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Operator: Thank you for standing by, and welcome to Vicinity Centres FY '26 Interim Results. [Operator Instructions] I'd now like to hand the conference over to Mr. Peter Huddle, CEO and Managing Director.
Peter Huddle: Good morning, and thank you for joining us for Vicinity Centres results call for the 6 months ended 31st of December 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 land on which we meet today and pay my respects to their elders past and present. I extend that respect to the Aboriginal and Torres Strait Islander peoples on the call today. I will start today's presentation on Slide 5, owing to the continued success of our strategic execution, disciplined focus on delivering our immediate, medium and long-term growth priorities and amid a supportive retail property sector fundamentals, I'm pleased to report that we have had a strong start to FY '26. Touching on the results themselves. Vicinity delivered a net profit after tax of $805.6 million for the 6 months, up by more than 60%, reflecting growth from funds from operation, or FFO, and a meaningful uplift in portfolio valuations. At 3.7%, comparable net property income growth reflects the continued strength of our portfolio metrics having increased portfolio occupancy and achieved a leasing spread of positive 4.6%, representing the highest leasing spread reported since Vicinity's inception in 2015. And of note, strong cash flows generated by our retail assets were augmented by a lowering of cap rates, which resulted in a $407 million or 2.6% net valuation uplift. And consequently, our net tangible asset per security increased to $2.52, up 4.8% in the half. I'm particularly pleased to announce that we have irrevocably accepted IFM's offer to sell the residual 75% interest in Uptown to us for $212 million. I'll share more on why we believe this is an exciting, strategically aligned and compelling business decision shortly. We also exchanged contracts to sell Whitsunday Plaza and Gympie Central in Queensland, Armidale Central in New South Wales, Victoria Park Central in Western Australia and several ancillary land parcels. Totaling $327 million, these most recent divestments were executed at a blended 18.2% premium to June 2025 book values. We completed and opened successfully the first stage of the reimagined Chatswood Chase on October 23 with the unveiling of this truly unique retail asset. Adding to this, just last month, we were delighted to welcome Kmart's headquarters to the One Middle Road office tower at Chadstone. Having joined Adairs' head office team at One Middle Road, Chadstone is now home to an additional 2,000 office workers in weekday trading. Our investment strategy is clear. We are confident it remains fit for purpose, and we are executing it with precision, consistency and importantly, with discipline. Showcased by our strategic and financial highlights today, we continue to actively reposition our asset mix, curating a more resilient and higher-growth portfolio that is well positioned to deliver sustained income and value growth today and for the long term. We are driving this via accretive acquisitions, important developments at our premium assets and by divesting nonstrategic assets at attractive pricing, where we are maintaining, if not strengthening our strong balance sheet and preserving our sector-leading credit ratings. What's more, we are executing this strategy in an environment of favorable retail sector fundamentals. As we've highlighted for some time now, population growth and increased household spending together with limited incremental retail floor space are collectively driving a growing shortage of quality retail gross lettable area per capita. This is increasing the fight for space in the best-performing retail assets that are owned and managed by retail property experts, which is, in turn, creating greater price tension and opportunity for superior rent growth. At 3.8%, comparable NPI growth delivered by our premium asset portfolio was modestly above the portfolio average but was disproportionately impacted by burdensome taxes and levies on a like-for-like basis, our premium asset portfolio delivered an impressive 4.6% NPI growth. At a solid 9.7% premium leasing spreads achieved were more than double the portfolio average. Our outlets were a standout, achieving a 14% leasing spread as retailers continue to expand their stores and increase sales productivity. The appeal of our outlet assets is reinforced by occupancy at 99.8%. We're near full capacity and retailer demand is creating strong leasing tension. And perhaps of most significance, our premium assets are now generating retail sales of around $17,000 per square meter, 26% higher than the portfolio average, once again reinforcing our view that we can sustain positive leasing spreads and rent growth. Since embarking on this strategy in late 2022, our focus on delivering leasing outcomes that drive real income growth from a more premium, high-growth asset portfolio has underpinned a $1.8 billion uplift in total value of our assets. Noting the uplift incorporates our developments on a stabilized basis. And this is despite a net reduction of 12 assets and a 20 basis point expansion in capitalization rates and as a strategically located CBD asset with immense growth potential, the acquisition of Uptown is strongly aligned with this investment strategy. Located on Queen Street Mall in Brisbane striving CBD, Uptown is a landmark retail asset with a long history and deep connection with Brisbane's retail identity. Today, Uptown acts as a primary gateway to the Queen Street bus interchange, Adding to this, the asset is expected to be a major beneficiary of sizable state-led infrastructure projects intended to enhance the connectivity of Brisbane CBD, notably in preparation for the 2032 Olympics. What's more? Brisbane CBD sits in a large and growing total trade area but currently lacks a large-scale full-line retail offering. We are confident we have the blueprint to fill this gap. Securing full ownership enables us to mobilize and leverage our core competencies across development execution and project leasing and accelerate the rejuvenation of the asset and importantly, unlock its latent value. Our vision for Uptown is to introduce a retail, dining and entertainment offer that in many aspects is akin to Emporium in Melbourne CBD. Naturally, this vision would complement the luxury offer we have curated at Queens Plaza, also located on Queen Street Mall. Commencing in calendar year 2027, we are anticipating a total project spend of between $300 million and $350 million. Funded by a mix of asset sales and debt, development returns are expected to be in line with our hurdle rate being a stabilized yield on cost of greater than 6% and and an unlevered internal rate of return of greater than 10%. Furthermore, the net impact of the acquisition of Uptown and the asset sales announced today is largely neutral to FY '26 FFO. The acquisition bolsters Vicinity's already unrivaled CBD retail portfolio and allows us to deploy our proven playbook, delivering superior and sustained asset performance and an outstanding retail destination for the broader Brisbane catchment. And speaking of asset performance, on an annual basis, our assets welcome more than 384 million visitors and generated in excess of $18 billion in annual sales. After a strong second half of FY '25, where portfolio sales were up 3.8%, we are pleased to observe a continuation of shopper confidence and capacity to spend in our centers with total sales up 4.2% in the first half of FY '26. Specialty and mini majors delivered 5.1% sales growth for the half, reflecting both solid growth in specialty sales as well as the value created by remixing strong-performing specialties into larger format flagship stores, notably across our premium assets. Our portfolio-wide approach to ensuring the retail offering each center is contemporary and satisfies ever-evolving shopper needs is showcased by the positive sales growth delivered by both our premium and core asset portfolios up 5.3% and 4.9%, respectively. The combination of which strengthened specialty sales productivity to over $13,400 per square meter. Every retail category and every state enjoyed positive sales growth for the half. Jewelery outperformed, growing an impressive 11% on the prior period spanning all price points. Jewelery was closely followed by leisure at 10.3% growth, which was driven by the popular athleisure category recording growth of 10.8% as shoppers continue to show a strong and enduring affinity for on-brand retailers in these segments. The luxury category delivered positive sales growth for 4 of the 6 months with luxury jewelry the standout performer, growing at 8.1%. The Black Friday sales event, which we increasingly consider as Black November, was strong as retailer participation in the promotional event grows and as shoppers increasingly take advantage of pre-Christmas discounts. As such, we are increasingly of the view that November and December trading should be assessed together. On a blended basis, November and December achieved 4.5% sales growth in the first half of FY '26, which compares to 4.9% growth reported in the first half of FY '25. As we look ahead, we maintain a cautiously optimistic outlook for the retail sector, premised on persistent strong employment but somewhat tempered by the recent shift in the RBA's monetary policy settings on lifting interest rates and the ongoing prevalence of geopolitical uncertainty. Turning now to leasing, where our portfolio metrics showcase our disciplined approach to negotiating new leases where the structure, tenure and value of rent written strengthens our current and future income growth profile. We finished the half with occupancy at 99.6%, representing a 10 basis point improvement on June 2025. And at 76%, we maintained strong tenant retention, and we lengthened the average tenure on deals completed to 4.6 years, all of which reinforces the sustained demand for our quality assets in a market where retail floor space continues to tighten. We also achieved the strongest leasing spread since Vicinity's inception in 2015 at positive 4.6%, driven by exceptional performance across the premium asset portfolio. Also supporting income growth, we maintained the average annual escalators on deals completed at a healthy 4.7%. The confluence of our strategic leasing activity, maintaining occupancy and delivering positive leasing spreads amid a robust retail sales environment has enabled us to grow rent while maintaining our specialty occupancy cost ratio. At 14.1%, our OCR continues to provide sufficient headroom for further rent growth. With that, I'll hand the call to Adrian to talk through the financial results in more detail.
Adrian Chye: Thanks, Peter, and good morning. I'll begin on Slide 11. Statutory net profit for the half was $806 million. This comprised $351 million of FFO and $455 million of statutory and other items, of which the net property valuation gain was the largest contributor. While FFO per security was up 1.3% when adjusted for lower loss of rent from developments as well as one-off items, FFO per security was up 4.1%. Underpinning this robust result was comparable NPI growth of 3.7%. And excluding new and increased taxes and levies, comparable NPI was up 4.1%. Moving to external management fees. Due to the transition of a third-party leasing mandate and the divestment of co-owned assets, management fee income was $2.5 million below the prior year. That said, our disciplined approach to cost management provided a partial offset, delivering a $1.4 million or 3.3% reduction in net corporate overheads. Our net interest expense reduced by $2.7 million, largely driven by lower debt volume arising from asset sales and proceeds from the DRP. Turning now to valuations on Slide 12. The net portfolio valuation growth was $407 million or 2.6% for the 6-month period. This represented the fourth consecutive half year period our portfolio realized net valuation gains. Pleasingly, the net valuation gain was supported by both income growth and a meaningful compression in capitalization rates. Income growth was again a key driver of valuation growth, particularly for Chadstone, the outlet centers and the CBD portfolio. Cap rate tightening was a main contributor to valuation growth in the core portfolio on the back of heightened demand for higher-yielding retail assets. Overall, the weighted average portfolio cap rate tightened by 11 basis points to 5.5% in the period. Looking forward, we continue to expect that with resilient income growth Vicinity's portfolio will continue to be well positioned for future growth. Turning to capital management. Preserving our strong balance sheet and sector-leading credit ratings remains a guiding principle for Vicinity when managing and deploying capital. In a period of elevated development expenditure, the combination of asset valuation growth and proceeds from the DRP have ensured gearing remained at the lower end of our 25% to 35% target range at 26.3%. When adjusted for the acquisition of the residual 75% interest in Uptown for $212 million and the $327 million of proceeds from asset sales announced today, pro forma gearing sits at a healthy 25.8%. We maintained our investment-grade credit ratings of A stable and A2 stable with S&P and Moody's, respectively, and we continue to actively manage our funding risk. Our debt book is well diversified with a mix of debt sources and maturities. And with undrawn bank facilities of $1 billion, we have sufficient liquidity to fund all debt expires this calendar year and committed developments and acquisitions. Our debt maturities for FY '27 of $300 million is relatively modest. That said, we are always monitoring debt capital markets for opportunities that support a lengthening of our weighted average maturity profile and a lowering of our weighted average cost of debt. Consistent with our disciplined capital management approach, our average hedge ratio on drawn debt is expected to be 89% for FY '26 and 85% for FY '27. Consequently, we are able to maintain our previous guidance of a 5% weighted average cost of debt for FY '26. Our balance sheet remains a source of competitive advantage and strength and is a crucial enabler of our current and potential growth agenda. Thank you. I'll now hand back to Peter.
Peter Huddle: Thanks, Adrian. FY '26 is an important year for development projects, both completions and new commencements. We have always held the view that investing in our assets is a critical driver of sustained earnings and value accretion. And we have consistently demonstrated our willingness to invest in accretive developments both large and small. In fact, since 2019, we have actively allocated strategic investment capital to reposition assets through large, medium and smaller projects across 70% of our assets. We have embedded this discipline, committed our own balance sheet and successfully delivered development projects in arguably one of the most challenged construction sectors in memory. We have achieved this because we have the requisite organizational capability where our expertise in development leasing and development property management integrate with our purposely assembled team of development specialists and deliver real income and valuation upside. This is not easily replicated, which brings me to our major transformation of Chatswood Chase. The opening of Stage 1 in October last year marked the beginning of a new era for this landmark asset. Stage 1 introduced 65 new retailers spanning leading local and international brands across fashion, beauty, lifestyle and dining. Among the prize list of retailers who have opened are David Jones newest department store, flagship Apple, Mecca and Sephoras as well as an Australian designer fashion precinct featuring Zimmerman, Camilla and Scanlan and Theodore, alongside international brands such as Ralph Lauren, Hugo Boss, Armani Exchange and Max Mara. Our Level 2 precinct features on-trend athleisure brands such as Nike, LSKD and 2XU, which are complemented by Australian fashion staples, the likes of a Country Road, Seed, Witchery and R.M. Williams. Between the opening of Stage 1 on the 23rd of October and December, Chatswood welcomed 2.4 million visitors who in the December quarter, spent a total of $119 million and on a same-store basis, delivered 34% sales growth. The success of Stage 1 provides a powerful foundation for the highly anticipated launch of the second stage opening, being now eagerly-anticipated luxury precinct which I'm pleased to report remains on track to open from the fourth quarter of FY '26. Anchored by over 20 luxury brands, the Stage 2 opening will see us complete the retail reimagination of Chatswood Chase and solidify the asset status as the most prominent, compelling and differentiated retail destination on Sydney's affluent North Shore. And at $625 million, our investment in this project remains unchanged, and the return profile also remains compelling with a stabilized yield of greater than 6% and and an unlevered internal rate of return of circa 10%. As I'll come to shortly, our vision for Chatswood Chase extends beyond the completion of this project as we progress our plans to augment the asset's patronage with the construction of 2 highly bespoke luxury residential towers on separate sites adjacent but connected to this iconic asset, much like what we have done at Chadstone. Since 2019, we have progressively enhanced Chadstone's patronage and therefore, sales and income growth potential with the construction of more than 50,000 square meters of A-grade office space now home to more than 6,500 office workers as well as a 250-bedroom 5-star hotel that welcomes close to 110,000 visitors a year. What's more? With the likes of Kmart, Adairs' and Officeworks selecting Chadstone as the location for their new headquarters, the caliber of office tenants the asset is attracting is testament to both the quality of the office space and the overall appeal of Chadstone as a highly sought-after one-of-a-kind retail-led mixed-use destination. Together with the retail offer that places Chadstone amongst the world's best, Chadstone continues its evolution as a city within a center where people come to shop, stay, work, dine and be entertain. In partnership with our co-owner, Gandel Group, close to $900 million has been invested in the current and future growth potential of Chadstone, spanning the opening of the hotel Chadstone in 2019, the construction and opening of the Social Quarter in 2023, the refurbishment and opening of Chadstone Place office tower in 2024, now home to Officeworks headquarters and the construction of the One Middle Road office tower opened in 2025 and now home to headquarters of Adairs' and Kmart and which seamlessly integrates into a first-of-its-kind, truly unique fresh food and dining precinct, the market pavilion as well as a significantly elevated and bespoke laneway dining offer. In fact, every development, both large and small, has reinforced Chadstone as an all-day, everyday retail-led destination. And while we are never done, our multiyear strategic investments has consistently added to the scale, significance and leadership of this remarkable asset. Turning now to the redevelopment of Galleria in Morley, Western Australia, comprising a new and immersive entertainment, leisure and dining precinct as well as a significantly elevated and contemporary fashion offer. This important redevelopment will deliver a completely refreshed customer experience for Galleria's large and loyal customer base in and around Central Perth. Importantly, construction and leasing are progressing well and we remain on track to complete the project in time for Christmas this year, and deliver on our previously stated project costs and development return targets. While the larger, more transformational developments continue to shape our retail destinations, I've always believed that what's inside the box creates the most enduring value. In this context, we have maintained our commitment to consistently refreshing and contemporizing our retail offers across all of our assets and in doing so, creating growth opportunities for our highest-performing retail partners. At Emporium Melbourne, we recently expanded, refurbished and opened UNIQLO's flagship store at more than 4,500 square meters and having opened in November 2025, this store has reclaimed its position as the most productive UNICLO's store in their Australian stable. And at Mandurah Forum, we've recently refurbished a former David Jones department store space with the introduction of Rebel and Timezone. Opening in September 2025, the combined 3,300 square meter Rebel and Timezone introduced 2 market-leading sporting and family entertainment offers to the center and a new and exciting proposition for the trade area. This reconfiguration of former major space has delivered a 20% uplift in sales productivity across the October to December quarter with an almost equivalent level of rental uplift, thereby demonstrating the value that can be unlocked when retail space is strategically repositioned. While only 2 examples of many, UNIQLO at Emporium and Timezone and Rebel at Mandurah provide a powerful example of the mutual value that can be delivered when we invest in and cultivate strategic long-term partnerships with retail category leaders in Australia. Turning now to a brief update on our mixed-use development opportunities. As we have shared previously, we continue to advance our mixed-use strategy with a particular focus on residential opportunities that are strongly aligned with state government housing priorities that importantly have the potential to deliver meaningful long-term value creation for Vicinity. Two opportunities are now firmly in the spotlight. Chatswood Chase and Bankstown Central. Both assets have been identified as ideal sites for higher-density residential development. And both assets have secured support of an accelerated state planning pathway by the New South Wales Housing Development Authority, which is ultimately intended to streamline and expedite approval processes. Our early plans for Chatswood Chase contemplate around 480 luxury apartments across 2 separate towers. Relative to Bankstown Central and other assets in our portfolio earmarked for potential mixed-use development at this stage, Chatswood Chase likely represents the most near-term opportunity for us. And just on Bankstown in Sydney's West, our initial plans envision more than 1,500 apartments across 7 towers on a sizable 23,700 square meter site immediately adjacent to the retail center. Of significant benefit is that Bankstown Central sits in the heart of the city of Bankstown directly connected to the new metro station and proximate to major tertiary and medical precincts. As I've said before, while approvals create the potential to unlock significant value at our assets, we will continue to retain complete optionality in terms of how and when value is unlocked. Before I provide an update to our FY '26 earnings guidance, let me reinforce that delivering predictable and growing income for our security holders while simultaneously driving capital growth over time remain at the core of our business decisions and investments. For the past 3 years, we have been focused on increasing the momentum of execution across the organization and ensuring that every action we take supports earnings resilience and sustain value accretion over time. And I think our results to date demonstrate our investment strategy is working as intended. Closing now with a positive update on FY '26 earnings guidance. As Adrian and I have outlined in some detail, we've had a stronger-than-anticipated start to FY '26. And pleasingly, the upside to our expectations is entirely driven by the continued strength of our leasing outcomes and portfolio metrics, including an increase in percentage rent. The confluence of which underpin an uplift in our expectation for FY '26 comparable NPI growth to 3.5%, which has, in turn, enabled us to guide to around the top end of our FFO and AFFO per security guidance ranges of $0.15 to $0.152 and $0.128 to $0.13, respectively. Meanwhile, we continue to expect our full year distribution payout ratio to be within the target range of 95% to 100% of adjusted FFO. And finally, I know I speak on behalf of Adrian, our Board and our executive leadership team when I say that it is a privilege to lead the team at Vicinity and to share our strategic operational and financial progress with the market. We'd like to acknowledge and thank everyone who works for, partners with and is associated with Vicinity for their ongoing contribution and support. Thank you. Operator, I'll hand the call over for Q&A.
Operator: [Operator Instructions] Your first question comes from Solomon Zhang from UBS.
Solomon Zhang: First question was just on Chatswood. Just wanted to hone in on the December '25 passing yield and maybe just the proportion of the asset that's income generating at this point in time? And maybe just an update on the expected path to get to the 6% stabilized yield on cost, please.
Peter Huddle: Solomon, Peter here. Yes, if I got the three questions, right, there's just a bit of noise coming over the top. So yes, the stabilized yield is about -- is 6%. What we do is we run that stabilized yield over a 3-year period. So essentially, by the end of FY '26, we anticipate around about roughly about a 4% return that leads into a 5% return next year, then stabilizes in early FY '28. That all depends, Solomon, really on how much potential assistance that we may need to provide or also in terms of the lease-up. In terms of the lease-up by June of this year, we'll be 95% opened and operating in terms of Chatswood. So we mentioned in these results that we'll commence opening the second stage, which is really the luxury opening from the start of FY '26, and we expect that to be majoritively complete by the time we have a chat again in August. So again, around 95% of it will be open. In terms of income, it represents broadly about the same amount of income by the end of this fiscal year. So I might have missed another question.
Solomon Zhang: Second question is just on your premium portfolio. So obviously printing very strong productivity numbers circa 20% higher than the rest of the portfolio. But just looking at Slide 26, when you look at the occupancy costs, they're only marginally above the portfolio average. So I mean is that the appropriate spread do you think? Or what sort of, I guess, occupancy cost do you think is appropriate given the productivity of that premium portfolio?
Peter Huddle: Yes, Solomon, we can potentially provide you a number that separates it out. The key differential is we put all of our outlet business in the premium portfolio, that typically works on an occupancy cost of around 12%. So just the nature of that business model, the retailers operate on a lower occupancy cost ratio. We're driving significant dollar per square meter sales through that. And in terms of revenue, we've driven revenue through that outlet business substantially higher in the last 5 years. But the occupancy cost ratio for that business right now is around about 12.8%. If you exit that out, the occupancy cost ratio for the premiums would be higher than our average.
Solomon Zhang: And do you see, I guess, headwind to getting back to your pre-COVID occupancy costs?
Peter Huddle: Look, we're confident we've been -- the pleasing thing, I would say, Solomon, is we've been growing our leasing spreads and growing our rent, growing our NPI through the course of the last few years, and the occupancy cost ratio has also been maintaining broadly similar. So ultimately, that essentially means that retailers have had sustainable growth through that period of time as well, all but we don't know their current profits through their current reporting season. So ultimately, it gives us confidence we're able to continue to grow our revenues through the portfolio.
Operator: Your next question comes from Daniel Lees from Jarden.
Daniel Lees: Just a question on your Uptown development. I appreciate it doesn't start until 2027, but construction costs remain pretty elevated in Queensland. Just wondering how you're getting comfortable on your underwrite there and if you have any provisions within that underwrite.
Peter Huddle: Yes, Daniel, it's Peter here. It's a fairly broad range that we gave at $300 million to $350 million. We've obviously in the process of concluding that transaction to have 100% ownership, not too dissimilar to what we did at Chatswood, to be honest. In terms of the underwrite, we've spent a lot of time with at least 3 of the key contractors within the Brisbane market to really understand the capacity within that market in the trade -- in the subcontracts or the trades that we need to execute that job. In the next update, we will provide even further comfort to the market in terms of how we've derisked that project and give them confidence within that range. We've done a lot of work on this project previously as well. So at this particular point in time, there's a window that we want to hit. That's what we've guided to here is really to commence that project in calendar year 2027, finish it before the end of 2028. And at this point in time, we're comfortable with the ranges that we provide the market.
Daniel Lees: And just on corporate overhead, it looks like they were down 3.3%. Maybe if you could just give us some color as to what the drivers were there and how you want us to think about corporate overhead growth moving forward?
Adrian Chye: Yes. Thanks, Daniel, Adrian here. Yes, corporate overheads, a key driver of that was probably some cost discipline that we have tried to stay focused on in the business. We also do have the benefit of some capitalized costs or capitalized overheads in relation to development personnel given the elevated development expenditure at this point in time. We do expect the second half to increase a little bit. So I guess from an overall full year perspective, we're probably expecting corporate overheads to be in the high 80s. And into next year, as we continue to reduce our development spend in FY '27, we probably expect a little bit of an unwind into FY '27 as well. Of course, we'll continue to maintain our cost discipline. So hopefully, there shouldn't be a significant increase into FY '27.
Operator: Your next question comes from Simon Chan from Morgan Stanley.
Simon Chan: It looks like Chatswood Chase resi has jumped the queue in terms of mixed use. I think over the last few years, you've been promoting Bankstown, Buranda and all that stuff. In your prepared remarks, Pete, you talked about how you want to leave optionality, et cetera. Can you just talk to what's the realistic timing for Chatswood Chase resi? And if it's not imminent, what are some of the things that actually need to happen for it to take effect?
Peter Huddle: Simon, it's Peter here. I know it's a dear to you being a local to Chatswood as well. So the likely -- so we are in the government facilitation process via the what acronym known as the HDA process, which is a fast track process for rezoning and to be DA to be then shovel ready. Our expectation, even going through a fast-track facilitation process from where we are today, we anticipate that it's still towards the end of next calendar year for a DA to be actually approved through that process. And then you have, even on best case in our scenario, predevelopment activity around design documentation to get you ready for construction. So the best case to know from our point of view is 2 to 2.5 years away from being an ability to shove a shovel in the ground, so to speak. That said, we still think it's a tremendous opportunity. Why did it jump ahead of others? Primarily, and we haven't fully baked this out. But on our numbers today, just given the level of potential sales that can be achieved through a suburb like Chatswood, it's the most valuable opportunity that we're looking at across our fleet of residential projects. But again, it's a couple of years away from commencing and that's why we're giving ourselves time to ensure the approvals that we get add the most value. And I think I've mentioned before, Simon, we will be looking for partners to execute our residential platform as well.
Simon Chan: That's very clear, Pete. I just got one more. Chatswood Chase, the yield. I think in your answer to one of the previous Chap's question, F '26 at 4%, leading to 5% next year and 6% the year after. It is effectively fully leased anyway, and you start collecting rent from day 1. I get it, and you also said it depends on how much potential assistance you may need to provide, right? So that's why there's a glide path. But Level 1 is essentially open now. Do you have a better picture of how much potential assistance you actually need to hand out? Or the other way to word my question is, is your 4% going to 5% going to 6% over 3 years, a little bit too conservative?
Peter Huddle: I'd like to think so, Simon. We always -- and same with Chadstone. So we always put a stabilization number in. There's not a huge amount of science that go around that stabilization number. It's a provision that's a percentage of total specialty rent that is a decline in percentage over a number of years. But in terms of Chatswood, yes, the ground -- lower levels open, ground levels, open, Level 2 is open. There is some step rent in those openings until the Level 1 opens, which is the luxury precinct. And there's also annualization of the rents that have opened through FY '26. So to your point, we're confident we're happy with the way that Chatswood's performing at the moment, particularly since our opening on October 23. And if luxury hits the market like we think it's going to, we'd expect to have less stabilization moving into FY '27 and in particular FY '28. I don't have those specific numbers for you. I mean, if required, we can catch up and give you a bit of a heads up what they may be, but I don't have them off the top of my head here.
Simon Chan: That's right. But have you had to provide a lot of assistance to the tenants that have opened so far in Level 2 or ground level, et cetera? Or it's actually tracking okay?
Peter Huddle: No, it's tracking as per our expectation. We always knew Level 2 there because the Level 1 is still to open. There would be some assistance, whether it's to the tenants or additional marketing activities. And we're very, very comfortable with the lower level and the ground level trading very well.
Operator: Your next question comes from Howard Penny from Citi.
Howard Penny: Just understanding the earnings impact of commencing Uptown and finalizing the developments that have just completed. Could you just give some detail on potential loss of rents in Uptown and of course, the capitalized interest and capitalized other costs as far as possible. I know that's more a next year story. But just giving us a feel for that loss of rent versus the capitalized costs that will be reduced off the current income statement?
Adrian Chye: Howard, Adrian here. I think with Uptown, I think as we mentioned, it's probably going to be really a calendar year FY '27 development story by the time we, I guess, get our plans in place, and we kick off the development and where loss of rent would impact. At this stage, we're very confident around our FY '27 guidance for loss of rent, which is $15 million. We don't see that changing with commencing up down in calendar year '27. We'll probably have more to say in August around what that future loss of rent profile looks like beyond that. Probably one thing to, I guess, emphasize with Uptown is we do have a very strong performing car park, which delivers actually most of the income to that asset today. We're not expecting as part of the development that a large part of that income from the car park is going to be disrupted. So probably unlike Chadstone or Chatswood, the loss of rent impact from uptown is expected to be a lot less than those developments. So that's probably just one thing to keep in mind. In relation to overheads capitalized overheads, capitalized interest, we'll probably give more an update as we get closer to firming up those development plans.
Peter Huddle: I'll just add a bit to that, Howard. I mean you know our business very well. we're not giving guidance, obviously, into FY '27 at this particular point. But clearly, we've concluded Chadstone, Kmart, moved into their office in January. Chatswood will be 95% opening by June. They were the key developments that had significant loss of rent as we concluded those developments. You will see an uptick in revenues going into FY '27. And then the smaller even though there's still important developments, you'll start to see Galleria then start to annualize going into FY '27, FY '28 and then Uptown will then follow into that. So if it's helpful, we'll provide you a bit more insight into that. But our anticipation, you'll start to see some real strong revenue growth.
Howard Penny: And then just talking a little bit about residential. You make a good point to say that you are -- at this stage, it's the optionality that you've unlocked. But do you have any sense on whether you would fund this through third-party funds or development partners or any -- do you have any views on how best you would develop those residential opportunities?
Peter Huddle: Look, we'll look at each residential opportunity on a side-by-side basis as well as other options. But Howard, our plan is to be capital light in terms of those opportunities. We're not known in the market as a residential developer. Our core capability and skills is retail development, leasing management and all things associated with that. We like to ensure that we control master planning in terms of our sites. But in terms of execution and capital, we'd be looking for other partnerships to come in to help us execute and unlock the value of those.
Operator: Your next question comes from Andrew Dodds from Jefferies.
Andrew Dodds: Just a couple of quick ones. Firstly, just around some of the comments you made in the guidance and the assumptions, comp NPI growth expectations have been upgraded from, I think, 3% to 3.5% half. Just interested to hear what sort of drove this movement.
Peter Huddle: It's Peter, Andrew. I'll be as simple as I can. We've got increased rent, increased occupancy, hence, less vacancy and increased percentage rent. So it's all business fundamentals heading in the right direction.
Andrew Dodds: All right. That's clear. And then just picking up on some of the comments around the Uptown development. Is it fair to assume that the -- or I guess, the underwriter is sort of assuming that [indiscernible] it's got a similar stabilization period to that of Chatswood. So maybe 4% trading to 6% over the 3-year period.
Peter Huddle: No, good question. If I backtrack when I first came to the company, we never used stabilization. So typically, we do now, we think the -- and across all of our projects, we are typically conservative and hopefully, it trades better than our stabilization assumptions. In terms of Uptown, it will be a different style of development than what Chatswood or what Chatswood is, is it's planned to be a phased development. So we're not intending to shut the shopping center broadly down and then reopen it. It will be phased over a period of 18 months to 2 years. But yes, there will be stabilization. If you're looking for a modeling type of scenario as a working assumption, I put in the assumptions that you suggested, 4, 5 and 6 as working assumptions, we would hope that in the essence of doing what we're doing for Uptown, that would be a conservative assumption.
Andrew Dodds: All right. And then just finally, on retail sales. I mean, the momentum heading into December is clearly very strong. I'd just be interested into if you can sort of speak to any anecdotes or sort sales data that you've already picked up on throughout January and early Feb post RBA rate hikes?
Peter Huddle: Yes. Andrew, we don't have any roll up of January and part of our technology doesn't give real-time sales updates. In discussion with some of the retailers, and we're obviously very keen on seeing their results. It is a little choppy from -- in terms of January moving into February. And part of January and February will need to seasonalize because Lunar New Year, which is such an important sales period was in January in '25 was last -- this week, essentially for February. So at this point, we're as keen as you are to really understand what the trend is post the direction that the RBA went in terms of interest rates. At this point in time, all I could say is traffic still remains strong at our centers. So we'll see how that converts into sales over January and February, and we'll come back and report that in the Q3 update.
Operator: Your next question comes from James Druce from CLSA.
James Druce: One very quick one. What was the yield on the $327 million of divested assets?
Peter Huddle: Slightly over 6%.
James Druce: Okay. And can you just talk to the NTA growth was pretty pleasing at almost 5% for the 6 months. Part of that, I think, was coming from the [ subregional ] portfolio, but can you just talk through the contributions of sort of market rents versus value assumptions and sort of the different movements across the categories, please?
Peter Huddle: I'll kick off, and I'm sure Adrian will -- so of the 2.6% growth, about 68% of that was really in cap rate compression. The rest of it was in income growth. Some of it was related to we -- the assets that we're selling. We mentioned that they were 18% below our June book values. So we've rebook it at the sales price as part of market validity of those sales price. That also led to market evidence for the valuers for similar type of assets within the portfolio.
Adrian Chye: Probably the only thing I'd add is, typically, what we do for development is we'll -- as the project goes through development, we'll change the valuation methodology to an as of complete basis, and we'll put a profit and risk allowance. For Chatswood, we released $50 million of that profit and risk allowance. There's still over $100 million of profit and risk to come through in the next period. So that should aid further valuation growth and NTA growth in the future, but that was a contributing factor as well to the 2.6% gain.
James Druce: Okay, fantastic. And just on the tax drag from property expenses, does that -- is that sort of stabilized in the second half or not?
Peter Huddle: We'll have -- it will be annualized. It will stabilize in FY '27. So to be specific, the taxes are predominantly congestion levies that have occurred in Victoria. It's the fire services levy, which was transferred from insurance to property taxes. I don't mean to beat them up, but again in Victoria. And some incremental taxes associated with our land leases on airports that are in our premium property. So they will get back to normal growth from -- to the degree that we can control them in FY '27.
Operator: Thank you. Your next question comes from David Pobucky from Macquarie Group.
David Pobucky: Just around the balance sheet gearing sits towards the low end of that range with potentially more divestments to come, are you seeing any further opportunities to acquire in this market? Or is the focus now on development around Uptown and the resi opportunity?
Peter Huddle: David, it's Peter, and thank you for the question. Look, we're acquisitive at the moment. We have a very strict network plan across the country. We know we're underweight in Greater Sydney, and we know we're underweight in Greater Brisbane that led to our decision around the acquisition and then subsequent development of Uptown. So if good opportunities come on to the marketplace, and we do anticipate some that will come on to the marketplace, then we'll assess them on their merits and see if we can add value to those as long as they are at attractive pricing. Similar to that, we constantly review our own portfolio. And whilst we don't disclose divestments, it's not as if that we already have them, we typically use assets that are not carrying their weight within our portfolio or don't have a strategic benefit for us to divest those assets to fund our growth opportunities. And that divestment may be at 100% or 50%. It also helps us moving up the premium scale of our portfolio, which generally, for us, moving into the larger more fortified, so to speak, assets allows us to deliver greater growth, which we've tried to highlight in the presentation as well.
David Pobucky: Maybe one for Adrian, just around debt. I know you're monitoring debt capital market opportunities. You just talked to any kind of refinancing that you've undertaken or expected to undertake and the margin improvement there? And where does your weighted average margins sit at the moment?
Adrian Chye: Yes. Thanks, David, for the question. Weighted average margin for us is about 155 basis points. Bank debt margins around 115. So we've actually done quite a lot of renegotiation of bank debt and cancellations as well as we've been selling assets to bring that weighted average margin down on bank debt. With the DCM margin, it's probably closer to 170, 180. Some of that is with some of the nearer-term expiries. So you'll notice there's a GBP 655 that's expiring in April this year. That does provide us an opportunity to look at reducing our margin. We are looking at a very liquid debt capital markets at the moment. And based on some of the secondary trading of our previous bonds and also looking at the market comps, we think that there's very attractive margins out there as well. So in terms of opportunities in the future, we are looking probably in that market, refinancing some of the expiring DCM to reduce our margins. As we said, we're pretty highly hedged in the future. So we shouldn't expect too much from a floating rate impact. So hopefully, we'll just get some margin compression going forward.
Operator: Your next question comes from Richard Jones from JPMorgan.
Richard Jones: Pete, just wondering if you could tell us what the estimated end value is of the luxury retail at Chatswood Chase?
Peter Huddle: Just the luxury, the end value, Richard?
Richard Jones: Yes.
Peter Huddle: I'm not -- yes, Rich, not quite sure of the question. But ultimately, luxury represents about -- in broad numbers, it's about 25% of the income of Chatswood Chase. So we'll have to come -- we'll come back to you and let you know what component of the valuation the luxury may represent in terms of that, but that's basically what it is.
Richard Jones: Sorry. So my question was in relation to the luxury residential, sorry.
Peter Huddle: Residential. Sorry. Yes. We're just -- we're finalizing the numbers as we speak. And I know that's like I'll push your question down the road, but literally, we're in the process of commencing the presales with appointment of agents, we're just validating what they anticipate to be the income levels on a BTS, which is likely to be Chatswood. And then it will depend on the final yield coming from the development approvals that we're achieving through the Housing Development Authority process. So a little bit too early. We anticipate it to be a reasonable amount of residual land value coming from the 2 sites from Chatswood, but we're not releasing a number until we have those two things just locked in, Rich. Sorry, mate.
Richard Jones: Okay. That's fine. Just in terms of, I guess, your strategic thinking around acquiring full stakes in assets and undertaking major developments. You've obviously done at Chatswood Chase, planning at Uptown. Just do you think these are a long-term 100% hold assets? Or will you look to introduce capital post hopefully extracting value out of the projects?
Peter Huddle: Well, we're happy to keep it 100% at this point in time and take a situation like Chatswood, Rich. We want to prove the full cash flow potential of that asset to really realize the valuation that we think it should be, which is not the valuation that's in our numbers today because we still hold profit and risk in that valuation until we deliver, and at that point in time, if there were opportunities, and if we needed the capital and if Chatswood, for example, was an opportunity for us to transact in the market then it's probably, I would say, it's an attractive one to bring in a partner at that particular point in time. But with the balance sheet currently at 25.8% on a pro forma basis, there's no pressing need for us to bring partners into either of those assets. And if they perform above, if they deliver better returns above -- well above the portfolio average, then why not just hold on to them at 100%.
Operator: Your next question comes from Adam Calvetti from Bank of America.
Adam Calvetti: Look, the first one is on NPI growth is 3.7% first half, we're guiding to 3.5% full year. I mean, occupancy is at the highest on record, leasing spreads are strong. What's going to be dragging it down in the second half?
Peter Huddle: Adam, there's a couple of things that are in there. We are putting some additional security provisions into our assets. We've been planning on this for a significant period of time. It's clearly a consequence of the nature of what's occurring across the country, highly publicized by the Bondi coronial inquiry. So we have upped our security provisions and they haven't been annualized at this particular point in time. There might be a point associated with that. And then there's also annualization of the glorious congestion levies that were implemented by the Victorian government, and a few other items, which are essentially just second half items, to be honest, that are coming in. They would be the main things. We are anticipating that -- for context, we're still rolling into a full year leasing spread of around about 3%, hitting the first half at 4.6%. If we do better than that, then there will be some upside.
Adam Calvetti: Okay. That makes sense. And just sticking with leasing spreads, I mean, I think Andrew Dodds touched on this, just the pathway back to pre-COVID occupancy levels, I mean, the 7% expiring, how do you really drive rents in some of these assets? There's really no supply coming online. They're quality assets. I appreciate you've got to manage relationship with the tenants. But I mean, I don't know how much power they have to really push back.
Peter Huddle: Yes, Adam. Look, for us, it's got to be sustainable growth as well. Ultimately, Australia is still a fairly small market in terms of the number of retailers that's getting consolidated as well. It's got to be a sustainable relationship with all of us. If you look at our premium asset portfolio, you're essentially driving spreads at 9.7%, and you've got the outlets growing at double digits, and that's been the last few reporting periods. So for us, it's about managing appropriate growth through the course of the cycle, not only on income growth, but also on capital value. And if -- and what -- the other thing that we've done, you'll see that there's a 76% retention rate. Obviously, there's a 24% retention rate, which is essentially introducing new product or new tenants into our portfolio, which also helps to drive rents. I get your question, but we're actually quite happy that we have the capacity to grow rents based on where the fundamentals of the portfolio are on OCR. We just have to do it in a very managed way.
Adam Calvetti: Maybe just really quickly following on, how many more options do tenants usually have in terms of boxes and other sites to go into when they're looking at either renewing or moving on?
Peter Huddle: Well, it's another good question. I mean, it's part of the reason why we're really focused on the premiumization of our portfolio, CBD's outlets, the Chadstone, Chatswood Joondalups of the world is because they are assets that tenants need to be in, period, in our view. So there are other options there, of course, but there's more limited options for those assets than there would be in the neighborhood, subregional or even the regional space.
Operator: Your next question comes from Claire McHugh from [ Green Street. ]
Unknown Analyst: Just a quick one on Uptown's yield cost. Appreciating your IRR framework too. So Brisbane is firing on all cylinders, is the 6% yield on cost more of a sort of a bear-case scenario? Just when I run some of the numbers at the top end at the $350 million and just look at relative rent, it just seems like even a mid to sort of high 6% is still a conservative estimate. Just wondering how you're thinking about the underwriting there.
Peter Huddle: Claire, and you come in and speak to our leasing team. They would love that. It's an early stage. We've done an early stage sort of feasibility associated with it. There's still some work to do between now and probably year-end. At that particular point in time, we would hope that we're formalized in terms of the development approval that we would have lodged with the city. We know the city is very supportive, fantastic Lord Mayor there and -- but we also know that there's heightened construction costs within that marketplace. Now we found a window and we understand the construction capacity, but you're still building into quite a heated construction market at the moment. So we're leaving contingency associated with the construction cost side as well. We understand that there is no full line -- full-scale, full-line priced offer within the Brisbane CBD. For us, being prominent in Sydney CBD, Melbourne CBD and Brisbane CBD is essential. And we see -- to your point, we see that the demand for the space will be strong.
Unknown Analyst: Yes. No, I take your point on construction costs. I understand with union activity, productivity of construction workers is low in a national context. But anyway, in terms of just generally speaking, just touching on underwriting hurdles. So clearly, real interest rates are edging up, which is weighing on cost of debt, but your cost of equity capital has improved and growth is stronger. So I'm just curious as to in your internal IC committee meetings, how you're evaluating your underwriting hurdles? How have they changed over the last 6 months against that backdrop?
Adrian Chye: Claire, Adrian here. You're right. Obviously, in the last few periods, there has been a slight increase in expectation around interest rates. What we try to do is take a through-the-cycle, longer-term view on our hurdle rates. We are conscious that sentiment changes around interest rates and cost of capital, so we try to look over a 5- to 10-year period to say, what is our underlying weighted average cost of capital. We've therefore then said, well, how do we also compensate for risk, particularly on developments, less so for acquisitions where you've got known cash flows. And typically, that drives that yield on cost of 6% threshold and the greater than 10% unlevered IRR. So I wouldn't say that's materially changed in the last 6 months, given that we've taken that through-the-cycle approach. Obviously, if volatility were to increase significantly or rates were to rise in a more material way, then we would look at changing those. But we do review them every 6 months as a matter, of course.
Unknown Analyst: Okay. That's helpful. And then maybe just a final one, if I can bring it in. Just in terms of sources of capital. So is it fair to assume that this will -- the capital rotation will remain front of mind in terms of disposing noncore assets? Or I know the DRP is on -- your cost of equity now is now pretty solid. How are you thinking about your various sources of capital to fund the development?
Peter Huddle: Yes, Claire, in terms of whether it's acquisition or development activity in the future, it probably still revolves around some divestment strategy. That said, we've been very active and leading into that space, to be honest, over the last 3 years. And so the portfolio that we have at the moment is we're quite happy with. But ultimately, there's other opportunities that come along, whether it's the Uptown development or an acquisition that on a risk-adjusted basis delivers us higher returns, there is a small section of the portfolio that we potentially may unlock some value and might even be bringing in a joint venture partner to fund those developments. That's something that we assess basically biannually just in terms of the forward return of each asset within our portfolio, just making sure that they're pulling their weight. The DRP, as you mentioned, it provides us just with an extra funding source opportunities, an extra lever to look for opportunities. And in terms of gearing at the moment, we're obviously very comfortable with where we sit, particularly on a pro forma basis. Okay. I don't think there's any further questions. So look, on behalf of Adrian and myself, a big thank you, firstly, to the Vicinity team for putting these results together or delivering these results to be quite frank. And then secondly, to all the analysts and investors on the call today, look, a big thank you for your interest in our company, and we will continue to do our best to continue with a positive performance for you and for us, to be honest, into the future. I look forward to having a chat to you as a follow-up from this results call. Thank you again.