. Yes, special dividends, etc., come into play if something sizable happens, which we've spoken about before.
Yeah. Cool. Thanks. I'm going to. With the sales proceeds from the transactions, it's something that, and obviously, you're starting to accumulate cash in your balance sheet. Would you prioritize, you know, like realignment of doing the fit-out, or would you prioritize debt repayment? Or, you know, how would you think about that going forward?
I think on the $26 million, but we ought to get back on the style of the dealership. If nothing changes and we look like we do now, I would anticipate it would go straight to debt reduction. The more shareholder-friendly stuff would be more, certainly would look to be making it more transformational. Something a bit larger than $26 million.
We wouldn't do buybacks for the sake of it with small amounts of money, Joshua. We don't think that makes sense. We think if you factually change your capital structure through a large transaction and a strategy, that's totally different.
Yeah. Okay. Cool. Thanks.
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. You may press star one on your telephone and wait for your name to be announced. There are no further questions at this time. I'll now hand it back over to Mr. Burns for the closing remarks.
Thank you very much for joining us. We had to get around and see most of you. For those that we aren't catching up with, feel free to send us any questions or set up a meeting. We'd love to see you. Thanks.
That does conclude our conference for today. Thank you for participating. You will now disconnect.