Good morning and thank you for joining us for the Vicinity Centres Results Call for the 12 months ended 30th of June 2025. Joining me on today's call is Adrian Chye, our Chief Financial Officer. Before we begin, I'd like to acknowledge the traditional custodians on the lands on which we meet today and pay my respects to their Elders past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples on the call today. We will start today's presentation on slide five. FY 2025 has been another important and successful year at Vicinity . The strategic decisions and investments we have made remain anchored by our strong conviction that premium fortress-style assets located in great trade areas that are well managed by retail property experts have the potential to deliver superior and sustained income and value growth.
What's more, with a growing shortage of retail GLA per capita in Australia, retailers are positioning themselves for the next cycle, becoming more discerning and selective in terms of partnering with owner-managers of the best-performing assets and are committing to leases with longer tenure and typically in larger store formats. In this context, we are curating a higher quality and higher growth asset portfolio by acquiring premium assets with strong growth potential at attractive pricing, diverse non-strategic assets also at attractive pricing, and selectively investing in important large-scale retail developments. To that end, we have successfully acquired a 50% interest in Lakeside Joondalup in Western Australia for $420 million and importantly secured the associated property management rights. Under our management, the acquisition was accretive to FY 2025 earnings and achieved a gross valuation gain of $30 million since acquisition.
We exceeded our asset divestment target by more than $200 million, having raised close to $460 million from divesting whole or partial shares of assets. Not only have asset sales provided an important funding mechanism for our growth priorities, asset sales have also provided a further trend towards our targeted premium portfolio mix. We completed the development and launched Chadstone's revitalized fresh food precinct, the Market Pavilion, with the customer response and trading metrics exceeding expectations. Construction of Chadstone's new One Middle Road office tower was completed in May this year, with Adairs commencing occupation in June and Kmart commencing their head office fit-out in July.
We are particularly pleased to announce the extension of our partnership with the Louis Vuitton Moët Hennessy Group to open at Chatswood Chase in quarter four FY 2026, which combined with other market-leading retailers makes the successful reimagination of Chatswood Chase into Northern Sydney's fashion capital all but complete. Adrian and I will cover our financial and operating metrics in more detail shortly. However, in summary, at $674 million, Funds from Operation was $9 million up on the prior year, and importantly, on a per security basis at $0.148, was at the top end of our guidance range of $0.145- $0.148 per security. The board declared a final distribution of $0.0605 per security, bringing FY 2025 distribution to $0.12 per security, representing a payout ratio of 95.4% of adjusted FFO.
Strong income growth and improving portfolio metrics reflect the confluence of curating a high-quality retail asset portfolio, especially in an environment of tightening retail supply and, of course, the team's steadfast focus on delivering leasing outcomes that drive robust earnings growth in a more resilient than expected retail sector. Disciplined financial stewardship, together with a $349 million increase in asset valuations in FY 2025, ensured gearing remained at the lower end of our target range of 26.6%. Having maintained our sector-leading credit ratings, our balance sheet remains a source of competitive advantage and strength. It is pleasing to note that our significant focus on culture, strategy, and performance was showcased by our FY 2025 employee experience survey results, having achieved a score of 7.8, representing a 0.4 increase relative to the prior year. We look forward to building on this result even further in FY 2026.
Lastly, I'm pleased to report that while we remain focused on embedding ESG into all aspects of our financial and operational decision-making, we have been intently focused on uplifting our data capture processes and systems as we ready ourselves for mandatory climate reporting, which comes into effect in FY 2026. At Vicinity , we believe that strong employee engagement relies on a strong connection that exists in between our people's day-to-day activities and the purpose and vision of our organization. Our purpose is to shape meaningful places where communities connect, and with a network of 51 owned shopping centers nationwide, our centers naturally play an important role as economic, social, and employment hubs where communities can access essential and discretionary goods and services and connect in our entertainment, food, and leisure precincts. Our shopping centers welcomed around 380 million customers in FY 2025.
That equates to more than one million visitors per day. Our organizational vision is to prosper with our people and communities by creating Australia's most compelling portfolio of retail-led destinations. A key measure of industry success is specialty sales productivity, where five of the top eight most productive retail assets in Australia are Vicinity assets. Vicinity's unwavering customer centricity, willingness, and ability to transform assets into experience-led destinations, coupled with trusted and enduring partnerships with the best retailers, local and international, are at its most fundamental level the intended outcome of our investment strategy. This brings me to slide seven, a slide often referred to as a strategy on the page.
Our capital allocation model, depicted on the top left of this slide, highlights the means by which, and indeed the magnitude of, our deliberate strategy to recycle capital out of smaller non-strategic assets where market liquidity and pricing continues to be robust and reinvest proceeds into premium assets by acquisitions and developments that present greater long-term growth potential. We have been selective, timely, and disciplined with our acquisitions of the residual 49% interest of Chatswood Chase and more recently with the 50% interest in Lakeside Joondalup. In a similar context, in a constrained construction sector and with cost of capital remaining elevated, we continue to prioritize the most value-accretive retail developments, being the transformational projects at Chadstone and Chatswood Chase, which I'll talk to in more detail shortly.
These developments, together with our acquisitions and divestments, are each driving a meaningful uplift in the overall quality of our asset portfolio, which you can see in the chart on the bottom left. What's more, we've been able to make these meaningful portfolio enhancements with relatively little impact on our balance sheet. In other words, we've been able to self-fund much of our current and future income growth. The premium assets remain the key source of sustained income growth, demonstrated in FY 2025 by comparable NPI growth of 4.9% and leasing spreads of 6.1%, or nearly 2.5 times the average. Importantly, to transform an asset into a premium asset and/or to acquire and maintain a premium asset requires us to deploy our vertically integrated team of executives to identify and capture unlocked value.
At Vicinity, our approach to unlocking value and maintaining our premium assets is depicted in the virtuous cycle where superior income and value growth is generated from partnership-based product allocation, capital, and organizational capability, collectively delivering integrated placemaking, as well as the execution of innovative activations and experiences. Sustained retail sector resilience likely reflects population growth, the accumulated benefits of income tax reductions, federal government incentives to reduce cost of living, as well as the recent and likelihood of further interest rate reductions. Despite this, we entered the year anticipating a softer first half ahead of a steady return to growth in the second half. After a benign first quarter, we had a successful Black Friday period, which extended into a strong Christmas trade that underpinned a 2% growth in the first half, which then accelerated to a 3.8% growth in the second half.
What is more interesting, however, is the momentum of improvement across the specialties and many majors over the second half. This category delivered a growth of 4.7% in the second half, comprising 3.1% growth in the third quarter, accelerating to an impressive 6% growth in the final quarter. Interestingly, discretionary categories led the rebound, including leisure, jewelry, and homewares, and pleasingly, this rebound was observed across all segments. The luxury category remains highly productive at more than $61,000 per square meter in sales, and we are pleased to report that over the second half, luxury sales reported positive growth in four of the six months. Consequently, these robust retail sales results saw our specialty sales productivity increase 2.3% to $13,037 per square meter, setting a new high for Vicinity.
Importantly, however, retail sales growth and its impact on sales productivity are an outcome of highly strategic leasing activity, strong retailer demand, a higher quality asset portfolio, and of course, tightening supply of retail floor space. We finished the year with occupancy at 99.5%, 20 basis points up on June 2024, achieving our lowest vacant shop count to date. In fact, all segments are now above 99% occupancy, with our outlets essentially fully occupied at 99.9%. Notably, having mobilized our property and leasing plans for Lakeside Joondalup in the second half, we have already seen a 50 basis point improvement in that asset's occupancy over the period. Leasing spreads for the year were positive 2.5%, with the premium asset portfolio once again the strongest contributor at 6.1%.
Importantly, our apparel and footwear category, responsible for 36% of rent transacted, achieved a 4.1% leasing spread underpinned by Chadstone and the outlet centers. The average tenure of new leases remained robust at 4.3 years. Also supporting income growth, we maintained the average annual escalators on deals completed at a healthy 4.8%. Excluding sites that have been strategically held for development, the portion of income on lease holdover is at a historic low at just 2.1% for 154 stores. For some time now, we've been asked for how much longer can we sustain positive leasing spreads, especially given the resilient but largely benign retail sales environment in recent years, as well as higher costs of doing business for retailers.
Our specialty occupancy cost ratio, or OCR, has increased 40 basis points to 14.1% in FY 2025, which we largely attribute to the subdued sales environment in 2024 and into the start of FY 2025. While year-on-year movements in OCR are notable with specialty tenants mostly on five-year leases, and given FY 2020 was COVID impacted, it makes sense to compare to FY 2019. Relative to FY 2019, lower OCRs across our premium, core, and total portfolio are a reflection of specialty sales productivity growth, significantly outstripping rental growth by a factor of 1.5 times. Naturally, COVID sparked a resetting of rents, but what's more important is that sales productivity has continued to grow and occupancy rates are now incredibly tight. Consequently, headroom exists for sustained rental growth. From a sector's fundamental perspective, we have a more premium asset portfolio compared to FY 2019 that can support higher OCRs.
Tightening supply of quality retail floor space leads to demand-generated price tension. Knowing this, retailers are locking in longer-term leases in larger format stores in the best centers. While I say this with a degree of caution, the recent investments we have made in our retail assets will be the benefactors of strong employment, growing population, and loosening monetary policy, which will drive consumption. That all being said, we certainly acknowledge the uncertain and volatile geopolitical environment and other potential exogenous risks that have the ability to impact our outlook for both sales and rent growth. I'll now hand the call to Adrian.
Thanks, Peter, and good morning. Statutory Net Profit After Tax for the year was $1 billion, comprising $674 million of FFO and $331 million of statutory and other items, largely relating to net property valuation gains. Funds from Operations increased by 1.4% to $674 million, but adjusted for one-off items and higher loss of rent from developments, FFO was up 3.6%. Comparable NPI increased by 3.7%, which was supported by the continued strength of our premium asset portfolio, which delivered 4.9% comparable NPI growth and an increase in media income, which drove a 7% uplift in ancillary income. External management fees were down $10 million, with a reduction largely attributable to development fees. Having acquired the residual 49% of Chatswood Chase in March 2024, we ceased earning development fees and instead started capitalizing development personnel costs to the asset.
This provides an offsetting benefit to corporate overheads, which I'll come to. In addition, the completion of the major development at Chadstone naturally resulted in a reduction in development fees. Disciplined cost management and development personnel costs related to Chatswood Chase development being capitalized to the project underpinned lower net corporate overheads. Net interest expense increased by 9.6%, mainly due to the high weighted average cost of debt at 5.1% relative to 4.9% in FY 2024. The timing of transactions, notably the acquisition of Lakeside Joondalup in August 2024, and the settlement timing of divestments, which was skewed to the second half, also contributed to the increase in interest expense. Maintenance and leasing incentives were stable at $100 million, and we expect a similar level in FY 2026.
Turning now to valuations on slide 13, the portfolio delivered a net revaluation gain of $175 million, or 1.2% over the six months to June 30, representing the third consecutive six-month period where the portfolio delivered a valuation gain. Over this period, net valuation gains have been underpinned by consistently strong income growth, which has in turn been driven by the improved quality of the portfolio in addition to strong asset management and leasing outcomes. Outlets continued to record strong gains, reflecting their superior occupancy and consistently positive leasing spreads. Our CBD portfolio increased 2.4%, benefiting from significant tenant remixing undertaken in recent years and improvement in occupancy. Valuation growth was partly offset by increased property operating expenses, largely comprising additional and increased state-based taxes and levies. Pleasingly, transaction markets remain active across the majority of retail subsectors, with increased investor appetite and market evidence supporting current valuation metrics.
Looking ahead, we continue to expect that with lower interest rates and resilient income growth, Vicinity's portfolio will continue to be well-positioned for future growth. Turning now to capital management, maintaining our conservative and disciplined approach to managing gearing and retaining our market-leading credit ratings continue to be guiding principles for Vicinity when managing and deploying capital. Vicinity maintained its market-leading credit ratings of A stable and A2 stable from Standard & Poor's and Moody’s, respectively. At 26.6%, our gearing remains at the low end of our 25%- 35% target range. Consequently, Vicinity enters FY 2026 in a strong and flexible position to invest in its long-term growth priorities, both planned and opportunistic. We continue to actively manage our funding risk.
In January this year, we took advantage of attractive market conditions to issue $500 million of seven-year fixed-rate AMTNs at a margin of 130 basis points over the relevant swap rate. With undrawn bank facilities of $1.7 billion, we have sufficient liquidity to fund all FY 2026 debt expiry and committed development spend. Additionally, in January this year, we established a DRP as an additional source of funding for Vicinity and to provide optionality for our security holders. A DRP will continue to be in operation for the FY 2025 final distribution. Thank you. I'll now hand back to Peter.
Thanks, Adrian. Turning to our developments, our willingness and our ability to invest in the vibrancy and quality of our asset portfolio remains a key differentiator and a source of competitive advantage. Vicinity has been one of the few developers of larger retail assets, which we believe positions us and our assets well as the fight for quality retail floor space intensifies. Against a backdrop of capacity constraints, elevated construction costs, and increasingly burdensome regulation, the completion of Chadstone and the substantially advanced Chatswood Chase could only be achieved by the enormous effort of our highly skilled internal team partnering with industry experts. The completion and launch of the Market Pavilion at Chadstone has been widely touted as world-class and reinforces this asset as Australia's preeminent retail destination.
It has also generated a huge sense of excitement and pride, not just for those directly involved in the project, but for everyone at Vicinity . The Market Pavilion, alongside One Middle Road, were significant developments that have brought a unique fresh food, dining, and commercial offer to Chadstone. The precinct introduced a range of iconic fresh food outlets who have chosen Chadstone as the destination of their first in-shopping centre retail store, including the likes of Brunetti's, Flowers Vassayette, Champagne & Oyster Bar, and others listed on the left of this slide. The results speak for themselves. In the first three months since opening, the Market Pavilion has delivered $67 million in sales, resulting in a staggering 36% increase in total centre traffic since opening, which has boosted total static centre sales by 4.4%.
In June 2025, Chadstone welcomed Adairs head office team to the One Middle Road office tower. Meanwhile, Kmart is fitting out its office space and is expected to officially commence occupation in early 2026. Combined with the recent opening of the Chadstone Hotel in 2019 and the Social Quarter in 2023, the latest development continues to solidify Chadstone's position as a world-class retail destination that blends fashion, food, entertainment, leisure, work, and space. At Chatswood Chase, where the centre's transformation into Northern Sydney's fashion capital is preparing for market launch, the pre-leasing for the project is now largely complete, with an enviable lineup of luxury and premium offers. I am pleased to report that, owing to a very successful leasing campaign, the project's financial metrics have improved to a stabilized yield of greater than 6% and an unlevered IRR of circa 10%.
During the course of July, we commenced the handover of spaces for retailer fit-out works to commence, as common area finishers are progressing at pace. Our plans for a staged opening remain unchanged. Comprising the redeveloped ground and level two, being stage one, is on track to open in the second quarter of FY 2026 in time for Christmas this year. The opening will feature Australian designers, local and international flagships, along with leading brands in athleisure, jewelry, accessories, and services. Both David Jones and Apple will also open for stage one. The eagerly awaited stage two opening will be the official unveiling of Chatswood Chase's new luxury precinct on level one and is expected to be open and trading by Q4 FY 2026.
As I mentioned earlier, we are especially pleased to have extended our strategic partnership with global luxury powerhouse, the LVMH Group, with 12 flagship LVMH maisons augmenting an already comprehensive collection of globally coveted luxury brands. In addition to these luxury retailers featured on this slide, the center will welcome an elite mix of fashion and other category leaders that is unrivaled in Northern Sydney. Please refer to slide 28 to view the extensive list of retailers joining us at Chatswood Chase. Suffice to say, the completed Chatswood Chase will deliver a customer experience that is also commensurate with the world's best premium shopping center destinations. We are also delighted to announce that Galleria is now set to embark on the next stage of its much-anticipated revitalization, marking a significant milestone in the transformation of this asset.
With a loyal customer base, within a large trade area in central Perth in Western Australia, the redevelopment will redefine Galleria's role in the community by returning the asset to its former vibrancy and as a contemporary destination where people visit to shop, dine, socialize, and be entertained. Early works are completed, with formal construction works scheduled to commence next month and the project completing prior to Christmas 2026. Key features of the extensive redevelopment include a complete revitalization of the iconic Maya Mall across two levels, the introduction of the Terrace, a new al fresco dining precinct designed to bring people together in a vibrant open-air setting, nearly 100 refurbished tenancies across two levels, and a new entertainment and lifestyle precinct.
At our interim results in February, we shared that in November, the New South Wales State Government approved the Bankstown rezoning proposal as part of the transport-oriented development program to create housing supply near major transport hubs. We are increasingly well-positioned to advance residential development adjacent to our Bankstown Central asset and the new metro station, which is due to commence services in 2026. More recently, however, Chatswood Chase now presents an exciting near-term mixed-use development opportunity, given that we own two properties that are directly adjacent to the center, as shown on the image on this slide. Sites at both of these centers are proposed for high-density residential and have been endorsed for inclusion in the state's Housing Development Authority's Accelerated Assessment Pathway. This provides an expedited planning outcome.
Given their strong alignment and government priorities, both Bankstown Central and Chatswood Chase represent two of our most strategically located and exciting assets from a near-term mixed-use perspective. Turning now to FY 2026 earnings guidance. Akin to FY 2025, FY 2026 is expected to be a year where we continue to deliver strong portfolio metrics and make investment decisions that support current and future income growth, whilst we simultaneously absorb the short-term impacts associated with the execution of our investment strategy, being earnings dilution from divestments settled in the second half of FY 2025, as well as the ramp-up to FFO accretion in FY 2027 from our developments at Chadstone and Chatswood Chase. In this context, we expect FY 2026 FFO and AFFO per security to be in the range of $0.15- $0.152 and $0.128- $0.13, respectively.
Adjusting for one-off items and a year-on-year reduction in the loss of rent from developments, our FY 2026 FFO guidance range implies growth of between 2% and 3.5%. Key assumptions in our guidance are on this slide. However, the two I'd like to draw out are comparable NPI growth of circa 3%, noting that excluding the impacts of newly levied local and state government taxes, comparable NPI growth is expected to be circa 3.5%, and lost rents from developments of $25 million, down from circa $35 million in FY 2025, relating to the completion of Chatswood Chase and commencement of Galleria. With the completion of Chatswood in FY 2026, loss of rent in FY 2027 should reduce to circa $15 million. As we have said before, delivering predictable and growing income for security holders, whilst at the same time driving capital growth over time, remain at the core of our business decisions and investments.
In this context, FY 2025 has been a particularly important year for Vicinity , where we have made meaningful investments in the future resilience and growth potential of our retail asset portfolio. As we look ahead to FY 2026 and beyond, the momentum of execution and focus on delivering our strategic financial and operational priorities will be maintained, perhaps accelerated, given the increasingly favorable long-term fundamentals of the retail property sector, together with a cautiously optimistic expectation of a continued strengthening in consumer spending. Before I hand the call over to Q&A, I, together with the executive leadership team, would like to acknowledge and thank everyone who is affiliated with Vicinity for their ongoing support, most especially our security holders, retail partners, joint venture and capital partners, customers, and of course, the Vicinity team and its board. Thank you, Operator. We are now happy to move to Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're on a speakerphone, please pick up the handset to ask a question. Your first question comes from James Druce with CLSA. Please go ahead.
Yeah. Hi, Peter. Hi, Adrian. Congrats on a solid results. Just firstly, do we get a sense of how sales have been tracking into July and August? You talked about sort of the momentum building through the fourth year.
It's Peter here. We're just wrapping up July's results at the moment, but it continues on a positive trend. It's fair enough to say probably July looks even more positive than the last two months of FY 2025 at this stage. Having three months now of solid positive trends, we're turning a corner.
Thank you. Maybe just on the asset recycling story, you've done a good job over the last 12 months. How are you thinking about the next 12 months? Is there anything in guidance, and can you provide any color on the quantum? Any thinking about that?
James, there's nothing in guidance for asset recycling for 2026. In terms of recycling, we're still looking for opportunities in the marketplace. Obviously, one of the opportunities to fund that is through further asset recycling. At this point in time, nothing is planned, but we're watchful where we can either have acquisitions that we can add value to. As I said, one of the opportunities for that is further asset recycling, considering there's quite a fair bit of liquidity in the marketplace.
Yeah, so it's fair to say you'd be matching asset sales with acquisitions.
It's typically our go-to at the moment. It's definitely one option that we could fund acquisitions if they present themselves.
The next question comes from Cody Shield with UBS. Please go ahead.
Good morning, Peter and Adrian. Thanks for the time. Just on the Chatswood Chase redevelopment, could you provide some color on how long you'd expect that to stabilize and where that yield will be initially on stage two opening?
We open the first stage in October, the second stage from April of next year. Typically, the stabilization period that we factored in represents around 4%- 5% of specialty rent coming through that stabilization period. In terms of initial yield on Chatswood, it is around the low 4% in terms of percentage and then ramps up to in excess of 6% in year three.
Okay, that's clear. All right, for Galleria, I mean, you're looking at a similar stabilized yield there. Should we think about, you know, the yield profile and ramp up as kind of similar to Chatswood, or are you expecting some differences for that project?
Galleria, we aren't anticipating the phasing of the project in the same way. The phasing is a lot closer together in terms of the two-stage opening. Galleria's initial yield will be higher than Chatswood's, and that's risk-adjusted. We required that. Similarly, again, we would have two years' worth of stabilization in at Galleria, from commencement of trade, which is late next calendar year, and then two years' worth of stabilization to get to in excess of a 6% yield.
Okay, that's helpful. Maybe a last one, if I may, you know, it's been pretty well publicized that there's potentially some movement in the fund space across the sector. Just on the acquisition point, do you see any opportunities emerging there? I mean, would you be interested in an Erin Affair, for example?
I look at, we know Affair is on the market, so we'll have a look at Aaron just in terms of the potential of that asset. You know, we're active. Our preference, though, is to go in with a direct equity interest, and our sort of funds approach is more basically with a joint venture partner, with the same equity interest going into assets like that. Ultimately, if we can find value in those larger, major regional or super regional assets that really have significant market share in their trader and have some growth potential, then we'll be actively looking at those.
Okay, that's great. Thanks, Peter.
Next question comes from Lou Pirenc with Jarden . Please go ahead.
Yes, good morning, Peter and Adrian. Two quick ones. On Chatswood Chase, and maybe it's a bit too early, but when you bought the, I guess, the remaining stake, you mentioned maybe further down the track bringing a couple of partners around completion. Is there something that is on the agenda already, or is that something for after stabilization?
Yeah, hi, Lou. Now, in terms of Chatswood, it's a really tricky development environment at the moment, and the team's done a tremendous job in delivering that. It was far easier delivering it as 100% owned, and we really want to stabilize that asset first. If there is an opportunity to bring a partner in later, we'll look at that. Ultimately, it'll be dependent upon our growth ambitions in the future. We don't necessarily, we don't need to bring a partner in on that asset, either now or in the midterm. It just depends.
The mixed-use component of that, realistically, is that when will you start spending money on that? Is that, you know, two years away, three years away, or could it be nearer term?
Luke, the processes that we identified here include the HDA process, which is an expedited process through the New South Wales government. It is still a circa 8-month- 24-month process. The real capital expenditure in terms of in-ground construction is likely to be two years away across all of our mixed-use developments, which we have identified to the market.
Thanks, Peter.
The next question comes from Simon Chan with Morgan Stanley. Please go ahead.
Hey, good morning, guys. Sorry, if you could give me some color on this, capitalization of corporate overheads into the Chatswood Chase development. I know you spoke down to the first half, but how much did it end up being on the full-year basis?
Hey, Simon, Adrian here. It was about $5 million that came out of fees and then got capitalized into overheads for the financial year. Overall, overheads were down about $8 million. About half of that, if you like, was really Chatswood.
The other half was just cost savings, I assume?
That's right. That's right.
All right. What about into FY 2026? I mean, the project starts opening, right? I imagine you wouldn't be capitalizing as much. How much capitalization are you factoring into your $0.15- $0.152?
Yeah, I mean, the capitalization looks at all assets on balance sheet, if you like. When we think about the total capitalized development costs or personnel costs into 2025, the total was close to about $24 million. Into next year, we expect that to come down a little bit, because of particularly Chadstone completing. You know, Chatswood's still going to have a large amount of personnel costs coming through. You've got Galleria as well. There'll be a portion of their development personnel costs capitalized. It'll probably go from circa $24 million, $25 million this year down to closer to $20 million next year.
Right. You're saying $5 million off the 2024 was Chatswood Chase. Is that kind of what you were saying?
That was probably just the switch from when we initially treated it as fees, if you like, to when we moved it over. That was the 49% for Chatswood Chase.
Okay. Got it. Second question. I just want to go back to Peter's comments earlier about Chatswood Chase redevelopment and the stabilization period. You're essentially saying, right, stabilized till FY 2030, three-year ramp-up, opening day for the 5% and then ramping up to, you know, potentially in excess of 6%. Can you just walk me through the mechanics of that? What happens over that two to three-year period? Because a retailer is not paying rent on day one, and then they'll be paying rent by the third year. Why is there such a big delta between day one rent and year three rent?
Simon, it's just a provision we have, in terms of stabilization. Typically, the stabilization budget takes into account vacancy that we don't anticipate. It takes a while for retailers sometimes to actually occupy the tenancy. Potentially, if we need to provide additional marketing contribution or if there's any rent rebates that we require to ensure that we get the new product to the market at a sustainable level, that's what we put into stabilization. Again, it's a provision. My personal view is I expect Chatswood Chase to stabilize a lot quicker. It's definitely not FY 2030. It's around FY 2028 in terms of when we have stabilization in there. If you take, for example, Chadstone, we opened that in late March. We have three years of stabilization in at Chadstone, but it's completely knocked it out of the park from its initial trading results.
We don't expect to use all that provision that we put in to ensure that our developments are successful.
What percentage of the redevelopment's leased now?
For Chatswood?
Yeah, yeah.
We essentially have 95% of all tenancies executed, in terms of heads of agreement and formal binding agreements, 70%.
Right. Of that 70% that's formal binding, do you have start dates locked in, or is that why you were a little bit blubbery on the, you know, on day one yield?
No, essentially, we have dates that are locked in for staged openings. It doesn't mean that every retailer will always get there in terms of that particular opening date. Yes, dates are locked in, but we have a range of openings between October this year all the way through to around the middle of next year.
Okay. Rent.
Some of that is the provisions for some of that as part of the stabilization budget.
Okay. They only pay rent when they actually occupy the store that hosts you. If they're a couple of months late, then you lose a couple of months' rent.
It depends on the circumstance. Typically, they have a set amount of period from handover a tenancy to when rent starts, regardless of whether they're open or not.
Thanks very much for the detail. Appreciate it. That's all I got this morning. Cheers.
Next question comes from Howard Penny with Citi . Please go ahead.
Thank you, guys, for a great set of results. I just wanted to ask, just unpacking that number once more. I know we keep talking about Chatswood Chase, stabilization. Just to back on the matchbox calculation, on a $635 million incremental development, starting off at, you know, your low fours and ending at the sixes, it seems to me that that adds around 2% growth to bottom line AFFO in that stabilization, just over 2%. Is that the kind of number that you've seen as well?
Howard, what are the differences? In FY 2026, we don't, because it's a two-phase opening, and we count the whole capital essentially for FY 2026, but it's a staged opening. You don't get all the income because essentially 2/3 of the center opens before Christmas this year and 1/3 of the center opens next year. That's part of the ramp-up between the 4% and the 6%. We can maybe break it down in a little more detail for you off the call if you like, but that's essentially part of the reason.
Yeah. I think maybe just to add to that, Howard, there will be obviously the benefit in future periods of that ramp-up period. Obviously, FY 2026, there is a bit of dilution from the development stabilization. I think as you're alluding to FY 2027- 2028, we should get some better growth coming out of it as these developments are stabilized. That 2% growth, I mean, yeah, it's not far off what we're expecting.
That's great. Thanks. Just a second question on using the additional land around Chatswood Chase. I know it's small in the bigger picture, but certainly interesting. Right now, I know some of those buildings are being used for development, offices. Do you have a sense of what the profitability on that redevelopment could be? I suspect the way to look at it is, the land and buildings are sunken in the project, and that incremental value uplift could be quite material. Do you have any sense of the profitability on that?
We do, Howard, but we aren't publicly releasing that at this particular point in time. To the second part of your question, I mean, we obviously think, particularly in that area, that there is really good value in terms of both those opportunities. In terms of the land itself, we keep them as separate. They're on separate titles. They're not included within the Chatswood Chase developments base case at all. They've got their own holding land value. Both of them are held for development offices at the moment, as offices for the construction teams of Chatswood Chase at the moment, and they're soon to be vacated. The intent is really that those sites are demolished. There's an approval in place, and then we plan to execute on those. Whether we do it at 100% in partnership, that will be still to be determined.
The value of how much we can extract on that will be a correlation of how much we plan to participate in the equity funding of those developments.
Thank you. Interesting and well done on the results.
Thanks, Howard.
The next question comes from Richard Jones with J.P. Morgan. Please go ahead.
Hi, Peter. Just in relation to your answer to James's question earlier on the call, are you anticipating any sales in 2026 to fund the CapEx program?
In asset sales? At this stage, we have one asset that's been publicly marketed at the moment, which is Box Hill North. That hasn't transacted at this stage. It's not included in guidance. Unlike last year, Rich, we didn't put a target in of $250 million and sold $460 million. We haven't got that same level of disclosure or same level of guidance into FY 2025 as FY 2026. We're just assuming that we're essentially holding the asset base that we have here. Again, if opportunities present themselves into the marketplace, clearly with quite a liquid market, to be quite frank, attractive pricing, we will use potentially asset recycling as one mechanism to fund future opportunities.
Just a second question. You've obviously got a great lineup of luxury retailers for Chatswood. I'm interested in your thoughts and the retailers' thoughts around the pullback we've seen in luxury sales globally, just whether that's impacted your ambitions or the retailer.
Yeah, Rich, absolutely, it has. We obviously are one of the, if not the largest, we're one of the largest landlords of luxury retail in Australia. We have spent a significant amount of time with the luxury retailers, me personally, to be quite frank, over the last 12 months, because of basically 18 months prior to these results being quite a challenged comparable sales environment for them. We have seen their ambitions across Australia pull back from very large stores and multiple stores to fewer stores. What we are seeing, though, is they absolutely want to partner with owner-managers of assets that they've had a track record of success, such as us with Chadstone or Queen's Plaza. In terms of Chatswood Chase, it's a significant agreement that we've reached with LVMH with 12 new stores. I mean, that's unprecedented, but it was not without a significant amount of negotiations.
The specifics of your question, I would say post-Chatswood Chase, it depends on the group of luxury retailers, but I would say that their ambitions will be far less in Australia than what it was two to three years ago. On a sales point of view, we have seen luxury sales come back stronger, particularly in the last quarter. I would say that's continued into July, Rich, as well. In terms of putting these developments together, whether it's Chatswood, which we're doing at the moment, we always try and have a look through the sales cycle for luxury retail and really understand where they're underrepresented in Australia and then try and be the partner of choice to make sure that we're aligned with them in terms of their expansion.
Thanks, Peter. That's good . Just one more question. Uptown with your partner looking to sell, what ramifications does that have for your interest and the future development there?
No, it's a good question. ISPT or IFM share is on the market, publicly at the moment. We're hand in hand with them involved in that process, in terms of making sure a partner coming in is really aligned to the future strategy of that asset. In our view, that includes a development strategy. ISPT have been fantastic in terms of that as well. It has slowed us down, I would say, a little bit in terms of uptown. Our focus, these developments are super tricky to execute in the market for reasons that are well-publicized, in around construction markets, period. A lot of focus went into getting Galleria up and running, which we announced in this set of results. Our focus now turns to make sure we have the same level of rigor to get uptown up and running as well in the right format for the future.
Part of that is making sure that the new partner that will come in, if that transaction is executed, is aligned to the strategy.
Thanks, mate.
The next question comes from David Pobucky with Macquarie Group. Please go ahead.
Good morning, Peter, Adrian, and team. Thanks for taking my questions. The first one on the occupancy cost ratio of 14.1% up from 13.7% in 2024. If you can just please provide a view on pushing that harder and could it get to, you know, pre-COVID levels at some point. Thank you.
Yeah, David, I mean, clearly, there's an increased cost of doing business from retailers, since COVID to now. To the degree that we can, we also are pretty conscious on ensuring that we're monitoring the publicly listed retailers' net EBITDA ratios, etc. We haven't seen a huge amount of impact on that over the last number of years. We do expect to see some margin erosion on the listed retailers' net EBITDA margins in the current set of results. That all said, we do expect OCRs will increase to, as a minimum, pre-COVID levels. Our view is it should go more for a number of reasons. One, our portfolio is a lot more, as we say, prim in what it was pre-COVID. We've sold a lot of assets that we saw as non-strategic.
We've invested not only in the large assets that we've identified today, but also a number of smaller developments to make our core portfolio more attractive and gain more market share. There is a shortage of space in the marketplace. Retailers are looking for larger asset spaces. All the fundamentals for us indicate that we should be able to grow OCRs well and truly to at least the pre-COVID level mark.
Thank you. Just the second question, in terms of guidance, you mentioned that adjusting for one-offs and lower development-related loss of rent, 26 FFO growth is expected to be 2%- 3.5%. There's a footnote around transactions and reversals of prior year provisions. If you could please just expand on that footnote for me. Thank you very much.
Yeah, thanks, David. I'll take that one. If you're on the table on page 21, really what we're talking about is those one-off items, the -0.3% . That's transaction impact of about $12 million, year- on- year, which is impacting growth for 2026. That's really due to the latest settlement of some of the transactions for the asset sales, if you like, which is causing that $12 million reduction. Waivers and provisions were just some waivers and reversals of waivers and provisions, which were in the first half of FY 2025. Together, that's about 0.3%. The loss of rent, I think, is pretty self-explanatory, which is really the reduction in loss of rent between FY 2025 and 2026, which we're anticipating to be closer to $25 million for FY 2026.
Great, thanks for the call there.
The next question comes from Ben Brayshaw with Barrenjoey . Please go ahead.
Good morning, Peter. Thanks for the presentation. Just on the pickup in sales momentum in the second half, how consistent has that been across the portfolio?
Yeah, hi, Ben. It's actually been consistent across categories. Whether it's state or premium core outlets, CBD, it's been consistently positive across property classification and category in the second half. I would say, Ben, particularly the last quarter. As I mentioned, we haven't released July into these results for obvious reasons. It's FY 2026, but it's also continued even more strongly into July.
Is the completion of the Market Pavilion materially benefiting the second half comparable sales that you've reported?
No, I mean, because essentially Market Pavilion, because Market Pavilion was not included in the sales last year, we didn't include it in the comparable sales this year either. The rest of the center is, you know, for example, Chadstone, the comparable sales are 4.4% up since Market Pavilion opened, is maybe a reference point.
Great. Thanks, Peter.
There are no further phone questions at this time. I'll now hand the call back over to Mr. Huddle for closing remarks, please.
Okay, thanks, operator. On behalf of Vicinity , Adrian and myself, just a big thank you for those that have dialed in today. We're super pleased with the results that have come out, and the momentum that our company is exhibiting within the marketplace. It's a very strong position for retail property owners at the moment. We look forward to catching up with everyone over the next couple of weeks. Thank you again. Good morning.