Thanks, Nick, and good morning everyone, and welcome to the 2025 Annual Result Briefing for Precinct Properties NZ Ltd. I'm joined today by George Crawford, Precinct's Deputy CEO, Richard Hilder, Precinct's Chief Financial Officer, and Anthony Randell, our GM Property. The agenda for today's call is outlined on page 2 of the presentation. I'll shortly provide an overview of the highlights of the result and the key themes that our business is facing before providing an overview of Precinct's business and updating you on our strategic progress. I'll then hand over to Richard, who will detail the financial result before George provides an overview of our capital partnerships and the investment market. Anthony will provide an update on our investment performance, and following that, I'll spend some time on our development projects and offer some concluding comments.
As usual, we will be delighted to answer your questions at the conclusion of the call. We're very pleased with the operational performance over the past 12 months. In particular, our investment portfolio, which has grown occupancy back to 97% in the second half, and secured significant leasing spreads over the past 12 months. We remain very encouraged by the continued demand for premium-grade office space in Auckland, which Anthony will provide more color on shortly. From a financial perspective, we are pleased with our funds from operations result, which does reflect the removal of depreciation as a tax deduction in the period. This change in legislation impacted us by around 36 basis points in the period, so landing our AFFO at $6.54 per share demonstrates the resilience of the business.
We've also advanced our capital management strategy through refinancing over $500 million of debt, recycling over $200 million of capital from asset sales, and in our view, achieved outstanding pricing for the sale of the InterContinental Hotel at Commercial Bay. We're delighted to have now commenced our first purpose-built student accommodation project in Auckland, with the commitment to build the largest student accommodation building in New Zealand. We remain now very focused on committing 256 Queen Street and continuing to advance this project, with resource consent now uplifted and procurement discussions ongoing. George will provide more details on our PBSA strategy shortly. The build-to-sell residential market remains sluggish, but we are observing more inquiry and elevated sales levels, admittedly off a low base. However, we're excited to be launching Pillars, our new boutique luxury residential project in
St. Mary’s Bay in Auckland, which will be somewhat of a bellwether for this market. Finally, we remain very focused on our capital management plan as we prepare to take advantage of our opportunity set. We've recently launched a process to seek a capital partner for 50% of PWC Tower in Auckland, and we see this initiative as a precursor to gauge further interest and direct ownership of our investment portfolio. Page 5 sets out a summary of the key themes which we are observing in our markets. The economy has been sluggish, particularly in Auckland and Wellington, despite strength in the New Zealand regions, but we are beginning to see growth and opportunities emerge. This economic environment is certainly impacting confidence levels, which is particularly noticeable in consumer confidence and in consumer spending.
However, with further monetary policy easing, we do expect that the broader economy will begin to improve in the latter part of this year and into 2026. The office occupier market continues to surprise on the upside, with elevated demand for well-located premium-grade space in Auckland. The Wellington market remains subdued, as expected, given the reduction in demand from government as a major office occupier in that market. New Zealand's construction market remains in a tough situation, with little activity underway and the prospect of material work commencing being further delayed given the economic environment. This is resulting in significant competitive tension, which we have seen in our most recent procurement processes. Finally, given the bias to interest rate easing, which has been further entrenched following last week's MPS, we are now seeing the yield spread re-emerge and interest levels in assets beginning to grow.
This is particularly the case for retail assets and for premium-grade office assets, as the risk of disruption is being more widely understood. Now turning to page 7 and an overview of our business. Precinct has evolved into a broader real estate developer, investor, and manager, focusing on central city environments and targeting developments and ownerships of mixed-use assets of scale. Since commencing broad-scale development some 10 years ago, we've completed around $2.6 billion of development and now manage around $1.6 billion of third-party capital. Page 8 sets out how we utilize our expertise to leverage our performance. Firstly, ownership of a premium-grade portfolio that offers resilient revenues and provides the backdrop for our other activities. The rental growth from our investment portfolio has been very satisfying given the environment we are operating in.
Our development equity funding is now sourced primarily from capital partners, with 70% of our current developments funded by third-party investors. Our capital partnering strategy is set for growth, as we target allocating up to 20% of our balance sheet into our capital partnering strategy. This is an exciting phase for our business, and we remain optimistic that we are very well placed to take advantage of an economic recovery. I'd now like to hand over to Rich to take you through the financial result.
Thank you, and good morning everyone. Comprehensive income after tax was $3.1 million. This compares to a $30 million loss last year. The main contributor to the improvement was a lower fair value loss relative to the prior period. Pleasingly, both operating profit and net property income before transactions and developments increased modestly, demonstrating resilience in our core property operations. Over the past 12 months, multiple capital management initiatives have been executed. These included the sale of $272 million in assets and securing $600 million in new borrowings, which has reduced refinancing risk and enhanced our overall liquidity position. Turning to the next slide, overall performance was robust, with operating income before indirect expenses increasing 1.2%. Despite lower average occupancy in the period and a challenging economy, the Auckland and Wellington office portfolio showed good resilience, with FFO from the investment portfolio increasing 3.7%.
After adjusting for lower occupancy, the Auckland office portfolio delivered like-for-like rental growth of 2.5%, while Wellington generated strong growth of around 6%. Finally, Commercial Bay Retail generated an additional $1.3 million of income, reflecting good sales and improved occupancy levels. Earnings attributable to the operating businesses saw a significant $4.4 million rise. This was largely due to the first full year of the hotel's operation. As noted, we reviewed the operations of Generator, which resulted in an operational reset and a rebranding of the business to Precinct Flex. In addition, we decided to exit this Commercial Bay hospitality business. It is anticipated these changes will have a positive earnings impact over the coming years. Management fee income grew by $1.7 million, reflecting completion of Wynyard Stage 3 and full ownership of Lamont & Co.
However, offsetting this, were costs associated with the acquisition and new roles established to support the living strategy. Turning to slide 12, underlying FFO, which includes our property and operating investments, combined with our management business, rose 6.7% to $161.4 million. A $1.3 million rise in cornerstone distributions and the contribution from the operating businesses helped lead to this growth. Despite a rise in net interest expense due to higher borrowings, FFO were only slightly down. The prior period benefited from tax deductions relating to building structure. Excluding these deductions, the restated FY 2024 AFFO would have been $6.33 per share. On a like-for-like basis, AFFO increased 3.3% to $6.54 per share, in line with guidance. Turning to the next slide, pleasingly, property valuations are stabilizing after a 100 basis point cap rate expansion.
From peak to trough, values have declined around 12%, with the spread to the five-year bond rate now about 300 basis points, which is above the long-term average. The portfolio experienced a modest revaluation loss of 0.8%, with premium-grade assets like PWC Tower outperforming. The InterContinental Hotel sale resulted in a premium to book value, reflecting the strong price achieved. It is anticipated a lower interest rate environment will provide further valuation support over the near term. Turning to capital management, active capital management remains a cornerstone of our strategy. We successfully recycled capital through the sale of 40 and 44 Barling Street and the hotel. We repaid $165 million of maturing retail bonds and USPP notes, refinanced $530 million of bank debt, and issued a $75 million five-year wholesale bond.
The bank refinancing that occurred after balance date will be applied to repay the 2026 bank facilities, reducing refinancing risk and improving overall liquidity. Gearing has increased as we have established our PBSA and BTS development pipeline, and as we have progressed the downtown car park development. Committed gearing at year-end was around 39%. Proceeds from the PWC Tower initiative will be used for strategic initiatives, including cornerstone interests and planned partnerships. The fixed-rate loan and asset sales increased short-term hedging levels beyond policy, leading to SWAP terminations. We remain prepared to adjust our SWAP book further as we reduce leverage. The weighted average cost of debt at year-end was 5.2%, while interest coverage for the period was two times. Following completion of Molesworth, which is fully let, interest coverage is expected to improve. Dividend policy.
Following a comprehensive review, we have updated our dividend policy to ensure it aligns with best practice and our evolving business model. Our previous dividend policy was based on paying around 100% of adjusted funds from operations. Historically, over the past 10 years, our funds from operations payout ratio has ranged between 80% and 98%, and averaged 88%. The revised policy remains highly consistent to this, however, it is based on a payout range of 80% - 95% of funds from operations, which better reflects recurring operational earnings and provides flexibility in managing earnings volatility. Importantly, profits from build-to-sell residential projects will be recognized on a cash basis at settlement, and the business remains focused on ensuring dividends will be cash-covered over the medium term.
The benefit to shareholders of this approach is that it will provide a more predictable, stable, and less rigid dividend that is based on operating earnings. As we execute strategy, we anticipate moving to the lower end of this range. Finally, looking ahead to FY 2026, we are maintaining the dividend of $6.75 per share, reflecting confidence in our strategy and outlook. This outlook is informed by the progress we have made on our strategic pillars and current market conditions. This is outlined on the slides and includes the progress on PBSA projects, which is driving earnings growth through multiple income streams, including management fees and profit participation, underrenting in a premium portfolio that continues to outperform, and the establishment of a significant development pipeline that will be supported by lower interest rates. In summary, the business is well positioned to capitalize on opportunities in an improving economy.
We forecast FY 2026 funds from operations at $7.5 per share, representing a dividend payout ratio of 90%. Thank you. I will now hand over to George.
Thanks, Richard, and good morning everyone. On slide 18, we've maintained our approach to capital partnerships and have continued to execute on strategy over the last 12 months. We have confidence that our pipeline of opportunities can achieve the targeted investment returns shown on the right-hand side of this slide, and we see encouraging interest from partners to invest alongside us. Moving to slide 19, we've shown an ability to execute on our pipeline with the announcement of our first purpose-built student accommodation project at 22 Stanley Street in partnership with Singapore-based real estate company CapitaLand, and I will cover this in more detail shortly. Across our other capital partnerships, we've continued to record good progress in line with their various investment strategies. We continue to deliver solid investment performance for our partners, which is key to delivering on our strategy over the long term.
Turning to page 20, as Richard has touched on, valuations have stabilized, and the conditions for an improvement in the investment market are now in place. As shown in the chart on the bottom right, there is a growing yield spread relative to the cost of debt, and this is expected to see further investment market activity. For the office sector, the Australian market continues to show returning investor confidence, particularly in Sydney. While direct investors are undoubtedly more focused on the Australian market, the table on the top right-hand side highlights some significant advantages that investing in Auckland offers over the major Australian cities.
Not only is our premium office occupier market in better shape with lower vacancy, the lack of stamp duty, foreign owner land tax, and capital gains tax means that for the same initial and exit yield, an investor in Auckland will generate a significantly higher return on their capital. Turning to page 21, consistent with the investment market, we expect that falling mortgage rates will support the Auckland residential market. It remains subdued, but prices are holding steady, and pleasingly, volumes have returned. We remain confident in the medium-term outlook and see demographic shifts supporting a growing downsizer market and driving demand for premium, well-located apartments. As we've been saying for some time, we're hopeful that the government's review of overseas investment rules will provide some relaxation on the restrictions at the upper end of the market.
Moving to our residential business on the next slide, we're pleased to report improving sales volumes and values in line with what is being seen at a market level. With all of the projects that were part of the previously Lamont & Co. business now in construction, our focus from here is on Precinct's pipeline sites at 99 College Hill, Dominion and Valley, and Orams. These projects are being funded through to construction commencement on Precinct's balance sheet. We've made great progress over the last six months, securing resource consent for 99 College Hill and Dominion and Valley, and as Scott mentioned, we've now launched the marketing of Pillars in St. Mary’s Bay. As we secure pre-sales and move into construction, we will look to bring along capital partners to fund construction with Precinct.
We continue to believe that this pipeline represents some of the best sites within Auckland and are looking forward to bringing these projects to market. Turning to our student accommodation platform, we're now underway with delivering a 964-studio facility for the University of Auckland at 22 Stanley Street. Precinct is acting as developer, development manager, and co-investor in this $290 million project, which we believe to be the largest student accommodation project undertaken in New Zealand. Our investment thesis for student accommodation continues to play out, with growth in international student numbers and government support for further expansion. 22 Stanley Street is an excellent start, with progressing 256 Queen Street into construction our next objective. Resource consent has been secured, design and procurement has advanced, and we are engaging with potential capital partners for this project.
Finally, on page 24, with $1.6 billion in capital partnerships today, we remain well on track to grow this to $4 billion - $5 billion over the medium term. A substantial part of this growth will come from our internal development pipeline, including our residential build-to-sell projects, student accommodation, and downtown car park. In addition, we see significant opportunity to leverage the improving investment market environment to form partnerships from our investment portfolio, consistent with the PWC Tower initiative announced today. Thank you, and I will hand over to Anthony to take you through the investment portfolio.
Thanks, George, and a very good morning to everyone. Turning to our investment portfolio, the quality and strategic locations of our assets, combined with a proactive management approach and increased market demand for high-quality properties, has driven the portfolio's performance over the past 12 months. After experiencing a decrease in occupancy to 96% at mid-year, we are pleased to report an increase to 97%, reflecting robust leasing activity during the second half, with approximately 12,000 square meters leased. This contributed to a total of nearly 19,000 square meters leased over the financial year. Currently, the portfolio benefits from a weighted average lease term of six years, with contracted rents averaging 7% below current market levels. This underrenting has reduced from 11% due to lower growth in valuation rents at balance date, relative to stronger growth in contracted rentals within the portfolio.
Notably, the portfolio and our team have secured an exceptional 17% spread on new leases and outperformed valuation rents by 5.3%, effectively capturing reversion just noted. Business leaders seeking office accommodation continue to prioritize premium spaces and well-located, amenity-rich precincts to attract and retain talent within their business. The return to workplace remains a prevailing theme, with high occupancy rates in terms of attendance across our assets. Occupiers have now largely right-sized their requirements, resulting in no excess vacancy or sublease space currently available in the portfolio. Turning to page 27, the Auckland premium market continues to diverge from secondary market, with vacancy in secondary markets increasing and premium remaining at 3.3%, near the 10-year average. This ultimately has led to a wide separation in terms of rental growth and incentive levels between premium and secondary assets.
More broadly, the bottom right graph shows that after years of declining occupied densities, due to more efficient internal product design and new workplace practices, densities appear to have stabilized over the past 24 months. This, combined with a shift towards quality, has driven positive net absorption in the prime market. Looking forward, our expectation is that inquiry levels and therefore demand will continue to gain momentum and elevate transactional volumes within the precinct portfolio. Our view, supported by research houses, is that rental growth will be sustained at moderated levels over the short to medium term. Page 28 presents a case study examining sub-precinct within Auckland CBD office market. This clearly illustrates an ongoing preference among occupiers for premium real estate in the Waterfront Precinct, where prime vacancy rates stand at 3.8% in contrast to 6.7% in Shortland and as high as 22.3% in Midtown.
Precinct's vacancy in the Waterfront area is 2% for premium assets and 4% for prime, with the latter affected by Aeon Centre's 12% vacancy rate. In Wellington, as referenced on page 29, occupied market demand remains subdued, primarily influenced by central government expenditure and current accommodation limitations. Having said this, the projection for new supply continues to be constrained, vacancy rates for prime-grade assets continue to stay at relatively low levels, and there is demand for high-quality, functional, and seismically resilient assets. Looking forward, our expectation is that net rental growth is expected to be modest over the short to medium term. Turning to Commercial Bay Retail on page 30. Having regard to the economic backdrop and a protracted period of low business and consumer confidence, the retail centre has had a strong 12 months, with FFO up 8.3% and occupancy remaining at 97%.
The retailer mix continues to evolve as the centre stabilizes, with 24 transactions in the year, of which we have welcomed 10 new retailers to Commercial Bay. This, coupled with an increase in international visitor arrivals, has seen trading conditions continue to moderately improve, with moving annual turnover up 3.7%. Specialty sales now sit slightly over $12,000 a square meter, and occupancy cost sits at 16.5%. Given strong leasing demand, anticipated visitor growth in New Zealand, and an improving sales backdrop, we are optimistic about the retail centre's outlook and continued growth in operating revenue. Thanks, and I'll now pass back to Scott.
Cheers and thanks, and turning to the development section. Page 32 sets out an overview of our development at Molesworth Street in Wellington.
This project is nearing completion, is 100% leased on a 21-year weighted average lease term, and will offer outstanding metrics with a yield on cost above 5% and fixed annual growth. This is an outstanding asset. We're incredibly proud of this project, completed during a very challenging period of cost escalation, but will be delivered on budget and will allow its occupiers to begin moving in in the new year. Page 33 sets out our living sector projects, which remain on budget and on program. These projects total around $650 million in completed value and include three build-to-sell residential projects and now one PBSA project at 22 Stanley Street. Most pleasing has been the interest from construction contractors and the pricing that we have received for our most recent projects.
Page 34 focuses in on downtown, and this has been a major focus in the period, with design advancing, negotiations with office occupiers progressing well, and, pleasingly, an increase in interest from main contractors who are expressing strong interest in the project. We have commenced discussions with a range of potential builders, both here in New Zealand and in Australia, and are very encouraged about the level of interest being shown. We've also made the decision in the period to include a five-star hotel into the scheme. We believe the inclusion of a hotel will further enhance this world-class mixed-use project. Our development pipeline, which is set out on page 35, currently sits at $3.7 billion, and we remain very optimistic that the proposed return metrics of these developments will attract third-party capital.
Most interesting, and somewhat reflecting the shift in our business, the majority of the uncommitted projects are focused on the living sector, which is attracting significant interest from potential capital partners here in New Zealand. Now turning to the summary, there's no doubt that New Zealand's economy, particularly in Auckland and Wellington, has been a little sluggish. Despite this, Precinct Properties NZ Ltd has remained very active and has continued to attract capital partners and start new projects. We believe that we are very well placed to now take advantage of an economic recovery, which we expect to occur over the near term. With a $3.7 billion development pipeline and a core investment portfolio that continues to outperform, we are excited about the next phase of our strategic rollout.
Consistent with last year, our forecast dividend for the next 12 months is $6.75 per share, following a review of our dividend policy to ensure our future dividends are sustainable and cash-covered. I'd like to take this opportunity to thank you all for joining us on the call. We're now very happy to take any questions that you might have.
Thank you. If you wish to ask a question, please press star, then one on your telephone, and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you are on a speaker phone, please pick up your handset before you ask your question. Your first question today will come from Arie Dekker with Jarden. Please go ahead.
Good morning, and thanks for a very clear presentation. I just wanted to start with a couple of questions on capital partnering in downtown. Firstly, perhaps just on the PWC Tower process, can you give a little bit of color on how far progress that is, and also, is it likely to form a new stand, are you likely to form a new standalone partnership in terms of doing that deal?
Good morning, Arie. George here. We're at a very early stage in this process, but we have met with a number of parties already, and I would describe the engagement so far as encouraging. There's a widespread acceptance or belief in the investment case for premium office, underpinned by demand for premium office and reinforced, like in most, not just for Auckland, but in most markets, by economic rents being significantly higher than where values currently sit. That side has been really positive. We also have an environment of falling interest rates for the early engagement, which has been really helpful and showing the positive yield spread that even premium assets can deliver. Balancing that, particularly for investors who've had sort of North American exposures, office is still somewhat challenging, but it's no longer a closed door.
The process will take some time, but from the engagement so far, we're encouraged about the opportunity.
Thank you. Just in terms of, I guess, downtown, where you've highlighted your preferred ownership sits at in that sort of 20% to 30%, and you've also commenced discussions with capital partners. I mean, the PWC thing was always on the cards, I guess, as a source of capital, but is it a signal that you're likely to take more risk on balance sheet on the commencement of downtown and committing to that, or is it still the case that the guiding item for downtown and making any substantive start there will be significant development commitment from a development partner?
Good day. Arie. Scott here. I think we're observing a range of approaches in different markets around timing for when capital partners come into projects, and in many respects, it depends on the risk appetite of capital partners and the terms that you often agree when you enter into those arrangements. Our base case is still that ideally we'll bring capital partners in before projects, but we are seeing a range of different approaches, and we'll keep a reasonably open mind. In terms of sequencing, for us, PWC Tower is important because it allows us to have the conversations, and actually the conversations generally go wider than just PWC Tower. As part of a broader relationship establishment approach with a broad range of investors, conversations can blend across the opportunities in existing assets and also opportunities into development opportunities, be it office buildings or living.
Our base case, as I say, is bring capital in beforehand, but we are seeing a range of approaches at the moment.
Yeah, just last one on downtown, you've given some color on the encouraging discussions with occupiers for office. As it sort of sits at this stage, do you think it's likely that you'll make any sort of start on enabling works in calendar year 2026, or would you caution that it's likely to be a bit longer than that before you start enabling works?
No, I think we'll crack into it next year.
Okay, great, thank you. Just one quick one on FFO. Richard, the adjustment for one-off items stepped up quite considerably to, I think, sort of $8.5 million. Can you just give a little bit of color on what those one-off items were?
Hey, Ari. There's two items in there. One is the closure in relation to one of the CBHL hospitality venues, which is quite a small adjustment. The other adjustment is the swap closeouts relating to the asset sales, so capital structure change. There's an effectively overheated position. That's something that we'll continue to monitor as we progress the PWC Tower initiative as well.
Oh, that's helpful. The other one, just in terms of the FY 2026 guidance, the current tax benefit adjustment that goes through FFO, what sort of level versus, say, FY 2025, which I think was just under $8 million, are you assuming within the FY 2026 guidance of $7.5? Is it a similar level or will it step up or down?
Expecting a small tax expense going through.
Okay, thank you.
Your next question today will come from Nick Mar with Macquarie. Please go ahead.
Morning guys. Just following up on that tax question. It's a small tax expense. Is that including any benefits from innovation boosts on the Molesworth completion?
Hey Nick, yeah, it is. We're still working that through, as you'd expect. We'd probably estimate around 30 or 40 basis points at this stage at a conservative level, but yeah, it's something that we'll keep working through.
Okay, cool. Within that FFO guidance, can you talk about any other sort of key assumptions you've made around some of the other revenue streams? In particular, have you assumed that the PWC Tower stake is transacted during that period? Any kind of other assumptions around things like new capital partner establishments? The last piece, you called out the sort of build-to-sell realized on a cash basis and FFO. What about the sort of potential profit as you work through the current build, current student accommodation development that you'll make? Is that prorated or is that on completion?
Hey Nick, there's a few questions in there. I'll kick it off for now and I'll pass it over to Scott. In terms of income for the year, the guidance does allow for an assumption of the PWC Tower settlement within the financial year as within that guidance. The other kind of probably pull-out new revenue line coming through this year is in relation to 22 Stanley Street, where there'll be the construction contract revenue recognition from the forward sale fund through structure of that partnership. Those are probably the two kind of main components of that. Scott?
Yeah, Nick, I'd like to think in the next 12 months we get 256 Queen up and away, and also like to think that we can get Pillars, you know, a level of pre-sales and get that underway as well. Those are assumed in the back end of the year.
Okay, that's great. Just on the dividend policy, there's a lot of wording around how it sort of allows for flexibility, but also smoothing and reflecting recurring earnings. I'm just trying to understand, other than excluding incentives and maintenance, how it provides reduced volatility or a smoother profile other than the range.
Hey Nick, yeah, you know, there's a few items now coming through. The mid-loan is an interesting one, where the cash flow for that will actually be on, you know, repayment of the loan, where an accounting recognition will be over the term. What we're trying to do with the policy is to avoid large swings in up and down around AFFO or cash from revenue items like that. That is where we prefer an AFFO measure, which is more akin to an accounting operating income kind of benchmark. That is a more stable kind of comparator. The range of payout ratio, you know, that's something we haven't had. We've always had 100% of AFFO, which is, as you'd expect, quite rigid. There's not much movement there. That range effectively provides the board more discretion in when they're setting a dividend.
No, that's great. One last one for me. You've got, or you've increased the potential preferred ranges on a few of those developments, so Pillars, [Dominion] and [Belly], and sort of the PBSA to 20% - 50%. Is the change in the sort of top end your view on, you know, the fact that you might be able to capture a bit more sort of, you know, risk later return on this? Or is it just that you might not be able to get to 50% from other capital partners or a combination of both?
Not a material change from our perspective, and we're not seeing any sort of reduction in demand for exposure to living sector projects. That's probably the one thing that we have observed in the last 12 months is that there is, you know, growing interest in living, particularly in New Zealand, and it has been a little sluggish. I think most people would have thought the housing market in Auckland might have improved a little bit from 12 months ago, but it's been a bit slower. Besides that, the kind of broad theme is that there is strong demand to invest here. We don't see any real change in terms of attracting capital. We may want to have bigger exposure or greater exposure if one or two projects look, you know, look really, really strong.
Those are decisions that we can control as we go down the track and as we give our balance sheet a little bit more strength to be able to participate a bit more.
No, that's great. Thank you. Get to it on.
Thanks, Nick.
Your next question today will come from Bianca Murphy with UBS. Please go ahead.
Morning, guys. Firstly, just on the PWC partnership, could you share what % of that asset you'd ideally sell down?
Yeah, hi, Bianca. Our ideal scenario for that one is 50-50. That's partly driven by in the Australian market, 50% stakes in sort of the larger office towers is pretty much a market norm. That's what we're getting out of the basis of.
Okay, thanks. That's helpful. With the PWC Tower and the downtown car park partnerships, is there potential to sort of pitch that as a package deal? I appreciate they're both quite different propositions, but with the engagement you have had, is that something that you think may be a possibility?
Yeah, look, as Scott covered off, when we have these discussions around something we're promoting like PWC Tower, the conversations do go wider. We're establishing good relationships with a range of partners, and we'd always like to do more with them. It's really early days to say whether that's likely or not for PWC Tower.
Okay, thank you. Lastly, just on the downtown car park, you mentioned the addition of a hotel. Will that hotel space be added where previously you were planning resi build-to-sell?
Yeah, that's right, Bianca. The consequence of a 200-room hotel will reduce the yield out of the residential apartment, so we'll see that number come down a fair chunk. We see that move as being additive in terms of a mixed-use project and all the dynamics that a hotel operation brings. It does also reduce the risk overall of one of the towers, which was previously an all-residential tower.
Would you develop the hotel with the aim to sell that down like you did with the InterContinental, or do you not know that at the moment?
That's not a decision that we need to make just yet, but we are encouraged by the interest that was obviously, or the outcome of the InterContinental sale, but also the interest that's actually driven. There's been a bunch of conversations that have already had with other potential hotel owners. Confidence in that market has really been drawn from that transaction, which is something that we're proud of.
Okay, thanks. That's helpful. That's all for me.
Thanks, Bianca.
Your next question today will come from Rohan Koreman-Smit with Forsyth Barr. Please go ahead.
Morning, guys. Just on the office portfolio, I think there's a few vacancies that kind of pop up. You did Super leaving Jarden House, for example. Can you just give us a kind of update on inquiries on some of those bigger vacancies that are in the near term, bigger vacancies that are there, but also those bigger vacancies that kind of come through in the next little while?
Yeah, hi, Rohan. Anthony here. In terms of Jarden House and the Indeed Super Expiri, we're working with a party on that space, which we have progressed advanced negotiations with that party of around about 3,000 square meters. That's looking really positive. The other sort of material vacancy in the portfolio is Aeon Centre in Auckland, and we're still seeing some concerns from occupiers around the downtown development there. We have some plans and strategies to get around that, and we're starting to see some more demand come back into that asset. We're positive we can get those floors away in that building and reduce the vacancy in the next period.
Thank you. How about Wellington as well? I appreciate there's a lot of long government leases, but you've got One Willis and NTT being in that more commercial space.
Yeah, One Willis in Wellington, Aeon Centre, we've got some demand on those spaces there, those vacant spaces, and again, some advanced negotiations with occupiers. We probably will see that vacancy sit a little bit longer than the buildings in Auckland, but we are seeing some demand there. In terms of NTT, there's one floor, or sorry, two floors there that we are working with a party on at the moment as well.
Thank you. On the capital partner, you said you were talking to a range of people on the Queen Street student accommodation. There's been talk that maybe one or two of those has fallen over recently. Can you just give us a kind of who are you talking to? What's the kind of picture there? Is it similar to the first one where you've got an Auckland uni off-take, where you're going to go at it alone? I just want to understand the risks around that project and kind of getting it underway. Also, maybe where the source of the capital is that you're talking to, domestic or offshore.
Yeah, so look, we're having a range of conversations with parties on 256 Queen. Living sector, and this is even when we've been sort of marketing on PWC Tower, living sector remains a number one preference for a lot of direct investors. Student accommodation is a really preferred exposure within that. Overall, the capital interest in that remains really strong, both domestic and offshore. In terms of 256 Queen and how it will be operated, it could be either with a university or with an independent operator. Both options remain on the table. We don't envisage having either of those locked down before commencing that project. As Scott sort of covered off, we anticipate getting underway with that in the 2026 financial year.
Thank you. Sorry, it just slipped my mind because an email popped up that what my last question was. Maybe I'll cover that off in our one-on-ones, but I'll let someone else have a go.
Must have been a drumroll, Rohan!
There are no further questions at this time. I'll hand back to Mr. Pritchard for any closing remarks.
Thanks, Nick. Once again, everyone, I'd like to thank everyone for taking the interest in the results. As we've mentioned a couple of times, we remain quite excited around the position of the business and how well exposed we are to an economic recovery. We look forward to that economic recovery occurring and recurring hopefully quite quickly. Thanks again, and we look forward to having further discussions over the next few days. Cheers.
That does conclude our conference for today. Thank you for participating. You may now disconnect.