Thank you for standing by, and welcome to the GDI annual results telco. All participants are in a listen-only mode. There will be a presentation followed by a question -and -answer session. If you would like 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, everybody, and thanks for joining the GDI call. I am joined by David Williams, our CFO, and I would like to start on page three of the presentation for you to follow. It has been a good year. We continue to drive the FFO growth, most notably 25% overall in terms of the total FFO to AUD 44.5 million. Strong growth in the property FFO of 14.8%, and Co-living the business that we seeded along with our partner has provided strong growth this year, which was facilitated by the addition of Moranbah, but 46% increase on last year. I think, importantly, we have delivered strong results over a three-year period by really paying attention to executing on our strategy, and it is very important to us. What we say we are going to do, we want to deliver on. The NTA has had a marginal increase per security. Not many assets revalued in the period.
We have had strong leasing results with over 20,000 sq m of leasing achieved, which puts together three very solid years of leasing. Noting that post-balance date, WS1 and WS2 moved to 100% leased. We closed over AUD 150 million of asset sales at good prices, I would note, in the funds business, and we are focused on continuing non-core asset sales. Just a reminder, that is at least AUD 330 million since December 2024 that we have been able to get away at good prices. The Co-living business is contributing meaningful profits now and still meeting our in excess of 20% return hurdle, noting the big increase over last year. The business is now a really stable platform upon which we expect to eke out further growth at the operating level. Gearing at 33% with a AUD 21 million reduction in drawn debt.
Post-balance date, the car yard sale is completed, and we are sitting there with about AUD 90 million of liquidity, and today we have announced a 5% buyback. Turning to the next page, and speaking of strategy, the important thing has been to lease up the core properties, which is where the bulk of the value sits. Both WS1 and WS2 are now 100% leased, including a recent Heads of Agreement for level 10 on WS2, reflecting both an improving Perth office market and our expert leasing team, as well as utilizing our targeted spec fit-out strategy, which has been a feature of previous discussions that we have had with the market. There is no doubt that the Perth office market is improving, and GDI has outperformed the market in terms of overall leasing.
The strength is going to continue, and it is going to be driven by supply shortages on the office side, expanding tenants and demand. We will get to that later on, but also the improving rent dynamic. All of it is underpinned by a strong WA economy as well, which gives us further benefit. WS2 was a new build without a tenant pre-commit. The FY 2026 FFO increased by some 42% as the property stabilized to AUD 6.1 million. WS1 involved basically the letting of most of the building a few years back, and over the past four years, with government leasing half of the building and the balance multi-let to corporates, it has a six-year WALE. In the FY 2026 year, FFO increased by 9.7% to AUD 29.3 million.
If we look at the repositioning of the core properties, which specifically relates to the three on the Mill Green site, it has been a very busy period at Mill Green, completing over 31 leasing transactions, and again, utilizing our spec fit-out strategy. At 197 St Georges Terrace, we lifted the occupancy from 87% to 92% over the year, and we only have one full floor of office remaining, plus a few suites. The vacancy sits mainly within retail. The FFO increased for the building from 29% to AUD 16 million. At 5 Mill Street, we dealt with just under 3,000 sq m of NLA, lifting the occupancy from 86% to 93%. As mentioned in previous reports, we are working on a master plan DA for the entire site, which encompasses three buildings. The initial stage is to focus on 197 St Georges Terrace ground level amenity.
Longer term, the site will benefit from the improving dynamics for a mixed-use approach with flexibility between uses. Turning the page onto some of the other assets, the car parks, they have been steady, generating around AUD 4.5 million of FFO for the year. Notwithstanding petrol prices, they like driving to work in Perth, so it has been robust. We like the car parks because cash equals profit, and because they represent income-paying development sites that we can build on top of, which is similar to the approach we took with WS2. The only differential would be that it is most likely to be for living use. We are very focused on optimizing the car park uses for prospective development or sale, but also for partnering with an appropriate operator. Murray Street has benefited effectively from increased designer retail in the area, together with dining and entertainment.
Wellington Street is likely to benefit from the Royal Perth Hospital expansion, which we have estimated adds an additional 920 trips per day, and also the student accommodation in the precinct. If we turn the page again and just looking at the Co-living JV, there has been a very strong year with FFO up 44% to AUD 9.5 million. The Moranbah acquisition in Queensland, for AUD 18.3 million, with circa 196 rooms, is being bedded down. There is more growth to accrue from that once we get that working from an operational viewpoint. The Norseman expansion. Basically, Pantoro's growth has led to an additional 140 rooms for Pantoro, with more to follow. As mentioned before, we are generating in excess of our 20% return hurdle. We remain very focused on the targeted expansion at the existing villages and acquiring villages where we can get operational improvements.
The purchases are to be funded within the JV or external capital, and we will retain that discipline in terms of how much balance sheet exposure we have. We now believe we have in place a very strong platform that can deliver additional operational gains and accommodate further selective growth. Turning to the next page and reverting to our strategy, which calls for asset sales, this year we sold the remaining car yards and an industrial property, generating over AUD 150 million. We delivered very strong returns to our investors in the two funds. Our balance sheet currently has over AUD 100 million of non-core assets, and we are focused on continuing our sales strategy. Perth is starting to see some office sales, albeit some of the campaigns that we mentioned last results have not come to fruition, which was probably anticipated.
Subsequent to that, we have seen the sale of Workzone East for AUD 79.4 million and Kings Square 3 for AUD 83 million. They just actually give us the feeling that there is some liquidity in the market. The increased focus on this supply gap, the only office market in Australia where there is no supply for the next three years, is adding to that story, and we feel quite comfortable that we are moving to an environment where asset sales of good office properties will become viable over the next few years. I would like to hand over to Dave just to talk through the financial snapshot.
Afternoon, everyone. I think Stephen has actually mentioned most of the headlines, but to reiterate, FFO for the year was AUD 44.5 million. Looking back to FY 2023, it was AUD 28.1 million. It has been over a 16.5% CAGR growth since that time, which we are very proud about. FFO per security of AUD 0.0824, maintained the distribution at AUD 0.05 and confirming FY 2027 intention to pay a cash distribution of AUD 0.05 as well. All our assets other than a small 180 Hay Street were revalued during the year, either at December or June. The cap rate environment has been pretty stable in the lack of any transactional evidence of note, other than the ones Stephen mentioned, but they were a little bit more fringe, not the core premium grade, prime grade stuff that we have.
So no real change in val, and there has not been any change in the value of the cap rate on our assets. In fact, Westralia Square went out slightly in December. With the sale of the dealerships, which we co-own, we have 47% of, we were able to reduce our debt by AUD 21 million, and as Stephen also mentioned, that liquidity increases post-balance date with the final settlement of the five dealerships. That has now happened. The gearing is reduced to 33%. Stephen will talk more around the leasing and the portfolio occupancy is at 90% with a 4.2 year WALE. The contributors, Westralia Square, up nearly 10%. Its basis of full income now and the car park performance does generate quite a bit from the car park, which is non-contracted, the public car park there.
Westralia Square, obviously increasing and will continue to increase, not at that rate, but it is now at full occupancy 197. We are really pleasing. We have lifted that. There are very few suites left in that. There is one full floor and that is not much else. Car parks were stable, and there is the opportunity to continue to grow through incremental at 197 as the market improves. 5 Mill Street, still got a little bit of vacancy, and obviously tackling something like 180 Hay Street. The Funds Management division in FY 2025 had IKEA for the full year, then a big disposal fee. That generated, in total, over AUD 4.3 million of fees that were not in this year. So there was a reduction in the Funds Management division FFO. FY 2027 will benefit from the performance fees that will be paid on the dealerships that were just settled. Stephen has already spoken about Co-living JV.
One of the things I would like to highlight, if you go back a couple of pages, which we are particularly proud about. At South Hedland, we have got very strong earnings, but importantly, we have been able to put in place some take or pays, which we have not been there. So there is a little bit more consistency and forward-looking income in that for a chunk of those rooms, which is pleasing. Turning to debt. This time last year, we had just announced an extension and increase to the facility. In June, we extended tranche A from a February 2027 to a February 2029 expiry. As previously said, we have increased the undrawn limit by AUD 21 million by reducing the drawn debt. Swaps and interest rates, we have got a cap and collar at 3.75%, 2.65% that expires in December for AUD 100 million.
That has been replaced forward-looking for 12 months with a cap at 4.5%, and then we have got callable swaps on AUD 175 million.
If we look at the macro backdrop to office within the Perth, W.A. region, we are feeling pretty good about it. There is obviously strong investment, export growth, robust employment and population growth, and strong spending. Seems to be a bit of a characteristic to the W.A. statistics, but it should not be underestimated. I think W.A. is well-placed to benefit from structural forces driving demand for commodities, particularly the latest themes of AI capital, and the expenditure boom, and the global electrification impacting obviously copper, aluminum, uranium, nickel, and rare earths. So we do not think W.A. is going to a halt. Quite the contrary. All our indicators are from the growing tenants, which we are about to get to in a minute. You will see that we are quite strong on that theme.
We're feeling it very much in the microdynamic of when we're negotiating with tenants, and we feel that the macro backdrop is very strong. Turning onto the next page and looking at some of those key office trends, I guess. It's really important to stress that the market is continuing to strengthen. This is not going to be short-lived. The supply gap is on the minds of tenants. They're trying to pull negotiations forward. It's quite common now to look at briefs in the market and for us to say we simply don't have the space. The other thing is if they want more than one floor together, particularly if they're looking in premium, they're going to have a problem. There's definitely a sharp reduction in contiguous space in premium category.
The leasing activity is very strong in A grade, which accounted for nearly 49% of the activity, and overall leasing deals are up some 96% for the half and represented just under 67,000 sq m . That tells you that there's been a bit of a key point reached where the demand for leasing deals has gone up so quickly over that period is fairly important in terms of defining where we are. Quite often, the tenant reps are not getting their fees anymore. There's quite a bit of tension around incentives. They're still there, like the Brisbane market, but it doesn't impact Brisbane from being able to sell office buildings. The tenants are continuing to grow with over 63% of the relocating tenants expanding.
From a GDI perspective, we've been very tactical around renewals to ensure, one, we optimize the rental growth in the forecast in the strong years, which will be between 2027 and 2030, and reducing incentives and targeting higher rents. If we turn to the next page, you would've seen the supply gap chart that we've shown and re-emphasizing no supply in the next two or three years. Rio has popped up again as a potential Heads of Agreement may have been signed for 15 The Esplanade in the 2030 year. On the chart, you'll see two bars basically reflecting the backfill space from Rio should they decide to move. What will be interesting there is seeing what sort of a rent Rio was able to justify for a move, if in fact it does. Our view is still that construction rents are some way off.
If we used a breakeven construction rent of around AUD 1,260, we need growth of around 43% from where they currently sit. It's worth keeping in mind that in 2004 to 2009, the last five years supply gap, the rents grew by about 290%. So there is a tendency to undershoot. It's worth noting too, the Perth rents, they've pushed through the AUD 1,000 a square meter mark. Not that we're calling for 290% increase, but it does give you some context. Most will remember the tailwinds that Sydney office got from withdrawals caused by the metro. Perth really is the only national market with zero new supply on the horizons in years 2027, 2028, and 2029. They're starting to use that word withdrawal in Perth as well. So, interesting times, we believe very positive times.
If we turn onto the next page, there's good leasing activity, which is obviously a precursor to demand. The tenants are expanding. We're seeing the likes of the defense sector, with mooted inquiries circa 15,000 sq m in the market. We're seeing inbound suburban tenants. One mooted to be taking 4,000 sq m in QV1. QV1 was the building that basically had half the premium vacancy, which is now being reduced to only a few thousand. So that has come right in. The lithium players are coming back, particularly in West Perth, and large active briefs in the market ranging between 4,000 sq m- 6,000 sq m. There's at least half a dozen of those at the moment. So it's getting harder to find the contiguous space, particularly in the premium and the A+ space.
Still we're seeing that the demand for fitted space is important and involving around 74% of deals, which plays right into our hands. Incentives are tightening, albeit that's a varied discussion because it depends on whether the space is refurbed or whether it's a spec fit-out or whether it's an existing or a new generation fit-out. But basically, the trend is the same. It's in the right direction for our economics. If we turn the next page, and we look at the market, there's several large deals that occurred in the first half of 2026 that are tightening the market. We basically saw Western Power, which was 20,000 sq m, Allens for 3,200, NAB for 4,500 sq m , and Lavan, which is a legal firm for just under 5,000 sq m, all representing a flight to quality.
Then, of course, if the pre-commitment by Rio for 57,000 sq m comes through, which is currently believed to be Heads of Agreement for Lot 5, that represents a consolidation. One of the things we look at, and it's referred to on this page, we look at a CBRE vacancy tracker, which points to a lower vacancy than the PCA numbers. The second quarter of 2026 showed a sharp reduction, circa 21%, for the total market over the first quarter. So that's quite marked. Most of the movement or reduction is in the premium and the A-grade space, as you'll see in the table there.
If we turn onto the next page, it's really just looking at the impact of the absorption scenarios. Not shown on this chart, but we are going to remind you that the commodity prices look robust across most of the areas that impact W.A. If we turn onto the property page, which is page 19, there's one noticeable difference between this and prior results, and that is that we've got 7.6% exposure to car parks apart from office, having sold the car yard. So there's no more car yards in the portfolio. The valuations that we had for the half related to 197 St. Georges Terrace came in at AUD 234 million, 7%. It's up AUD 8 million, same cap rate, reflects the increased growth and leasing.
Now leased, as you've seen, over 92%, and the WALE moved out to 3.3 years, which sits very well with our thesis on the market because we'd love those tenants when they expire in three years to be paying the higher rents. That is good from our perspective. 5 Mill Street came in at AUD 54 million. The cap rate basically the same at 7.25%, and the value is up AUD 1.5 million. The vacancy there is around 93% and the WALE 2.3, again, giving us access to the market growth when it hits its most desperate phase. The reality is that we are more focused probably on divesting than acquiring in terms of the balance sheet positioning, particularly our non-core, as we have emphasized or joint venturing good assets with the right parties.
Of course, we are always looking for assets, particularly for the funds management business, and that is not necessarily in the unlisted syndicate side. There are other forms of investment, particularly with institutions and not just in office. We are very cognizant of the fact that we need to invest in our existing assets very carefully. Turning on to our strategy page, which is basically page 25. Really want to emphasize that we are focused on doing what we say we will do and executing in line with strategy. It is very important to us, and I think we have demonstrated that over three years. I think as Dave mentioned earlier, we have increased the FFO over the past three years from AUD 44.5 million, from AUD 28.1 million up some 58%.
We are very focused on the lease-up and positioning for rent increases, with the strengthening market, and we do believe we have the best leasing team in the Perth market. Balance our liquidity needs between growth and investment in the portfolio, and improving returns for shareholders. Targeted asset sales and partnering, noting that AUD 330 million has been achieved since December 2024, and we have in excess of AUD 100 million of non-core assets to deal with. Our businesses are in good shape, have a solid liquidity, and the outlook is very strong in our minds. If we turn on to the next page, which relates to our additional focus. It is very much around the property division long-term returns, evolving the funds management product, moving away from the unlisted syndicate style, which does not suit office funding requirements. We are targeting operationally led growth improvements in the Co-living business and meeting our 20% return hurdle.
Maintaining the 5% distribution per security is really important. As mentioned today, executing a 5% buyback that we have announced. That is it from me. Operator, I would hand it back for Q&A, if that is all right.
Thank you. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask a question. Your first question today comes from Andy MacFarlane from Bell Potter. Please go ahead.
Good afternoon, Steve, David. Thanks for your time. First question, if I may, just on the HOA you signed at WS2. Just interested in a little bit of color on rents achieved when it comes online there.
Yeah. WS2. It's ahead, so we've got to be a bit careful there, Andy. But, I would say high eights, five years and a low incentive.
Okay. And potentially comes online in this new year, Steve?
Well, when we've completed the fit-out, which is probably in January.
Cool. Thanks, Steve. Just in terms of JV, you mentioned in your remarks just in terms of eking out some more gains, I guess, at the operating level, just, yeah, just interested in some color on what you're thinking there.
Really just business as usual on that front. We pick up assets like a Newman village or a Norseman and look to increase the occupancy, which is what we've done. Increase the occupancy, reducing the cost, improving the profitability. It's really that sort of a focus, not just a pick up and switch it out. We're really looking to gain additional income out of the assets by improving them and bringing in the operational methodology, which is based around branding, ensuring that we can look after the staff of the resource companies in remote places and get the right satisfaction. It's not easy to do. You need remote staff and you need proper teamwork, but that's the model. And in all cases, it's improved the earnings of the villages that we've acquired. So that's really the model.
If we find a down-and-outer that's not too big, we'll have a stab at doing that. But before we did, we'd make sure we've got a very good plan. With the benefit of our partners, we get to see all the assets that come up. We would look at so many, it's ridiculous, but we only land on a few that we believe are worth our strategy.
Thank you. Just a final one. You talked about construction costs, I guess, in terms of, meaning there's not much coming through the pipeline broadly for the office market. I guess, just looking at Mill Green, I know a little bit slightly different, but, just wondering if there's been any timing you're thinking around submitting plans and what you're thinking there at the moment?
Yeah, we've mastered DA. We're looking to put one in fairly soon, noting there's already been two on the site, right? It's nothing new to put a DA in, but what we're particularly looking at is something where we have the flexibility to do things in stages, right? We've mentioned before the first stage would be an extension of our spec fit-out strategy with regard to 197. We've also mentioned that we would look to do an improvement on the retail component and target the available market there, and that particularly impacts 5 Mill . Then the dream or the option value really relates to 1 Mill, which is, in fact, putting a mixed-use structure up on top of that, which, if you were able to get it right, for hotel, it's very attractive. For office, it's becoming increasingly attractive.
It wouldn't work at the moment, so it's a future forecasting component. Being able to flex between what is the best economic use is really key to it. If you think in terms of timing, we'd like to be available to deliver something into that strong market. Say, 2031 is most likely the target date we'd use for something on 1 Mill, but that's way off yet. Keep in mind that, for something like that, it has to rely on improved building technology and break-even rents that give us some sort of a cost advantage, as we demonstrated with WS2. It's not something we'll rush into, but through a planning process, we can forecast and look out. If you have the right flexibility, you don't even have to build office if it turns out not to be right. So that's the approach we're taking.
Thanks, Steve.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Murray Connellan from Moelis Australia. Please go ahead.
Afternoon, Steve, David. Just looking at your guidance. You have obviously kept the AUD 0.05 distribution unchanged. It seems like you have obviously done a fair amount of leasing in the last six months. Again, the FFO payout ratio has now dropped to 60% this year. I was just wondering how low you would like to see this number go before you look to start growing the divvy again. I suppose, is there a mind towards marrying it up with AFFO on a smoothed-out basis?
The simple answer is no. We are not really an AFFO player because we tend to pick up empty buildings and fill them. So that wreaks havoc with that methodology. I think the important thing, Murray, that you are asking for is, will we increase the distribution? If we were to, we will not forecast it because we take a lot of mind share out of being able to say that we are going to have a through cycle distribution. Given the nature of a total return business, the profitability can move around a lot. If we were to get to a situation where we are very stabilized and like a normal stabilized rate, yeah, we would be happy to do that, but we are not. At the moment, it is very much in accordance with our strategy to maintain that five. The price is not too demanding.
It does not really seem to reflect that we should pay a higher yield at the moment. So we would definitely wait for some price improvement before we paid any more dividend away. That is our true thoughts on the matter. Dave, did you have a comment on that?
Well, the other thing is looking at our uses of capital and what we've done today about the buyback as an alternate security holder-friendly action.
Got it. Thanks for the color. Then, maybe just following up and looking at the balance sheet, you obviously mentioned the buyback, but I imagine that given the fact that you've probably done a big chunk of.