Thank you for standing by, and welcome to the SCA Property Group SCP HY21 Results. All participants are in a listen only mode. There will be a presentation followed by a question and answer I would now like to hand the conference over to Mr. Anthony Mellows, CEO. Please go ahead.
Thank you very much, and welcome all to the first half FY 'twenty one financial results for the SCA Property Group. My name is Anthony Mellows, and I'm the Chief Executive Officer. Presenting these results with me today is Mark Fleming, our Chief Financial Officer. Also in the room with me is Campbell Aitken, our Chief Investment Officer Michelle Tierney, our Chief Operating Officer and Eric Ries, our Company Secretary and General Counsel. I'm pleased with this set of results as it reaffirms that we continue to remain true to our core strategy of investing in and managing convenience based centers weighted to the nondiscretionary retail sector.
Firstly, let me take you to Slide 4, which sets out our first half highlights. Our net profit after tax of $102,900,000 is an increase of 14.1 percent over the same period last year. FFO per unit of 0.6 $7.2 is down by 20% over the same period last year and 8.2% up against the second half of FY 'twenty. Our distribution of $0.057 per unit was down by 24% on the same period last year and 14% up against the second half of FY 2020. Our gearing was 29.1% and our NTOs increased to $2.25 per unit.
Our portfolio weighted average cap rate is now 6.39%. Convenience based assets are still in strong demand from investors, particularly high net worth individuals or families as well as some new institutional investors. Investors continue to seek long term defensive cash flows in a low interest rate environment. Our weighted average cost of debt has improved to 3.2% with 6.2 years weighted average debt maturity and our portfolio occupancy is 98.2% and our specialty vacancy has improved slightly to 4.8%, which is within our target range of 3% to 5%. We acquired $178,900,000 of assets during the period.
Moving to Slide 5, which sets out some of our key achievements that demonstrate how we continue to deliver on our strategy. Our centers are trading strongly. Throughout the COVID-nineteen pandemic, our convenience based centers have benefited from a shift to shopping locally. Our anchor tenants have experienced strong sales growth and turnover rent has increased. Specialty sales have recovered following the easing of restrictions, and we have continued to complete leasing deals with 96 renewals, 63 new lease deals and 70 non code lease extensions completed during the period.
COVID-nineteen has impacted some of our specialty tenants. While most specialty tenants have experienced significant sales growth, 3 categories have been adversely affected being apparel, cafes and restaurants and some retail services. We have provided rental assistance to over 800 tenants and our total cash collection rates have stabilized at around 99% by the end of the period. We've continued to progress on our sustainability program, including commencing a new partnership with the Smith family, and we've continued to invest in energy saving initiatives, including efficient lighting rollout and building automation systems. And we have an increased focus on our ESG aspiration and strategy.
During the period, we acquired Auburn Centrum in New South Wales for 129 $500,000 Bakewell Shopping Centre and the adjacent petrol station in the Northern Territory for $39,400,000 and also some vacant land adjacent to our Greenbank Centre in Brisbane for $10,000,000 In December 2020, we also agreed terms to acquire Katoomba Marketplace for $55,100,000 from SURF 2. And in January 2021, we agreed terms to acquire Cooloola Cove in Queensland for $18,600,000 Both of these properties will settle in February 2021. The wind up of SURF II is expected to occur in the second half of FY 'twenty one and will deliver an IRR of 12% to those unitholders. Our balance sheet remains in a strong position. Our gearing at the 31st December was 29.1%, which is below our target range of 30% to 40%.
Our weighted average cost of debt is 3.2%. Our weighted average turn to maturity is 6.2 years, and we currently have cash and undrawn facilities of in excess of $200,000,000 Finally, our funds from operation per unit of 6.7 $2 per unit represents a decrease of 20% against the same period last year, but was 8.2% above the second half of FY 2020 and our distribution of $0.057 represents a decrease of 24% against the same period last year, but was 14% above the second half of FY '20. I'd now like to hand over to Mark to present the financial results.
Thanks, Anthony, and good morning, everyone. I'll start on Slide 7, which shows the sales performance of our tenants and our cash collection rates during the COVID pandemic. The sales growth shown here is month on month, I. E, the relevant month versus the same month in the prior year and you can see that it's been quite volatile. We had a big lift in supermarket sales in March due to panic buying at the beginning of the pandemic, but even after that, supermarket sales have remained abnormally strong throughout the pandemic period, ending with December month on month sales growth of 6.7 percent.
Likewise, discount department stores have performed really exceptionally strongly throughout the period, ending with December month on month sales growth of 12.1%. The key driver of the performance of our anchor tenants has been the trend towards shopping locally and staying at home that we've seen throughout the pandemic to date and that trend is continuing. In relation to specialty tenants, the sales growth has been more mixed. This is partly because many apparel tenants chose to close their doors during the height of the pandemic, while others, particularly cafes, restaurants and services tenants were restricted from trading normally by government restrictions. However, you can see that since the end of the Victorian restrictions in October, our specialty tenants overall have traded very well, recording December month on month sales growth of 9.9%.
We'll talk more about the trading performance of the different subcategories of specialty tenants in a later slide. In terms of cash collection, you can see that we've collected almost 100% of the contracted rental income throughout the half year period. However, rents are taking longer to collect and the collection rate in relation to first half invoices within 30 days was around 85%, which is below the pre COVID level of closer to 90%. Moving on to Slide 8, which shows the impact of COVID-nineteen on our earnings. The first impact of COVID-nineteen has been waived rent of $4,800,000 during the period, of which $2,400,000 was granted to SME tenants under the mandatory code of conduct and $2,400,000 was granted to national tenants.
We also granted deferrals of $2,500,000 predominantly to SME tenants during the period. The second impact is a movement in the expected credit loss allowance and there are actually 2 underlying movements there. Firstly, the ECL allowance was increased by the deferrals and unpaid rent during the period. However, this was more than offset by a better than expected collection of debts from the FY 'twenty financial year and that's why the ECL allowance movement is actually a positive contributor to the first half result. Finally, there are a range of other impacts of the pandemic such as increased cleaning and security costs, rent freezes required by law and reduced casual mall leasing income and we've assessed those at around $3,800,000 So the total impact of COVID-nineteen on the first half result is approximately $6,900,000 In terms of AFFO per unit, the two main impacts are firstly the 6% and secondly, the dilutive effect of the equity raisings that we completed at the beginning of the pandemic.
Our aim, once the impact of the pandemic fully redeployed the equity raising proceeds, is to return to the pre COVID level of AFFO, which was 0 0.075 dollars per unit each half or 0.15 dollars per unit per annum. Turning now to Slide 9, profit and loss. Our statutory net profit after tax was $102,900,000 which was up by 14.1% compared to the same period last year. The primary reason for the increase was an increase in the fair value of investment properties, partially offset by a decrease in the fair value of derivatives. Stepping down the P and L, you can see that net operating income has decreased compared to the same period last year, primarily due to the impact of COVID on rental income.
Corporate costs have increased due to an increase in directors and officers insurance premiums and because no KMP stip was paid in respect to the FY 'twenty financial year. Fair value of investment properties increased due to a combination of cap rate tightening, improved NOI outlook and reduced allowances for future lost rents due to the pandemic. Fair value of derivatives has decreased by $74,700,000 due to the cross currency interest rate swaps associated with our USPP and that's due to the appreciation of the Australian dollar and the lower and flatter yield curve. Likewise, the unrealized foreign exchange gain is due to the decreased value of our U. S.
Dollar debt due to the appreciation of the Australian dollar. Finally, interest expenses decreased due to the weighted average cost of debt reducing from around 3.5% last year to 3.2% now. Moving to Slide 10, funds from operations. To get to funds from operations or FFO, we reverse out the non cash and one off components of our net profit after tax, including fair value adjustments. As we compare these numbers to the same period last year, we need to keep in mind that the comparable period was before the COVID-nineteen pandemic began.
FFO of $72,300,000 is down by 7.9 percent on the prior year with the direct COVID-nineteen impacts of CAD6.9 million offsetting the contribution from acquisitions. FFO per unit of $0.0672 per unit is down by 20.4% on the prior year, a larger percentage decrease than the FFO due to the dilutive effect of the equity raisings in April May last year. AFFO of CAD62.4 million was down by 11%, slightly more than FFO because of an increase in maintenance CapEx. And finally, distributions of $0.058 per unit was down by 24% on the prior year due to the impact of COVID-nineteen and the equity raisings. The DPU payout ratio was 98% of AFFO.
It's a different story if we compare this half year to the immediately preceding half year being the second half of the FY 2020 financial year. That is arguably a fairer comparison because both halves were impacted by COVID. That comparison shows that our FFO, AFFO and distributions have all increased strongly as the impact of the pandemic begins to recede. FFO is up by 8.2%, AFFO per unit is up by 7.4% and distributions per unit is up by 14%. We expect this positive trend will continue in the second half of this financial year.
Turning now to Slide 11, which shows our summary balance sheet. Cash has reduced to a more normal level due to utilizing GBP 180,000,000 of term deposits to repay the medium term note in October last year. The book value of our investment properties has increased to $3,403,000,000 due to $178,900,000 of acquisitions and a $63,000,000 increase in the like for like valuation of investment properties. Other assets has decreased due to a reduction in the mark to market valuation of our cross currency interest rate swaps as discussed earlier. Net debt has increased primarily due to acquisitions during the period.
Net tangible assets per unit has increased slightly to $2.25 per unit due to the investment property fair value increase being partially offset by the decrease in the fair value of our derivatives. Excluding the movement in derivatives, our NTA per unit would have been $2.32 per unit. Finally, our management expense ratio has increased due to a $1,800,000 increase in our D and O insurance premiums and because no KMP stip was paid for FY 2020. Moving to Slide 12, which deals with debt and capital management. Half, During the half, we repaid the $225,000,000 expiring medium term note, we issued $50,000,000 of new 10 15 year notes and we extended some of our bank facilities.
As a result, our weighted average cost of debt has reduced to 3.2%. Our weighted average debt maturity has increased to 6.2 years. We have over $200,000,000 of cash and undrawn facilities and we have no debt expiring until FY 'twenty four. Finally, as you can see, we are well within our banking covenants. Thank you.
And I'll now hand back to Anthony for the operational performance overview.
Thanks, Maher. So turning to Slide 14. As we previously mentioned, we acquired 2 convenience based centers and 1 additional development site. And we are focused on ensuring that our waiting categories continue to be within the nondiscretionary sectors being food, medical and retail services. Our occupancy is 98.2% and the number of our specialties has increased to over 1900 tenants.
48% of our gross rent comes from majors such as Woolworths, Coles, Aldi or Wesfarmers. And of the other 52%, there remains a heavy weighting towards those nondiscretionary categories. Slide 15 describes our portfolio occupancy, and our specialty vacancy has remained very stable despite the challenges of COVID-nineteen. Our specialty vacancy has in fact reduced to 4.8% from 5.1% in June, which is well within our target range or just inside our target range of 3% to 5%. And our specialty tenants on holdover for our entire portfolio is 1.6%.
We had 5 major leases expiring in FY '21, all of these extensions have been agreed. Turning to Slide 16, sales growth and turnover rent. The sales growth in our centers is strong despite some of those specialties being impacted by COVID-nineteen. As Mark outlined on Slide 7, our centers continue to perform strongly. Our supermarkets MAT sales growth has increased to 8.6% with both Woolworths and Coles showing strong positive growth.
Our discount department stores MAT sales growth has increased to 15% with BIG W performance being very positive. Mini Majors increased to 6.3% MAT growth with discount variety pharmacy and some sporting seeing increases due to more time being spent at home. And our specialty sales have recovered to 0.5% with our core categories continuing to perform well. Strong Christmas trade with December being 10.5% up. Our non discretionary categories outperformed our discretionary categories.
We continue to see stronger performance from our neighborhood centers versus our sub regional centers. And excluding Victoria, which was primarily closed due to COVID, our specialty MAT would have been 4%. Our turnover rent growth continues to increase. We now have 39 anchors or 35% of our portfolio anchors contributing turnover rent with a further 14 supermarkets within 10% of the turnover threshold. 2 anchor tenant turnover rents were captured into base rent reviewed during the period.
Specialty key metrics is outlined on Slide 17, and we are really focused on sustainable occupancy costs for sustainable specialty tenants. Our sales growth increased to 0.5 percent. Our sales productivity increased to $8,367 per square meter and our rents remain one of the lowest in the sector at $7.88 per square meter. And our occupancy cost reduced marginally to 9.9% from 10% at June 2020. Our strategy has been to maintain a high retention rate on renewals.
This is up to 78% for the 6 months to December compared to 76% to the 12 months to June 2020. We're looking to reduce our specialty vacancy with a focus on our long term vacancies. We did 63 new deals in the 6 months to December, a strong result given the COVID-nineteen restriction. And we will continue to remix towards our nondiscretionary categories. Strength in the quality of new deals is reflected in a positive average leasing spread of 0.8 percent.
In June, it was negative and low average incentives at 11.8 months. The average renewal spread was negative 4.6% and this was due primarily to 3 unfavorable pharmacy renewals. Excluding these, the renewal spread would have been minus 1.9%, which is relative consistent to the renewal spread at June 2020. And we've been able to continue to achieve our 3% to 5% annual fixed rent increases for at least 80% of the specialty tenants. Sustainability is outlined on Slide 18, and we continue to focus on our long term sustainable performance.
We've got 3 pillars to our sustainability strategy: stronger communities, and this is our commitment to build stronger community relationships and this was further progressed with the commencement of our partnership with the Smith family, environmentally efficient centers, sustainably focused investment to drive programs that generate acceptable returns with particular focus on automating our buildings, energy efficient lightings, renewable energy and also some industry participation. And then finally, responsible investment. The next phase of our strategic planning and engagement across the business is to deliver a revitalized strategic outlook for ESG. Turning to Slide 20, which highlights the 2 acquisitions that we've spoken about previously. Bakewell in the Northern Territory was acquired in September 2020 for $33,000,000 representing a 7.22% implied fully let yield and the adjoining petrol station was acquired for $6,400,000 in December 2020.
It is anchored by Woolworths and 11 tenancies. We also completed the acquisition of Auburn Central for $129,500,000 representing a 6% implied fully let yield. We exercised our option to acquire 10 hectares of development land adjacent to our Greenbank Centre in Southwestern Brisbane. And finally, in December 20 January 21, we agreed terms to acquire Katumba Marketplace and Cooloola Cove, which are both expected to settle in February 2021. Slide 21 highlights the fragmented ownership in our sector and this provides us with further acquisition opportunities.
We are the largest owner by a number of convenience based centers, and we will continue to look to consolidate this sector by utilizing our funding and management capability to execute on accretive acquisition opportunities. Since listing, we have acquired 52 neighborhood centers for in excess of $1,900,000,000 in aggregate and we have also divested 34 centers for over $500,000,000 And during the half year to 31 December 2020, there were 10 neighborhood centers and three sub regional centers that were transacted. However, we will continue to remain disciplined with respect to acquisitions and disposals and we will transact where we believe that a relevant asset will add value to SCP. Slide 22 outlines our indicative development pipeline over the next 5 years. In summary, we've identified and working on more than 30 potential developments, totaling CapEx spend in excess of $100,000,000 Slide 23 outlines our retail funds management business.
SURF 1 was successfully ended in October 2020, which produced an IRR of 11% to those unitholders. And SURF II is on track to end in 2021, which should provide an IRR of around 12% to the unitholders. There are no new funds forecast for FY 2021. However, we will continue to monitor the retail and institutional market appetite for new product later in the year. I'd now like to talk about our key priorities and outlook on Slide 25.
Our core strategy remains unchanged. We will continue to seek and deliver defensive resilient cash flows to support secure distributions. We'll continue to focus on the convenience based retail centers with a strong weight into the non discretionary retail segment, and we will be seeking long term leases to quality anchor tenants such as Woolworths, Coles and Aldi and Wesfarmers, which was again demonstrated by our latest acquisitions. We'll continue to explore the core business growth opportunities with our development pipeline, but we will remain disciplined with respect to acquisition and disposal opportunities that meet our future investment that meet our current investment criteria. I'd now like to hand over to Mark to talk about the potential future impacts of COVID-nineteen.
Thanks, Anthony. We've included this Slide 26 to help people think about the potential impact of COVID 19 on our second half results. As we've seen in previous periods, the primary impact of COVID-nineteen for the rest of the financial year is expected to be the non payment of rent by tenants whose sales have been negatively impacted by the pandemic. You can see here that there are 3 categories of specialty tenants that have been particularly impacted over the last 12 months, being those in the apparel, services and cafes and restaurants subcategories, which together represent around 16% of our gross rental income. Interestingly, all three of those categories traded relatively well in November December last year following the end of the Victorian lockdown.
As we've said previously, our strategy has been to reduce our weighting to the apparel category and you can see this again in the last 6 months with 8 apparel stores closing and only 2 new apparel stores opening. Finally, the number of tenants that we're giving rental assistance to has decreased significantly from a high of 44% in April down to below 10% in October and this is expected to continue to reduce further once the mandatory code of conduct ends in March this year. Anthony, back to you.
Thanks very much, Mark. So turning to Slide 27, our key priorities and outlook for FY 2021. Love local, shop local, act local. Local centers have never been so important to the communities that they serve. Our primary objective over the next 6 months to ensure that our centers emerge from the COVID-nineteen pandemic in a stronger position as we get back to business as usual.
Our focus continues to be serving our local communities for their everyday needs, partnering with our supermarket anchors to provide a convenient supermarket offer. This includes working with Coles and Woolworths to improve their online offer. 58 supermarkets in our portfolio now have dedicated click and collect bays. 2 supermarkets have drive through for online pickup with a further 7 planned for the second half of FY 'twenty one. And online sales are generally included in turnover rent calculations for the vast majority of our centers.
We're actively managing our centers to ensure ensuring that the long term sustainability of our business, including building those stronger communities, having more environmentally efficient centers and also the responsible investing. This all supports our strategy of generating defensive resilient cash flows to support the secure and growing long term distributions to our unitholders. We'll continue to explore and acquire accretive neighborhood centers in a disciplined and measured way, while also progressing our identified development opportunities. We'll continue to actively manage our balance sheet to maintain diversified funding sources with long weighted average debt expiries and a low cost of capital consistent with our risk profile. Our gearing is to remain below 35% at this point in the cycle.
And finally, our earnings guidance. Our FY 2021 FFO per unit guidance is to achieve at least $0.144 per unit and our AFFO per unit guidance of at least $0.122 per unit, assuming no further major outbreaks are fully deployed. I'd now like to invite some questions. Thank you.
Thank Your first question comes from the line of
services in cafes and restaurants, which have had a good bounce back in both November December and the dislocation from CBDs out to the local centers. Hopefully, it will be we won't be affected too much. There could be some fallovers. We always will have fallovers, but the strength of our sales and the dislocation of people down to those local centers, regional centers is a real positive for us. So we'll just see.
That's why we've always focused on getting those 3 core categories of food, pharmacy and medical and services because we believe they're quite sustainable business for our types of shopping centers.
That's great. And then just switching gears sorry, go ahead, Tom. Sorry, switching gears just to the turnover rent side of things. We've clearly seen some pretty strong growth increasing to $2,600,000 in
the half compared to just over $3,000,000 in the full year. Are you able to quantify where you expect this
to land for the full year?
I'd love to be able to quantify, but I can't. We have had the period last year or at least next 6 months, January to June, was some of the most volatile supermarket sales that have ever been seen in Australia for last year. And it's going to be interesting to see how those supermarkets perform against those really elevated levels. So it is really difficult to forecast. Personally, if the supermarkets were able to stay flat against last year, I think it will be an absolutely exceptional result purely because those sales last year, I think in some months, they were 20%, 30% up.
We've never seen that before. So yes, it's really difficult to forecast at the moment.
That's great. Thank you, guys.
Thank you. Your next question comes from Simon Chan with Morgan Stanley. Please go ahead.
Hi, good morning, Anthony and Mark. So a question in relation to Slide 17. You the bottom bullet point, you said you continue to achieve 3% to 5% annual fixed increases for 80% of the specialty tenants. So I've got 2 questions in relation to that first one. Would the average be closer towards a 3% or 5%?
And second question, can you comment on the remaining 20% of specialty tenants who aren't in that 3% to 5% bucket? How are their leases structured?
Yes. Thanks, Simon. The average is pretty much in the middle, so around 4%. In terms of the other 20%, as shown in the chart below, 10% of them are CPI linked, generally CPI. And then some of the fixed increases are less than the 3% to 5% range.
Right. Is this a trend that you guys are a little bit concerned with? Because I went through your previous presentation and you had a 90% I mean 88% of specialty tenants in the 3% to 5% fixed increases and now you're at 80. Percent. Should we see that trend come down to 75%, 70% going forward or do you think 80% is probably about the new normal?
Look, I think 80% is about where it's at. As you've seen over the last this COVID period, particularly in the 1st few months of the period, there were some negative spread lease deals and maybe some terms that weren't what we would normally do. But I think in general, we should be at least at these levels.
Great. Just one more for me. I just want to make sure I'm interpreting the 99% rent collection properly. I guess my question is, so how much rent or percentage of rent did you guys collect in the first half that was billed in the half?
So the rental shortfall in the first half was about $26,000,000 So if you look at the sort of half yearly rental income, which is roughly around $140,000,000 You can work out the percentage, but so there's a significant shortfall in the half year ended 30 June, but we've recovered that strongly in the last few months. And you can see that on Slide 7, where we went down to as low as 69% collection in April.
Yes, I was more asking about the December half, Mark. How much of your December half billings in the last 6 months have actually been collected in the last 6 months?
Okay, the number is about 91%. So there was sorry, I misunderstood your question. So there's around about a $13,000,000 cash shortfall in relation to invoices that related to the first half of twenty twenty one, but that was offset by a similar amount of collections that related to the FY 'twenty financial year.
Okay, okay. About 96%, that's terrific. Thank you.
91%, I said 91%. So 90 1 percent, yes, 91% which represents a shortfall of about $13,000,000 for the half. But that was offset by $13,000,000 of collections that actually related to FY 2020 invoices.
Yes, that's great. Thanks very much guys.
Thank you. Your next question comes from Edward Day with Moelis Australia. Please go ahead.
Good afternoon, Mark. Just on that Slide 7, there's been a bit of a plateau in the collection rate at 85%, 86%. Could you just talk to exactly why that's stabilized? And I'm guessing you'd expect to see that rebound pretty quickly once the New South Wales and Victorian SME codes expire?
A lot of the reason that there's a delay in payment is that tenants who are expecting to get a credit under the mandatory code of conduct are generally waiting until they've received that credit, I. E. Waiver and deferral before they pay their rent. And there is a time delay there because we can't calculate the credit that they're due until we receive their sales for the relevant month. So whereas we might invoice at the beginning of the month, we do invoice at the beginning of the month, the sales don't become available obviously until after the end of the month and then it takes us some time to process those requests, so that you do end up obviously getting a delay in payment.
And that's the main reason that we're not back to around that 90% level, which would where we which is where we were pre COVID.
So assuming at 1 March, there's no more code of conduct in place, that should be 91%, 92% from there on?
Yes, look, I'd expect it to get back to that 90% level by the end of this next half. And as you say, the key timing there is that the Code of Conduct has ended in a number of states, but it's still continuing until the 28th March in those big states of New South Wales, Victoria, Queensland and WA, I should say, New South Wales, Victoria, WA. April, May, June, we should start to see that get back to 90%.
Okay. And then just on the unfavorable pharmacy renewal, can you just provide a little bit more color around that?
Yes. There was 3 pharmacy deals that we did and they're core categories of ours. And yes, they were basically softer deals. They had an opportunity to go elsewhere, but we wanted to retain them. We want to keep our retention rate up.
It's a very important part of our mix. And yes, it was I'd love to say we don't have tough deals, but we do. And they were 3 tough deals that we had to do to retain the mix that we wanted to keep.
Are they slightly longer term deals?
Yes, about 5 to 7 years.
Okay. And then just one last one. Just on your comment in the outlook statement around your return to $0.15 of AFFO. Can you just maybe go through some components of that, including what you think gearing or what that assumes for gearing?
So I guess this sort of comes off Slide 8. So we're assuming that that COVID impact of roughly $7,000,000 is no longer there. In terms of the redeployment, we raised $279,000,000 We've redeployed $179,000,000 of that. When I think about the $279,000,000 of equity, we need to increase that for the natural level of gearing. So when I think of $280,000,000 of equity raised, I think more of $400,000,000 of acquisitions.
So I would say that once we've completed £400,000,000 of acquisitions, then we'd be back at that $0.075 level. That would take our gearing up still below 35%, but somewhere in the 33% to 34% range is where we would end up after that redeployment, assuming it's all debt funded.
That's great. Thank you.
Thank you. Your next question comes from Adrian Dark with Citi. Please go ahead.
Good morning, Anthony, Mark and team. I had a question first up about your dividend outlook. Could you confirm what we should be expecting there? I think pre COVID, typically guidance was provided on FFO and the dividend per share, whereas now we have clarity on the AFFO guidance, but perhaps not a direct translation to the dividend. Could you talk about that, please?
Well, our policy with dividend is actually that we pay out approximately 100% of AFFO. So we have, I guess, over the last few years, and particularly since the pandemic started, been more and more focused on AFFO as well as FFO. So the medium term guidance that we've given at $0.15 is an AFFO number and therefore we'd expect the distributions to get back to approximately $0.15 per unit. We haven't given a timeframe for that because as we said, it depends on when COVID pandemic ends. It depends on when we've redeployed the funds.
But I would be thinking, therefore, more a FY2023 timeframe rather than an FY2022 timeframe.
Thank you. That's helpful. Should we, for FY 'twenty one, be thinking about the AFFO guidance as being akin to dividend guidance in the absence of something unexpected?
You should.
Okay. And then a question about the group's leasing approach. My understanding is that you've been more focused, perhaps than some others, on securing income, including in the June half of last year. And that's led to some variability in spreads. You touched on the pharmacy deals and so on.
Could you talk about, I guess, your observations around market rents, perhaps what you see your competitors doing and the point that I think Anthony made around pharmacies having an option to move elsewhere. Any observations you have around that at a broader market level, please?
Yes. Look, I think for us, I can only talk about us. You need to talk ask others what their view is. But certainly for us, our focus is really on those core specialty categories of food, pharmacy and health and retail services. The market in those categories, some have been hurt more than the others because of COVID and they are definitely a little bit softer.
But some other categories are also doing really well. So we've got some great takeaway deals takeaway food deals that are sort of coming through. So and it really depends on the individual market that you're in. So in some regional country locations, it's not too bad. If you're in a center that has some strong competition from others, you could that have had even greater impacts than what we have, they could be offering some lower type rental deals or tighter deals.
So it's really horses for courses. As I said, our focus is on retaining and keeping that retention rate up, maintaining that our tenants on holdover is low and that's really where we're focusing on because new deals are have always been more expensive than renewing somebody on a current deal. So yes, that's where we're at.
Thank you. That's all for me.
Thank you. Your next question comes from Caleb Wheatley with Macquarie. Please go ahead.
Good morning, everyone. Thanks for your time. First one for me, just on the second half guidance, particularly with regards to AFFO. Can you give any color on what you're assuming in terms of the release and incentives there, please?
So look, I think as a preamble, we do remain relatively cautious in relation to the second half. There is still significant uncertainty. We've had the lockdowns in Perth. We've had cases in Sydney and Melbourne. We've got JobKeeper ending in March.
So our guidance and our forecast is, I would say, on the cautious side. And therefore, we're expecting that the COVID impacts, the sort of COVID impacts that we've seen in the first half will continue into the second half. So that's the first thing. The second thing is there are a range of other impacts that we expect will also continue into the second half. So firstly, we've got the full year impact of the negative rent reversions that we've seen over the last 9 months.
We've got the impact of the increase in corporate costs, which is primarily due to those directors and officers insurance premiums. And we've also seen that increased level of maintenance and leasing CapEx and we think that will continue into the second half. Finally, we've assumed that there are no further acquisitions in the second half. So hopefully, that's a bit of a general breakdown for you. But we're not expecting that things go back to normal on the January 1.
Sure. And maybe on those further acquisitions, assuming that you're still assessing those opportunities as they come, how is pricing looking in the direct markets? And do you have any expectations around ability to deploy near term or obviously there's medium term target there as well?
Yes. Look, we there's no doubt last year, particularly the second half of last year well, really from May, June onwards in the second half of last year, the market really there were a lot of deals that were done that were really tight deals. And you saw that in our valuation uplift and others for those neighborhood type shopping centers. I believe that that will continue. So there has been cap rate compression.
Whether that continues to be cap rate compression, I don't know. But certainly, I think at those levels that they currently are at, they will remain for some time. We have managed to find, as we have always done, assets that aren't just all on the market. That's about our contacts and our focus to do deals, our ability to conclude deals. And there's the highest and best price isn't always the best isn't always the only way to buy an asset.
So we are still you look at our track record since we've listed, I think we're averaging at least a couple of $100,000,000 a year. We've already done a couple of 100 already. And I think there's no reason that we shouldn't continue to do $200,000,000 to $300,000,000 per annum. So we've got a good network and we will hunt those out and it's a very fragmented market. There's always transactions that are happening in this market and we will continue to find and seek out and remain disciplined to redeploying those funds.
Perfect. Maybe just one final one for me. On the lease renewals, so you touched on the 4.6% decline or 1.9% excluding those pharmacies, but the new leases were up about 0.8%. Was it just a bit more of that remixing focus that drove the differential there? Or is there anything else going on?
No, it was really more of the same. Really in the second half of or the last quarter of FY 'twenty one, we continued to do deals at the height of COVID and they were we did some pretty tough deals, but we decided we will continue to do deals. Those deals have got better through the first half of FY '21. And yes, I think they will continue. There's no one area that I could point to.
It's just probably the market's generally better for our types of shopping centers because the centers are trading very well. People like local centers. They believe in local centers and we're finding we've got more inbound inquiry than we have had.
Great. That's all for me. Thank you.
Thank you. Your next question comes from Christoph Kaczmarek with JPMorgan. Please go ahead.
Hi, guys. Just one quick question for me. In terms of the turnover end, how much are you going to be able to capture of that in terms of the base trend just looking forward?
Yes, Christophe. Look, the way the formula works is that there's a base rent review on the 5th anniversary of those leases, each 5th anniversary, and that base rent review is the average of the last 3 years base plus turnover rent. So provided the turnover doesn't go backwards over the next 2 to 3 years of the supermarkets, then we'd expect to capture all of that increase in base rent whenever the relevant rent review comes up.
Right. Okay. So in other words, the base rent you're going to capture is probably going to be lower than the sort of elevated levels of turnover that you're doing at the moment, just given that you haven't been doing that level of turnover historically, I guess?
If we had a rent review that was happening right now, it would be the average of the last 3 years, so you'd only capture a third, for example, of that increase in the base rent. But the turnover rent, therefore, would continue because your turnover rent calculation would result in additional turnover rent being paid over and above the base. I know it's a bit complicated, but that's yes, you can sort of do the math on it. That's how it works.
Yes. No, that makes sense.
Completely miss out. As long as the supermarket sales don't go backwards, we should maintain that level of rental income. The mix between base and turnover will depend on exactly when the base rent reset is.
Yes, yes. Excellent. Thanks, guys.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Mellows for closing remarks.
Great. Thank you very much to everybody and look forward to meeting you all in the next 2 weeks as we go through. And hopefully, COVID doesn't come back and lock down Melbourne and Sydney and Brisbane and everywhere else again, and we can just keep moving forward. But thanks very much. Look forward to meeting you all and thanks for your questions today.
Thank you.