Good morning, everyone, and welcome to GPT's interim results briefing. I do hope you're all safe and well. I'd like to commence by acknowledging the traditional custodians of the lands on which our business and assets operate and pay my respects to Elders past, present and emerging. Joining me for today's briefing are Ernestoja Clark, our Group CFO Matt Fady, Head of Office and Logistics Chris Barnett, Head of Retail and Nick Harris, Head of Funds Management. As usual, we will take your questions at the end of the presentation.
Unfortunately, we are not all in the same room together, so hopefully, we don't have any technology hiccups this morning. We commenced the year with strong momentum as the economy bounced back and business and consumer confidence lifted. This was reflected in a strong recovery in retail sales and rent collections during the half. Retail leasing activity during the period was the strongest it has been for some time as retailers expanded their physical store networks and launched new brands. We also saw encouraging levels of office inquiry, particularly from technology and services companies.
This was more evident in Sydney, where physical occupancy in office buildings was recovering before the recent lockdowns were imposed. Both investor and occupier demand for the logistics sector was very strong and we continue to build out our development pipeline and secure new opportunities in this sector. Clearly from late June, measures to contain the delta variant of COVID-nineteen across the Eastern seaboard states changed operating conditions, and as a result, we found it was appropriate to withdraw FFO and distribution guidance for the year. As I'm sure most of you are aware, the Victorian and New South Wales governments have now reintroduced the Code of Conduct. The code requires landlords to provide rental relief to eligible SME tenants proportionate with the reduction in their turnover.
50% of the relief is to be provided in the form of a rental waiver and 50% is to be deferred. Clearly, we will work with our tenants to provide relief as required. Given the momentum we saw in the first half, we remain confident we will see a strong recovery once restrictions are again lifted. Turning now to an overview of our results on Slide 5. FFO per security for the period was up 24.6 percent to $0.156 per security.
This was driven primarily by improved performance from retail and growth in our logistics portfolio. The interim distribution is $0.133 per security and this represents approximately 100% of free cash flow. NTA at June 30 was up 5.2% from December to $5.86 per security. This was driven by revaluation gains mainly from our logistics and office portfolios. And the total return for the 12 month period to 30 June was 10.2%.
Turning now to valuations on Slide 6. We had the majority of our assets independently valued at the half, resulting in a revaluation gain of $472,000,000 There has been strong levels of transaction activity over the last 6 months, particularly for office and logistics assets and this has provided valuers with strong levels of market evidence. EPT's office portfolio recorded a valuation increase of 2.2% with the completion of 32 Smith along with leasing activity across our Sydney assets driving this uplift. The weighted average cap rate was 4.87% which is in line with December 2020. Valuers have softened near term growth rates and increased incentives in the recent valuations.
This has been offset by a slight firming of discount rates consistent with market transaction evidence. The revaluation gain for our logistics portfolio was $315,000,000 which is a 10.6% uplift. Given the investment appetite for the sector, valuation metrics continue to firm with the portfolio weighted average cap rate now 4.38 percent and the discount rate tightening to 5.81 percent, which as you can see on the slide is the lowest across each of our sectors. In retail, valuations were stable for the period following the declines recorded in 2020. Buyers continue to include stabilization allowances for COVID-nineteen impacts.
Low interest rates and expectations of a sustained economic recovery continue to underpin valuations for high quality assets with the direct market willing to look through any short term weaknesses. While COVID-nineteen is creating near term uncertainty, we remain focused on executing on our strategic priorities. Our logistics portfolio has grown to $3,400,000,000 in value and now represents 23% of GPT's overall diversified portfolio. This will increase further as we deliver our development pipeline and commit additional capital to the QuadReal partnership. The partnership initially targeted an $800,000,000 capital allocation and this has now been increased to $1,000,000,000 The Quadriol partnership not only leverages our logistics platform, but also provides growth in our funds management earnings.
We have ambitions to further grow our funds management business. Our relationships with institutional investors remains very strong and the GPT Wholesale Office Fund, Guoff, has a substantive development pipeline that will provide meaningful growth into the future. We completed the 32 Smith office development in Parramatta and Guoff's Queen and Collins development in Melbourne. Both of these assets have set new standards in their respective markets and we are particularly pleased with the leasing activity at Queen and Collins as we've only recently been able to showcase the asset. We will also commence Guoff's 29,000 square meter office development at 51 Flinders Lane in Melbourne in the Q4 of this year.
The asset will provide a unique offering to the market when it is complete in late 2024. We have advanced our plans for the mixed use development at Rouse Hill, including updating the scheme to reflect the changes that have been accelerated since the emergence of COVID-nineteen, and we are targeting to commence the development next year. We also continue to focus on building deep customer relationships and putting the customer at the center of everything we do. Customer engagement is providing rich insights into the services and propositions our customers are seeking, ensuring we differentiate our offer to match the changing expectations. This is influencing not only our development project, but also the investments we are making across our portfolio.
Underpinning our growth objectives are our strong balance sheet and our leading capabilities in ESG. As I've communicated previously, we have an ambitious target in place for all our managed assets to be operating carbon neutral by the end of 2024. We have a proven pathway to achieve this goal with GWA being globally recognized for carbon neutral achievement in 2020. As you can see from Slide 8, GPT is recognized as a global sustainability leader, evidenced by our continued strong performance in leading ESG benchmarks on Gresb, S and P and ISS. Our focus is on achieving measurable outcomes through reducing energy intensity of our assets, generating on-site renewable energy, purchasing green power and investing in local biodiversity offsets for any residual emissions that cannot be mitigated.
We're also recognized as an Employer of Choice for Gender Equality by Wajeea. Our employees live our values, shape our culture and contribute to our shared success. Our stakeholders fully value our social and community programs, including our stretch reconciliation action plan and the support we provide to charities through the GPT Foundation. Despite the challenges of COVID-nineteen, we have continued to ensure we provide community support through leveraging our people and our assets. I will now hand over to Anastasia Clark to provide you with further details on our financial performance for the half and I will return at the end of the presentation for my closing remarks.
Thank you, Bob, and good morning. I'm going to start on Slide 10 where I'm pleased to be reporting far stronger financial results for the 6 months to 30 June 2021 in comparison to this time last year. Whilst the COVID-nineteen pandemic is still with us, we have a track record now of the rebound that will come when restrictions are lifted and which is evident in this period's financial results. Our statutory profit of $760,500,000 for the half is a significant improvement on last year's result for June 2020. This is driven by stronger funds from operations and valuation increases, particularly from the logistics portfolio.
Funds from operations is $302,300,000 delivering an increase on the comparable first half of 23.6 percent. FFO per security is $0.154 delivering enhanced growth of 24.6 percent due to our on market security buyback from April to June of 1.7% of securities, costing $146,800,000 at an average security price of $4.54 being a discount to NTA of 22.5%. The strength in our result becomes even more pronounced in the 43% growth in our distribution per security of $0.133 representing a 99.9 percent payout of free cash flow, which was underpinned by strong cash collections from across our portfolio. Looking to each portfolio's performance now on Slide 11 in the segment result. Retail profit of $140,800,000 has recovered 77.8% of the impacts brought about by COVID-nineteen last year.
Cash collections of 104% over the 6 months resulted in reduction of outstanding tenant debts from 2020, with $22,000,000 remaining to be collected. Office contributed $134,500,000 delivering 1.8% growth on a like for like basis, which is a good result given the current level of vacancy in the portfolio. The overall result is down 3.9% due to the divestment of Farra Place. Logistics contributed $75,500,000 with growth of 17% resulting from additions to the investment portfolio, both completed developments and acquisitions. The Fund's management profit of $23,900,000 was slightly down on last year, reflecting the valuation decline of the shopping center fund in 2020.
Finance costs reduced almost 10% to $44,300,000 in line with savings of 40 basis points in the weighted average cost of debt to 2.7 percent. Corporate overheads of $28,100,000 have normalized post last year's savings from withdrawal of variable remuneration schemes and support from JobKeeper. Costs have also increased in 2021 from higher D and O insurance premiums. We continue to be disciplined and targeted with our maintenance capital expenditure that has reduced to $12,900,000 this half. Lower leasing volumes in office and logistics have resulted in reduced lease incentives to $23,100,000 For both maintenance capital expenditure and lease incentives, we expect these to normalize in line with the economic recovery.
Overall, our strong results have delivered a 35% increase in AFFO. Turning to Slide 12, capital management, where the balance sheet remains very strong. NTA has increased to $5.86 per security, being 5.2% growth since 31 December 2020. Most of this growth is due to the strong asset revaluations, primarily from the logistics portfolio. Gearing remains low at 24.5%, providing significant investment capacity for growth.
There are no material loan expiries for the group until 2023 and we retain significant liquidity of $1,300,000,000 to fund growth opportunities. Our incremental cost of debt all in is circa 1.5 percent and we estimate our average cost of debt for 2021 to reduce to approximately 2.5%. Our view is that the RBA is committed to an extended period of low interest rates and therefore, we continue to hold hedging toward the lower end of our target range at 60% for a shorter duration of approximately 2 years. To conclude, our balance sheet is in excellent shape and positions us well to fund our strategic growth plans. For an update on our Office and Logistics operations, I'll now pass you to Matthew Fady.
Thank you, Anastasia. Our high quality $5,800,000,000 office portfolio has delivered FFO of $134,500,000 in the half with like for like growth up 1.8%. The portfolio has a whale of 5 years and we have continued to achieve pleasing leasing outcomes with 38,000 square meters of leases signed in the period. Occupancy for our stabilized assets is currently 92%. A valuation uplift of 2.2% has been delivered in the half with the weighted average capitalization rate firming to 4.87%.
Our sustainability leadership position in the Australian office sector has been further reinforced with the completion of 32 Smith and Queen and Collins. These developments have achieved 6 star green star design ratings and expand GPT's prime office holdings in the core markets of Sydney and Melbourne. We saw leasing momentum build in the first half with positive jobs data and levels of tenant inquiries supported by rising business confidence. While this has been interrupted by the reimposition of government restrictions, we continue to negotiate with existing and new tenants across our portfolio as occupiers look beyond the current restrictions to the expected economic rebound. Turning to Slide 15, Leases have been signed across 38,000 square metres in the 1st 6 months of the year with a further 23,000 square metres at heads of agreement.
Momentum has continued into the second half with 51,000 square meters of advanced negotiations across vacancy and future expiries. Sentiment in the Sydney CBD was positive in the first half with increased activity from tech groups and smaller occupiers. This is demonstrated by 40 deals achieved in our Sydney CBD portfolio at an average size of 580 square meters. This market also saw a reduction in sublease availability during the half. The Melbourne CBD was impacted by the lockdowns.
However, government and technology tenants have remained active. Queen and Collins has been well received by the market with deals agreed with a number of tech occupiers and additional negotiations underway. As you can see on the charts, GPT has sustained occupancy well above the market average over the long term. We are making good progress in reducing vacancy and upcoming expiry. Moving now to development, during the period we concluded 2 projects, first being 32 Smith in the Parramatta CBD.
This asset has achieved a 6 star green star design rating and has been operating on a carbon neutral basis from its 1st day of operation. Leasing is 75% progressed with QBE anchoring the development. At June 2021, the project was independently valued at $325,000,000 which is well ahead of feasibility commerce with a development margin of greater than 25%. We also completed the redevelopment of Queen Collins in Melbourne during the period. Held within the GPT Wholesale Office Fund, this exciting project incorporates a 34 level tower integrated with heritage buildings fronting Common Street.
Leasing is progressing well, 41% of the office space now committed. This asset appeals to modern occupiers attracted by the unique building amenity, comprehensive customer service offering and the exciting new space on demand concept. Moving to Slide 17, we are progressing our $3,500,000,000 development pipeline across the Eastern Seaboard. These projects provide a pathway to growth from within our existing portfolio, unlocking opportunities on sites held by the group. In Melbourne, the 51 Flinders Lane development will commence in the Q4 of this year.
This exciting tower design will provide 29,000 square meters across 650 square meter floor plates being a unique offer that will target smaller boutique occupiers in the east end of the city. We are also seeking pre commitments for 300 Lonsdale and Cocoa Bay Park in parallel to progressing project milestones. Turning to Slide 18, we continue to engage closely with our customers as new workplace trends emerge. During the first half, through surveys and conversations with customers, we are gaining insights into how they are thinking about the office of the future. These insights are guiding our teams in prioritizing customer centric investments that drive higher occupancy and rent outcomes.
We are engaging with customers to reduce pain points, such as simplifying lease documentation and providing spaces where a fit out has already been constructed. Over several years, we have invested in creating furnished and fitted office suites to provide a ready to move in solution for office users, and we are accelerating this to target smaller and growing occupiers. We are also leveraging our flexible workspace offering Space and Co to facilitate leasing transactions, support project teams and to incubate growing businesses. Our 6th Space and Co venue opened at 32 Smith in Parramatta during June. Business lounge and collaboration facilities are also being expanded along with healthy building upgrades, including up specification of air filtration and touch free lift and access to buildings.
Now to Slide 19. Our team remains focused on delivering returns from our prime portfolio, demonstrated through a 12 month total return of 7.6% being achieved. With $13,300,000,000 of assets under management, we attracted a diverse range of customers including finance and insurance, global tech and professional services organizations. The quality of that tenant base is demonstrated with 100% of 2021 net billings being collected in the first half. We saw positive indicators in the first half with strong jobs growth supported by rising business confidence.
While this has been interrupted by the reimposition of government restrictions, we expect the positive momentum of the first half to reemerge as restrictions unwind. Now to logistics. Our portfolio has delivered excellent results in the first half with FFO up 17% reflecting growing contributions from development completions and acquisitions. Investor demand for logistics remains strong, resulting in affirming of the weighted average capitalization rate for GPT's portfolio to 4.38%, reflecting the modern nature and distribution center focus of the portfolio. This sector has also experienced robust demand from tenants with levels of take up well above average across the eastern seaboard, resulting in low vacancy rates in core markets.
Four acquisitions have been secured and one development project completed, totaling $350,000,000 and we have a further $170,000,000 of developments that are on track to be completed in the second half. The 12 month total return of 24.2 percent has been achieved with the portfolio growing 13% to $3,400,000,000 and now makes up 23% of GPT's investment portfolio. Moving to Slide 22, during the first half the group completed a $51,000,000 facility at Glendinning in Western Sydney that is leased to Total Tyres for a 10 year term. We have also secured 2 acquisitions in Melbourne that will complete from 2022, both being held within the GPT Quadriel Logistics Trust of which GPT holds a 50% share. The land bank has also been expanded with parcels for future development secured in Kemps Creek and Wacoal.
These four acquisitions will have an end value of $370,000,000 on completion. Earlier this month, an additional 8 hectare land parcel was secured at Crestmeade in Brisbane. The site provides capacity for 40,000 square meters across 2 facilities with an end value of $90,000,000 once complete. Turning to Slide 23. Our growing portfolio is made up predominantly of distribution centers, warehouses and cold storage that attract high caliber tenants.
With more than 90 customers, over 70% of income is generated from ASX listed groups and multinationals. These include many well known retailers and 3PLs such as Coles, Linfox, Toll and DHL. The existing portfolio is augmented by the pipeline and land bank, providing opportunities to expand our footprint and provide coverage to grow with customers across core markets. Turning to development. We have 4 projects totaling $170,000,000 on track to complete in the second half.
The latest stage of our Wembley Business Park Estate was delivered in late July. Heads of agreement are in place with 2 groups across the facility. Works are also underway at our other Brisbane project in Wacol with practical completion expected in the Q4. In Melbourne, we have 2 facilities due for completion at our Gateway Logistics Hub Estate. With one of these pre leased to e commerce retailer, The Hut Group.
The 2nd 24,000 square meter facility has a heads of agreement in place with a national third party logistics operator. Now moving to Slide 25, we are progressing our Yirubana logistics estate project in Kemps Creek with the first facility to be delivered in 2022. The Kemps Creek precinct is set to become Western Sydney's next preeminent logistics destination in close proximity to key infrastructure investments including the future Western Sydney Airport. As I mentioned earlier, we secured an adjacent site on Marmara Road in the half and the combined scheme will now deliver 182,000 square meters of product with an end value on completion of $600,000,000 Now on Slide 26. Our $1,400,000,000 development pipeline provides capacity to create product totaling approximately 690,000 square meters.
The pipeline provides coverage across core industrial precincts in Melbourne, Sydney and Brisbane with the diversity of facility sizes on offer. Consistent with our recently completed projects, we continue to target a yield on cost of over 5% for our developments. In addition to the 4 projects that are due to be completed in the second half, we plan to commence further projects this year. Turning to the outlook for the GPT Logistics segment. Our portfolio of modern well located assets are delivering an attractive cash yield with low maintenance CapEx requirements.
Growth in e commerce, urbanization, supply chain investments and infrastructure upgrades are tailwinds for the sector, resulting in strong levels of tenant demand and low vacancy rates of sub 2% in both Sydney and Melbourne. The GPT Logistics team have demonstrated the ability to consistently grow the high quality portfolio through development and selective acquisitions. Our land bank provides control of the development pipeline to secure future growth. We have clear pathways to grow assets under management from $3,400,000,000 to over $5,000,000,000 In addition to the GPT Logistics Land Bank, further opportunities to acquire land and investment product are being pursued. I will now hand over to Chris Barnett to present the retail results.
Thank you, Matt, and good morning, everyone. For our retail business, the first half was pleasingly a story of rebound. Our assets continued to build momentum with positive sales growth when compared to our 2019 results. This has led to a renewed confidence in our retailers, resulting in a record level of leasing transactions. We finished the first half with higher portfolio occupancy at 98.9%.
We had a lower level of vacancies. We had a lower number of holdovers and we've improved our leasing spreads when compared to previous reporting periods. This momentum is very encouraging. For our assets who are currently impacted by government restrictions, we are confident that as history has shown, they will rebound strongly as restrictions are eased. In terms of our financial performance, the result was substantially up on the first half of twenty twenty, given the reduction in COVID allowances and associated trading impacts from government restrictions.
We independently valued 100% of our retail portfolio at 30 June, which has seen the stabilization of our asset values evidenced by the overall portfolio delivering a positive revaluation. The specialty sales growth of 6.5% when compared to the first half of twenty nineteen demonstrates the strength of the rebound and is a testament to how quickly our customers return to our centers to shop, to dine, to be entertained and enjoy the service and experience that they were truly missing during periods of restrictions. More so than ever, our centers are demonstrating their core alignment to the needs and wants of the Australian consumers. Now turning to leasing on Slide 30. The first half of twenty twenty one has been an exceptional period with record levels of leasing activity.
Our leasing teams have been able to conclude more transactions in the first half of twenty twenty one than we completed in the full year of 2020. The leasing activity has resulted in a solid improvement in our portfolio occupancy, now 98.9%. Our vacancies and our holdovers are down and we've considerably improved our leasing spreads. Importantly, all of our leasing deals remain structured with fixed base rents and annual increases now averaging 4.4% and we've seen a return to longer tenure with 4.5 years being the average term for all deals completed. As shown on the slide, our leasing metrics have improved considerably since the December reporting period.
Now on to retail sales on Slide 31. As seen on the graph, the strength of the sales recovery is evident when you compare this half to the first half of pre COVID twenty nineteen. Whilst these numbers exclude Melbourne Central, the sales growth is strong with portfolio center sales up 5% and total specialties up 6.5% on 2019. At a state level, our New South Wales assets were the standout up 5.9% and Casarena also performed well up 4.8%, again when comparing to 2019. Melbourne Central has benefited from the return of students and office workers during the first half of twenty twenty one.
However, CBD recovery is still protracted. Looking at sales in more detail, whilst there were a few retail categories that are still being impacted by government restrictions, including cinemas and travel, of our major stores, discount department stores were the winners with an exceptional performance up 13.5%. It was our entertainment based retailers driving the growth in the other retail category, up almost 24.5% from brands like Time Zone and Strike Bowling, again emphasizing our customers craving these experiences outside of the home. Across the categories of general retail, leisure and technology, the successful opening of new retail concepts like the LEGO store have contributed to this higher sales growth joining the powerhouse brands of JB Hi Fi and Rebel. Importantly, our fashion category, which houses the majority of our omnichannel retailers experienced a solid return to sales growth, up 6.9% for the half.
Now turning to Slide 32. And whilst online has certainly benefited during the periods of restriction, what is illustrated on the graph is an online remains a very small portion of total retail spend and the physical retail sales continue to grow as customers return to our shopping at our assets. Evidence of this was high point where in April this year being the 1st month where our portfolio was not affected by any government restrictions, the center was 9% up in total sales compared to April 2019. And this was particularly pleasing given April was the 1st month without JobKeeper. This is a clear indicator of the importance of the role of the physical store on how brands connect and transact with their customers.
This is recently reinforced by an analysis from Urbis, which shows the physical store facilitate over a third of all online transactions. We continue to see those retailers who have successful omni channel networks winning customer preferences. Now turning to Slide 33. And what is exciting about the high level of leasing activity is that we've transacted with over 90 new brands opening for the first time in a GPT center progressively throughout 'twenty one. Retailers are continuing to grow their businesses with an increase in investment in new store concepts, as well as dominant brands up weighting their existing footprints to create flagship stores.
And there are some examples shown on the slide across both High Point and Melbourne Central. This retailer remix is continuing to ensure our assets remain compelling for our customers and will deliver incremental sales as well as contributing positive valuation growth. Now to Slide 34. Our portfolio includes some of Australia's leading retail assets that continue to provide opportunities for growth and outperformance. Rouse Hill continues to outperform delivering an 11.3% total return for the last 12 months, maintaining 100% occupancy with our specialties enjoying double digit sales growth, now trading at around $11,000 a square meter.
The asset's performance is underpinned by an affluent growth market and continued government investment in the region. We remain committed to the development opportunities at Rous, which will capitalize on the strong retailer demand and growth markets, whilst delivering both additional retail GLA and residential apartments to the site. This will be a fantastic mixed use development. We're currently working through authority approvals on a revised scheme and plan to commence the development in the second half of next year. High Point continues to reaffirm its positioning as one of the country's leading retail assets, dominantly located in the significant growth market of Western Melbourne.
Over the last few years, there's been considerable repositioning investment, proactively rightsizing David Jones and Myer and replacing the existing Target store. These strategies have allowed us to introduce in demand retail brands like a new Kmart and a second full on supermarket with Kohl's in addition to Waterman's co working facility. High Point will continue to evolve as a leading retail destination whilst also providing an additional investment pipeline to drive our performance. Last year, plans were launched to secure mixed use development opportunities on the center's significant land holdings. This will potentially result in an additional 150,000 square meters of commercial and residential space and create capacity for 7,000 residents and an incremental daytime population of 10,000 workers.
Sunshine Plaza is well positioned to capitalize from its dominant location in Southeast Queensland, benefiting from strong population growth and significant ongoing government investment in the Sunshine Coast. The asset is performing strongly post the major redevelopment with Centre MAT growing to $680,000,000 and specialty sales up 20%. The sales growth and increasing customer visitation are fueling retailer demand as the asset continues to attract first to market retail brands, reaffirming its position as the leading retail asset in the region. Now to Slide 35. GPT has a high performing retail portfolio with $8,400,000,000 of assets under management, including some of Australia's most productive assets.
The high level of leasing activity reinforces the demand by retail groups for physical store networks to transact with customers and to open new retail concepts. We've been on the front foot responding to customer trends and investing in our assets to ensure they remain the preferred choice in their markets for both the customer and retailers. We remain excited about the opportunities to deliver on our mixed use development strategies, which will only strengthen asset performance by providing incremental customers to our retail assets. Whilst we navigate through this current period of uncertainty, we do anticipate a similar rebound as previously experienced once restrictions are eased. This will be assisted by favorable economic conditions such as high levels of household savings and low interest rates, which provide ongoing support for the retail sector.
To close, I'd like to thank the entire GPT Retail team for their incredible efforts at ensuring our customers are welcomed in the most safest possible environment, allowing our retailers to thrive. I'd now like to hand over to Nikaris to provide an update on our Funds Management business.
Thank you, Chris, and good morning, everyone. Our Funds Management platform has significant scale with $13,500,000,000 in assets under management and 70 institutional investors. We recorded 4.7% growth in assets under management over the past 6 months, driven by acquisitions in the GPT Quadriole Logistics Trust and the development progress in the GPT Wholesale Office Fund. Funds Management has once again made a material contribution to the group, representing 7.9% of earnings for the period. As Bob mentioned earlier, we are pleased to have progressed our strategic capital partnership in logistics with Quadrille Property Group out of Canada.
This partnership is consistent with our dual strategic priorities of growing the logistics portfolio and expanding our Funds Management platform, while leveraging the group's extensive real estate capabilities. This is a new relationship with QuadReal and is our first foray in the logistics sector in Funds Management. As at 30 June, we committed $346,000,000 in this partnership and it represents 3% of our assets under management in the Funds Management business, complementing our existing funds platform in the office and retail sectors. Turning to Slide 38. The GPT Quadrille Logistics Trust is a fifty-fifty partnership announced early this year to create a prime Australian logistics portfolio.
We've already committed 53 percent of the initial $800,000,000 target across 5 deals in Melbourne and Brisbane. We are pleased to announce that this commitment has now been increased from $800,000,000 to $1,000,000,000 GLOF is the largest wholesale office fund in the Australian market with a $9,300,000,000 portfolio. The fund remains very attractive to domestic and global institutional investors due to its scale, high quality assets and ESG leadership, including having all of its assets operating carbon neutrally. The Fund's development pipeline is progressing well with the completion of Queen and Collins in late June and the commencement of the new office development at 51 Flinders Lane later this year. In addition to these 2 Melbourne projects, Guoff has another 4 asset creation opportunities in planning stages on land it already owns in Sydney, Parramatta and Brisbane.
These existing development opportunities have an estimated end value of over $3,000,000,000 and would increase the size of the portfolio by a third. The GPT Wholesale Shopping Centre Fund strategy is to create value and drive performance from the existing assets and from their land banks. A mixed use strategy is being activated across the majority of assets. Chris has already outlined the exciting mixed use potential of High Point. Northland in Melbourne sits on a 19 hectare site where a plan is being progressed for a new inner city community that could house some 3,500 residents and 6,000 workers adjacent to the Parklands and the Latrobe Education Precinct.
McArthur Square also has large land holdings of 26 hectares and is located in one of the fastest growing regions in Sydney that is benefiting from major infrastructure investment. The McArthur Master Plan could ultimately allow for some 7,000 residents and 10,000 workers. These mixed use opportunities provide significant scope for adding value to the funds portfolio over the longer term. In summary, we are well placed to further expand our funds management platform with our focus on fully investing the Quadriole Capital Partnership in logistics and further progressing the development pipeline in Guoff. I will now hand back to Bob to provide his closing remarks.
Thanks, Nick. So in summary, we saw a strong recovery in the first half and this has been reflected in the FFO and distribution delivered over the period. Recent COVID-nineteen restrictions have obviously changed trading conditions, but fortunately, our experience is that foot traffic and retail sales recover quickly when restrictions are lifted. Office leasing activity will also strengthen when businesses return to the CBD office environment. The focus from governments to accelerate vaccinations across the country is welcomed as this should lead to a more sustained recovery and reduce the need for restrictive measures being in place for an extended period as currently being experienced in Sydney.
Continuing to grow our logistics portfolio through development and acquisitions is a priority for the Group. We are of the view that the strength of demand in the sector will continue to be a tailwind for some time to come. We have 4 logistics developments that will complete this half and we will continue to accelerate the build out of our logistics development pipeline over the next few years. Growing our funds management platform and capital partnerships also remains a focus for the group. The increased capital commitment for the QuadReal partnership provides further growth potential and our office fund has a significant development pipeline that will be progressively delivered.
We'll continue to drive leading performance and sustainability and deliver on milestones to achieve our industry leading 2024 carbon neutral target. Our balance sheet gearing remains modest, providing ample capacity to fund the Group's development pipeline and other acquisition opportunities. Over the weekend, we secured an exclusive position to acquire a portfolio of longwall logistics, industrial and office assets for approximately $800,000,000 and we will commence a 6 weeks due diligence period in the coming days. An acquisition of the portfolio is consistent with our strategy to increase capital allocation to the logistics sector and provides the potential opportunity to expand our funds management platform in the future. However, I note there is no certainty at this stage that a transaction will be completed.
The buyback we announced in February is not currently active with our preference now to invest in the Group's development pipeline and other potential growth opportunities that are consistent with our strategy. Given the ongoing uncertainty in terms of the duration and nature of the COVID-nineteen restrictions, we are not providing full year guidance today. However, I am confident that we will see a strong recovery and a return to the favorable trading conditions experienced in the first half once restrictions are lifted. That concludes our formal remarks, and I'll now hand back to the operator for your questions.
Thank Your first question comes from Lou Parank of Jarden Australia. Please go ahead.
Good morning, Bob and team.
A few questions from me. First of
all, can you just talk a
little bit about current trading in particularly in retail? I know we're only 6 or 7 weeks into the lockdown, but just to give some indication of our gross collection and what you expect if this continues for the rest of the year?
Thanks, Louis. Were you asking about rent collection? Is that what you're asking about when you said trading?
Yes, in retail particularly. I mean, any kind of current trading around retail would be helpful, sales rent collection?
Yes. Okay. Look, most of our centers are being impacted by COVID-nineteen restrictions, particularly New South Wales and Victoria at the moment. And so only essentials can really trade out of their centers. We do have some stores or quite a number of them that are just doing click and collect as well.
But clearly with traffic, everything is quite low across the board. In terms of cash collection, you saw I think we mentioned in the presentation, we did mention it was 81% as the cash collection from retail in the July, the month of July. That clearly down from where we saw it in June May, but still it's nowhere near the lows that we saw when we first went into restrictions in 2020. It's a little bit premature to give you too much color on August. Cash collections are coming in, but it's fair to say it's probably tracking a little behind where we were in July at the moment.
Great. And then secondly, just on this asphalt due diligence. I mean, if you are successful, is that planned to go into the QuadReal partnership? And how do you plan to fund that? Maybe linked to that is kind of given the uncertainty that stops you from giving guidance.
How comfortable are you or where are you comfortable to take your gearing?
First of all, we see the acquisition of the portfolio clearly in line with strategy for the group. It's a quality portfolio with a long while of 9 years. It's got limited expiry over the next 4 to 5 years. And what we see has got a very strong tenant covenant that sits behind it, fixed increases of sort of 3.1%. So there's a lot to be attracted to for the portfolio.
We see it as a balance sheet acquisition rather than going into with QuadReal. The QuadReal partnership is much more focused on development led opportunities. All the activity we've done with them is really being development led to date and we think that will continue to be the case with the QuadReal Partnership. So we're expecting for this to go on our balance sheet, this portfolio, if we do conclude the transaction. Clearly, it'd be very accretive from an earnings perspective.
We'll be funding it with debt, and we'd expect the cost of that debt to be less than 2%. So it'd be quite accretive. The average yield, initial yield for the portfolio would be 4.4% to 4.5%. So we're quite attracted to the portfolio.
Thank you.
Thank you. Your next question comes from Stuart MacLean of Macquarie. Please go ahead.
Good morning. Thank you for your time. First couple of questions just on office, so maybe for Matt. The 12% expiries by income in FY 'twenty two and 17% expiries in FY 'twenty three, Are you just able to discuss kind of how you're looking to forward solve that today? It seems like that's a pretty big hurdle you need to get over in the next couple of years.
Thanks, Stuart. It's Matt Fady here. With regard to the expiry that we have in 20222023, we are already actively working on those as you would expect. We've already mentioned to the market that at Darling Park 1, which is one of the expiries that are coming up at the end of next year is one of 3 tranches that CBA occupy in that Darling Park precinct. We are well advanced actually in discussions with a potential tenant who will take out the majority of that 17,000 square meters.
There's work still to go on that, but we are seeing very good interest in that space. The other larger space is the QBE expiry at 60 Station Street in Parramatta. So we have moved QBE from 60 Station Street into 32 Smith. That lease doesn't expire until next year at 60 Station Street, but we have early access to that because they've now opened and commenced operations at 32 Smith. And we the 9 floors that we are taking back, we've leased one of those and we've convinced our marketing campaign to see the rest of that space leased up as well.
They're 2 of the larger spaces that we are looking to deal with. We're also in renewal discussions with a number of the other customers and tenants that are in the spaces. And we look forward to being able to provide some positive news on that over the next 6 months.
Okay. And then maybe just also sticking with leasing conditions in the office. You said you're going to start launching 51 Flinders Lane. Is there a pre commit there? And just given the limited lease up of 32 Smith Street or the other development, Queen and Collins?
What gives you confidence that the market is there to launch a new office development?
I'll
start. It's a bit clunky, sorry guys. We are in locations all at home. Just on the Flinders Lane development, it will be speculatively developed. It doesn't finish until 2024.
It's actually got quite a long duration build program. They're all quite small fall plates and what we're really seeing is that there is this strong inquiry from boutique firms, software companies, professional services firms, etcetera, all those smaller full plates and we've seen quite a lot of demand and that's coming through in the leasing that we're doing at Queen and Collins. So that gives us confidence that there is a deep enough market to actually progress this. But those sorts of tenants don't really commit until quite close to the end. So we weren't trying to seek a large tenant pre commit.
As I said, they're all smaller full plates and we expect to get that underway at the back end of this year and finishing in 2024. And on our projections, we do think we'll see the worst of, I guess, the we'll see positive momentum in the office market well and truly by then.
Can I
just maybe follow-up on that positive momentum? Is that a comment on incentives, for example? And maybe another question there, do you think incentives have peaked and they'll start to trend lower from here or what's your outlook there on incentives? Thank you.
I'll ask Matt to answer that, please.
Thanks, Bob. Thanks, Stuart. We're seeing incentives in Sydney and Melbourne around that 32% to 35%, Brisbane around 41%, which is consistent with where we have seen incentives over the past 8 months now. Face rents are holding, maybe even some upside in face rents. But our expectation as far as incentives are concerned across the markets, particularly Sydney and Melbourne, is that we expect vacancy to peak over the next 6 to 12 months.
And as vacancy starts to come back down, we're also expecting that incentives will follow suit and come back down as well.
Okay. So recovery kind of 6 to 12 months out. And a final question for me, just on the logistics NPI. It was up 0.5%, I think half on the half. You acquired circa $130,000,000 of assets towards the back end of last year.
There's been a little bit of development. Is the hand break there just the occupancy move from 99% to 97% over the last 6 months? And what's the outlook for occupancy, please? Thank you.
Thanks again, Stuart. The yes, so we have fixed increases through that portfolio of over 3%. There is the impact of the vacancy, which is predominantly 2 assets in Somerton, which we're in a joint venture on. And that's what's brought the like for like down to 1.8%. We do expect to see the Somerton lease up through the rest of this year.
We are seeing very strong demand vacancy levels in Sydney and in Melbourne, as I said earlier, below 2%. Take up is running double the 10 year average at the moment. So we are seeing very strong demand. We expect occupancy will remain very high in our portfolio.
Thank you. Your next question comes from Sholto Makanosi of Jefferies. Please go ahead.
Hi, everyone. Just a few follow ups. It's a good result, but do you sort of expect that given the lack of COVID impact in the first half? I appreciate you withdrew your guidance, but can you sort of give some color around what it means for you going into second half in light of the mix code of conduct and the more recently New South Wales code of conduct on retail given retail still pretty much in the portfolio with 41% in New South Wales and 44% VICs, sort of how that impacts your year and what sort of assumptions you're assuming for assistance this year, if you can?
Thanks, Sholto. It's Bob here. I might just commence with a few comments, and I might ask Anastasia to speak to it as well. But first of all, as you know, 60% of our business is in office and logistics, and we don't expect the COVID restrictions to have any material or significant impact on that. Clearly, it is sort of stopping some of the leasing inspections, etcetera, at the moment.
So that has slowed over the last few weeks. We are still seeing inquiry, but it's hard to get the inspections done, etcetera, at the moment. So that has slowed a little. But we don't really see too much impact for those 2 sectors. So it's really a retail sector that's going to be impact well is being impacted.
Clearly, we saw rent collection fall in July as retailers were not trading and I guess concerned about what the outlook might be. So it came down to 81%, as I mentioned before, and it's tracking a little lower again in August. What we have seen is the government just on Friday in New South Wales announced the code of conduct, which does require landlords like ourselves to provide SME tenants, less than and SME is defined as less than £50,000,000 of turnover a year, provide them with a proportionate reduction in their rent. So if they're down 30% in their rent in their turnover, you have to provide a reduction of 30%. But that 30% is broken into a waiver of 15% and then a deferral of 15%.
So we are The same as
the previous code of conduct basically?
Yes. It's very similar to that. We are able to offset in New South Wales up to the full amount of land tax. We're able offset some of that against land tax. So the government will give us some offset.
But we're still working through that with our tenants at the moment. I might just ask
Just to give
you a few other, what is your land tax, Bob, on what do you pay on retail land tax typically in a given year?
I actually don't know that number off the top of my head. Do you, Anastasia?
Yes. Yes, land tax in retail, say in Victoria, would be around $2,000,000 and similar level in New South Wales, but just a little bit less because we haven't had the hikes that we've had in Victoria for land tax and retail. So we'd expect to get around $2,000,000 relief in New South Wales. So to add to Bob's answer around withdrawal of guidance, it's really the uncertainty of the magnitude and duration of restrictions. We can't give a pinpoint type earnings growth guidance because we don't know what scale that will end up being.
What we are very focused on is cash collection. And as you can see, the 81% collection in July, slightly deteriorating in August as the lockdowns have deepened. But that's where we're very focused and it's much higher than what we experienced in Q2 2020, which was as low as 36%. So that's our starting position. We absolutely are going to support our tenants.
We want them strong and able to be open when the recovery reopening happens and we've seen that. So it's a short term impact, but it does mean we had to withdraw guidance for the second half.
I understand the $50,000,000 sounds a bit generous for an SME. It doesn't sound like an SME. But on the next question, so on this Ascot portfolio, if you just do the Bath and Envelope gearing sort of goes to 28%, plus you've got obviously a bit of development CapEx that you're funding to industrial. Would you look at any asset sales you're flagging? I think you had a shopping center you're looking at or could you elaborate on that or are you comfortable with gearing going to the sort of high 20s, 30 percent?
Can you sort of elaborate on that?
Thank you, Sholto. We've always said that we have a gearing range of 25% to 35% and that we want to be using the balance sheet strategically for the business. So we're very comfortable with moving into the midpoint of that range. So we're not flagging any asset sales at the moment, put it that way.
Your next question comes from Grant MacAskill of UBS.
Just some questions on the retail portfolio. Did you collect any rent that you'd sort of impaired or not in the prior year for this half or collected more rent than you'd anticipated?
I'll ask Anastasia just to answer that.
Thanks, Grant, for the question. So we commenced the year with 32,000,000 outstanding debtors in retail from December 2020. We've obviously billed our gross rents to tenants. We've had to give some COVID relief. So we've given $11,000,000 of COVID relief during the 6 months.
And then of the outstanding cash collectible, we've collected 104%. So overall, we've reduced our debtors by £10,000,000 of cash through that over collection, which is great. And at 30 June, we have outstanding £22,000,000 to collect, which obviously we've turned our minds to impairment, etcetera, and we don't think it's a material number and we do believe that's collectible.
Okay. And then maybe can you give a bit of a guidance to say you gave high point of the case study to say things returned back to normal in April. How did the rental billings compare in April, say, 2021 versus, say, 2019? Just trying to get an underlying run rate of as things retention normal, what it looks like.
There was there's no difference other than the fixed rate rent increases, etcetera, and a bit of vacancy movement in April 2021 month versus April 2019. There's no COVID relief in that month.
Yes. I guess what I'm trying
to get at is once you take into account a bit of vacancy resetting of rents, trying to get an understanding of where the underlying run rate for retail could be sitting for an asset like that.
We would expect that we will get full recovery on the retail income once we get back to full operating conditions. Clearly, we've had some negative leasing spreads, but we are getting strong rent bumps still in our retail portfolio that is causing us to have our performance intact with what we were experiencing in 2019.
Okay, excellent. Thank you.
Thank you. Your next question comes from James Drus of CLSA. Please go ahead.
Good morning, Bob and team. Firstly, just wanted to understand what market rent growth is in the industrial valuations at the moment. And can you contrast to that in what you're assuming for Ascot?
Yes, happy to do that. On our valuations page that we put in our slide deck, you can see what market rent growth is being used by the values. It's 3.2%. And the Ascot is very portfolio is similar. I think it was 3.1%.
So it's very much in line with market rent growth.
Okay. And in retail, you've done a lot of leasing this half. I'm just curious to see what incentives are sort of doing and how much of the impact of incentives is coming through this half as opposed to sort of coming through in the next half from an AFFO point of view?
Chris, would you like to just talk to that?
Yes. That's fine, Bob. Hello, James. Chris Barnett speaking. Leasing incentives for the half are slightly up.
It's we've actually only given around about 40% of the transactions actually received any sort of lease incentive. We haven't given any leasing incentive to any tenants that have renewed. And of the 40% that we have given our incentives are averaging around about 20%.
Okay. And the impact of AFFO, is that going to be more second half weighted?
I can answer that question if you like, Bob and Chris. It is quite even in retail, the impact to AFFO of incentives in first half to second half in our budgeted numbers. We do in office in incentives to the second half. Okay.
That's clear. Thank you. And then finally, just on Sholto's earlier question. Can you just call out the percentage of income in retail portfolio that comes that SMEs comprise in Melbourne, Sydney and maybe Brisbane as well?
Yes. So we I would say it's around 30% of our income comes from SMEs less than 50,000,000
dollars Is
that consistent across geographies?
It's not 100% consistent across assets. Some are a little lower and some are a little higher rather than necessarily geographies. So if I just look at the across the assets, it ranges between, I think, around low 30s and mid to high 37% or 38% or something like that. So it just depends on the asset rather than geography, I think, and the type of tenants we've got in them.
Okay, fantastic.
Row Field probably has a little higher of SMEs given it doesn't have the same level of anchors that other centers may have.
Okay. That's clear. Thanks very much.
Thank you. Your next question comes from Richard Jones of JPMorgan. Please go ahead.
Good morning. Just in terms of retail, are you able to give us an insight into what percentage of stores are currently trading and how that compares to March, April 2020?
Richard, it's Chris Barnett. I can answer that. In New South Wales and Victoria at the moment, obviously, only essential retailers are trading, which is in predominantly our supermarkets, pharmacies. Our cafes are allowed to trade, but for takeaway only. And I think we're averaging around about 30% to 32% of our stores trading today.
And that's reflective in both New South Wales and Victoria.
Okay. And just on the spreads in the 3rd half, obviously, being better than they were in 2020. Is that reflective of a better mix of longer term deals rather than more short term deals that you did in 2020?
That's a good question. Richard, the spreads, I think, have been improved because of the leasing momentum, certainly stabilized the decline that we had in the second half of last year. And as you'd know, leasing spreads are all about demand and supply. And as our occupancies improved, sitting at just under 99% today, that allows us to stabilize. Where we have more favorable spreads, sure, we're looking to push those into greater tenure and greater terms.
I think new leases, so tenants coming into the center on new leases are averaging around about 5.3 years. And where we have sort of more negative spreads, we look for shorter tenure across the portfolio. And I think our renewals at the moment are averaging just under 4% 4 years, sorry. 4 years.
Okay, that's great. And just in terms of just final question, sorry. Just to add to that, sorry, I assume those numbers include Melbourne Central, is that right?
Yes. It's on the 412 transactions that we've completed for the first half.
And there have been a number of transactions at Belk Central as well, Richard, too.
Thank you. Sorry, final question. Just in relation to Rouse Hill, what are the internal hurdles required to keep that project up?
The first thing is that we are working through a revised scheme and submitting the development applications. That's the real key hurdle that we need to get through first. We are confident that the returns that we can generate out of that will certainly be acceptable, but it's more us getting through, 1st of all, the revised VA. We have changed the scheme. It is a smaller retail footprint, a bit more mixed use with a bit more commercial and also more residential in the scheme now.
Okay. Thank you.
Thank you. Your next question comes from Lauren Barry of Morgan Stanley. Please go ahead.
Hi, morning everyone. Just on the office development pipeline, clearly you've built up a very big pipeline in Guoff and kicking off some of those now. How willing are your Guoff investors to fund this pipeline? If you're talking about growing it by 30% through developments, it seems like it's going to mean that development is quite a large percentage of AUM in that fund. So are you able to just comment on that aspect, please?
Nick, would you like to speak to that, please?
Sure. It's Nick Harris. Thanks for that question, Lauren. So we with the pipeline, we have a capacity at any one time of 20% of development underway at any particular point in time, which the investors in Guoff are very comfortable with, with gearing at 16.5%. It's also we have a lot of debt capacity in the vehicle as well.
They're very supportive of the development. We have active engagement with the investor base. For the latest development 51 Flinders Lane, we had very good support from our investor representation committee where we consult with before we kick off any development as well.
Okay. Thank you. And just on the Rouse Hill Residential, can you just talk about whether that will be on balance sheet or if you're looking to sell off those lots to 3rd party developers? And then also, what you're thinking about profit recognition and timing of that project?
First of all, the mixed use part of the scheme that we're looking to progress next year, it's all integrated, so we'll develop it and then sell down the product progressively as the developments are completed. What was the other part of your question, Lauren? I sort of broke up. I missed a little bit of it.
Just how you're thinking about profit recognition and timing?
All right.
Will this create development profits? Or is it going to be more of that, yes, profit recognition on settlement?
Well, it will be profit recognition on settlement. But yes, that will generate development profits when they're developed out and settled. So that's for the integrated piece. There are obviously, we've got additional development land and we have sold some of that previously with DAs in place to other developers and we've been able to recognize the uplift in the land on those. We have I'm not we haven't progressing any of those at the moment.
It's more focused on the Ryalsil expansion itself.
And so just on the timing of profits, do you have a timeframe in mind?
Anastasia, would you have do you have that able to answer that?
The potential settlement for the integrated residential that will be the profit will be in FFO would more likely be approximately 2 years post commencement. So we're really talking maybe late 2024 and otherwise 2025.
Okay, great. Thanks.
Thank you. The next question comes from Adrian Dark of Citi. Please go
ahead. Good morning, Bob and team. My question was in relation to the shopping center funds. I think there's been some comments that the fund is pivoting to a mixed use strategy. Could you just talk about what is driving that, please?
And how it would be funded?
Nick, would you like to speak to that?
Yes, sure. So we've just finalized our strategy plan for the current year. And what we're finding from investors, there's an appetite for more mixed use in the vehicle. So over time, we will have funding sources. We're potentially looking at some asset sales over time as well.
And hopefully, in time, we will also get new equity with the backing of the investors.
Okay. In terms of those asset sales, is it I think the 2 that have been flagged previously?
Look, we've previously flagged that we've got some non core assets, but we're not going to comment on those asset sales at the moment. But we do certainly have concrete plans going forward, which has been fully supported by our investor base.
Thank you. The next question.
Sorry.
Sorry,
it was Bob here. So I just thought we may need to wind it up. But is there another question, was it?
The final question comes from Alex Krynias of Morningstar. Please go ahead.
Thank you. Yes, just on the industrial portfolio, you've traditionally done a fair bit of development there speculatively, which clearly has been a good decision given how strong the leasing has been in that space. Just wondering if that would continue to be your strategy there to do a lot of the development speculatively. And if not, what kind of data points you'd be looking at in terms of either not developing and acquiring more in that space or perhaps doing it with pre commitments?
Thanks, Alex, for the question. I might just take it and Matt, you can add if you want to at the end of it. But first of all, we've developed a really good track record in the developments that we've been rolling out. There's been a number of now over the last 4 or 5 years. A lot of it's been done speculatively.
And typically, we've been able to lease them up within, say, a month of practical completion, either side of that. You saw there's 4 developments that are underway currently that are completed being completed this half. And again, we've got very good momentum and traction with leasing up those assets as well. One of them was a pre commitment though with the Hutt Group and we will look to do both. But I certainly don't have any concerns about rolling out speculative developments.
We do need to continue to watch the market and where the demand is and the sort of product. But they're quite quick turnaround time from the time you activate the development, a particular facility to when it's delivered. So you've got pretty good line of sight how the market is tracking and what leasing inquiries there is. So we're quite comfortable, but we continue to we'll continue to have a bit of a dual track process where I think both speculative and looking for pre commitments for some of the larger facilities.
Thank you.
Okay. Well, if there's no further questions if there's no further questions, we might wind it up there.
So
I'd like to thank you all for joining us this morning. And we do look forward to catching up with many of you in the coming days to talk about our results a little further. Thank you.