Well, good morning, everyone, and welcome to GPT's full year results briefing. I'd like to start the briefing by acknowledging the traditional custodians of the lands on which our business and our assets operates, and pay my respects to elders past, present, and emerging. Joining me for today's presentation are Anastasia Clarke, the Group CFO, Martin Ritchie, Head of Office, Chris Davis, Head of Logistics, and Chris Barnett, Head of Retail and Mixed-Use. Martin Ritchie and Chris Davis were appointed to their roles as part of the changes to the leadership team I announced last month. Martin was previously the fund manager of the GPT Wholesale Office Fund and has successfully led the fund from inception, growing it to nearly AUD 10 billion in assets under management. Martin now has responsibility for both the balance sheet portfolio and oversight of the office fund.
Chris Davis was most recently the head of investment across the logistics and office portfolios and has been instrumental in growing our logistics business over a number of years. Growth in this sector will continue to be a focus for the group, and Chris is now responsible for leading this. As usual, we will take your questions at the end of the presentation. I'm pleased to report today that the team has delivered a solid result in what has been another COVID-impacted year. After a strong start to 2021, driven by the rebound in the performance across most of our retail assets, the Delta outbreak did cause a setback in momentum in the second half. The restrictions imposed during the Delta outbreak were more severe than in 2020, and in New South Wales, they extended for a longer period.
We saw trading conditions bounce back quickly, though, when restrictions were lifted in late October, resulting in improved rent collections. In the third quarter, our rent collections for the retail portfolio fell to 63% of gross billings but recovered to 101% in the fourth quarter. The emergence of Omicron has been a further setback, but the worst of this seems to be behind us. Case numbers are trending lower, mobility is starting to lift again, and we are seeing foot traffic improving in our retail centers. Melbourne Central started to see the benefit of a more active CBD in the fourth quarter, but as you would expect, Omicron has had an impact over the last two months. We remain confident that the asset will recover when the CBD is reactivated and students and tourists return.
Our logistics and office portfolios continued to deliver strong results with increased leasing activity and development completions enhancing the portfolios. Valuation gains during the year totaled AUD 924 million, with 60% of this uplift coming from the logistics portfolio and the balance from our office portfolio. Despite the Delta impacts in the second half, we continue to execute on strategy. I will speak further on this in a few moments, but notably, we've increased our investment in the logistics sector. The development pipeline is providing quality assets and enhanced returns. We expanded the QuadReal Logistics partnership. From a sustainability perspective, we are on track to achieve our carbon neutral target in 2024. Turning now to an overview of our results on slide five. FFO per security for the period was up 1.2% to AUD 28.08.
Anastasia will take you through the detail of this and the sector contributions in a few moments. The full year distribution is AUD 23.02 per security, up 3.1%. NTA has increased to AUD 6.09, which is up 9.3% for the full year. This was driven by the revaluation gains from our logistics and office portfolios. The weighted average cap rate for our portfolio compressed 25 basis points over the year to 4.7%. Cap rate compression has been particularly evident for logistics assets in what was a record year for transaction volumes in the sector. Turning now to slide six. It has been an active period for the group as we continue to move our portfolio weightings, execute on developments, expand capital partnerships, and deliver on our sustainability objectives.
Our logistics portfolio has grown to AUD 4.4 billion in value and now represents 27% of GPT's total portfolio. This will increase further as we deliver our AUD 1.6 billion logistics development pipeline and commit additional capital to the QuadReal partnership. The partnership initially targeted an AUD 800 million capital investment. This was increased to AUD 1 billion mid last year. With 70% of the capital now committed, the partnership has been upsized a second time, with the target capital investment now being AUD 2 billion. The QuadReal partnership not only leverages our logistics platform, but will also provide growth in funds management earnings as the portfolio grows in scale. We completed AUD 800 million of office developments last year with the completion of 32 Smith in Parramatta and GWOF's Queen and Collins development in Melbourne.
The office team also amalgamated a large development site in the Parramatta CBD for GWOF, which will provide up to 125,000 sq m of prime office space when completed. Our office development pipeline has an end value in excess of AUD 4.5 billion, and Martin will speak to this in a few moments. We recently, though, commenced the 51 Flinders Lane development in Melbourne for the office fund, which will provide a unique offering in the Melbourne market when it completes in early 2025. The mixed-use development at Rouse Hill is expected to commence in the fourth quarter of this year, capitalizing upon the exceptional performance of this asset and the attractive market characteristics. The Rouse Hill Town Center is a beneficiary of direct connections to key infrastructure, including the rail and the proposed new public hospital.
In December, the master plan for a mixed-use development at Highpoint Shopping Centre was approved, providing significant opportunity to add value to what is already a dominant asset in its market. The GPT Wholesale Shopping Centre Fund is also now in a strong position to execute on its mixed-use development pipeline and consider accretive acquisitions to enhance the portfolio following the sale of Wollongong Central and the Casuarina Shopping Centre. Underpinning our growth objectives are our strong balance sheet and our leading capabilities in ESG. As you can see from slide seven, GPT is recognized as a global sustainability leader, evidenced by our strong performance in the leading ESG benchmarks from GRESB and S&P.
We remain on track to achieve our ambitious target for all our managed assets to be operating carbon neutral by the end of 2024, with additional assets certified last year and further assets being certified this year. We have more carbon neutral buildings certified floor space than any other Australian property owner. Our office portfolio has an average NABERS energy rating of 5.8 stars, and it is becoming increasingly evident that leading sustainability credentials are important to our tenants and their employees. We have also commenced using carbon mapping in the design phase of developments to reduce embodied carbon during construction. At 51 Flinders Lane, a 40% reduction in whole of life embodied carbon is being targeted, and we have commenced using low carbon concrete in a number of our logistics developments. We are also recognized as an employer of choice for general quality.
Our employees live our values, shape our culture, and contribute to our shared success. Our people and our customers highly value our social and community programs, including our reconciliation action plan and the support we provide to charities through the GPT Foundation. We have continued to ensure we provide community support despite the challenges of the pandemic. Sustainability has been a part of GPT's DNA for many years, and it remains central to our strategy for delivering long-term value for our investors. I will now hand over to Anastasia Clarke to provide you with further details on our financial performance for the year, and I will return at the end of the briefing for my closing remarks.
Thank you, Bob, and good morning. I'm going to start on slide nine with the financial results for the year ending 31 December 2021. Funds from operations of AUD 554.5 million was flat year-on-year after being impacted by COVID-19 rent relief to tenants for a second year. The first half experienced a strong rebound, which was offset in the second half by protracted lockdowns and, in effect, closure of many of our retail assets. The financial result also reflects changes in capital allocation, with divestment of 1 Farrer Place in Sydney, acquisitions in logistics, and development completions in both office and logistics. Over AUD 900 million portfolio valuation gains contributed to a strong statutory profit of over AUD 1.4 billion.
FFO per security is AUD 28.82, delivering 1.2% growth due to our on-market security buyback in the first half of 1.7% of securities, costing AUD 146.8 million at an average security price of AUD 4.54, being a discount to NTA of 25%. Operating cash flow and free cash flow grew by circa 7%, resulting from higher cash collections in 2021 compared to the prior year, and no payment for variable remuneration schemes, partially offset by higher transaction costs and taxation payments. A final distribution of AUD 9.09 per security has been declared today, resulting in a full year distribution per security of AUD 23.02, being a payout ratio of 95.1% of free cash flow for 2021.
Turning to each portfolio's performance on slide 10, the segment result. The retail contribution of AUD 233.9 million reflects a strong recovery in the first half, offset by lockdowns in the second half. The result was impacted by AUD 62.9 million of COVID-19 rent relief, being the combination of rent waivers and an estimated loss for uncollected rent. This reduced from the AUD 83.5 million COVID-19 rent relief in 2020. The result was further impacted by a normalization of operating expenses at the assets and negative leasing spreads, reducing rental income.
Cash collection of gross tenant billings was 91% for 2021, compared to 75% in 2020, with the 2021 reduction resulting from the second half Delta lockdowns. The office segment result of AUD 269.2 million reduced on prior year due to the divestment of 1 Farrer Place, partially offset by the contribution of income from the development completions at 32 Smith and Queen and Collins. Logistics income grew by over 10% due to the investment in acquisitions and development completions in the portfolio. Funds management contributed AUD 48.3 million, slightly up due to growth in GWOF AUM, mostly offset by lower AUM in the shopping center fund from the 2020 devaluations.
Finance costs reduced by 17% to AUD 85.2 million, driven by savings of 70 basis points in the weighted average cost of debt, which reduced to 2.4%. Corporate overheads increased to AUD 66.4 million due to not having the benefit of prior year savings from the withdrawal of bonus schemes and the support of JobKeeper. Costs have also increased in 2021 from higher D&O insurance premiums and IT software as a service costs being immediately expensed and no longer amortized over a longer useful life. Maintenance capital expenditure and lease incentives were largely flat year-on-year and remain lower than historical levels in both 2021 and 2020.
We expect there to be a significant increase in 2022, particularly office lease incentives associated with elevated levels of leasing deals in 2021 and continuing into 2022. Overall, the 2021 FFO and AFFO results were in line with 2020, reflecting a second year of COVID tenant rent relief, despite reweighting between the portfolios with the divestment of 1 Farrer Place offset by the upweighting to logistics. We expect a substantial improvement in 2022 due to the ceasing of government lockdowns. Now turning to slide 11, capital management, where the balance sheet is in a strong position. NTA has grown by 9.3% to AUD 6.09 per security.
Most of this growth is due to the strong asset revaluations, particularly in the logistics portfolio, but also in the office portfolio. Gearing has increased by five percentage points to 28.2% as a result of the Ascot portfolio acquisition late in 2021, and remains below the midpoint of our target range of 25%-35%. There are no material loan expiries for the group until 2023, and we retain significant liquidity of over AUD 900 million. Our average cost of debt in 2021 was 2.4%, and we estimate this will increase modestly in 2022 as a result of potential interest rate increases.
During the period, we established a sustainable debt framework for the group and the funds, and GWOF issued its inaugural AUD 250 million green bond in November 2021. To conclude, despite the impacts of COVID on our FFO in 2021, our statutory profit was strong and the balance sheet is well-positioned to continue supporting the group's execution of our strategic growth plans. I will now pass you to our Head of Office, Martin Ritchie.
Thank you, Anastasia, and good morning. Our AUD 6.1 billion office portfolio has delivered comparable income growth of 2%. We achieved an 11.2% total return, with 4.7% coming from income and 6.5% from capital growth as cap rates firmed 12 basis points to 4.77%. Occupancy has reduced over the year from 94.9% to 92.9%, almost entirely due to the completion of Queen and Collins and 32 Smith developments. We had a very successful year in leasing. We did a high volume of transactions of 152,000 sq m, including heads of agreement, which is an increase of 59% compared to 2020. Turning to slide 14, I have more detail on leasing.
We signed 119 leases for 138,000 sq m, which is similar to pre-COVID 2019 levels. In the table at the left, you can see that 50,000 sq m of our leasing commenced in 2021. It's interesting that smaller tenants under 1,000 sq m in size make up 102 of our 138 transactions. We've found this part of the market to be active and underrepresented in our portfolio. Technology and government tenants were also active. In fact, government leased 44,000 sq m. The diagram on the right shows higher levels of occupancy in GPT's portfolio than in the broader market. In terms of spreads, GPT's gross base rents increased approximately 6% compared to previous passing rents. Yet high incentives reduced gross effective rents by 5%.
Turning to slide 15, the future of work shapes our strategy. Our customers tell us they feel challenged with defining their office space needs. The pandemic has accelerated workplace trends and created debate about post-COVID office design. In our opinion, the five key trends are, firstly, it's normal to use technology to work anywhere. Secondly, occupiers require greater flexibility to manage their uncertainty. Thirdly, distinctive office buildings help businesses win the war for talent and earn the commute. Fourthly, fit outs are changing into collaboration spaces. Lastly, customers want the landlord to take care of more of the pain points and provide space as a service. Our assets, our team, and our strategies mean we are well positioned to be successful in this market. Turning to slide 16, with elevated levels of vacancy in the market, we expect leasing to continue to be highly competitive.
As you can see on the chart, we have 7% vacancy and another 11% of income expiring in 2022, weighted to the back end of the year. I'm confident we can be successful as we are prioritizing two key strategies, being firstly, promoting the high-quality portfolio, and secondly, focusing our effort on the customer. For the first strategy, our assets are in prime locations in the deepest markets in Australia. High-quality assets are a competitive advantage in the current trend for tenants to upgrade their space, and we expect this to continue in 2022. 19 of our 24 operational assets are either under 10 years old or have had refurbishments to maximize their customer appeal.
Sustainability has become a differentiating factor in leasing, and we shine with a very high NABERS energy rating of 5.8 stars, with GWOF being certified carbon neutral and with all GPT office assets to achieve this milestone by 2024. We are investing in technology to give greater peace of mind to our customers, including upgraded air filtration and ultraviolet light air purification. The sub-1,000 sq m tenant market occupy 40% of the space in our CBDs, but only 10% of our portfolio. They seek the high quality of space and service that we offer, and we see the opportunity to create more spaces for them. The benefit of this strategy is the possibility of shorter downtime, higher rents and greater diversity of income, which lowers risk over the longer term. Turning to slide 18.
Our second strategy is to focus on the customer, which is paying off as our Net Promoter Score is high at 72. We strengthened our leasing team to address the challenge of leasing engagement and the customer service concierge at Queen and Collins is a great success that we will introduce to other assets. We recognize that customers want greater lease flexibility and we can generate successful leasing outcomes by offering this. Our flexible workspace offering, called Space & Co, opened its sixth venue at 32 Smith. Project space on demand and meeting room facilities are up and running in Queen and Collins and planned for other assets, including William Street and Darling Park. Together, these offerings make our office space more attractive because customers know they have the opportunity to secure these special spaces easily. We've also recognized that many customers prefer to avoid building a fit out themselves.
Therefore, we've embarked on a strategy to create turnkey fitted out suites which incorporate all of the green, high tech, high quality and post-COVID features. We have 38,000 sq m of suites across the portfolio, and we expect to build another 33,000 sq m during 2022 and achieve quicker lease-up periods. For example, we have developed the office of the future, called The Clubhouse, to provide customers with flexibility in a beautifully designed aesthetic. The functionality gives equal weight to collaboration, quiet work, meetings, and informal gatherings. Several tenants are already working in Clubhouse workspaces within Queen and Collins. From a financial and environmental sustainability point of view, the suites are built to last multiple lease terms to avoid the waste and cost of demolition and rebuilding on a typical five-seven year cycle. Turning to slide 19.
We are also focused on growing the business through the development of new products. 2021 was a significant year as both 32 Smith and Queen and Collins reached practical completion. We are delighted with how well both assets have been received. 32 Smith reached 82% leased and rents are 3% higher than commencement, while Queen and Collins reached 50% leased and rents 10% higher than commencement. Everything we have learned from these developments to meet the post-Covid needs of our customers informs our thinking in our AUD 4.5 billion development pipeline. In December, GWOF commenced the development of 51 Flinders Lane for completion in early 2025, delivering over 28,000 sq m of space. Like the successful Queen and Collins, this building is aimed at smaller occupiers.
We progressed the 63,000 sq m Cockle Bay Park Tower development by submitting the stage two DA, which we expect to be determined in Q3 2022. At George Street, Parramatta, GPT acquired the adjoining site, increasing the total scale of development to 125,000 sq m in two towers. We will submit the DA for the first tower mid-year for a scheme of about 70,000 sq m. Finally turning to slide 20. I'll wrap up the office presentation with a summary of the key points. We see workers continuing to work in diverse locations, but we expect employers to encourage workers to come together in office space to enhance culture. The GPT office portfolio is the kind of real estate that is in demand with its investment in amenity and aesthetics and the focus on flexible space offerings.
We are well-resourced and have demonstrated our capability to lease large volumes of space in the challenging 2021 market, and we have winning strategies to repeat the experience in 2022. We expect net income growth from the portfolio due to fixed annual rental increases, which averaged 3.8% for more than 80% of the office income, plus full-year contributions from the completed developments and the Northbourne Avenue acquisition. Our third key strategy for 2022 is to progress our AUD 4.5 billion development pipeline to achieve longer-term growth. I'll now hand over to Chris Davis, Head of Logistics.
Thank you, Martin. The logistics portfolio has delivered excellent results in 2021, with FFO of AUD 155 million, up 11% with growing contributions from development completions and acquisitions. The high quality and long life portfolio delivered an exceptional total return of 25%. Comparable income growth was 1.4% as a result of fixed annual reviews, partially offset by downtime at two assets during the year. Occupancy remained high at 98.8%, with a majority of leasing related to developments, achieving rents at levels up ahead of commencement. Record tenant demand was seen across the market in 2021. With high levels of current inquiry, we expect momentum to continue into 2022. The growth of our portfolios provide an increased scale to partner with customers, and our development pipeline positions us to capitalize on strong market conditions.
Turning to slide 23, we made great progress in executing our strategy with growth in the portfolio of AUD 1.4 billion achieved in 2021. Over the past five years, the portfolio has grown on average by 26% per annum, at the same time as delivering strong total returns. 40% of the portfolio has been delivered through development, leveraging our team's capabilities to create high quality assets in prime locations. Within the QuadReal partnership, we've secured 8 projects with an end value of over AUD 700 million. As outlined by Bob, we're excited to be expanding the JV to now target AUD 2 billion. We expect to commit the majority of the capital over the next two-three years through a combination of developments and asset acquisitions.
We have strong alignment with QuadReal, and the increased commitment demonstrates the confidence in our platform and ability to deliver attractive returns. Moving to slide 24. During the year, we completed developments and exchange acquisitions of AUD 1.3 billion. Our development track record has been reinforced with four projects completed, achieving average yield on cost of 6%. Three of these were speculative projects and all were leased ahead of project commencement. We acquired 24 assets for AUD 669 million. This included a national portfolio acquired from Ascot Capital. Within the QuadReal partnership, we secured three fund-through acquisitions of AUD 308 million that will complete in 2022 and 2023, including our first exposure to the tightly held Southeast Melbourne market. Our land bank has expanded with the Kemps Creek estate now 37 hectares, following an acquisition of adjoining site.
The JV also secured its first Sydney project, acquiring 10 hectares in Kemps Creek, along with three development sites in Brisbane. Turning to slide 25. Our investment portfolio of 69 assets is over 80% weighted to Sydney and Melbourne. Occupancy remains high, with leasing strategies being executed for the 6% of income that expires in 2022. Our prime portfolio attracts high quality customers with a 75% weighting to ASX listed and multinational companies. These include 3PLs, FedEx and DHL, retailers, Coles and JB Hi-Fi, and growing e-commerce users such as the Hut Group. We're investing in sustainability, including solar, water harvesting systems and low carbon concrete. Pleasingly, our customers are showing increased focus on ESG.
During the year, the team signed leases and heads of agreement across 182,000 sq m, with 151,000 sq m of this development leasing. Moving to slide 26. The activity we are seeing in our developments reflects the broader market, with retail and transport tenants driving take up. E-commerce growth is creating additional demand, with more space required to store inventory and with the added complexity of shipping goods direct to the consumer. Our team is actively engaging with 800,000 sq m of tenant briefs across our projects. 70% of these are expanding occupiers, with many groups looking to upgrade or to consolidate from multiple facilities into a single location. Prime space is in high demand as users invest in the supply chain and increasingly adopt automation and robotics to create efficiencies. Demand has outstripped supply, driving vacancy rates lower.
This resulted in strong market rental growth in 2021. These conditions are set to continue with elevated tenant demand and high pre-commitment levels for new supply of over 60%. With half of our portfolio to expire in the next five years, we are well-positioned to capture the increased demand and rising rents. Turning to development. Our AUD 1.6 billion pipeline will deliver enhanced returns with strategic landholdings in key growth corridors. In Melbourne, our projects are in the west, the most active market in Australia last year, accounting for 25% of national take up. In Sydney, our Kemps Creek estate is in a precinct benefiting from major infrastructure investment, with vacancy well below 1%. We have four projects underway or to commence in the first quarter that will complete in 2022.
Terms are already agreed with two retail tenants for 26,000 sq m of this space. We will commence additional projects this year, including the first stage of the Yiribana Logistics Estate in Kemps Creek. For our developments, we've targeted average yield on cost of over 5.25%. In conclusion, the GPT logistics team has demonstrated the ability to consistently grow the high-quality portfolio through development and acquisitions while achieving strong returns. We're well-positioned with our expanded QuadReal partnership and development pipeline, providing clear pathways to grow. I will now hand over to Chris Barnett to present the retail results.
Thank you, Chris, and good morning, everyone. I'd now like to take you through the results of the retail portfolio. 2021 has been the second year that the retail industry has had to deal with the uncertainties of COVID. The first half of the year enjoyed a solid rebound in sales and traffic as our assets were able to trade freely, with the second half of the year seeing the key markets of New South Wales and Victoria enter into an extended period of lockdown, which lasted for almost four months. While these restrictions slowed the momentum created in the first half, once lifted, our sales returned to pre-COVID levels, allowing our retailers to enjoy the all-important Christmas trading period.
In terms of our financial results, the year has been impacted by the additional restrictions imposed in New South Wales and the rent waivers agreed with our retailers. Total specialty sales grew 6.2% for the year, and our specialty sales per square meter are continuing to improve towards our pre-COVID levels, growing at 10.6%. Our leasing team continues to outperform, completing 561 deals, which is 39% more leasing transactions than last year and 22% up on 2019. This level of activity has provided an improved portfolio occupancy of 99.1% as at the 31st of December. From a valuation perspective, our asset values have stabilized, delivering a slight increase from the prior period with a weighted average capitalization rate of just over 5%.
While last year was heavily affected by COVID restrictions, our retailers continued to adapt to minimize its impact, and our customers enthusiastically look to return once restrictions are lifted. Now turning to our leasing activity on slide 30, and our leasing teams have been able to achieve considerable success for the year with an improvement in all of our key leasing metrics. Retailer retention is up, and our tenants on holdovers are down. While leasing spread and occupancy are more favorable, it's important to note that all of our leasing deals remain structured with fixed base rents and annual increases averaging 4.3%. Given the improvement in leasing conditions, our lease terms have extended to now average 4.3 years for deals completed during the year.
What is exciting about the high level of leasing activity is that we have transacted with over 110 new brands opening for the first time in a GPT center. Turning to retail sales on slide 31. On a quarter-by-quarter basis, it's clear that there has been substantial improvement in sales when retailers can trade without restrictions. The chart on the left shows that total center sales for Q4 were up 2.3% on the prior year. In that quarter, the month of October was heavily impacted by COVID restrictions, so the right-hand chart breaks this quarter into months, with the unrestricted November and December rebounding to exceed 2020 and more importantly, being on par with 2019.
Slide 32 highlights that our portfolio center sales grew by 3.7%, and total specialties were also up 6.2%. Specialty fashion grew by 11.4%, and dining benefited from the easing of restrictions being 12.5% up for the year. Supermarkets and discount department stores were slightly down compared to their exceptional growth in 2020. However, both of our department stores enjoyed solid improvements for the year, up 12.5%. Finally, it was pleasing to see improvement of our cinemas up 45% for the year. With upcoming movie releases, we feel this provides a positive opportunity for further sales growth in 2022. Now turning to slide 33, where I wanted to provide an update on Melbourne Central.
While Melbourne Central's sales grew by almost 20% for the year, we believe that the center will take some time to fully recover. Over half of the center's turnover and traffic derive from the key customer segments of students, tourists, and office workers, and the stabilization of the center will be reliant on these groups returning to a pre-COVID normal. University students progressively returned to campuses throughout the second half of the year, and when students returned, the center rebounded strongly, especially benefiting our food court and our restaurant tenants. Tourists are the second-largest contributor to the center's sales, and now that travel restrictions are being lifted, we feel that the center will be a beneficiary of the government's efforts to encourage travelers to once again return to Melbourne.
Finally, the center will always rely on office workers returning to the city, and we are confident in a progressive but protracted return to CBD offices. Leading into COVID, Melbourne Central had the highest sales, productivity, and customer visitation of any asset in the country. Our outlook for the center remains positive, supported by the retail market's fundamental belief in the quality of the asset. Our leasing teams have delivered over 60 leasing transactions for the year, with brands like Lego and Fila choosing Melbourne Central to open their CBD flagship stores, and we are extremely excited to announce the exclusive opening of Monopoly Dreams later this year. Turning to slide 34, where 2021 has been incredibly productive for our team at Highpoint. The center's performance continues to grow, reinforcing the asset as one of the top centers in the country.
Total sales for the combined months of November and December were up almost 10% on last year and 7.5% on pre-COVID 2019. Retailer demand is incredibly strong, with over 125 leasing transactions for the year, including 40 new brands to the center. The team used the past 12 months to complete the center's ambiance upgrade, downsizing David Jones and Myer, allowing for the introductions of Kmart, Coles, and a new Waterman co-working space. This retailer remix is continuing to ensure Highpoint remains compelling for our customers and will deliver incremental sales as well as contributing positive valuation growth. In December, the Maribyrnong Council resoundingly supported and approved our mixed-use master plan, allowing the center to transform into a true urban village.
The approval provides for an additional 148,000 sq m of commercial space and approximately 3,000 apartments that will introduce 9,000 full-time workers and over 6,000 residents when complete. In a similar vein to Highpoint, slide 35 shows how the Rouse Hill team have been preparing the center to commence the mixed-use expansion, which is targeted to begin in the second half of this year. The center is fully leased and enjoys strong sales momentum, with total specialty sales up 12.5% in Q4 in comparison to the same quarter of 2019. The development utilizes the existing center's land holdings to deliver 10,500 sq m of incremental retail GLA and over 220 residential apartments.
Adjoining the center is the nine hectare northern precinct, which provides us with a unique mixed-use development opportunity, capitalizing on the new Rouse Hill Metro train station and the recently announced Hills District Hospital, which will support a range of health, commercial, and residential uses within the residual land. Rouse Hill has widely been acknowledged as one of the country's most successful mixed-use developments, and we are confident that the retail expansion and further connection into the northern precinct will create a true urban destination for the people of Northwest Sydney. Finally, on slide 36, the challenges we all face as an industry over the past few years have been immense. The outlook for 2022 sees lockdowns being a thing of the past, allowing our retailers to focus on growing their businesses without government trading restrictions.
In the month of January, our traffic numbers, including Melbourne Central, were down 15% as Omicron has impacted the shopping behaviors of our customers. However, as the daily COVID counts have reduced, it's pleasing to see that the first two weeks of February has seen traffic return to 2021 levels. Our view on the leasing market remains positive, and we have already made considerable headways into our 2022 expiries. We will continue to transform and evolve our centers, unlocking their substantial mixed-use potential, as highlighted by our live examples of High Point and Rouse. We are confident in the quality of our portfolio, and we are well-placed to continue to offer leading experiences to our customers. I'll now hand you back to Bob to provide some comments on the outlook for 2022.
Thank you, Chris. While Omicron has been a setback, we are optimistic that the worst of this is behind us. Case numbers are trending in the right direction, vaccination rates are high, the need for restrictive measures is diminishing, and our international borders are reopening. This provides confidence that we should see strong economic growth for the year ahead. We therefore expect our retail portfolio performance will once again recover quickly as community confidence lifts, and we are starting to see evidence of this over the last couple of weeks. Record low unemployment and accumulated household savings in excess of AUD 200 billion over the last two years provides additional capacity for further discretionary spending. For the office sector, we expect jobs growth and the war for talent will mean our customers will want to be in the best buildings.
While hybrid work practices are being embraced by most companies, the physical workplace will remain important for organizations to attract talent and shape culture. The reactivation of the CBDs of Melbourne and Sydney will be important for the group's performance in the year ahead, particularly in terms of office leasing and the recovery of Melbourne Central. Our CBDs play an important role for businesses and the broader economy, and our high-quality assets will benefit from their prime locations. Given the volume of leasing deals we are targeting this year, we do expect an increase in lease incentive capital over the course of 2022. In logistics, the strength of demand, coupled with low vacancy, should lead to above-average rental growth in the sector over the coming years. We have grown our position in the sector, and we expect to deliver further growth as we execute on the development pipeline.
Despite bond yields rising, we anticipate asset valuations will remain well-supported given the strength of demand for high-quality assets from both domestic and offshore investors. The group's development pipeline is providing organic growth opportunities for each of the sectors, with a further four logistics developments to be completed this year, as well as the commencement of the Rouse Hill mixed-use development. The pandemic has accelerated a number of trends, and one of these is the focus on ESG. As outlined earlier, we have been delivering leading environmental performance for some time, and this will continue to be a core focus for the group. Turning now to FFO and distribution guidance. While the impacts of Omicron should be relatively short-term, it has been a reminder that the pandemic is still with us, and this provides a level of uncertainty.
We do remain optimistic, and we currently expect to deliver FFO in the range of AUD 31.07-AUD 32.04 per security and a distribution of AUD 0.25 per security for the year ahead. Our guidance does assume operating conditions normalize before the end of March, including a return of workers to CBD workplaces and a recovery of retail sales at our shopping centers. We are also assuming that we'll not see lockdown measures reintroduced given the high vaccination rates that have been achieved. That concludes our formal remarks, and I'd now like to hand back to the operator for your questions. Thank you.
Your first question comes from Ben Brayshaw from Barrenjoey. Please go ahead.
Good morning, Bob. Thanks for the presentation. I was wondering if you could comment, please, on the payout ratio, just in terms of what prompted the change from 100%- 95% for the full year, you know, at around 90% for the second half.
Thanks, Ben. Look, we moved to a payout ratio of 95%-105% of free cashflow. Keeping within free cashflow is a good measure for us, making sure it's sustainable. What we are trying to do, though, is align, I guess, the distribution growth with FFO growth as much as possible. For that reason, we've actually moved to the 95% for 2021. It'll move around within that range and, you know, in over the years, but we want to just smooth out, you know, any anomalies that comes through in free cashflow, if there's any one-offs or things like that. That's the reason we went to the 95% for 2021.
Great. Thank you. And just on the shopping center fund, the FFO seems to have been impacted for the second half. You know, to what extent is that lower cash collections? And I was wondering if you could comment on the third quarter and the fourth quarter, just in terms of the composition of the FFO from the shopping center fund, and any comments that you could provide on where you see that number or what you've assumed for FFO from the shopping center fund for FY 2022, please.
I might ask Anastasia to take that, again, please.
Sure. No problem. Hi, Ben. The shopping center fund cash collections was very, very similar to the GPT Group. Overall for the year, 91%, and first half was basically 100%, and second half was 82%. You saw that there was, in the third quarter, quite a significant drop of the Delta lockdowns to 63% and then a recovery in the fourth quarter to 101%. Those statistics inform the level of debtors that has occurred for both the shopping center fund and the GPT Group. We apply the same judgment as a group to the shopping center fund debtors as we do to the GPT Group debtors. That judgment is an accounting estimate of loss.
We have done that, and that causes, you know, a fair level of provision increase because of elevated debtors caused by the Delta lockdown. You also have the effects in the shopping center fund of significantly lower leverage because the sale of Wollongong reduced the debt outstanding in the late third quarter for the shopping center fund, and you'll get the benefit of that continuing through into 2022, as you will the sale proceeds, reducing leverage in the shopping center fund to approximately 14% by the end of March, when Casuarina is expected to settle. We're not gonna be-
Thank you.
specific on the exact levels of make up-
Yeah.
guidance.
Understood. Just on, finally, on the corporate overhead, you mentioned that there were some costs that were expensed that were previously being capitalized. Could you comment on the quantum of those?
Yes. Our corporate costs have gone up fairly significantly. The result of that is an IFRIC decision on requiring cloud-based computing IT costs to be immediately expensed. All our software investments used to be capitalized and then amortized over the useful life. That useful life is usually three to five years. We've had to immediately expense the costs, and that's had an increase overall, as a run rate, if you like, on corporate costs of AUD 17 million.
Did that all come through in the second half?
Yeah. We didn't have the same impact in the first half because you take some of the costs against retained earnings with that decision being made by IFRIC in late April. We also have the effect of the expense being quite a fair bit higher in the second half because we have a cloud-based automation project underway right now, due for completion mid-2022.
Great. Thank you.
Your next question comes from Caleb Wheatley from Macquarie Group. Please go ahead.
Good morning, Bob and team. Thank you for your time. First one is just around guidance. I know there's a bit of color there on GWSCF, but just be keen to hear how you're thinking about COVID assumptions, about an AUD 7 million impact in FY 2021, and also how you're thinking about cost of debt throughout FY 2022.
Okay. Well, I think I tried to outline, I guess, in the presentation, I guess, some of the uncertainties that we still see, but the assumptions we've made is that we will continue to see lockdowns won't be reintroduced. The Code of Conduct will finish. The Code of Conduct that was extended through to mid to late March won't be extended further and won't be reintroduced again this year. We're expecting, I guess, our CBDs to be much more active again by the end of the first quarter. People coming back to the CBDs, you know, and leasing activity are being regenerated. Clearly, Melbourne Central is somewhat reliant on our CBDs being reactivated.
Our assumptions have been and the range that we've given is really to provide some I guess cushioning around I guess that you know the you know those potential uncertainties. The other thing I didn't mention was really interest rates, and that's been very topical you know recently. We are of the view that we'll start to see interest rates rise in the second half of this year, and we've factored that into you know our guidance range as well.
Yeah. Are we being more specific? Apologies.
Sorry, sorry. You go.
I was just gonna ask, sorry if you could, are you able to be any more specific around the dollar million amount of rent relief potentially to come through? It sounds like it's gonna be largely focused in that first quarter, but about AUD 72 million for the year. Is that a sort of reasonable run rate in terms of how you guys are thinking about the impact to come out of FY 2022 in terms of a dollar million number?
Look, the first half of last year, I think the COVID allowance was about AUD 11.5 million from memory, in that sort of number. I wouldn't expect it to be, you know, any much more than that. Look, it's early days, but I wouldn't expect it to be, you know, a whole lot more than that, to be honest.
Sure. Thank you. My second question is just around the buyback. Formally concluded the program today, as you mentioned. Just wanted to get some additional color around the rationale there, particularly given the stock trading at about an 18% discount to NTA. I think the last time stock was repurchased was at a similar sort of discount. How do we marry that up against, you know, I guess the withdrawal of that program?
Yeah, that's a good question. Our gearing has moved up to 28%, and we think it's really strategically important to continue to allocate capital to our development pipeline and the opportunities we have, you know, in that. We have a AUD 1.6 billion logistics development pipeline, as you've heard, that will deliver strong, very strong returns out of that pipeline. We think that's still the best use, both strategically and in terms of the returns, for our capital. We brought back about AUD 146 million worth of securities last year. We stopped that program as our security price improved, and also as we're allocating more capital to logistics.
Our view was to turn that off, and we'll continue to allocate the capital to our development pipeline, as we do think we'll generate very strong returns, and it strategically positions the business, you know, for the long term.
If I use the midpoint of FY 2022 guidance, it's an FFO yield of about 6.5%. Is the read between the lines that you're expecting bigger returns, particularly out of the development side of things, but also from your direct market transaction logistics, is that the right way to read it?
Absolutely. You know, we'll deliver a lot stronger returns out of our development pipeline then. Yeah.
Sure. Final one from me, just on the composition of the portfolio, particularly, in office. Obviously done quite well to work through some of those expiries, in FY 2023. Are you able to provide some additional color around those discussions, and any thoughts you have around the office portfolio more particularly as you work through some of those expiries in the next few years?
Martin, would you like to take that question?
Yeah. Yes, of course. You're absolutely right. We've made some great headway last year in dealing with vacancy and expiries with the amount of leasing that we did. That kind of number really has to continue 'cause we have about 7% vacancy, as you know now, and about 11% expiring during the year. The buildings we have been largely upgraded and refurbished, and you heard a bit about that in the presentation. They're presenting really well to the market. There are established leasing teams and active on each of the assets, and we have some quite good engagement from the tenant market to lease spaces in our buildings. As you know, that's just not done until it's done and that process just has to continue through 2022.
Is there any more color you'd like on the leasing specifically?
Not specifically on the leasing, but just on the office portfolio. It sounds like, yeah, you're relatively comfortable with where it's at. There's no potential for the divestments to come out of either the direct exposures or GWOF.
No, there's no plans to divest assets in the portfolio. We just have to work through the leasing as part of a normal life cycle of an office building.
Sure. That's great. Thank you for your time this morning.
Okay. Thank you.
Your next question comes from Lou Pirenc from Jarden. Please go ahead.
Thank you. Good morning. Anastasia, can you quantify that additional leasing CapEx you're expecting in your AFFO adjustments in 2022?
Yeah, sure. As Bob said, we've got more heightened office leasing incentives expected in 2022, and that's a result of the-
Fairly elevated level of volume of leasing in office done in 2021. That starts to come through as occupiers move in 2022, plus the leasing volume we're expecting in 2022. Overall, when we've estimated our distribution guidance and thinking about FFO earnings, it's approximately AUD 135 million, the combined maintenance CapEx and lease incentives. That's quite significantly higher than you've seen in the last two years of around AUD 90 million. The last two years are historically very, very low, and that's been caused by the COVID lockdown impacts. Prior to the pandemic, we had a run rate of approximately AUD 120 million. You're seeing a step up in that amount to around the mid 130s, and that's primarily office leasing, which is increasing by about AUD 35 million as a delta.
Great. In the second half of 2021, does that include any rents collected from prior periods? If so, can you quantify that?
The second half of 2021 may have included some debtors collection from prior periods if they had been provisioned, but we turn our minds to the debtors outstanding at the end of 2021, and we apply judgment to what provisions are needed. There's quite a mix of numbers always going through period to period. I'm not quite sure what your question is.
Well, just seeing what the underlying, I guess, FFO was, if you exclude rents booked for prior periods?
It's not significant. Once we went into lockdown and tenants were not paying their full billings amount in retail, we didn't really have significant collection at all of prior debtors to that. Because naturally, tenants are working through the impacts of COVID in the heart of lockdown.
Okay. Thank you. Finally, just on logistics, 1.4% comparable growth doesn't seem that high in a strong logistics market. Is there anything there that we should be aware of that will improve that going forward?
We started the year with high occupancy, and we had a couple of leases expire during the year, and there was some downtime associated with that. They were re-leased, but that was the main thing. It was really just downtime. There was a couple of assets, one at CityPort, one of the quad buildings out at Sydney Olympic Park and one of the industrial assets or logistics assets at Somerton in Melbourne. We had some downtime associated with those, and that's what pulled back the like-for-like growth.
Maybe another way of asking it is kind of what re-leasing are you seeing on industrial or is it too early because your portfolio is relatively new?
Yeah. I think it's a little early, but what we are seeing is that the markets we're operating in are probably seeing over the last 12 months, you know, somewhere between 4%-6%, you know, rent growth in those markets. We're sort of capturing those in a lot of the development deals that we're seeing. We have about 50% of our portfolio expires over the next five years, and so we can see opportunity within that period, because we do think there's going to be strong rent growth in this market. We see opportunities to capture that rent growth, you know, in that period.
Great. Thank you.
Your next question comes from Grant McCasker from UBS. Please go ahead.
Good morning. Just following on from those comments regarding COVID, are you able to let us know what the level of uncollected rent that hasn't been provisioned for as a balance date? Has your approach changed through 2021?
Anastasia, would you like to take that?
Sure. Thank you, Grant. We have provisioned the majority of the debtors outstanding at 31 December 2021, so arguably fairly conservative provision levels. That has changed. If you go back to the end of December 2020, we had far less in ECL or what we call expected credit loss provisions against debtors. In the face of two years of built up debtors from pandemic, aging, and Omicron unfolding, we felt that was the right prudent judgment to make. Certainly the retail team are very focused on chasing all outstanding debtors where possible.
Great. Thanks for that. I'm interested in your thoughts, Bob, you made the comment that debt costs are rising into 2022, but I guess if we look out to 2023, you've got greater than 70% of your debt actually unhedged. I don't think I've ever seen it that large. Are you able to talk to me how you're thinking about your hedge profile going forward and managing your cost of debt?
Yes. Our policy is to have a minimum 60% hedged, and we'll continue to make sure we are 60% hedged, so we'll be putting on new hedges along the way. We haven't seen it as being economic to rush into doing that. You know, the market has been well ahead of where we think it will play out. So we will be putting on hedges during the course of the year to make sure that we have our minimum 60% hedging level. And we'll take the opportunity to do that, you know, as we see the market opportunities being there. Anastasia, would you like to comment a bit further on that?
Yes. You've seen us report a cost of debt of 2.4%, and I'd say it'll probably be leading the low-rate cost of debt across the reporting season. We have flagged there'll be a modest increase as we start to see those rate rises come through. In the medium term, I would expect that it's going to be still sub-3% level. We believe in a terminal rate that won't be as elevated as what the market is implying. As we put on those hedges that Bob talked about and as floating rates do increase, we think we'll still average with an all-in cost of debt of sub-3%.
Great. Thank you.
Your next question comes from Richard Jones from JP Morgan. Please go ahead.
Good morning. Just further on the guidance. I think, Bob, you're saying, call it AUD 10 million of abatements is kind of what you're allowing for in guidance. Just curious as to, I guess, first if that's right. Then secondly, what else is kind of, I guess, impacting growth for next year? Because the stabilized implied number does appear, you know, 3%-5% below where the market is. Is there a big drag coming from office downtime? Is that gonna be a big issue in 2022 earnings?
No. I think first of all, COVID allowances are-I misquoted that. It's gonna be more than that, AUD 10 million. I wouldn't wanna give you an exact number for that because it will vary on some of the deals that's still yet to be done. It will be a bit higher than that. In terms of what's dragging, the biggest thing is Melbourne Central. The recovery of Melbourne Central. It's our largest investment asset, and it's going to take some time to recover. That's probably the biggest drag, you know, across the portfolio. I'm expecting office will continue to, you know, see some growth. I'm expecting logistics will as well. The biggest one will be Melbourne Central will take some time to recover still.
Rental abatements in retail looks to be about 40% of kind of gross net property income, if I can use that term, in the second half, yet cash collections are at 82%. There seems to be quite a big disparity there. Just wondering if you can give us a Q3, Q4 breakdown and then perhaps give us some color on cash collections in January for retail.
We might start with the cash collections in January. I think that was running at about 80 odd percent at the moment. About 80%-85%. That was the cash collections for January. In terms of the splits in Q3 and Q4, maybe, Anastasia, do you have those at-
Yeah. Well, we've reported cash collection was as low as 63% in Q3.
Yeah.
Recovering to 101% in Q4. I think where you're headed with your question and what's important for us to state is that debtors still had an opening balance before the Delta lockdowns, and so you've had the cumulative impact of having obviously COVID relief needed. Then how do you judge your debtors loss when you get to the end of 2021? A good example of that would be, say, Penrith. You'll notice that Penrith income for the half asset we own is significantly down and down more than the necessary deals done and abatements given. The debtors at Penrith increased from AUD 17 million in 2020 to AUD 24 million by the end of 2021.
We have applied this is GPT's judgment on what is that expected credit loss that we need to judge. That's much more elevated level due to aging of debtors at the end of 2021, compared to what we applied at the end of 2020. You're seeing that cumulative impact of debtors provisioning coming through.
Okay. That won't be as big an issue into 2022, is that what you're saying?
That's right. We've taken the loss, the hit for that in the 2021 earnings. As I say, the retail team are vigorously going to be chasing the debt. It has not been forgiven, but we felt that it's the more prudent accounting judgment to apply given the level of outstanding debt and two years into the pandemic.
Thanks, Anastasia.
Your next question comes from James Druce from CLSA. Please go ahead.
Good morning, Bob and team. I was hoping just to get a bit more color on sort of the net property income growth for office, the next 12 months. Your stabilized portfolio has ticked up from 92%-95% in occupancy. Obviously, you've got some leasing to do this year. If you could just talk through some of those drivers, please.
Martin, would you like to take that a little?
Sure. Yeah, absolutely. James, I mean, I gave some guidance in the presentation on the rent increases coming through from the stabilized portfolio. Of course, you've got Queen and Collins and 32 Smith Street generating full year income this year, and you've got Northbourne Avenue, which is generating income for the full year. In terms of leasing, our expectation is that you know, we've got a lot expiring, but we will lease a lot this year and end up about the same levels of occupancy by the end of the year through the process that we've got in place. Does that answer your question?
Yeah, sort of. You're expecting a reasonable pickup in office income this year because you've got the benefit of leasing last 12 months, and yeah, that should start to come through this year and you're hoping to maintain occupancy. Is that the way to think about it?
That's exactly right, yes.
Then just on the second question, just around the corporate overheads. Can you just give us an underlying number if you strip out JobKeeper, your cloud-based costs, your insurance premiums, what is the underlying run rate over the last 12 months and what do you. How are you thinking about this for the next 12 months?
Yes, certainly. The corporate costs are a little elevated in 2021, and we've talked about the IT costs and an automation program that we have underway. We've also talked about the D&O insurance that's been building and increasing it for many years now. Our view is that in 2021, the premium that we were able to lock in at the mid part of last year is actually slightly less than the year prior. We're not expecting D&O insurance increase costs ongoing from here on in. We're expecting IT costs to settle down a little bit. I'd give you an estimated run rate of around AUD 60 million for corporate costs.
Okay. That's clear. That's it for me. Thank you.
Your next question comes from Adrian Dark from Citi. Please go ahead.
Good morning, Bob and team. I was interested in just discussing the environment that you're envisioning and guidance in a little bit more detail, if we could, please. I'm mindful that it's assuming a reactivation of CBDs, which has been quite a slow process, even outside of lockdown periods. Are you able to be a bit more specific about what you're assuming and the implications if it was to be a slower process, please?
Adrian, what we did see in 2021 was certainly Sydney, you know, rebound. We saw it, the CBD really come to life during the course of the year until the lockdowns hit. It was building and it was getting good momentum in the CBD. We were lagging still in Melbourne, and there have been a couple of hiccups in 2022, beginning of 2023 around. There's a couple of one-week type lockdowns or pauses that occurred in Melbourne. We weren't quite getting the same traction in Melbourne, but it was starting to build before the lockdowns occurred. Well, from what I'm hearing from most CEOs and corporates is that they want to get people back into their offices. I'm not saying that they're back in every day, but they want to start reactivating their offices.
They're concerned about culture drift within their organizations. They need people working together, collaborating and getting that happening. I am expecting you'll start to see that ramp up during the course of the year. From a leasing perspective, tenants moving in and utilizing their office space, being able to do it, gonna be able to do inspections, that's very important for office. Also from a CBD, our Melbourne Central perspective, having the Melbourne Central, you know, the CBD of Melbourne starting to become much more revitalized will be important as well.
Look, I can't give you precise numbers on it, but I'm expecting, you know, by the first half of this year, we are starting to see good traction, you know, with people moving, utilizing the CBDs, reactivating them, people back in the offices and similarly, and then that continuing on into the second half. I can't be terribly precise about that. The key drivers for us from an earnings perspective really are, you know, Melbourne Central, the performance of Melbourne Central, and then secondly, being able to get our leasing done. Then the more people back in the cities using their offices, et cetera, the more confidence I have about being able to secure, you know, the leasing quantum of leasing we need to do this year.
Thank you. A question in relation to the impact of higher interest rates. We've touched on the impact on interest expense, but could you maybe talk about what shift, if any, you're observing in transaction markets and any tilt in GPT strategy that might be being made in anticipation of higher interest rates, please?
First of all, we haven't seen the capital markets at all shift in their appetite for quality product. You know, it may be early days, but we haven't actually seen that. In fact, inquiry and interest continues to be, you know, very strong. We haven't seen any significant shift whatsoever. That gives me confidence around, I guess, valuations, to be quite frank for the year ahead. If I talk about how we're positioning ourselves, we have a very strong development pipeline and near-term development pipeline as well in terms of our logistics portfolio. That's AUD 1.6 billion in value. I see no reason why we would pause or anything on that. We think there's very strong demand. Rents will grow in that space.
You know, that's where we'll be allocating capital to to grow you know our position in that market. We've done extremely well, I think, moving, I think from probably three or four years ago to be 15%-16% of our portfolio. It's now 27%. See over the next couple of years we'll get it to 30%. Logistics has become much more a meaningful part of our business.
Thank you.
Your next question comes from Sholto Maconochie from Jefferies. Please go ahead.
I'll be quick. It must have been answered. Just a few things on office. I think you said face rents were up 6%, but effective down 5%. What was the incentives on the office leasing done?
Oh, roughly in the low- to mid-30s, I would say. Yeah, mid-30% roughly across the portfolio.
Oh, great. Just finally, on the vacancy, you got a bit of stuff in Melbourne vacant. Sydney should be pretty easily leased up, but you've got some vacancy in Melbourne the next couple of years, [inaudible] 2023. How do you think of that Melbourne vacancy, given the outlook for Melbourne? It's got quite a lot of vacancy and supply there that hasn't been absorbed.
Yeah. Look, it has the vacancy rate has stepped up significantly in Melbourne. No question there's been quite a bit of supply. I think having quality product and the actions we're taking around targeting some of the smaller users is actually paying dividends for us. We've seen very strong market response to Queen and Collins because it's a specific product in a good market in a strong area, location. We've been fitting out space for that fitted office suite market. So we've been fitting out space. We're actually doing another one of the Clubhouses at our CBW site or 181 and 550 Bourke. So those developments or those opportunities I think will continue to come during the course of this year.
Despite the market being a little more elevated, the vacancy rate being a little more elevated, we're pretty confident our product with this is resonating with the customer, and we'll be able to lease it up.
All right. Thanks very much, [inaudible] team [inaudible].
Mm-hmm.
Your next question comes from Alex Prineas from Morningstar. Please go ahead.
Thank you. Good morning. Just a quick question on the industrial development pipeline. I think you said the anticipated yield on cost is 5.25%. From memory, historically, that was more like 6%. I was just wondering if you can talk through the drivers of why that's come down. Is it assumed acquisition prices or is it construction costs or rental assumptions or, you know, can you give me a sense of what the proportion of each of those drivers is?
Well, the main one has been some of the early ones that were close to the 6% or better. They were sites we'd acquired earlier. These sites have been acquired, you know, later than those. We're expecting to do at least 5.25% year on cost out of them. Some will be better than that, I'm sure. The main driver has just been the time that we acquired those sites, to be quite honest, and land prices continued to move early in that period. It's more around the entry price. We have seen a bit of pressure on construction costs as well, and that's probably taken a little bit off it in addition.
Generally, our assumptions around rents are holding up or we're doing better on. You know, I would like to think we'll even do better than 5.25%. That's a minimum that I think we'll achieve.
Thanks. Are you still looking to do most of that pipeline on a sort of speculative basis, leasing up as you approach completion, or are you looking for more pre-commits these days?
Most of what we're still doing on a speculative basis. We're finding we're able to get them leased up at or around practical completion. They're a reasonably quick turnaround from the time we start constructing to getting them leased up. All of them have been leased up within that same timeframe, within a few months of completion or a month or so after. That's working well for us. We'll continue to do that. That doesn't preclude us looking at pre-commits either. Like, we've got a development underway at the moment that we've already secured the tenant for right at the beginning of the project. It was going to be done speculatively, but the tenant's been signed up now. In effect, that's now pre-committed.
Okay. Thank you.
Mm-hmm.
Your next question comes from Louise Sandberg from BofA. Please go ahead.
Good morning, guys. Just one quick one for me. Can you comment on the outlook for leverage given, you know, the development pipeline and also the expansion of the QuadReal partnership?
Sure. We have a stated policy range of 25%-35% for gearing. We're at 28% now. We have opportunities, you know, to develop pipeline. Look, we think moving towards the midpoint of our range is no problem. For the right things, we'll go beyond the midpoint of the range and look for then opportunities to bring that down over time. We want to use the full range of that 25%-35%. Typically, we've been more at the lower end of that range, but we feel comfortable in using the range for the right opportunities.
We should be expecting it to go towards the midpoint around 30%?
Yeah.
Okay. Thank you.
Your next question comes from Todd McFarlane from DWS. Please go ahead.
Thanks, Bob. Do you mind just providing some more information on scope and timing of the mixed-use opportunities at Rouse Hill and Highpoint, maybe first start and delivery dates?
Yeah, I might ask Chris to do that. Chris Barnett, would you like to speak to that? You're on mute, Chris. Doesn't seem... I'll take it. Sorry, Chris seems to be having trouble. Yes, I'll take it. The for the Rouse Hill, the first stage of that mixed-use development we're expecting to get underway at the back end of this year. That will comprise 10,000 sq m expansion to the retail and about 200 apartments. We are also progressing the master plan for the balance of the site. You may have seen in our presentation we mentioned earlier in the year that New South Wales Government acquired some land office for a new public hospital out there.
We will look to, as that's being developed out, look to develop out the balance. We have to rejig the master plan slightly for it, but we will look to develop out the rest of that site over the following sort of five-seven years. In Melbourne, we just got the master plan for Highpoint approved, and Chris outlined some of the attributes of that in the presentation. I would expect in the next two years we will start commencing on that mixed-use development opportunities at Highpoint as well.
Great. Thank you.
Mm-hmm.
There are no further questions at this time. I'll now hand back to Mr. Johnston for closing remarks.
I'd just like to say thank you to everyone for joining us for the call. We appreciate your time. It has been, you know, another interesting year with COVID, but we really do think the worst of that is behind us now. We're very optimistic about, I guess, about the outlook for 2022. Thank you and appreciate your time.