Good morning, everyone, and thank you for joining us for our annual results presentation. With me is our CFO, Courtenay Smith, our CEO of Investments, Richard Seddon, our CEO of Funds Management, Scott Mosely, and our CEO of Development, Stuart Penklis. I'd like to begin by acknowledging that we're presenting today from Gadigal Land, and I'd like to pay my respects to elders past and present. This time last year, we talked about FY2025 being a challenging year, but also a trophy year for earnings. It's great to stand before you today and to say that we've turned the corner. The initiatives executed in FY2025 put us in a great position to deliver growth into FY2026 and beyond. Two years ago, we set a clear strategy to reposition the portfolio and improve our returns.
We have a strong competitive advantage with a combination of leadership in living across the housing spectrum, our best-in-class investment portfolio with high-quality sustainable assets, combined with our unique creation expertise, which is important to our customers and our capital partners who invest alongside us. We've made great progress delivering on the targets we set out at the start of FY2025, and now we have momentum and a clear line of sight for delivering growth into FY2026 and beyond. We expanded our living sector exposure with development completions and significant restocking across our living platforms. Our investment portfolio is best-in-class, with strong leasing success and new completions in both the living and industrial sectors driving income growth. Our residential sales volumes improved with a meaningful 40% pickup in sales activity and pre-sales of $1.9 billion. We made great progress across our committed commercial developments.
We've appropriately revalued our pipeline, and we have clear value creation to be realized over the years to come. It's also been a great year for capital partnering, with $1.3 billion of capital raised. This accelerates the velocity of our development capital across our CMU and residential projects. We also raised the equivalent of $350 million in our MR Fund, a clear signal that global appetite for office is returning. We delivered all of this while maintaining a strong balance sheet following the sale of $340 million of older office assets and the proceeds received from capital partnering. All of our segments now have visible growth profile in the years ahead.
Turning to guidance, as a result of a successful period of execution, we now have a more positive outlook for earnings into FY2026, with our EPS expected to be between $0.128 and $0.13, reflecting 6.7%- 8.3% growth and a dividend of $0.95, which is up 5.6% on PCP. I'll unpack this guidance further at the end of the presentation. FY2025 was about doing what we said we'd do. This execution means we're now delivering on the visibility of growth we've been highlighting. Turning to the numbers, we delivered a group EBIT of $736 million and an operating profit of $474 million, with operating earnings per security of $0.12 in line with guidance. Our distribution per security was $0.09, and our NTA stands at $2.26. The investment portfolio is performing strongly. Elevated leasing success lifted occupancy to 98%, with average positive leasing spreads of 8.6%.
EBIT from our living and industrial sectors is up 50% year on year. We've made strong progress in the living sectors. We now have the largest operating BTR portfolio in Australia, with almost 2,200 apartments, and our next site has recently been secured. Land lease continued its positive momentum with 390 new home settlements, and we added a further three communities to our development pipeline. We are now selling on seven more fronts since the acquisition in March 2024. We also expanded our build-to-sell pipeline, securing a new 1,200-lot MPC site in Western Australia, with first sales targeted for FY2026. We settled just over 2,100 residential lots, with pre-sales rising to $1.9 billion following a number of successful launches. For the first time in three years, we're now selling more than we're settling, providing an encouraging start to FY2026. Sustainability and culture remain at the heart of our strategy.
We recently reaffirmed our decarbonization target to be net positive carbon by 2030, which includes working through our program to electrify our investment portfolio. This is becoming a key requirement for our customers and for our capital partners. We're investing in our people and building on our capability. We reported a strong employee engagement at 77%, and we continue to be a leader on gender equality, with 47% of Senior Management roles held by women and a zero gender pay gap on a like-for-like basis. Our investment in the Mirvac Masters program is providing ongoing learning and development for our people. It's also been accredited by the University of Sydney. These initiatives are driving strong engagement and help to ensure we can execute our strategy into the future.
Mirvac Construction was recently awarded a five-star gold iCIRT rating for the third year running, recognizing our long track record for quality construction. Finally, we've continued to commit to best-in-class governance, ensuring alignment of our priorities with those of our investors and broader stakeholders. In summary, we've delivered meaningful execution across the business this year, giving us a strong line of sight into FY2026. Today's presentation will unpack the drivers behind this momentum. To take you through the financials, I'll now hand over to Courtenay.
Thanks, Campbell, and good morning, everyone. Three messages from me today. We have delivered the FY2025 result in line with expectations. With active management, the balance sheet is in good shape, and we have strong visibility of earnings growth into FY2026 and beyond. Our full-year result is in line with expectations, with operating profit after tax of $474 million, or $0.12 per stapled security. The investment segment contributed $602 million, which was down 2% on the prior year due to the impact of asset sales in office and retail. This was offset by completions in industrial and living, with a full 12-month contribution from land lease. The funds segment contributed $33 million, in line with the prior year, with asset devaluations in funds management offset by increased CapEx fees in asset management. The development segment contributed $178 million, down 40% on the prior year.
Within this, commercial mixed-use was $46 million, which includes contributions from our committed projects, such as 7 Spencer Street and Aspect, and profit from the sell down of a 49% interest in SEED Stage 1. These contributions were partly offset by an increased construction loss at LIV Anura, which is now completed, and a lower contribution from 55 Pitt Street due to the insolvency of the facade contractor. Residential contributed $179 million, $33 million lower than the prior year, driven by lower settlement volumes and the impact of impaired projects, including nine at Willoughby and the now completed Charlton House and Quay in Brisbane. Our disciplined focus on cost management and the completion of an enterprise-wide system implementation in December resulted in lower overheads when compared to the prior year.
Financing costs were down on the prior year, driven mainly by lower development interest due to the impairment of selected residential projects. Statutory profit for the year of $68 million included development devaluations on 7 Spencer Street taken in the first half and Harbourside, office, and retail. Investment revaluations were positive in the second half, marking a turning point in the valuation cycle and other non-operating items, including payments across the select projects. Overall, we have delivered the FY2025 result in line with expectations. Importantly, we have accounted for the impact of our challenged apartment projects, and these have been appropriately valued and the impact contained to FY2025. Moving to the balance sheet, we've maintained a highly active approach to managing the balance sheet, with asset sales and capital partnering initiatives helping to manage our capital commitments.
This year, we've raised or refinanced $2.2 billion of debt on favorable terms, completed $340 million of asset disposals, supporting the shift in our capital allocation, and through our capital partnering initiatives, raised $1.3 billion, growing our capital partnerships and unlocking value from our development pipeline. We have a range of funding sources and will target further asset disposals and capital partnering in FY2026. The balance sheet has weathered the storm of rising rates and is now well positioned to benefit from falling interest rates and a stabilization in asset values. Gearing is within the target band. We have $1.2 billion of liquidity and a strong credit rating. The average cost of debt was 5.4%, down from 5.6% as we capture the benefit of interest rates falling.
Overall, with our highly active approach to managing capital, the balance sheet is in good shape, providing us with both the capacity and flexibility to take advantage of future opportunities. Now, moving to the visibility of earnings growth. As outlined in February, we are building momentum by leveraging our integrated model and activating our development pipeline, giving us strong visibility of EPS and NAV growth into FY2026 and beyond across the entire platform. We have secured capital partners and therefore unlocked value from our commercial mixed-use development pipeline, with committed projects expected to deliver $540 million over the next three to four years, realized through development profit and NTA uplift on the completion of the assets. The investment segment will also benefit from the committed development pipeline, with new income of $100 million to come on progressively as those assets complete.
Additionally, in investments, we are unlocking earnings on the delivery of the land lease development pipeline and the existing pipeline, and in the existing pipeline, we see growth through positive rental reversion across all asset classes. In the funds segment, the completion of the committed developments will bring $2.7 billion of new funds under management. This, along with improving asset values, gives us good visibility of earnings growth in this segment. In residential, we have good visibility of earnings, with $1.9 billion of secured pre-sales, which will contribute to earnings over the next three years, and we are well placed to benefit from a step up in new launches, improved market activity, and margins returning to our through cycle range in FY2026. Underpinning all of this is the potential further tailwinds of lower debt costs, stabilized and now improving asset values, and a continued focus on cost management.
With all of these drivers in play, we have a strong visibility of earnings growth, and the team will share how we're delivering on it. With that, I'll now hand over to Richard.
Thank you, Courtenay, and good morning, everyone. In investment, our strategy is clear to sharpen our focus on premium office and increase our investment in living and logistics, and we're executing on this strategy with discipline and conviction. This will further enhance our modern, high-quality portfolio, which achieved 98% occupancy and 8.6% average leasing spreads over the year, with clear visibility of growth. The key drivers are new net operating income from committed developments underway, capturing positive rent reversions over time, and an improved valuation outlook as we enter into a cyclical upswing for quality assets. In office, our focus on premium, well-located assets is delivering, and our modern, high-quality, sustainable portfolio is clearly resonating with customer demand.
We executed another standout year of leasing, with close to 7% re-leasing spreads across over 70,000 square meters, secured major lease renewals, including at 200 George and Riverside Quay, de-risking forward expiry, maintained occupancy at 95%, and sold $340 million of older, lesser quality assets. Flat valuations in the second half demonstrate we've moved past the inflection point for quality assets, and the signs of a recovery in office are very clear, with positive net absorption now in all CBD markets and a restricted supply outlook. The chart on the bottom right of the slide illustrates quality as a clear beneficiary of absorption, and our portfolio is very well positioned to respond. In industrial, our strategy to increase the quality and scale of our portfolio through development is delivering exceptional results.
Portfolio occupancy improved to 99.8%, with re-leasing spreads at 49%, and net operating income has increased by 12% following development completions at Aspect, where we're delivering market-leading sustainability credentials. We have multiple drivers for further growth, including underrenting of approximately 17% across the portfolio, the continued delivery of our secured development pipeline, which benefits from proximity to major committed infrastructure, including the Western Sydney Airport, and robust Sydney demand from both customer and capital, with vacancy at 2.5%, the lowest on the Eastern Seaboard and among the lowest globally. In retail, we're leveraging strong catchment fundamentals in our urban portfolio to drive value through targeted active management. We're refining our retail partner mix to maximize sales productivity and bringing in and collaborating with top-tier partners, such as the recent launch of Rebel's flagship House of Sport redevelopment at Broadway.
This focused strategy is delivering, with occupancy at 99%, leasing spreads up 2.8%, and positive sales growth. With specialty sales productivity rising, low occupancy costs, and strong catchment fundamentals, we're confident in the growth outlook and committed to unlocking further value across the portfolio. In living, Mirvac has a clear competitive advantage, and aligned with our strategic objective of leadership in living, we're accelerating our investment in the sector. The benefit of this is clear, with earnings up 184% to $54 million in the financial year. In build-to-rent, we've grown the portfolio to almost 2,200 operating apartments, with stabilized occupancy at 96% and encouraging lease-up progress for both LIV Anura and Albert following completion last month.
In land lease, we've grown our stabilized portfolio to now 5,000 sites, up 18% since acquisition just under two years ago, and grown our secured development pipeline to 2,500 sites following new project acquisitions, with active due diligence on further sites currently underway. Both of these established platforms have significant potential for scale, are demonstrating momentum in undersupplied markets, and provide us with clear pathways for further growth. I'll now hand over to Scott.
Thanks, Rich, and good morning, everyone. Our funds business continues to attract capital to the platform, and it's great to see institutional capital more broadly start to deploy again, now that we've got more confidence around the point in the cycle and the cost of debt. This cycle will be different to last cycles, where we saw long periods of cap rate compression benefit all assets. Asset and portfolio selection will be key, so those that can create or gain access to quality assets in the best locations, together with driving value through operational expertise and understanding your customer, will outperform. Capital is rightly being more selective in where they're deploying, and they'll continue to deploy to managers that have that in-house creation capability, in-house asset management capability, those that have balance sheet alignment, leading governance, and an investor-first culture. Our funds platform at Mirvac d iversifies our capital sources.
It helps us pursue a higher velocity of capital, and it drives a higher return on invested capital. Our approach is resonating with capital, and it's reflected in the $12.8 billion that has come onto the platform in the last three years. FY2025 was another great year of execution, with $1.6 billion of capital raised, taking our third-party capital under management to over $16 billion, representing 22% per annum growth rate for the last nine years. We continue to see the strongest demand from capital for those that want exposure to the living sectors and also the industrial sector, and more recent pickup in demand for premium-grade office.
Our business is well established, and we have vehicles in place that we can scale significantly. Mirvac Group's focus on the best assets in the best locations, together with disciplined capital management through the cycle, saw us raise $350 million over the period, and the fund is now one of the lowest-geared funds in the sector. It's outperforming the benchmark and is positioned to deploy capital at the right point in the cycle. We achieved over 84,000 square meters of leasing, and 33 Alfred Street reached practical completion, 94% leased. In industrial, our partnership with ART continues to grow, and our most recent partnership at SEED Stage 1 sees that venture grow to an end value of $1.7 billion. Our BTR fund is now the largest operating fund in Australia, with five assets and an end value of $1.8 billion.
Our fund's wholesale status, our in-house management experience, and our stabilized assets generating resilient income position us well to pursue further growth opportunities and capital. In closing, we've got great visibility of embedded growth with $2.7 billion of funds under management already in our existing vehicles and underway, and we've got further opportunities across the broader market and from Mirvac 's pipeline. Thank you, and I'll now hand to Stu.
Thank you, Scott, and good morning. FY2025 was a challenging year, with a number of COVID-impacted projects completed and related subcontractor failures. Encouragingly, this is now behind us and contained to FY2025. Having dealt with these challenges, momentum has significantly improved. Residential sales were up 40%, and we've seen cost escalation ease across our construction activities. We now have clear visibility of growth and improved returns in our development business. Our decades of experience and depth of delivery capability across commercial and the wider housing spectrum will be critical in unlocking value in the next part of the cycle, and we are seeing a number of opportunities emerging to grow our pipeline. We made significant progress across our commercial and mixed-use pipeline. As you can see, we have an estimated $540 million in value creation to be realized over the next three to four years across our committed projects.
55 Pitt Street is progressing well and is now 42% leased, with strong active inquiry from prospective tenants into an undersupplied market. We completed our second and third warehouses at Aspect North, with all warehouses expected to be completed by the end of this financial year. We unlocked value from the sell down of our SEED Stage 1 in Badgerys Creek with our existing partner, Australian Retirement Trust, and we will look to sell down Stage 2 over the course of FY2026. At Harbourside, we are progressing towards securing a capital partner. The project is ahead of program and to date has secured over $800 million of residential pre-sales. With a clear line of sight to CMU earnings over the next three years, our attention is now turning to replenishing the pipeline into FY29 and beyond.
We have a number of sites identified, including a significant industrial development adjacent to our Menangle residential project in southwestern Sydney. It has been pleasing to see a stabilization across the New South Wales and Victorian construction markets, with increased competitive tension amongst our subcontractors. Together with an inflection point in asset valuations, this provides a more favorable backdrop for project commencements. Turning to residential, we have seen a real step change in sales momentum, with 2,100 lots exchanged and pre-sales of $1.9 billion. At our unique middle ring built form projects at Highforest and Riverlands and luxury Harbourside Residences apartments, we have seen great demand from upgraders, downsizers, and investors. It is also encouraging to see the momentum building across a number of our MPC projects, as you can see on the right-hand side of the slide.
At our MPC projects in Queensland and New South Wales, sales volumes were up 100%, while across our three Victorian MPC projects, sales were up 55%. These projects are winning market share with buyers attracted to our upfront amenity, product diversity, and certainty of delivery. Our 2,122 lot settlements were driven by MPC projects in Queensland and Victoria, and defaults remained low at 1.2%. Our FY2025 gross margin was 15% when adjusted for impaired apartments at 9 in Sydney, Charlton House in Brisbane that are yet to settle. Importantly, the financial impact of these projects has been contained to FY2025, and we expect the adjusted gross margin to return to our through cycle range of 18% - 22% in FY2026. This improved margin outlook and continued sales momentum sets us up for growth. We have significantly restocked our pipeline, securing around 10,000 masterplan community lots in the past two years.
This includes a new 1,200-lot site in Perth near our award-winning Henley Brook project. We now have a deep pipeline of shovel-ready projects to launch over the next 18 months across more fronts than ever before. These projects span across key growth corridors, the middle ring, and inner city apartments, including the next stage of our extremely successful Harbourside Residences scheduled to launch later this year. I'm particularly excited about our development optimization initiatives, leveraging modern methods of construction, including volumetric prefab, strategic procurement, and design optimization, with the potential to drive up to 10% in cost savings and significant improvement in build times. We are rolling these initiatives out in FY2026 across a number of projects with the intention of implementing more broadly thereafter. Turning to the outlook, market fundamentals have improved significantly, with constrained supply, strong population growth, and low vacancies.
Further interest rate easing is expected to support affordability and drive demand for Mirvac 's unique built form housing and apartments. With six new project launches and an increasing velocity of sales at our established projects, we are well positioned to take advantage of these strengthening tailwinds. I'll now hand back to Campbell to conclude. Thank you.
Thanks, Stu. Turning to our FY2026 guidance and outlook, we're pleased to provide operating earnings per security guidance for FY2026 of $0.128 - $0.13 per share, representing growth of between 6.7% and 8.3%, and distributions of $0.95, which is up 5.6% on PCP. Supporting this guidance, we expect to execute on approximately $500 million of asset sales, deliver between 2,000 and 2,300 residential settlements, and execute further capital partnering initiatives across developments, including our Harbourside project. We start the year well positioned with both momentum and growth visibility into FY2026 and beyond.
Across investments, we're capturing strong reversion opportunities with positive leasing spreads across the portfolio. We have great visibility of $100 million of new investment income from upcoming development completions underway, with near-term contributions from BTR, land lease, and industrial. A recovery in residential sales is already underway. We stand to benefit from a step up in new launches across MPC into undersupplied markets, alongside a recovery in margins. There's great visibility of CMU earnings and value creation over the next three years, and $2.7 billion of future fund growth from the completion of committed projects already underway. If we combine this with improving asset valuation, interest rate tailwinds, and a continued focus on cost, we're well placed to deliver improved returns to security holders in FY2026 and beyond. I'd like to thank you all and open up the call to questions. Thank you.
Thank you, Campbell. If you've not yet joined the live audio queue, please do so now. I will introduce each caller by name and ask you to go ahead. You will then hear a beep indicating your microphone is live. Please limit yourself to two questions. Our first question comes from David Pobucky at Macquarie Group. David, please go ahead.
Good morning, Campbell, Courtenay, and team. Thanks for taking my questions. The first one is just on residency settlement guidance for FY2026. Campbell, you mentioned you're now selling more than you're settling, and that's encouraging. It's an encouraging start to 2026. I mean, you sold 2,100 in FY2025. Shouldn't you pretty much be covered in FY2026 from those sales before any potential upside to what you've sold to date? Perhaps if you can just talk to contracts on hand and typical settlement periods, please.
Sure. Look, I'll pass that to Stu, but just remember that some of those sales are for projects that don't complete in FY2026. Particularly apartment projects in Victoria with Princeton Parade and Trielle, also Harbourside Residences, they are all part of that pre-sale number. Stu, why don't you just talk through the profile for 2026?
Yeah, look, we're going to 2026, obviously with really good line of sight for settlements. We're approximately 50% secured in terms of contracts exchanged that will settle in 2026. We expect by the time we get to the end of the first half, we'll be sitting at about 80% secured. That 50% secured as of today is about 10% higher than in 2024. Importantly, from a delivery perspective, 70% of the lots that will settle in 2026 are either completed or under construction. Over the next six weeks, we'll have the balance of those lots under construction. Largely dominated by land lots, but also built form housing, which is a big contributor for the year. We've got very good line of sight for completions and for this financial year.
Thank you. My second question is on commercial development. If you could please just talk to the key contributors to commercial and mixed-use earnings in your FY2026 guidance and just clarify that you've incorporated something for Harbourside and how we should be thinking about that potential profit contribution from Harbourside. Thank you.
Courtenay, do you want to take that?
Yeah, thanks, David. I think probably the best thing, the way to think about development for this year is I'd guide everyone to a number of around in total post-M&A costs of around $270 million. We've given the resi guidance component of that, so lot numbers, return to the through cycle margin range. There is an increased volume of house and land at a higher price point to factor into the resi. In the commercial and mixed-use earnings, we've got committed projects rolling off. Pitt Street is still contributing, 7 Spencer Street and Aspect. The new capital partnering that we'll be targeting for FY2026 includes SEED Stage 2 and Aspect Central, and also the residential book, which does include Harbourside. David, to answer your question specifically, as Stu said, we've made good progress on progressing capital discussions on Harbourside, and we'll provide an update at the appropriate time.
I've indicated before that the earnings are in the residential component of that project, and we'll look to unlock that through some version of a development JV. We do expect to recognize some earnings, give or take how it all lands, on the sell down of the land, which would happen in FY2026 or going according to plan.
The next question is from Lauren Berry at Morgan Stanley. Lauren, please go ahead.
Hey, good morning, everyone. Just on 55 Pitt Street, can you elaborate a little bit more about what's happened with that project and if the profit impact is an FY2025 issue alone or if it'll be impacting your future profits? Also, if there's any, I guess, additional subcontractor issues you might be working on other projects in your portfolio, please.
Thanks, Lauren. I'll take that and then perhaps pass to Stu. The biggest challenge in 55 Pitt Street later in the end of the financial year, our facade contractor went into insolvency. This, for those that reported in the press, was working on the fish market site in Sydney and unfortunately went into insolvency. The impact of that's been two things. Firstly, we had to pivot and find a new supplier, which we've now done. That's cost us more to replace that contract and the existing contract. It's also cost us time, sort of in that three-month range, which pushes now some of the profit into a third financial year, which means that we're going to be pushing profits over a slightly longer period of time and a lower volume.
In terms of your questions about insolvencies, maybe if I just take a step back, everything we're seeing in the construction side right now is looking fundamentally better than this time last year. I think for the first time, we're now finishing projects in Victoria ahead of schedule. Insolvency risk is largely behind us. I have to say, you can never say that's the case forever, but it certainly feels that the health in the construction environment is substantially better. I think for the first time, we're seeing some changes in pricing coming through as the workbook that many subcontractors have been working on is coming to an end, and we're starting to see some competitive tension return again, which is really encouraging. Stu, did you want to add anything to that?
Look, I might just firstly acknowledge the Mirvac team who have had to navigate, obviously, a very challenging environment with the failure of a major subcontractor like that. Importantly, we pivoted very quickly, secured a new subcontractor, and expect to see facade arriving on the project later this year. The one thing I'd have to say is that across our projects, we've got good line of sight of the health of our subcontractors. This was a subcontractor that, as Campbell said, impacted by other projects that unfortunately rolled onto the 55 Pitt Street project. Importantly, we are seeing good productivity on our New South Wales and Victorian sites. We're seeing subcontractor tendering very competitively now. There is certainly a gravitation to tier one builders that run safe sites, productive sites, and those subcontractors really wanting to work with those tier one developer builders.
Sorry, just to confirm, this subcontractor was not working on Harbourside Residences as well?
Correct, correct. It was a separate contractor. Importantly, the team made the very disciplined decision early on, probably two and a half years ago, to make sure that we had two separate contractors on each of those jobs to mitigate risk, and that has proved to be valuable in the current environment.
Great, thank you. My next question is just around funds management. Obviously, there's been a lot of press lately about Mirvac 's potential involvement in going after more pooled funds, including funds that you don't have pooled fund sectors in at the moment. Can you just talk a bit about what you're thinking about your strategy for the funds management business as well, and if you're targeting more scale or profitability of your funds management platform, please?
Yeah, thanks, Lauren. Look, I'm not going to comment on press speculation. What I will say is we've had a pretty successful funds management platform growth over the last three years, roughly $12 billion over the last three years. I think, as Scott m entioned, we've got almost just under $3 billion of projects which are completing over the next little while, all of which will add to our fund growth. Deep down, there are some things that the market's attracted to. Our governance is strong. We've got independent boards that act very independently in that space. We have good co-alignment of investing alongside each other. They're certainly attracted to our development capability and the fact that we create a beautiful product, which is the product that they want to own. We've got competitive fees. I think all of those things all go well for us over time.
I think one of the things that we've really been trying to do in the last two years is improve the velocity of our development balance sheet. That really means doing more partnering over time because it allows us to do more projects with the finite amount of capital that we have on our own balance sheet to do the things we want to do. Funds management is certainly going to become a bigger feature of our business in coming years.
The next question comes from Tom Bodor at UBS. Tom, please go ahead.
Morning, Campbell and team. Just to pick you up on that fund strategy comment, it's still 4.5%, less than 5% of earnings for the group. It's sort of not a massively meaningful contributor despite a huge amount of AUM. Where do you see that in, say, three or five years? Could it be 20% of group earnings, or is it more of an enabler for other parts of your business, like development, to recycle capital?
Yeah, look, I think we don't set fund targets. We're not interested in setting fund targets. How we do think about it is probably to your latter point. This is really a great opportunity for us to unlock value. You'll see it coming through the NOI line in the investment portfolio over time as we create $100 million of new recurring income. You'll see it in NTA growth across future completions of that development pipeline, particularly for the stake that we own on our own balance sheet. You'll see it in the asset management lines with increased leasing activity, capital management fees, and the like. You'll also see it in the funds management line itself as we grow the fees on the back of the growing pipeline of product.
It's all very interrelated, but it's all part of our strategy of how we continue to fund the creation of a really strong development pipeline.
Okay, thanks. With the comments around, I think just picking up on Stu's comments around construction issues being behind you, tendering is coming in at lower pricing in New South Wales and Victoria. I'd just like to reconcile that with, I think, something Courtenay said to me in June, which is you're getting two and a half days a week of productivity in Queensland. How do we think about development going forward? You've had impairments, losses over recent times. Is it reasonable to assume stuff you're starting today will actually hit your target returns, or are we genuinely past the worst of it if you're still only getting two and a half days a week of productivity in Queensland?
Look, I don't know. I'd take that, maybe pass to Stu. Queensland's been very challenging. It's been a host of issues. It has been one pre-selling three years ago. There has been a substantial increase in pricing on the way through. Whatever we're selling today is certainly a higher value than what we were selling three years ago. Time and productivity has been a massive impact for us in Queensland. Part of that is industrial relations related. Part of it is bad weather. Part of it's insolvency. It's been a series of things, but we're largely through our Queensland book, and that's really important. The project that we still have underway in Queensland, which is Isle at Eusted, we deliberately held back sales on a number of those apartments so that we could sell into stronger markets closer to completion, and that's something you should expect us to do.
I think the really pleasing thing we're seeing in Victoria and New South Wales is we are actually, in some instances, well ahead of our expectation on completions. Our Albert BTR asset in Brunswick has actually completed about three months ahead of schedule. We are seeing some really good productivity in other markets, and for those in Sydney in particular, if you look out the window and see how quickly Harbourside Residences is moving and how quickly 55 Pitt Street's moving, you'll get a sense that the health of that sector is actually pretty good at the moment. Stu, did you want to add anything to that?
Yeah, look, I think that it's great that the challenges of Brisbane delivery are behind us. We've got one project still under construction up there, but we've actually seen an uptick in productivity in recent weeks on that project. If we go back to our larger states in New South Wales and Victoria, all the built form projects are performing extremely well. We're seeing good productivity. We're seeing good labor numbers on site. Importantly, we're seeing subcontractors competitively tendering for new work. There has certainly been, in the residential segment of the market, a significant fall-off in work, and that is resulting in an increase in competitive tendering between subcontractors. Interestingly, what we've also seen in recent months is there has been a slowing in the amount of data center commencements occurring, which again has created more capacity in the market, which is resulting in that tension between subcontractors.
Projects like Highforest, Harbourside Residences, 55 Pitt Street, and Trielle in Melbourne are all performing extremely well.
The next question is from Richard Jones at JP Morgan. Richard, please go ahead.
Thank you. Question to Courtenay. Are you able to give us a rough guide of how much you expect capital partnering will contribute in 2026 from residential partnering?
I think, Richard, probably I would take the guide that I indicated previously across development of $270 million post-M&A. The projects that we're looking to unlock in 2026 are on the industrial book. SEED Stage 2 will essentially follow the first stage that we've just completed this year, and Aspect Central is the balance of the site in the Aspect precinct. We will look to the residential book. The one project I would call out, which we've spoken about for some time, is Harbourside. The best guide, I think, for us to give you is at that $270 million number across the whole development book.
Okay, I think you've previously said you wouldn't anticipate Harbourside Residences would generate upfront. It's more backend, sorry. There's not additional sell down of 50% stakes in resi projects assumed in guidance. Is that what you're saying?
No. Just in resi generally, Harbourside, I guess we're getting closer to finalizing the structure of the deal. That's why we're sort of flagging now that it's likely to contribute, again, assuming all things go according to plan. The balance of the residential book, we indicated last year, even at the half when we executed on capital partnering, that would be a part of what we would do going forward. Campbell's talked about it today. It's about the velocity of that development capital. The projects that we're next or the precincts we're next targeting might be something like Grand Square here in Sydney. That has been accelerated through the planning framework, which is a great outcome. A project like that that is capital intensive and has got really good product in it might be an opportunity we look for.
That's why I'd kind of step back and guide you to the $270 million because we're looking at what's getting through the planning pathways and where we see value in the book for the next 12 months.
Okay. Can you also clarify how much capitalized interest was written off from project impairments in FY2025?
I won't talk to interest particularly. The three projects we've taken impairments on this year, we took Charlton House in the first half and in the second half, Willoughby, so nine at Willoughby, and then Quay in Brisbane again. Those three projects, interest is a cost of delivery, as is the rest of the development cost, which gets capitalized to the balance sheet. Unfortunately, we have had to impair those three projects this year because of the challenges we've talked about, which we've done, and we're comfortable with that treatment. It's been consistent with how we've done it previously, well before now. I do think, and as Stu said, I think pleasingly, we have contained this to FY2025.
I think anyone I spoke to before June, we were making sure we were containing these issues and economic impacts to FY2025, which is why we're flagging today that looking forward, the projects we're seeing are back within our hurdles where we expect them to be. We're guiding residential margins back to 18% - 22%, and you can see that residential sales are up. In an undersupplied housing market with interest tailwinds coming, I think we're really well placed to make sure that we can deliver on the earnings growth that we've committed to in the guidance today.
The next question is from Ben Brayshaw at Jarden. Ben, please go ahead.
Good morning. Just on the yield on cost guidance for 55 Pitt Street, could you clarify whether that includes the additional cost of the facade contractor and the delays that you mentioned earlier on the call?
Yeah, that's correct, Ben.
In terms of the industrial rent spreads, the pickup in the second half to be circa 50%, could you just touch on the key drivers of that, please?
Rich, do you want to talk about Gow Street?
Yeah, thanks, Ben. The predominant driver was one asset at 36 Gow Street, for which we've achieved about a 60% leasing spread. That's about a 20,000 square meter building. That was fully leased towards the end of the year, and Ben, probably the key contributor to that performance you've seen.
You might recall, Ben, we had an opportunity to terminate the lease at Gow Street a little earlier than the lease expiry date. We took advantage of that opportunity because it was so under-rented. We went through a period of time where we needed to let it up. That's now done. We're really happy with the outcome, not just because of the rent spreads, obviously, but the valuation impacts that come with it.
The next question is from Suraj Nebhani at Citi. Suraj, please go ahead.
Thank you. Good morning. Just a couple of quick ones. Firstly, I think, Courtenay, you mentioned devaluations on Harbourside in your comments, retail and office. Can you just provide a bit more clarity on that? What's going on there?
Yeah, Suraj, we've essentially revalued office and retail in line with market, is essentially what's happened. I did mention them. They sit within the development revaluation line. We carry those as investment properties, so we've revalued them in line with market this year.
Suresh, I think the overarching comment we'd say is, you know, FY2025 was a pretty hard year for us. We wanted to make sure that we've done the best we possibly can with the knowledge that we have today to ensure that we're valuing that development book appropriately. We now feel that, you know, from a line of sight going forward, we're starting from the right point.
Thank you. Thank you. That makes sense, Campbell. Just a quick one, I think there's a lot of focus on, I guess, the visibility of earnings. I know, Campbell, you made some comments in the earnings release as well and in your prepared remarks. I'm just keen to understand, you called out some numbers on NOI, which are largely locked in. I guess I'm just trying to reconcile the half a billion dollars, the $540 million of development profit, and just trying to look at the risks around that. Do you see that as pretty much locked in and what could change?
Yeah, look, that's a good point. The timing of the NOI that's being released through our development book, it'll take time. For example, our two BTR assets at LIV Anura and LIV Albert, they've only just completed. You'll see an increase in NOI contributions through the course of the next 12 months as those assets lease up. Similarly, I think, as Stu mentioned in his comments, the Aspect industrial developments, the Aspect South, will largely be complete towards the end of this financial year. You should assume you'll see a more significant industrial contribution in FY2027. You will start to see more contribution coming through just the existing industrial book that's already been finished. It's a combination of all of those things.
The timing, we tried hard to give you some guidance in the slide in Courtenay's area just to give you a sense of the timings of when the NOI will come in. You're right, we are going to continue to sell older office assets, which has been our strategic intent for a period of time. We'll keep doing those. Some of those will be sort of halfway through the year. Some of those we'll target for the latter half. Clearly, we'll watch the valuation line pretty carefully as well. As we get some valuation growth, we may reassess how much we want to sell. Ultimately, over the medium period, we do want to sell older office buildings to fund our expansion of our industrial footprint and our living footprint. That's important to our strategic asset allocation plans.
The next question is from James Druce at CLSA. James, please go ahead.
Yeah, hi. Good morning, Campbell and team. A couple of questions, if I may. Just firstly, on the resi margin excluding Highforest and Malg oa, and any other sort of sell downs that have occurred, what was that?
James, it is still around that 15% that we're guiding, or we've indicated to the market, excluding the unimpaired projects, sorry, including the impaired projects this year. It's 15%. That includes the sell down profit on those projects.
Yeah, what's the underlying margin if you know what I mean? If you strip those trading profits out, you're saying it's still 15%?
The contribution from the sell downs proportionately is in line with the margins across the rest of the book. If you look at the maths, it's 17.5% that they contributed. Margins, if that's your question, that's what they would have otherwise been. They've been brought back down when you take into consideration the lots that we haven't sold on the unimpaired projects to the 15%.
Okay. Typically, you give a bit more specificity about the margin that you do next year. You sort of said it's back in the range, which I assume is 18% - 22%. Can you provide a bit more color on that?
I might start there and then maybe hand to perhaps Stu. I think you're going to see a little bit more built form from us this year, particularly these inner ring development projects for us where we're doing not just land, we're doing house and land packages, and the house and land packages are pretty substantial. In a funny way, we'd kind of look at it and say some of these house and land packages really aren't that different to building an apartment building, but with slightly higher margins. You'll see the lot size essentially increase over the course of this financial year, even though the settlement numbers by number are somewhat similar. You'll just see the dollar contribution per lot being higher. I think that's the first thing. I think historically the ranges in straight land subdivision, we've been at the higher end of 22% and above.
Apartments, we've been at the lower end of 18%. Given we're doing a lot more built form, we're sort of hovering somewhere in the middle, which is probably where we need to, is probably the best guide we can give you, subject to, of course, the success of our sales rate going forward.
The next question is from Winky Tan at Morningstar. Please go ahead.
Hi, good morning, Campbell and team. Just want to talk about the $340 million disposals that we had in FY2025 because at the beginning of the year, you sort of targeted $500 million, and at the end, we did $340 million. I just want to understand what the difference is. Was it because you don't see the need to sell it at first, or was it any difficulty in finding buyers? What is the outlook for FY2026?
Yeah, look, that's a great question, and thank you. I think it's a combination of a few things. I think stabilisation in office markets is really important. Now that we feel that we're in the inflection point, and I think as Richard mentioned in his comments, the second half, we were basically flat in our value line in the office component of our portfolio. That just gives us a little bit of confidence that we're starting to see a baseline form in office markets, which is important. We've been pretty clear about our expectations of continuing to grow or change the asset allocation of our passive portfolio to have a higher proportion of industrial with an absolute Sydney focus. That's the market that we like, and a higher proportion of living, which we've prosecuted pretty well.
A chunk of how that gets funded over time will be the disposal of some of the older office assets. We'll continue to do it. We probably don't need to do it at the pace we've done in prior years, now that we've sort of got the balance sheet in a much better position. It's something that we'll continue to do, irrespective as we try to improve the portfolio quality over time and get to that asset allocation that we want.
Thank you. My second question is to Richard in regards to the office portfolio. The leasing spreads are 6.8%. It's quite positive. Just wondering what the incentives are for office leasing at the moment.
Thank you. You'll see in the additional information, the average incentives was around 30%. It's an improvement since last year. We agree. We're getting great performance out of our portfolio. What Campbell just mentioned in terms of the work that we've been doing to upweight and sharpen the quality of the portfolio is resulting in improvement in leasing spreads and underlying customer demand. We're very pleased with the performance that we've achieved this year.
That is the last question we have time for today. I'll now hand back to Campbell for closing remarks.
Thank you all. Thank you for the questions. Thank you for those on the call listening in. We will no doubt have an opportunity to meet with all of you over the coming weeks, and we look forward to doing that. Thanks again.