Thank you very much for that. Welcome to our FY 2023 Full Year Financial Results. My name's Anthony Mellowes, and I'm the Chief Executive Officer. Presenting these results with me today is Evan Walsh, our Chief Financial Officer, and Mark Fleming, our Chief Operating Officer. Firstly, let me take you to slide four, which sets out our FY 2023 highlights. Our FFO per unit of AUD 0.169 and AFFO per unit of AUD 0.153 was a decrease of 2.6% and flat, respectively, on FY 2022. There was a statutory net loss after tax of AUD 123.6 million. Our NTA decreased to AUD 2.55 per unit, a decrease of 3.8% from December 2022. Our portfolio occupancy is roughly 98%, and our specialty vacancies remain steady at 5%.
We made AUD 180 million of acquisitions and divested AUD 50 million of assets during the year. Our weighted average cost of debt increased to 3.4% with a 4.4 year weighted average debt maturity. Moving to slide five, which sets out some of the key achievements for the year. Our core portfolio continues to perform well. Our defensive convenience portfolio continues to drive resilient operating performance with a comp NOI growth of 4.3%, our tenant sales of 4.5% per annum, leasing spreads of 3.7% for the year, a specialty occupancy cost of 8.7%, a stable specialty vacancy at 5%, with 82% of our tenants retained on lease expiry. Our sustainability strategy is progressing well.
There was 15MW of solar installed or under construction towards our target of 25MW , and our sustainability investment to date has resulted in a 17% reduction in greenhouse gas emissions for FY 2023, compared to FY 2020 on a like-for-like basis. With respect to growth opportunities, we remain disciplined. For acquisitions, we did acquire a portfolio of AUD 180 million in July 2022, and we have recently committed to a fund-through development opportunity for Woolworths' home delivery facility and large format center adjacent to our Delacombe Town Centre in July 2023. We divested our remaining CQR stake and Carrara Shopping Centre in May 2023. With respect to capital management, the rising cost of debt has offset our strong core business earnings.
Our weighted cost of debt has increased to 3.4% from 2.5%, resulting in an AUD 13 million earnings drag. We have cash and undrawn facilities of AUD 386 with 225 million allocated to refinance a debt facility in June 2024. We're 90% hedged in FY24, and gearing is at 31.3%, which is at the lower end of our range of 30%-40%. I'd now like to hand over to Evan to present the financial results.
All right. Thanks, Anthony, and good morning, everyone. I'll start on slide seven, where we are highlighting the key factors that are driving the movement from our FY 2022 to FY 2023 results. As Anthony mentioned, we have maintained our AFFO earnings at AUD 0.153 per security, despite significant headwinds from increasing interest rates. Our FY 2023 percent increase in our weighted average cost of debt, which has resulted in a like-for-like reduction in our AFFO per security of AUD 0.012. Excluding the impact of the increase in our weighted average cost of debt, our underlying earnings have been robust, with our AFFO per security growth of 7.8%.
This has been driven by a strong 4.3% growth in our Comparable NOI, which was in line with, with what we reported at our half-yearly results, and compares to the 3.3% comparable growth rate in FY 2022. This year, we also saw our cents per security increase in our earnings from growth initiatives, which was driven by the full year impact of owning and managing the Metro Fund, which include transaction fees from the fund acquiring Beecroft Place. Turning to slide eight, this provides a bit more detail on our financial results for the year. Our stat net loss of AUD 123.6 million was driven by a 264 million reduction in our property valuations.
Backing out the non-cash and non-operating items, our Funds From Operations remain resilient, being down just 0.1%, and our AFFO growing by 2.6% to around AUD 174 million. The increased weighted average cost of debt contributed AUD 13 million, or a 35% increase in our interest expense, and was driven by the RBA increasing the cash rate by 3.3% over the year to 4.1%. If this did not occur, our FFO would have increased by 6.6% and our AFFO by 10.2%. On to slide nine. This shows our summary balance sheet. We have AUD 4.9 billion in assets under management, which is consistent with June 2022, and this is despite the reduction in our valuations.
The reduction in our vals has, however, impacted our net tangible assets, with this reducing to AUD 2.55 per security from 2.81 this time last year. As Anthony mentioned earlier, we did sell Carrara Shopping Centre and our stake in CQR this year, and they were both at a premium to our book value. During the year, we've had a strong focus on collecting the rental income that remains unpaid by our tenants. This has resulted in our tenant receivables reducing by around 45% to AUD 9 million, which equates to an arrears rate of approximately 1.3% of our FY 2023 rent. This tenant receivables balance also includes a remaining AUD 2.1 million of COVID-19 deferred rent, wherever you're seeing a collection experience in line with normal invoicing.
During the year, we wrote off AUD 4.4 million of bad debts, which primarily relates, related to tenants that have vacated, and we have also cleaned up historical arrears relating to acquired or disposed assets. The majority of the bad debt amount was provisioned as part of the Expected Credit Loss last year. As a result, we have reduced our Expected Credit Loss to around 21% of our tenant receivables. Now, on to Slide 10, where we highlight what's happened with our property valuations this year. The valuations of our property portfolio is around AUD 4.4 billion, which has reduced by approximately 50 million. This includes the net impact of our acquisitions and disposals last year.
The 4.4% reduction in the fair value of our portfolio has been driven by a 42 basis points expansion of our Cap rate to 5.85. This is close to the suggestion that Anthony made at our last results announcement of a potential 50 basis point softening. Our Cap rate remains softer than our listed non-discretionary retail peers, where they're approximately 5.51%. This is 34 basis points lower than our current Cap rate of 5.85. Moving to Slide 11. We maintain a prudent approach to our debt and capital management, given the uncertain current market conditions. Our cash and undrawn debt facilities are approximately AUD 386 million, and our gearing of 31.3% is slightly lower than at December and is the bottom end of our target range.
We are holding the liquidity higher than normal as we look to cover the AUD 225 million of our Medium-Term Notes that are expiring in June. We have not yet refinanced these notes due to the favorable coupon on these. The debt capital markets are open for us, and we have significant demand from both existing and new noteholders to reissue some of these notes. We also have the option to refinance these notes through bank facilities. Despite this upcoming expiry, our weighted, our average weighted debt maturity, 4.4 years, we have been proactively extending existing bilateral debt facilities, with having refinanced both, one with an Australian Big Four bank and a Japanese bank. At 30 June, around 80% of our debt was hedged, with a hedging maturity of around 2.3 years.
We've undertaken more hedging during the year, which I will talk to on the next page. We are well within our debt covenants and remain comfortable that we continue to meet our obligations. For us to breach our interest cover covenant, our average cost of debt would need to reach 8.4% for the year, which would mean that the BBSW market rate would need to reach around 30%. For us to breach our gearing covenant, cap rates would have to expand by a further 315 basis points. Onto Slide 12. This shows some charts highlighting the strength of our debt and capital management position, provide some detail around some of the hedging activity we had during the year. We have around AUD 1.4 million of debt drawn out of a total facility limit of 1.8 billion.
This debt is fully unsecured and is roughly equal, equally spread across Australian dollar medium-term notes, U.S. private placements, and bank-provided debt. Other than the notes expiring that I mentioned beforehand, we have no other debt expiries until FY 2026. We remain well supported by existing bank holders and noteholders. We have additional funding being offered from both these existing providers and new banks. As I mentioned, we've undertaken a significant amount of hedging activity during the year in an attempt to minimize volatility of earnings from interest expense. In addition to the previously announced restructured interest rate swaps, in February, we entered into AUD 500 million of forward-starting two-year swaps, and we recently entered into a 400 million swap with a term of three years and a non-call period of one year.
If we had not undertaken this hedging, we would have seen additional AUD 4.5 million of interest expense this year. I'm now going to hand over to Mark, who will take you through our operational performance.
Thanks, Evan. I'll start on slide 14. It gives an overview of our portfolio. As at 30 June 2023, we had 13 convenience space, 82. Our assets have Gross Lettable Area of almost 800,000 square meters. We own over 2.5 million square meters of land. 48% of our gross rent comes from our anchor tenants-
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Including Woolworths, Coles, Wesfarmers, and Aldi. Of the other 52%, there's a heavy weighting towards our non-discretionary categories being food and liquor, retail services, and pharmacy and healthcare. Finally, as you can see, our geographic diversification is well-balanced across all states in Australia. Slide 15 shows our portfolio occupancy. Our occupancy level is stable at around 98%. The long-term stability of our portfolio occupancy illustrates the resilience of the portfolio. Specialty vacancy was 5%, which is toward the top end of our target range of 3%-5%. Specialty tenants on monthly holdover reduced slightly to 3.7%. Turning to slide 16. Tenant sales growth has been robust, with Moving Annual Turnover growth of 4.5%. Specialty tenant sales growth of 7.5% was particularly pleasing.
Toward the end of the period, we saw non-discretionary retailers outperforming those in more discretionary categories. Our turnover rent is also increasing due to continuing growth in supermarket sales. 59 anchor tenants are now paying turnover rent, which represents 46% of total anchor tenants, generated $6.3 million of turnover rent during the year, and another 13 anchors are within 10% of their turnover thresholds. An additional $1.4 million of turnover rent was crystallized into base rent for 16 anchor tenants during the year. Turning now to Slide 17: Specialty Key Metrics. We had a strong leasing performance during the year, with 393 deals completed at average positive leasing spreads of 3.7%. Ongoing sales growth and relatively low rents position us well for future rental growth.
The sales productivity of our specialty tenants has increased to over AUD 10,000 per square meter, while our average rent per square meter remains at just over AUD 800 per square meter. As a result, despite the strong positive leasing spreads during the half, our specialty occupancy cost remains relatively low at 8.7%. Our specialty leases are generally five-year leases, and most of them have annual fixed rent reviews of around 4%. Turning now to Slide 18: Resilience of Our Specialty Tenants. We're comfortable that our specialty and mini major tenants are in a good position to withstand any potential upcoming economic downturn. As you can see from the tables, our tenants have experienced robust sales growth, have sustainable occupancy cost ratios, and low arrears. In addition, most of our tenants are in non-discretionary categories that should be relatively resilient to any economic downturn.
Slide 19 provides a sustainability strategy update. Most pleasingly, we're on track to achieve our net zero target by 2030 or before. We now have around 15MW of solar panels either installed or under construction, well on the way to our target of 25MW by FY 2026. On a like-for-like basis, we've now reduced our greenhouse gas emissions by 17% since FY 2020. We've also rolled out LED lighting at all of our centers. We're gradually replacing R22 gas air conditioning units, and we're reviewing our building management system strategy, all of which will help us on our way to our net zero by 2030 target. Other sustainability targets are also progressing as planned. We continue to focus on improving engagement with our local communities via our local community engagement plans, which are now in place for all of our centers.
Thank you, I'll now hand back to Anthony.
Thanks very much, Mark. Moving to Slide 21. As I mentioned earlier, we completed one portfolio acquisition for AUD 180 million in July 2022, and we did not acquire anything for the remainder of the year. We also took the opportunity to divest two assets during the year, being our remaining investment in CQR for nearly AUD 27 million in January 2023, and the Carrara Shopping Centre on the Gold Coast for AUD 23.5 million, which was at a cap rate of 4.75, and that settled in May. We'll continue to evaluate the market with more of a focus on disposals in the sub AUD 20 million sector, which has continued to remain resilient. In July 2023, we did enter into a strategic fund-through development directly adjacent to our Delacombe Town Centre.
This development contains a Woolworths home delivery facility and is part of our Delacombe Town Centre master plan. Over the years, we have averaged AUD 224 million of acquisitions per annum over the last 10 years. However, our guidance, which we'll get to a bit later, assumes no further acquisitions. Look, Slide 22 highlights the fragmented ownership of the sector, which has provided us great opportunities for acquisitions in the past, but it also allows us some good divestment opportunities, particularly in that sub AUD 20 million mark. There has been continued demand in that sector, so we'll be, continue to be really disciplined with respect to both acquisitions but also divestments. On Slide 23, is our indicative capital investment of our existing portfolio over the next five years. We are investing in property enhancements, sustainability initiatives, and major developments.
The development pipeline is based on opportunities that we are currently considering across our entire portfolio. The majority of the indicative capital investment is based on estimates and does require further investigation and approvals. Slide 24 just really breaks down a bit more of the investment into our existing portfolio. We are looking to allocate some capital to drive our portfolio performance. We do expect there to be minimal acquisitions, if any, during the next 12 months. We are considering disposing of some lower dollar value, tighter yielding products, where there is still that demand from investors. The proceeds of some of those disposals will be redeployed into the existing portfolio. We'll have a greater focus on enhancing our existing portfolio through some refurbishment and ambience upgrades, our specialty tenant remixing, our direct-to-boot and click-and-collect facilities for both Woolworths and Coles.
We have some pad site developments and also some local strategic site consolidations. As well as we have our strategic site consolidation, which we've spoken about, which is Delacombe Town Centre, and we did commit AUD 31.5 million fund-through development, and that will also complement our existing shopping center at Delacombe Town Centre. Slide 25 is really just all about our online sales support of both Woolworths and Coles for direct-to-boot and click-and-collect. Online sales are included in 96% of our supermarket turnover rent calculations. 86%... Sorry, 86 include 100% of online sales, and 4 include 50% of online sales. Over 81% of our Coles and Woolworths stores have had investment in external facilities outside the supermarket tenancy to include click-and-collect bays, direct-to-boot facilities, and specific fixtures in the loading docks.
During FY 2023, we spent AUD 6.5 million to support this online sales growth through current investments and contributions. In FY 2024, we believe we could be spending AUD 20 million on investing in the direct-to-boot and click-and-collect facilities. Funds management on slide 26. It does offer a real platform for growth for us. That is gonna be more in the medium to longer term, not in the immediate term. The Metro Fund did commence in FY 2022 with seven seed assets for AUD 285 million. We've also bought Beecroft. Our partner there is GIC. As I mentioned, minimal acquisitions are expected in the short term there. Now, I'd like to talk about our key priorities and outlook. Again, slide 28. Our core strategy does remain unchanged.
We will continue to seek and deliver defensive, resilient cash flows to support our secure distributions. We'll continue to focus on the convenience-based retail centers, with that strong weighting to the non-discretionary retail segment. We'll be seeking long-term leases to quality anchor tenants, such as Woolworths and Coles. We'll continue to explore both the core business growth opportunities, as demonstrated in our capital investment pipeline, and acquisition opportunities within the sector, and fund management opportunities, which will not be material in the short term. We'll have an appropriate capital structure, which will mean that our gearing, we would like it to remain at the lower end of our 30%-40% range at this point in the cycle. I'll hand over to Evan to discuss our longer term AFFO growth targets and a bit on FY 2024 guidance.
Great. Thanks, Anthony. Slide 29 has been a consistent slide for us over the past few reporting periods. This highlights our longer-term target to grow our AFFO by 2%-4% per annum. We target comparable NOI growth of 1%-3% per annum, which is supported through an expected sales growth of 2%-4%, which would increase the number of anchor tenants paying turnover rent. 52% of rent is derived from our specialty tenants, where around 90% of our tenants consistently pay an average fixed growth rate of 3.8% per annum. For tenants that expire, we expect rents to grow by at least 2% over the prior rent.
Growth opportunities are indicated to add at least 1% to our target growth, with a focus on investing in value-added extensions and refurbishments, selected acquisitions, and through growing our funds management business. As Anthony mentioned, our more immediate focus will be on reinvesting into our existing portfolio, which should also drive new revenue sources. Corporate expenses are targeted to increase by no more than the net operating income growth rate. Over the longer term, we expect the impact of interest expense to remain neutral. However, given the rapid increase in market interest rates and some of our more favorable hedges rolling off, this will be a significant headwind for us in the short term. On to Slide 30, we provide our FY 2024 guidance.
We are guiding to FY 2024 AFFO of AUD 0.137 per security, which is a 10% reduction on the FY 2023 result. Our FFO is guided to be AUD 0.156 per security, which is a reduction of 7.7%. Again, increasing interest expense has severely impacted our earnings, with our weighted average cost of debt forecast to increase by another 1% to 4.4% in FY 2024. Over two years, we would have seen an 1.9% increase in our cost of debt, which has resulted in an increase of around AUD 30 million of interest expense over that two-year period and is almost double the AUD 35 million of expense we saw in FY 2022.
Stripping out the impact of the drag in earnings from interest expense, we have been able to maintain our AFFO per security in line with the FY 2023 result. We are forecasting 3% comparable growth in our NOI, which is the higher end of our long-term target range. This is despite an expected 8% increase in our property expenses, which is being driven by double-digit increases in statutory and insurance expenses. In addition, around a third of our property related expenses relate to salary and wages costs across functions such as center and facility managers, cleaners, and security guards. A lot of the employees within these services are on minimum wages, which where there has been wage increases above inflation.
Our guidance does not include any transactional activity for both our balance sheet and funds management business, as we remain considered on any acquisitions. The guidance also includes capital expenditure in line with normal years, which is an AUD 0.004 per security drag on FY 2023, where we saw lower than normal spend. I will hand back to Anthony to conclude with the key priorities and outlook.
Great. Thanks a lot, Evan. Just on to slide 31, it really does outline everything that we've just spoken about. We are looking to generate our continued strong and sustainable comparable NOI of 3%, which is at the top end of our range, and we will remain really focused on that core business and do not expect a lot of acquisitions, if any, this year, and probably some divestments, as I mentioned, in that sub AUD 20 million sector, and that should be reinvested into our existing portfolio. We're gonna remain really prudent and disciplined with respect to our capital management and our gearing at the bottom end of our 30%-40% range at this point in the cycle.
As Evan's already outlined, our FFO guidance is AUD 0.156 per unit, and our AFFO guidance is AUD 0.137 per unit for FY 2024. We'd now like to invite any questions.
Thank you. If you wish to ask a question, please press star then 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're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Murray Connellan with Moelis Australia. Please go ahead.
Morning, Anthony, Evan, and Mark. Just noting that your leasing spreads, which are obviously positive throughout the year, but seem to have softened a little bit half on half from about 4.4% at the first half to what looks like about 3% at the second. Are we, are we starting to see some softness in retailer business confidence? Or, you know, is there a macro read through there? I guess how do you, how do you see the outlook?
Okay. I wouldn't read too-
It's Mark here, sorry. I wouldn't re-read too much into that. There was one portfolio deal that we did towards the end of the half that had lower spreads, which really skewed the second half result. We're still fairly consistent around that, you know, call it 3.5%-4% spread area, and that's where we're still seeing it, you know, in July. There's always gonna be some deals that are lower than that for various reasons. It can, it can sometimes fluctuate from period to period, but so far, that's what we're seeing. I guess the big unknown in your question is what's gonna happen with the economy over the next six-12 months, and, you know, our guess on that is as good as yours.
Although I will say that in July, in terms of sales, we did start to see some of the more discretionary category sales, come off a little bit, particularly in the apparel sector and certain other discretionary segments. Potentially there's the very first signs of a softening in the discretionary categories. We've said that before, so, and it hasn't happened, but, you know, we're obviously keeping a close eye on that. The non-discretionary categories are still growing strongly, even in July. That's the majority of our tenants. Hopefully, that answers your question. No significant change at this point in terms of leasing spreads or outlook.
Yep, very comprehensive. Thanks. Wanted to get an update on the, I guess, the outlook for the GIC mandate. Obviously, the comments, in, in the presentation were that, that you're not expecting too much deployment there in the near term. I mean, is the, is-- Are, are, are the medium-term targets there, still, still unchanged?
Yeah, no, we've got a partner that still, you know, will invest at the right price. I think there's a bit of a gap between vendor expectations and purchasers' expectations at the moment, and particularly with our partner, GIC, in this particular sector. We don't believe that there is gonna be a lot in the immediate term. They still are very much focused and believe in the medium to longer term in this sector.
Thanks very much.
Thank you. Your next question comes from Simon Chan with Morgan Stanley. Please go ahead.
Hi, good morning, guys. I wanna pick up on the comment you made just then, Anthony, about the gap between vendor expectations and purchasers' expectations at the moment. I think about 12 months ago, you said, made similar comments. Just wondering, over this last 12 months, has that gap actually closed? Like, where, where are we versus the last 12 months, et cetera? Can you give us some color on it?
Yeah, no, it's. I said last year, I thought, 'cause you've got to remember, last year, the interest rates really started to move in January of 2022, and then in sort of April, May, June, they really actually started to move. Our results in August last year, I said, "I think cap rates are gonna move by 50 basis points from June 2022 to June 2023," and ours moved by 42 basis points. During that time, you can talk to all of the agents and see all the reports, there hasn't been nearly the same amount of liquidity in the sector at all in terms of transactions, and really, there's been some that are moving, some of the larger sub-regionals that have moved with higher cap rates.
The other area that, where there's still some movement is in the sub-AUD 20 million mark. As I said, you know, they're still moving at quite firm cap rates. They've been quite resilient. There's still not a lot of people under real pressure yet. I think there will come times where people will come under some pressure. We're remaining really disciplined. Look, we will buy when it's accretive for us, but at the moment, people aren't willing to sell at those levels. That's where I come from, from a, a gap perspective. Yeah, I think it'll still has a little bit to play out, but I think it's getting closer, 'cause there is more deals sort of being done.
Okay, fair enough. My next question is just on the slide 23. The, the first line in the table there looks new. You know, you've called out North Orange, Raymond Terrace, Market own Newcastle, et cetera. I, I know you're not prepared to give out the CapEx number at the moment, but can you give us some insight as to, you know, what sort of initiative you guys are looking to do with, in those developments?
Yeah, look, they're pretty big developments. One is... They haven't gone through planning, so they're very early days. Yeah, when we get a bit closer towards them, we'll put a number out, but they're, they're larger developments.
Cool. Just the last one I got this morning. Just trying to connect a couple of dots here. The specialty Mat was very good across the board, right? Discretionary and non-discretionary, and, and thanks for the additional disclosure there. But, you know, how does specialty sales grow by 7%-8%, yet occupancy costs stay flat at 8.7%? Well, look, there's some serious rounding there.
Yeah, look, there's, there's a little bit of rounding there. Also, the rental increase is for all tenants, whereas the sales data is only for a subset of tenants. It excludes, for example, banks and post offices, where the rental increases were lower. It's a little bit of a mixed question as to why you're not seeing that drop in occupancy.
Okay, you're saying the two buckets aren't the same?
They're not the same. The two buckets aren't the same. That's, that's the issue.
Yeah. Thanks, Mark. Thanks, Anthony. Cheers.
Thank you. Your next question comes from Caleb Wheatley with Macquarie Group. Please go ahead.
Good morning, Anthony, Evan, and Mark. Thank you for your time. Just following up on a, on a question a bit earlier, just around tenant performance, particularly post-30 June. I know you mentioned you're starting to see some weakness on the discretionary side, but would be keen to hear your feedback on, I'm sure the supermarkets in particular are beginning to flag trading down, et cetera, and just how you're thinking about, I guess, just the slowing in that non-discretionary bucket, potentially, if that trading down thematic were to play through, what are you seeing in terms of your portfolio on that front?
Yeah, look, we, we only get the gross sales data. Having said that, anecdotally, yes, there is trading down. I wouldn't expect, for example, the non-discretionary categories to continue to grow at 7%-8%, which is what they have been growing at. What we're really seeing in July, and it's only one month, so, you know, don't read too much into it, but is that the non-discretionary categories have slowed to sort of somewhere in the 3%-4% range in terms of sales growth, and the discretionary categories or certain discretionary categories are turning negative. I, I would expect that you're going to see a moderating of sales growth in non-discretionary, and discretionary is gonna come under a little bit more pressure as people tighten their belts.
Part of the reason for the slowdown in non-discretionary would be that trading down, and that's certainly what the supermarkets have reported, that they're seeing trading down, which is why their sales growth has been a little bit below inflation consistently. Anecdotally, yes, I think you're right, there will be some trading down, which will moderate the sales growth if this economic environment and cost of living pressures continue.
Great. In that sort of environment, when you look back historically, for those non-discretionary categories, is, is that kind of as bad as it gets, that, that 3%-4% sort of growth range? Or, you know, what does history tell us about, what that trading down could do?
I think that's, that's about right. You know, if you look- if you have to go way back on supermarkets, if you go back to the sort of GFC times, they, they still stayed around that 2%-4%. What tends to happen is, yes, people trade down, but they also cut back on the discretionary items. They go out for fancy dinners less, they travel less, but they still have to eat, and they, they tend to eat at home more, for example, for the supermarkets, and much the same in the other non-discretionary categories. You know, we're crystal balling here a little bit, but I would be surprised if we see non-discretionary sales growth turn negative for any sustained period.
I'd expect we're gonna stay in that 2%-4% range, would be my expectation for non-discretionary, but we could see negative sales in the discretionary categories.
Yeah. No, that's really helpful. Thank you. My, my final question, maybe one for Evan. Just in terms of the MC and TI bucket, looks like FY 2023 was a little bit lower than usual. I know you flagged that, that CapEx will go back to a sort of normalized level, but is there any, any catch-up that needs to happen there just as we cycle into the medium term, potentially a bit of a lower FY 2023, or are we back to sort of a normalized level from FY 2024 onwards?
FY 2024 guidance is back to normalized level. 2023 was really impacted by, by timing of, of some of the capital jobs and, and also the timing of when some of those leasing deals landed. Yeah, 2024's back to the long-term run rate.
Yeah. In terms of post FY 2024, there's nothing that's been missed in 2023 that needs to be caught up or-
No.
Is it sort of goes back to normal?
No, back to normal from 2024 onwards.
Okay, great. That's all for me this morning. Thank you again.
Thank you.
Thank you. Your next question comes from Lou Pirenc with Jarden. Please go ahead.
Yes, good morning. two questions for me, please. The, the returns on that development table, what is it? Page 23. What returns are you expecting on average on the- on that CapEx?
Lou, it's Anthony here. Look, it's gotta meet our IRR hurdles, which is for sort of convenience-based centers and sub-regionals in that sort of 7%-8%. Most of those will achieve a yield of sort of 5%-6% in the year following. Some have higher returns, others have slightly lower returns, but they all have to meet our IRR hurdle.
Great. If I can tie that back to, to your slide 30, where Evan talked through the, you know, the moving parts into FY 2024. The growth initiatives having a negative impact on earnings, is that the timing of, of those developments, as in you've incurred a debt but not yet the returns? How should I see that negative AUD 0.2 cents there?
The growth initiatives includes, both acquisition and developments, acquisitions, disposals, developments, and the impact from the Metro Fund. Really, the negative there is the fact that we're doing no, we've forecast no, acquisitions in both, on both the balance sheet and, in the Metro Fund, so we're not getting any transaction fees, additional assets under management fees, et cetera.
Also, we sold our CQR stake and also the Carrara, so it's those divestments there are negative as well.
Yeah. Am I right to say that we shouldn't see any positive upside yet from the, the CapEx, the development initiatives that you talked about earlier?
Not in this year, no.
Okay. Then the AUD 0.4 on page 30, that is just that maintenance CapEx that Caleb asked about earlier, or is there something else in CapEx as well?
maintenance and also leasing incentives.
Yeah, yeah, yeah. All AFFO, not FFO?
Correct, yep.
Correct.
Then I know, I know this is quite small, but the AUD 0.1 and other, what, what, what is happening there?
It's a combination of everything else that doesn't fit into that, into that, into that line. There's I can give you a breakdown if you like, but there's a few in and outs in there.
Okay. I mean, it's, you know, clearly you're giving up all your comparable NOI growth, so it's quite important to understand what's going on over there, but that's fine. Thank you.
Thanks, Lou.
Thank you. Your next question comes from Solomon Zhang with JP Morgan. Please go ahead.
Morning, Anthony and team. Sticking with slide 30, just wanted to sort of understand the NOI growth expectations of 3%. A bit of moderation. Is the key driver of that, the slowdown in anchor turnover rents, given the high percentage of turnover in 2023? You know, if you could just provide, if you've got a number for the turnover rent expectations for 2024 and any components of that 3% would be helpful.
I'll get Mark to answer that.
Yeah, sure. Really, there's, there's no significant difference in terms of turnover rent. The big change there is expenses. We are expecting, as Evan said in his speaking notes, 8% increase in expenses this year, and that's what's really pulling us back from the 4% Comp NOI to the 3% Comp NOI.
Gotcha. Second question from me was just around the callable interest rate swap in Slide 12. I guess just trying to understand the rationale behind the instrument. If I understand correctly, the counterparty is paying, floating to you, and you're receiving 3.6% fixed, and at the end of the non-call period, that would call the swap if your rate expectations were in excess of 3.6%. I guess, what's the rationale for doing this more complex hedging, which doesn't provide protection if rates go up? Is it access to the lower non-call rates for the first year?
Yes, correct.
Or-
Yes, correct. That is, that the rates on that was significantly more favorable than what, than what our, what the base rates were. Noting that, yes, what you said for two and three could be called by the bank. Each three could be called by the bank. Essentially, that was really to lock in that interest this year at that more favorable rate than versus the current base BBSW.
Great. Was that like a 25-40 basis point spread, or?
Significantly. It's at least 50 basis points.
Fifty?
Yeah.
good to know. Thanks for that.
Mm-hmm.
Thank you. Your next question comes from Sholto Maconochie with Jefferies. Please go ahead.
Hi, everyone. Thanks for your time. I'm just following up on the guidance. On the like-for-like, if you run through the property expenses, the eight, it implies about a 4.6, 4.7 top line growth. It looks like the margin went down a bit, and so you actually got slight margin compression in the NOI margin in FY 2024. Is that correct?
Yeah, that's right. We've got expenses growing by 8%, as I've said. We've got pretty robust revenue growth. Almost 5%, as you say.
Yeah
... is required to cover for that. I mean, we think the, as I said, the specialty rents will continue to grow around that 4% level. We think the supermarket rents will continue to grow around the 2% level. We think we can get more out of other income, and all of those things combined will help to compensate for that expense increase.
Okay. That makes sense. Okay, thanks for that. Just on sort of half the development slide, looking at the half, it looks like you, you were planning on doing AUD 42.6 million, but it was about, for the year, you only did about AUD 32 or AUD 32.5 million. It sort of looks like the timing's been moved out. You've got the fund-through Delacombe in there, so it just looks like you brought forward some of the CapEx in 2024 and 2025 from what you had before.
Mm-hmm.
It is, I think what we, we guided to about six months ago, and what we've mentioned here is that this is indicative, investment pipeline. It is subject to change in terms of, timing, and that really depends on, on, as we go through with it, whether or not it makes sense to do it now or do it in the future or do something different. I wouldn't read too much into why they're moving up and down.
It does move a bit.
Okay
... with the, with the property enhancements, with the click-and-collect, doing the deals with basically Woolworths and Coles. Timing is calendar.
Then on, and then on the Delacombe, I think it's the AUD 31.5 million fund through. What's the coupon on that fund through?
6%.
6% coupon. Okay, and then the, I think that's most of it. Then we already talked about the CapEx. That's pretty much everything for me. It's all been answered, but thanks so much for your time.
Thanks.
Thanks, Sholto.
Cheers.
Thank you. Your next question comes from Grant McCasker with UBS. Please go ahead.
Good morning. Can you just remind me, you changed property managers this period, is that correct? Are you able to talk through just the, you know, benefits that you've seen from a change in manager and/or what that's added to the portfolio? Secondly, have you given consideration, you know, there's a lot of talk about cost here. How do you think about sort of like an external management arrangement versus that internal at the property level? Would you ever look to, to bring it all in-house?
Sure, Grant, I'll get Mark to answer that.
Grant, as you know, prior to June 30 last year, we had a more complicated structure, where we had a national facilities manager and a national finance and IT provider, and then we split the property management into 10 different regions. It was a very complicated structure. On July 1, we moved that all under one provider nationally. That has helped us to get, you know, consistent execution, better execution at the operational center level. There wasn't any cost saving in doing that, so that was really a like-for-like swap in terms of cost. That sort of answers the first part of your question, I think. The second part of the question, external versus internal. I mean, we started life with everything externalized, even leasing and lease admin and tenancy delivery and everything.
We've gradually been bringing things in-house over the last 10 years. If anything, I think that trend is likely to continue, it's really about getting closer to the centers, getting closer to the operations of our business, particularly if we want to start investing in our centers. Some of those property enhancements that we've called out on slide 23, having greater control of what happens at the center level is an advantage. An internalized model, though, comes with a lot of issues, you know, particularly, we've got to manage a whole lot more people. There is considerations, both pro and against, for now, we're happy with the model we've got. We're always reviewing this question of external versus internal, it may change in the future.
Okay, excellent. Thanks for your response there, Mark.
Thank you. Your next question comes from Alex Prineas with Morningstar. Please go ahead.
Thank you, and thanks for the presentation. Just wondering if you've done any work or operation comment on any analysis done on the financial statement?
Mate, we can't hear what you're saying at all. It's breaking up.
Hi, sorry. Can you hear me now?
Yes, thanks.
Great. Yeah. Can you comment on the financial strength tenants, say, for example, we went into a deeper recession?
Yeah, sure. I mean, look, Mark's spoken about the sales growth and, and how resilient they have been for both our non-discretionary and our discretionary, and the discretionary coming off. They are off all-time highs, which was off the back of COVID. They're doing really well. In terms of, have we had a lot of insolvencies? No. I would say in the last couple of years, we've had significantly less than the norm. What is going to happen in the future? Look, that is why we're very focused on ensuring that we have as much in our non-discretionary sectors as possible, which is food, which is retail services, and also, what's the third?
Healthcare.
Pharmacy and healthcare are the, our really three key non-discretionary, and they travel very well through good times and through bad times, and that's what the vast majority of our portfolio is. We're not going to get the real upside when things are really good, but correspondingly, we don't go down when things are bad. Are things gonna turn? I think there is some signs there, and you can you can see by everybody else's results and the retailer results, but I don't think we're seeing an elevated level of insolvencies in retail, unlike in construction companies, where there've been a lot more. Whether that changes, I'm, I'm, I'm not sure, but we're focused on that non-discretionary sector, which is a lot more immune to anything like that.
Do you do any balance sheet analysis on,
All right. I think you've got a bad line there. We might move on to the -
Next question.
Next one. That's it? All right. I think that's, that's the end, so. No other questions? No. Okay.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Mellowes for closing remarks.
Great. Well, thank you very much, everyone. I hope you found that exhilarating, particularly after CQR was at 10. Probably everyone's a bit tired now, being hours at 11. Look forward to seeing you all on the rounds over the next two weeks as we go and talk to everybody. Thanks very much for your time, and I hope The Matildas have a good win tomorrow night. Thank you.