I would now like to hand the conference over to Mr. Glenn Willis, CEO. Please go ahead.
Thank you very much, and good afternoon, and thank you for joining this presentation today, a presentation of Elanor Commercial Property Fund's financial results for the 2022 financial year. We appreciate your interest in the fund. On the call today, I'm joined by my executive management committee colleagues, and we'll be pleased to take questions at the end of this call. Also speaking on the call will be David Burgess, who's co-head of real estate for Elanor Investors Group, and David heads up our office and healthcare divisions. Liz Bors, who's head of asset management for our office and healthcare division at Elanor, and Paul Siviour, Elanor Investors Group COO. As I said, we're pleased to take questions at the end of this call. A few introductory comments before I hand over to David.
I'd like to commence by saying that, I'm pleased, and we collectively are very pleased with another strong performance by the Commercial Property Fund. Performance that is a credit to David and Liz and the broader team, office management team. They've done another tremendous result in delivering earnings outperformance, growing NTA, the NTA of the fund, and achieving very strong growth, 58% increase in portfolio value for ECF to AUD 609 million.
In short, what that means is that which happens very rarely to achieve that sort of growth and achieve positive earnings is a credit to the team and a testament to the team's ability to identify high investment quality assets, and also a testament to the team's ability to manage the assets and the fund. Congratulations to the team. It's a fantastic result. The quality of the earnings of the fund is such that we're prepared to provide guidance for the FY 2023 year of AUD 0.11 per security, which obviously, given current security price, represents, in our view, an outstanding yield for that fund.
A particularly outstanding yield when you look at the high quality of the assets. A fund that does not have a single asset that has immediate problems, full stop. It's a fund that consists of office assets that all are of exceptional quality and delivering great results. Given that, I'll now hand over to David and Liz to take us through the fund in more detail.
Thanks, Glenn, and thank you all for joining us today. ECF has again delivered a strong performance. This is due primarily to our investment approach of owning assets that have competitive advantages in their markets, but also on executing on asset-specific strategies. This has resulted in material leasing success across many of our assets in the portfolio, and subsequently, higher capital values. Our key metrics on slide five reflect this success. FY 2022 FFO per security at AUD 0.1094 is above guidance of AUD 0.108 per security. Distributions were a strong AUD 0.094 per security. NTA has increased to AUD 1.20. Importantly, that is a material uplift from NTA following the Cavill Avenue acquisition at the beginning of the period. Key contributor to this uplift as well was Corporate Drive at Cannon Hill.
That increased in value by 58% after successful repositioning and re-leasing, and Liz will talk about that more later. Our portfolio WALE is 3.4 years, with limited short-term expiries and opportunities to create value in the medium term. Our occupancy is a strong 95.6%, increasing over the period because of key leasing across the portfolio. During the period, we leased a material 16,782 square meters of space, which has had a direct positive impact on property valuations. Our balance sheet position is strong, with gearing at 30.8%, and our hedged interest rate exposure is a high 97.3%. For FY 2023, the fund is very well positioned. We have a very low expiry profile, with just 6.4% of the portfolio expiring by income.
There is minimum exposure to interest rate risk, with 90% of our interest rate exposure hedged. We have a strong balance sheet, 30% gearing, and as we've already demonstrated over the past few periods, there is an opportunity to continue to increase rents, especially given the material spread between our market rents and the cost to build new competing products in the markets that we operate. As a result, we are pleased to provide FY 2023 FFO guidance of AUD 0.11 per security and distribution guidance of AUD 0.094 per security. Turning to slide seven. Our assets are positioned to continue to have strong leasing success due to a number of reasons. All assets meet the requirements that businesses expect today. This includes high-quality offerings, large, flexible floor plates, good parking, accessibility, ESG, among many other features.
Our assets have competitive positions in their markets, which mean they attract strong leasing demand from a wide tenant pool. Our rents are priced well below economic rents, which means we have an opportunity to continue to increase rents and drive up value. Our assets are in markets that generally have limited supply of new stock. Examples being the Gold Coast, fringe Perth CBD, and fringe Sydney CBD. Our largest assets being WorkZone West, Cavill Avenue, and Harris Street, have all of these attributes, and we see great opportunities across them all. Our recent acquisitions typify our investment approach, and immediate success has been achieved throughout the year. At 50 Cavill Avenue, we have consistently outperformed acquisition guidance and are driving rents higher. This has resulted in an 8% uplift in value since acquisition last August. We expect to be able to continue to increase rents in this asset.
Harris Street in Pyrmont has had immediate results in the first two months of ownership. We have been able to successfully lease the entire level four to a multinational company at rents over AUD 200 above passing rents. This proves the strategy of the asset and the underlying demand for high-quality commercial buildings in good locations. On to slide nine. Our portfolio has increased by 58% over the period to have a gross asset value of AUD 609 million. The impact of this growth is significant. It materially reduces single-tenant exposure. For example, CIMIC moving from being 39% of the portfolio to 27%. It has reduced single-tenant building risk. It has increased exposure to a number of new sectors, including global media companies and life science tenants. Provides exposure to new markets that provide further opportunity to create value. As mentioned before, there are additional opportunities to create value at our new assets in Cavill Avenue and Harris Street. On that, I'll pass to Paul Siviour to run through the financial performance of the fund.
Thank you, David. Just referring participants on the call to page 11 of the investor presentation released to the ASX this morning, a summary of our income statement. The highlights are as described previously by David. FY 2022 funds from operation of AUD 0.1094, struck on a total FFO of AUD 30.1 million. A distribution throughout FY 2022 of AUD 0.094, reflecting a conservative payout ratio of 86%. The strength and the quality of the assets and their performance, as we've said, enables us to provide guidance to the market in respect of FFO for FY 2023 at AUD 0.11 and distribution guidance at AUD 0.094, which in the current market environment is not typical of other market participants. Turning to page 12.
Balance sheet reflects strong growth in investment properties, total assets, and net assets during the year. That reflects two capital raisings during FY 2022 in respect of the acquisition of Cavill Avenue on the Gold Coast, and then more recently, Harris Street in Pyrmont. That's seen our investment properties increase by AUD 237 million to AUD 609 million at June 30 2022. The increase in the investment properties value included a net revaluation of AUD 21.6 million. The fund has an NTA per security of AUD 1.20 and is conservatively geared with a gearing of 30.8%. Turning to page 14 of the presentation, detailing the capital management of the fund.
The fund has conservative gearing at 30.8% and a very attractive weighted average cost of debt, 2.26%, reflecting the interest rate hedging position of the fund. The fund is well hedged and will enjoy low interest rates for some period of time. In respect of covenants, you can see that the fund has very significant headroom in respect of its LVR covenant and also its interest cover ratio. Just commenting briefly on the fund's look-through gearing and that relates to its investment of 49.9% of the Harris Street Fund, which is the fund holding 19 Harris Street, Pyrmont.
That fund also has a strongly hedged position in that the debt is fully hedged for two years on a forward basis, commencing March 31 2023 at a swap rate of 2.4%, which means for the period through to March 31 2025, the fund will enjoy an all-in cost of debt of approximately 4%. I'll now hand to Liz to provide more detail in relation to the asset management of the portfolio.
Thank you, Paul. I'm starting on slide 16. Our strong leasing and valuation uplift is a result of the execution on asset-specific strategies on which we've delivered. Amenity has been a real focus of the asset management strategy for FY 2022, and we've improved amenity at assets such as Mount Gravatt, where we've created new outdoor meeting and barbecue areas. In other assets, we've rolled out new end-of-trip facilities, flex spaces, improved outdoor amenity, and upgraded lobbies. We've also established a tenant engagement strategy. We've completed both new and refurbished high-quality fit-outs at Cannon Hill, Limestone, 50 Cavill Avenue, and Mount Gravatt, with close to 80% of our new leases for fitted-out premises, which is in line with tenant demand.
We continue to progress our ESG strategy, and we'll discuss that in more detail later through the presentation. As a result of the execution of these strategies, we've leased close to 17,000 square meters, which represents 19% of our portfolio. We've also achieved positive leasing spreads throughout these transactions. Our results support the thesis that demand has remained strong. We have a very strong tenant retention rate of 70%, with 89% of these renewals for tenants who are maintaining or expanding their footprint. We have also created value through the successful execution of our asset-specific leasing strategies. At Cannon Hill, our targeting leasing approach was to reposition the asset to a life sciences hub. By securing leases to Alliance Pharmaceuticals and Advocate Bx, our strategy was realized, resulting in a valuation increase of 57% and increasing occupancy to 90%.
50 Cavill Avenue will increase net effective rents by AUD 59 a square meter, representing approximately 15% increase for new leases. With current heads of agreement, the building is 100% leased up from 97% at acquisition. We have complete confidence in our ability to continue to drive market rents, particularly given strong demand for quality commercial assets in the Gold Coast and the lack of supply. Within two months of 19 Harris Street ownership, we executed on the first stage of our acquisition strategy, securing ITV, a multimedia company, over level four, surrendering the incumbent tenant and resetting the face rents by AUD 217 a square meter. We have complete confidence that we'll continue to execute on our strategy. We're now on slide 18.
In 2023, for financial year 2023, we will continue to build on the momentum of FY 2022. We've planned initiatives including speculative fit-outs at Nexus Center, Limestone, 50 Cavill, and Cannon Hill. We've got the creation of an activation of flex space at 19 Harris Street, 50 Cavill Avenue, and WorkZone West, upgrade of lobbies and tenant engagement and activation programs tailored for each asset, but importantly with an ESG focus on wellness and giving. This results in positioning us in a very strong position to drive rents, particularly given the large discount to economic rents across our portfolio. This is particularly evident in our larger assets such as 50 Cavill, Garema, WorkZone West, and 19 Harris Street. The portfolio is in a strong position with limited lease expiries and above average occupancy. We currently have strong momentum on the vacancies that we do have within our portfolio.
In 2023, we have a low expiry profile across several small tenancies and assets. We have experienced extremely strong demand. The 2024 lease expiry in Garema Court, we see as an opportunity to create and unlock value with the rebranding and repositioning underway, being a two-prong leasing approach. Renewal of the existing tenant or repositioning the asset to target both the public and private sectors. Both options unlock value, which we are well planned to execute on. For WorkZone West, in 2025, the lease expiry, we have multiple leasing options, including extending leases with existing occupants in the building, including CIMIC and the sublessees. We also are aware and are participating in briefs which line up with this expiry. Particularly major upcoming government briefs for which WorkZone West would provide a compelling opportunity. Slide 20 now.
Environmental, social, and governance remains a very high priority for the portfolio. We continue to develop and enhance our sustainability approach through environmental initiatives, by increased reliance on solar, reusing and refurbishing fit-outs rather than rebuilding. This alone has reduced landfill and improved our carbon footprint. Our portfolio gap analysis is underway, which will provide us with a roadmap towards carbon neutrality. A process we followed at WorkZone West, being the first six-star NABERS carbon-neutral building in Western Australia. Through social initiatives, we have held fundraisers which have both raised funds for charities and fostered a sense of community within our assets. In summary, FY 2022 was a successful year for asset management and leasing, further reinforcing the merits of our fund strategy of acquiring assets with a differentiated position in their markets, further supported by our continual investment in both assets and initiatives. I'll now pass to David Burgess, who will cover the outlook and guidance.
Thanks, Liz. Our investment strategy of owning assets that have competitive advantages is working, and our focused asset management is delivering the results. To summarize, we have provided strong performance in FY 2022, delivering on income and distributions. The successful leasing and asset management strategies resulting in strong asset level performances. Fund is well positioned going into FY 2022 with limited property income risk, a strong hedging position, and opportunities across the portfolio to drive rents higher. Based on this, our FY 2023 FFO guidance is AUD 0.11 per security and distribution guidance of AUD 0.094 per security. On that, I'll now open up to questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Leanne Truong from Ord Minnett. Please go ahead.
Good afternoon, everybody. Just wanted to talk about some of the upcoming lease expiries. What have you assumed in terms of guidance? For the Cavill Avenue Nexus Center in Ipswich. Have you assumed any downtime there?
Hi, Leanne. Yes, we have. Generally we take a view on each particular tenancy and where we're at and where our negotiation's at and our depth of tenant interest. We generally, you know, do allow downtime in our numbers.
On average, what should I be assuming it on in terms of downtime on those assets?
It just varies on a tenancy by tenancy perspective. You know, it is hard to give a broad number across all tenancies about particular downtime. Some of them we have interest where we expect to sign heads of agreement any moment. Others where there might be three or four months what we've allowed in downtime. I mean, if you're trying to model something, I mean, as a rule of thumb, you'd probably allow three months average downtime.
Okay. Yep, thanks for that. Just a question on the Harris Street Fund. Given that you will be partly unhedged in financial year 2023, what have you assumed in terms of the floating rates?
Leanne, we've certainly forecast that the 90 day BBSW rate's going to rise from current levels probably to circa 3.4% by March of next year when the swap will take effect. The base rate of the swap is 2.4% as a fixed base rate for two years from the 31st of March 2023 to the 31st of March 2025.
Yep. Okay, thanks for that. Just a last question on your revals. You noted that you recorded some losses there. Can you just explain why that is, what the valuers have assumed?
Yeah, sure. The main one would be around WorkZone West. That's essentially the roll-off of some of the over rent. That's primarily the reason for the pullback in that valuation. We still believe the strategy for that asset is strong in terms of the rents are significantly below economic rents, and there's no supply on the fringe of Perth. We expect that the market rents will increase to continue to offset that over rented position of that asset.
Okay, thanks. How about Campus DXC that was down a bit slightly as well?
That was just a result of getting closer to the expiry of that, tenancy and coming into the factoring into the calculations and the capitalization approach.
Okay. Yep. That's it. Thanks.
Thank you. Your next question comes from Edward Day from MA Financial. Please go ahead.
Afternoon, guys. Just a quick one on the guidance with the flat distribution forecast. What are your given the relatively high hedge position, what else, what are the other major considerations in there, just given there's not much expiry either?
There's an increase in the FFO, Edward. We're happy with maintaining our distribution going into FY 2023, and think it's prudent to do that.
Yeah. Edward, we're maintaining an estimated payout ratio of 85% in FY 2023 based on the guidance we've provided.
Sure. Okay. You've called out your rent's been well below economic rents at Harris Street and Cavill Avenue. Just wondering what the situation is at Garema, given that's one of the larger expiries approaching.
Yeah. Economic rent certainly gone up all across the country, Ed, and different markets are impacted in different ways. They haven't impacted in Canberra as well. By way of example, new builds in Canberra would now have to be well over AUD 600 per square meter, and our rents are our market rents on that building are mid AUD 400s. It's in a very good position to continue to be able to drive rents higher on that asset. Importantly, that economic rent commentary that we provided today, it is across all assets in the portfolio, where every single one of them, the passing rents are well below economic rents. We've mentioned for a few periods now about how comfortable we are with our rental profile and how we believe we can continue to drive it higher. We actually have even more confidence now given the cost of building new stock in all of our markets.
That's great. Thanks very much.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from David McFadden from Shaw and Partners. Please go ahead.
Thanks very much. Congratulations on the result. Just a couple of quick questions. A few others have already been answered, but on the weighted average cost of debt, obviously 2.3% at the moment. My line was a bit sketchy before. Could you just repeat what you were sort of thinking for FY 2023, FY 2024? I think you said 4% for FY 2024. Just wanna confirm that color.
Two elements to that, David. The current interest rate, average interest rate of the fund, will be maintained through until the end of February 2023. That's 2.26%. There is one tranche of debt where a swap runs off at the end of that period. For the balance of the year from the end of February, if one assumes 90 day BBSW of, say, 3.4, that rate will increase across the fund on average to 3.3%. Still very attractive, and that's obviously factored into our guidance. The comment in relation to the debt of the cost of debt of 4% relates specifically to the Harris Street Fund, which ECF has [crosstalk] a 49.9% interest in. Again, just highlighting that, there's very significant interest rate protection in respect of the asset that ECF is invested in through ECF Germany.
Okay, that's perfect. Actually, the other question I had around the economic rents has been answered. Thank you very much.
Thank you. There are no further questions at this time. I will now hand back to Mr. Willis for closing remarks.
Thank you. Yes, I'd like to close today by thanking my colleagues across the group, but particularly thanking the ECF funds management team for delivering another great investment performance for security holders in the fund. A terrific result. Thank you for your interest in ECF, and we look forward to providing further updates on the progress of ECF in the near future. Have a good afternoon.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.