Thank you for standing by, and welcome to the Waypoint Group 1H24 Results. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Hadyn Stephens, Managing Director and CEO. Please go ahead.
Good morning, everyone. Thank you for joining us on the call today. I'll start on page seven of the presentation, where you'll see that Waypoint delivered distributable EPS of AUD 0.0828 for the six months to thirty June. This result was in line with the first six months of last year, with higher net interest expense being offset by rental growth and lower operating costs. We note that the result is above our guidance range for the full year on an annualized basis. However, we do expect the second half results to be lower, primarily due to higher interest expense. The value of Waypoint's investment portfolio increased by 1.4% during the period, with contracted rental escalations for the majority of the portfolio, offsetting a six basis points increase in weighted average cap rate to 5.74%.
The 1.4% increase in the value of Waypoint's investment portfolio underpinned a 6 cent or 2.1% increase in NTA per security to AUD 2.79, and also resulted in a slight decrease in gearing from 32.8% in December to 32.6%, which remained at the bottom end of our target range. On the capital management front, AUD 600 million of debt was refinanced during the half, sorry, and additional hedging was also implemented across 2025-2028 period. As a result of these initiatives, our weighted average debt maturity now stands at 4.5 years, and our weighted average future maturity is 3.3 years.
In terms of key initiatives at a portfolio level, we've exchanged contracts on one non-core asset, which is an unmanned site in regional Queensland, for AUD 2.7 million, or a 3.6% discount to the December book value. We also completed the assignment of 14 leases from Viva to Chevron. That was a condition of Viva's acquisition of the OTR Group, and have renewed three non-fuel leases that were due to expire in late 2024 or early 2025. When we reported our FY23 results in February, we were optimistic we'd see some progress on discussions with Viva regarding potentially funding OTR conversions across our portfolio. However, progress on this front has been slower than we had anticipated due to Viva's decision to take a more measured approach to its rollout strategy.
We provided our consent for the lodgment of DAs on seven Waypoint-owned sites during the period. However, the associated works are relatively minor in scope, and we currently expect Viva to self-fund these projects. I'll talk a little bit more about Viva's network plan shortly. Our major tenant, Viva Energy, had a strong first half performance, with group EBITDA up 25% and group NPAT up 10%. Convenience and Mobility delivered a resilient performance in a challenging retail environment, where cost of living pressures are impacting demand, with fuel volumes and convenience store sales down 0.9% and 1.4% respectively on a pro forma basis. I'll now hand over to Aditya to take you through our financials and capital management in a bit more detail.
Thanks, Hadyn, and good morning. Turning to Slide 9, which sets out the half year result. Like-for-like rental growth was 3.1%, reflecting our fixed rent reviews of 3% per annum across 93% of our leases, as well as stronger growth on CPI-linked escalations. Operating expenses were down, reflecting lower property-related costs on our double net sites, as well as a disciplined approach to expenses in the current operating environment. The MER was stable compared to the prior period. These benefits were offset by higher interest expense as a result of an increase in the cost of debt. Distributable earnings for the half were AUD 55.6 million, or AUD 0.0828 per security. This was in line with the prior period, and we are well placed to deliver our guidance for the full year.
Distributions for the first half of AUD 0.0824 per security have been set at 50% of our full year guidance of AUD 0.1648. While this results in a payout ratio that is slightly lower than earnings in the first half, this will normalize to 100% at the full year. Finally, statutory profits in the half rose to AUD 93.3 million, primarily driven by valuation movements on the investment portfolio, where a net gain of AUD 35.7 million was recognized this half, compared to a net loss of AUD 31.1 million in the prior period. Turning to the balance sheet on slide 10. The value of the property portfolio increased to AUD 2.8 billion, with rental growth offsetting a mild softening in the portfolio cap rate.
As noted by Hadyn, we have one asset held for sale at thirty June, which is expected to settle late in the third quarter. NTA was up circa 2% to AUD 2.79 per security, and gearing stood at 32.6% at the lower end of our target range of 30%-40%. Our balance sheet and capital position remains strong, and we have set out the key metrics illustrating this on slide 11. The balance sheet retains significant headroom to debt covenants, and it is encouraging to see that property valuations appear to be showing signs of stabilization. Our weighted average cost of debt increased to 4.3% and continues to benefit from our high level of interest rate hedging, which I will cover shortly.
We expect our cost of debt to continue to increase over coming financial periods, as favorable interest rate swaps mature and are replaced with new swaps at prevailing market rates. Our ICR continues to also show healthy headroom to the 2 times covenant. Turning to slide 12, to look a little more closely at our debt and hedging profile. It was an active half on the debt front, with AUD 600 million of refinancing finalized. Our weighted average debt term has increased to 4.5 years, and available liquidity covers our FY 2025 and FY 2026 debt maturities. A key highlight was the new AUD 500 million multi-tranche facility that was put in place in May, securing four new lending relationships, and for the first time, bank debt with a 7-year term. We are appreciative of the support we've received from our lending group.
We reconfirm our cost of debt guidance for FY 2024 at circa 4.5%. The increase from FY 2023 is consistent with what we previously flagged, and is primarily a result of higher rates on our hedged debt and the higher average margin following the refinancing. This higher margin was driven by the new facilities we put in place, having a longer tenor than the facilities that they replaced. On the hedging front, we continue to maintain a high level of near-term hedging to support our overall resilience against interest rate volatility. Consistent with our approach to progressively add hedging over time, additional hedging was put in place during and just after the half year, and is noted on the slide.
As a result, Waypoint is 92% hedged to the end of calendar year 2024, and retains a high level of hedging to the end of FY 2026. I'll hand back to Hadyn to provide a market and portfolio update and our outlook for the remainder of 2024.
In relation to transaction markets, as you see outlined on page 14, there was a 20% increase in the number of fuel and convenience transactions in the first half versus the same period last year, and a 33% increase in total dollar value transacted. Around a third of these transactions occurred in June, and the solid end to the first half has continued into the second half, with a 100% clearance rate at the most recent Burgess Rawson auction in August, where seven fuel and convenience assets were sold, including six regional assets. The average yield on assets sold in the first half was about fifty basis points higher than the average yield last year, with the softer average pricing reflecting a higher weighting towards regional and Queensland transactions in the most recent half.
Details on Waypoint's December valuations are provided on page 15. 19% of the portfolio was independently valued during the half, with the remainder subject to directors' valuations. Waypoint's weighted average cap rate increased by 6 basis points for the half, with our original assets, regional assets experiencing the largest movement at 14 basis points. Waypoint's overall weighted average cap rate has now increased by 73 basis points over the last two years, with regional assets again seeing the greatest level of cap rate movement over this period, with 82 basis points of expansion. Highway sites have proven to be the most resilient through the cycle, with only 66 basis points of cap rate expansion. Moving to non-core asset sales on page 17.
Progress was limited in the first half, with only one small unmanned asset in regional Queensland sold at a 3.6% discount to the December book value. We currently have eight assets with a book value of circa AUD 40 million in front of potential buyers, and we'll continue to progress these transactions in the second half. As also outlined on page 17, sitting tenants have exercise options on three non-fuel leases, including both non-fuel leases due to expire this year. The weighted average reversion on these three leases is 4%, with Subway North Lakes being the outlier with a 17% review. Worth noting that the previous lease term for Subway North Lakes was 10 years, with 14 annual reviews over the term of the lease, meaning that the rent had grown significantly above market rents over this period.
All of the recently agreed rents are in line with independent market rent estimates. Turning to page twenty of the pack, as many of you will have seen, Viva announced earlier this week that it now expects to convert thirty stores across its express network to the OTR format within the next twelve months, with five to be completed by the end of this year. Viva intends to use this pilot program to test, learn, and adapt the OTR model for its network, with a broader program extension of the OTR offering to take place once cost and scheduling for each conversion format has been confirmed. On page twenty-one, we've provided some high-level information on the seven sites for which Waypoint has provided its consent as landowner for the lodgment of DAs.
Consistent with Viva's comments on the broader initial tranche of thirty assets, the seven assets are a cross-section of our portfolio and include both sites that are currently successful and sites that have underperformed in recent years. As mentioned earlier, the conversions involve relatively minor rebranding and refurbishment works only, and for that reason, we expect that Viva is likely to self-fund these projects. Turning to the outlook for the rest of the year on page twenty-three, in line with the more measured rollout of OTR conversions recently announced by Viva, we believe it's unlikely we'll be having any meaningful discussions around large-scale redevelopment plans and potential funding opportunities in twenty twenty-four. We remain open to discussing these when Viva is ready.
However, we now expect this to be an opportunity for next year and beyond, once Viva has assessed the results from its initial tranche of 30 OTR conversions and finalized its broader network plans. In the meantime, we'll continue to progress non-core asset sales, with 8 assets currently being marketed and another 9 assets identified for disposal over time. Although we would ideally align any disposals with funding of larger scale OTR conversions alongside Viva, improving the overall quality of our portfolio and managing terminal risks remain key priorities for Waypoint, and we'll continue to assess opportunities to sell assets through this lens. Waypoint's balance sheet remains in a strong position, with gearing at the lower end of our target range and a high level of hedging over the next two to three years.
Finally, we are today revising our FY 2024 distributable EPS guidance to AUD 0.1648, at the upper end of the original guidance range provided in February. The key factor behind this change is the slower pace of execution on asset sales than originally forecast, with any further asset sales in the second half unlikely to have a material impact on earnings, given the typical 90-day settlement period for disposals. Key assumptions underpinning the revised guidance are outlined on page 23. And with that, I'll hand back to the operator to coordinate Q&A. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on speakerphone, please pick up the handset to ask your question. The first question comes from Adam Calavrias with CLSA. Please go ahead.
Hi, Adam and Aditya. Congrats on the result. Are you able to comment a little bit on how the funding discussions have been with Viva? I think previously you spoke to potentially doing maybe a coupon over a bond yield. Has that been discussed with them?
No. No. Look, we haven't really had any discussions with them this half. I mean, at the start of the year, based on our conversations with them, we thought we might be in a position to sit down and have some detailed discussions during the half, but that just hasn't eventuated. I think things are taking a little bit longer than they originally thought. And so, you know, we're unlikely to get into those discussions, I think, for the rest of the year, Adam, to be honest.
Yeah. Okay. And with the seven sites that they've sought their approval on, I mean, I think in the master lease, when they do those major capital works and they complete the works, they're able to extend the lease or recut the lease to fifteen years, and you, there's a market rent review that happens then. Is that still happening? And, and have you quantified what the potential uplift in market rent might be at these sites?
Yeah. These, the type of works they're doing on most, if not all, of those sites won't qualify as major capital works, so it will just be basic rebranding, refurbishment. So the major capital works provisions of the lease are unlikely to be triggered.
Right. Okay. And then maybe just one more, if I may. You know, are you able to comment on, on valuations? You've seen some positive, uplift. Do you think we're at the bottom, of the softening cycle?
Yeah, look, I mean, always answer this question with the caveat that we don't know what's going to happen from here, but I think I think based on our discussions with our valuer in the most recent round, and also seeing what's happening in the transaction market and the current outlook for rates, you know, my personal view is that we're, you know, this is probably the bottom. You know, that can change very very quickly, as we've seen over the last six, 12, 18 months. But you know, that's my personal feeling, and I think that's a sentiment that's shared informally by our valuers. So we may see individual movements on individual assets, but at the portfolio level, I think I think we're near, if not at, the bottom.
Yeah, great. No, congrats on the result. Thanks, guys.
Thank you.
The next question comes from Murray Conlon with Moelis Australia. Please go ahead.
Morning, Hadyn and Aditya. Hadyn, thanks for the comments around your views on asset valuations. Was wondering whether, just on a similar note, we could drill into how you're experiencing the direct market at the moment, please? Just in regards to those divestments that you've been targeting, who the buyers are typically that you're seeing out there, and I guess their scale, and then what are the dynamics maybe that are keeping the outcomes there a bit slower than you'd previously hoped?
Yeah. Okay. Thanks, Murray. I think in terms of the timing during the half, you know, when we reported in February, yeah, as we said, we were seeing some green shoots and a lot of syndicators sort of floating around looking for product. Almost immediately, we had a bit of interest rate volatility that saw that sort of demand back off. But I think towards the back end of the half, there was a lot more interest out there from groups. It's really syndicators that we're dealing with. So, you know, of those eight assets, we're dealing with offers on five of those. You know, there's no guarantee that those five offers will be accepted or there'll be deals on that.
But you know what we have seen towards the back end of the half and into the first, you know, the beginning of this half, that syndicator demand is back now. We're aware of other syndicators out there raising money to fund conditional purchases. And you know you've also seen the private investor market pick up, as I mentioned on the call, 100% clearance rate at the most recent Burgess Rawson auction, which is primarily private. So I think it's both syndicated and private, Murray. We're dealing primarily with syndicators at the moment, and the auction market's certainly looking pretty positive with privates.
Sure, sure. And are syndicators typically engaging with you on multiple sites at a time, or is it typically on a piecemeal basis?
Typically multiple, but, you know, two, three, four assets.
Perfect. Thanks very much.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. The next question comes from Richard Jones with J.P. Morgan. Please go ahead.
Good morning,I s Hadyn in the chair. Just wondering if you can remind us, Hadyn, just what are the characteristics of the eight assets that you've put on the market, plus the, let's say the nine you've identified as potential asset sales that make them less core versus the remainder of the portfolio?
Yeah, look, I don't like talking too much detail about it, to be honest, Richard. I mean, these assets we're looking to sell, they're assets that are non-core to us, but that are potentially attractive to other buyers. You know, part of that attraction is the yield on the asset, which is a fair bit higher than our portfolio cap rate. I think yield is something that syndicators certainly chasing at the moment. So, you know, relative pricing is part of it. And now, from our point of view, it's all about every asset is different, but it's... and different reasons for potentially looking to divest.
It's really about continually trying to improve the quality of our portfolio, and manage that term risk, which, you know, isn't necessarily substantially higher on these particular assets, but you know, we believe is higher.
Okay. And have you looked at any non-convenience retail assets in the past six months from an acquisition perspective?
No, no. We haven't looked at anything for the last twelve months. Yeah, we're really focused on, you know, with our tenant, their change of strategy, which we, you know, really believe in. You know, it's obviously going to take a little bit longer to execute, but, yeah, I respect the fact that they are taking a bit more time to before they roll this out and wanting to do it right. I think that's the right thing from our point of view as well. So, you know, we're happy to be patient and wait to have those discussions when they're ready. And that's, you know, that's really our priority from a capital allocation point of view for the foreseeable future.
Okay, thanks, Hadyn.
There are no further questions at this time. I will now hand back to Mr. Stephens for closing remarks.
Thank you very much, everyone, for joining us. I know we've got meetings set up with many of you over the next few days. If there are anyone else on the call that doesn't have a meeting set up or would just like to have a conversation around the result, then please reach out to us. You'll see our contact details on the ASX announcement. Other than that, have a great day, and thanks again for joining.
That does conclude our conference for today. Thank you for participating. You may now disconnect.