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Operator: Welcome to the GPT Group 2025 Full Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Russell Proutt, CEO and Managing Director. Please go ahead.
Russell Proutt: Good morning to everyone who has joined our 2025 full year results call this morning. Today, I'm joined on the call by the GPT executive team. I would like to start by acknowledging the traditional custodians on which our business operates. We pay our respects to elders past and present and honor our responsibility for country, culture and community in the places we create and how we do business. 2025 was another year of delivering results and strategic progress for GPT. Earnings guidance was upgraded twice during the year from the levels initially communicated at the start of 2025. And ultimately, we delivered $650.5 million of funds from operations or $0.34 per security. FFO was up 5.5% on reported 2024. And after adjusting the impact of trading profits, this growth rate was even higher at 6.9%. The quality of our Investment portfolio is reflected in the performance metrics. Like-for-like net property income growth of 6.3%, occupancy level of circa 98% and an average cap rate of about 5.76%. We also made significant progress in building our investment management platform, ending the year at about $40 billion of assets under management. This contributed to nearly 11% income growth in our management operations. Now turning to the GPT platform. As illustrated, our platform structure is consistent and growing. We have scale across 3 lines of the largest and most investable property sectors in Australia, being Retail, Office and Logistics. And we were active in 2025 across all these sectors and Investment formats. As we expected and conveyed previously, our near-term growth has been driven by expansion in our mandates and partnerships. And as in 2025, we expect to continue to grow with existing partners as well as through the introduction of new institutional investors to the platform. In terms of our strategy, there is no change. Firstly, we must be great at the asset level, serving our customers and supporting their success, which is why we directly manage nearly every asset across the platform. Our second pillar speaks to our focus on results and the effective utilization of capital, recognizing that this is critical to truly create enduring value. And complementing this is our breadth of capability that allows us to mobilize capital and invest opportunistically to take advantage of opportunities as they arise. And lastly, aligned partnering. This is the concept of ensuring that there is true and demonstrable alignment of interest with our partners. Look, while we always seek to refine and challenge our assumptions, we see these 4 elements in combination as being our formula for success. Now as far as putting strategy into action, on the next slide, we outline clear examples of how each of these pillars have together contributed to this great result in 2025. In the first column, we continue to build on existing foundations, more than 6% like-for-like Investment portfolio NPI growth with all sectors maintaining high occupancy and strong leasing spreads. This underpins the high quality and resilience of our earnings and cash flow. We demonstrated our ability to mobilize capital when opportunities arose, such as with the Grosvenor investment as well as investing in our Retail portfolio. We also raised capital for reinvestment and growth in our Logistics division and in our Retail fund. The value of platform breadth was evident in our ability to grow in our core sectors, whether that was taking on management of 5 shopping centers in 3 separate transactions or growing our Logistics portfolio through development. And finally, the value of partnership and truly aligned partnering was reflected across multiple investments as well as with the successful restructuring of our pooled funds. Going forward, you can expect us to continue to aggressively pursue value creation in this way. I will now hand over to our Chief Financial Officer, Merran Edwards.
Merran Edwards: Thank you, Russell, and good morning, everyone. Starting with our segment financial performance. Our Retail investment properties delivered strong 5.1% like-for-like growth, driven by rent reviews and positive leasing spreads. Strategic divestments resulted in headline growth of 0.8%, while enabling capital redeployment to higher return opportunities. Our Office investment properties delivered robust like-for-like growth of 8.3%, driven by higher occupancy and rent reviews, plus one-off income resulting in headline growth of 11.9%. Our Logistics investment properties delivered strong like-for-like growth of 5.1% from positive leasing spreads and structured rent reviews. The headline performance result of a 7% decline reflects portfolio plant divestments with proceeds reinvested in our co-investment strategy. Co-investment net income increased 29.2%, primarily driven by the successful Perron partnership. Management operations earnings grew a solid 10.8% as new assets came under management throughout 2025. Finance costs of $219.7 million reflect an increase in debt levels as a result of strategic growth initiatives during the year and a higher weighted average cost of debt. Corporate costs also increased, reflecting the full year run rate of strategic investment in talent to support our growing platform. And income tax reduced versus 2024, reflecting lower one-off nondeductible tax items in 2025. Overall, this delivered $650.5 million in funds from operations, up 5.5% from 2024 or 6.9% when excluding trading profits. AFFO delivered is $494.4 million, up 5.2% with maintenance and leasing CapEx remaining elevated due to office leasing. Our expectation for 2026 is that CapEx will be approximately $170 million. Our statutory net profit after tax was $981 million, reflecting positive revaluation gains across the Investment portfolio. Turning now to our financial position, which remains strong and flexible. During the period, we strategically grew our co-investments by 67%, primarily through $1.4 billion invested in new partnerships. Other assets have reduced by 17.9%, primarily as a result of movement in derivatives. Other liabilities have increased 18.7% as a result of movement in derivatives and the deferred payment for Grosvenor. Borrowings have increased as a result of strategic transaction and development activity throughout the period. We continue to take a disciplined approach to capital management with net gearing of 31.1%, within our target range of 25% to 35% and with material headroom to our 50% covenant. We have $1.2 billion of liquidity with no unfunded capital commitments, and we continue to maintain our A2 Moody's and A- S&P ratings. We've been proactive in managing our debt position, extending facilities at approximately 10 basis points lower margins, increasing hedging to 72% of average drawn debt and capturing attractive October pricing to restructure hedges in line with market at the time. This disciplined approach has had the effect of reducing our forecast average cost of debt for 2026 to 5% from 5.3%. I will now pass to Mark Harrison for the investments update.
Mark Harrison: Thank you, Merran, and good morning, everyone. 2025 was a year of execution and investment momentum for GPT. As shown on Slide 11, property valuations for our $16.1 billion Investment portfolio increased by $308.5 million or 2% for the 12 months to 31 December. This uplift was primarily driven by income returns with the portfolio weighted average capitalization rate and discount rate largely stable for the period at 5.76% and 7.04%, respectively. We continue to see prime quality assets outperform with divergences across asset quality and submarkets. Market dynamics for each of our core sectors remain positive with healthy leasing conditions evident in the Retail and Logistics markets. The Office market remains asset and market-based with a flight to quality persisting in both leasing and capital markets. Now turning to Slide 12. In 2025, we executed strongly on our stated objective to curate our existing portfolios and create new funds and partnerships, leveraging our research-led capital allocation. During the year, we completed $4.9 billion of gross transactions across our platform active across each of our core sectors. Partnerships with like-minded capital have been the cornerstone of our transactional activity, illustrating our disciplined approach to capital management. Highlights for the year included the acquisition of 50% partnership interest in Grosvenor Place in Sydney and the Perron Retail assets, the divestment of noncore fund assets to provide investor liquidity and the repositioning of balance sheet, pooled fund and mandate partner investments to optimize portfolio construction. On the following slide, we demonstrate our aligned partnering, driving value creation for our investors and partners. Our strategic holdings in GWSCF and GWOF provide an alignment of interest and a keen focus on performance. Active investor engagement throughout 2025 saw the group raise equity for GWSCF and restructure the liquidity regime for GWOF, both of which focus on optimizing investor outcomes. Both GWSCF and GWOF have now outperformed their MSCI benchmarks over a 1-, 3- and 5-year period. New wholesale partnerships created across the Office, Retail, Logistics and alternate sectors in 2025 demonstrate GPT's capability to execute partnerships across core, core plus and value-add return profiles. Our focus remains on positioning GPT as the leading diversified investment manager in Australia, delivering exceptional value, innovation and sustainable growth for our investors and capital partners. Turning to sustainability. Our commitment remains to deliver sustainable long-term value across our owned and managed assets. All our ESG activities are aligned with our strategy to optimize asset performance and enhance our competitive position in the assets we own and manage. I will now hand to Chris Barnett, our Head of Retail, for an update on our Retail business.
Chris Barnett: Thank you, Mark, and good morning, everyone. 2025 has been an exceptional year for our Retail business. During the year, we increased our assets under management by $5 billion with the introduction of 5 new assets seamlessly integrated into our business over a 5-month period. Our Retail platform now comprises 18 shopping centers, totaling $16.6 billion of AUM. These centers, which are owned and/or managed by GPT have over 4,300 retailer partners, generating $12.6 billion in annual Retail sales and are enjoyed by over 240 million visitors a year. The quality of the GPT portfolio when measured on a market value per square meter basis is market-leading and one of the reasons why our platform consistently outperforms. Our Investment portfolio has delivered comparable income growth of 5.1% for the year, predominantly as a result of strong rental growth and being able to deliver our 12th consecutive quarter of positive leasing spreads. Our centers have continued to enjoy strong sales with total center sales growing 4.2% and total specialties up 5.3% for the year. Specialty sales growth has been driven by both discretionary and nondiscretionary spending with the on-trend categories of Leisure, Health and Beauty, all continuing to benefit from high customer demand. We continue to evolve our assets with a specific focus on driving specialty sales productivity. We partner with our retailers to understand their core customer segments, and we align their shoppers with the corresponding trade areas of our centers. This discipline continues to attract the most relevant retailers, allowing us to curate the most productive shopping center portfolio in the country. Our specialty sales continue to grow strongly, now achieving almost $13,800 per square meter. And even with the addition of the new assets to our portfolio, our leasing team have been able to deliver outstanding results, maintaining a total center occupancy at 99.8%. Continued sales growth, high center occupancy and strong retailer demand has delivered leasing spreads of approximately 5% on the 565 deals completed for the year. Now looking at the drivers of our Retail platform. And as we highlighted at the half, we were optimistic that our Retail business will continue to outperform for the remainder of the year, and our results have delivered on that outlook. We commenced our redevelopment of Rouse Hill Town Centre in the beginning of the year, and we are pleased with both the leasing momentum and the builders' progress, and we look forward to successfully launching that project later this year. I'm also pleased to announce today that we have Board approval to commence our exciting redevelopment of Melbourne Central. This iconic center in the heart of the Melbourne CBD is the most productive retail space in the country, and our redevelopment will further enhance the center strength by introducing a first-to-market international major tenant, which will anchor a best-in-class dining and entertainment precinct. We will commence this project in the upcoming months. Our outlook for the year ahead remains positive. The fundamentals of the retail economy are strong. High employment, real wage growth, strong sales growth, high levels of retailer profitability, delivering continued retailer demand in a market with limited new GLA maintains our optimism for 2026. Our assets are in great shape and the quality of our portfolio and operating platform is well positioned for further growth. I now hand you to Matt for the Office sector update.
Matthew Brown: Thank you, Chris, and good morning, everyone. 2025 has been a year of transformation across the GPT Office platform with a refreshed leadership team and refined structure, driving operational excellence and setting us up well for future growth in a recovering market. This transformation is reflected in the result we have been able to achieve across the Office portfolio over the last 12 months. The GPT Office platform has grown to $17 billion in assets under management, driven by the strategic acquisition of Grosvenor Place in December 2025 and positive revaluations. The acquisition of Grosvenor Place demonstrates our ability to invest in Office segments where we have high conviction. Turning to Investment portfolio performance. The Office portfolio has delivered a strong result with a continued positive trend in key metrics driven by sustained market recovery and focused execution. The Office portfolio has achieved like-for-like net property income growth of 8.3%, the strongest result in 10 years and a 640 basis point improvement when compared to 2024. During the year, we secured approximately 136,000 square meters of new leasing, including heads of agreement across 137 transactions with early leasing success at Grosvenor Place securing 6,000 square meters of lease transactions post settlement. We believe that tenant rightsizing post COVID is now generally completed with approximately 75% of renewing tenants in our portfolio leasing either the same or more space in 2025. We have also witnessed an increase in active deal inquiry amongst larger tenants, particularly in the second half of last year. Leasing spreads remain healthy at 7.2%, with gross leasing incentives continuing to trend downward when compared to the previous year with comparable portfolio occupancy, excluding Grosvenor Place, increasing from 94.7% to 95.6%. Looking ahead to 2026, we will continue to build upon 2025's success, prioritizing the letup of strategic vacancies across the portfolio, prudently managing capital expenditure and delivering outperformance for our investors. Turning now to Office platform growth drivers. The Australian office market is now clearly in early recovery. It should be noted, however, that some office submarkets are performing at different levels than others, and we believe that structural headwinds will persist for secondary Office product. Tenant customers remain focused on high-quality, well-located buildings with strong amenity. Recentralization remains a key theme across markets. Positive net absorption and constrained supply driven by elevated economic rents will continue to place downward pressure on lease incentives and drive positive rental growth in coming years. As Office capital market activity continues to gain momentum, driven by improved physical market conditions and positive revaluation growth, we will prioritize the creation of new investment products to broaden our existing investor base and grow the platform. Grosvenor Place proves our ability to secure exciting investment product at scale. Active portfolio curation will continue to help drive our performance with the recent exchange of contracts at 750 Collins Street Melbourne, demonstrating our ability to deliver successful divestment outcomes. For GWOF, following the successful vote to defer the fund's liquidity event from July 2026 to July 2028, we will continue to work proactively with existing fund investors to provide liquidity solutions as required. I will now pass to Chris Davis to present the Logistics result.
Chris Davis: Thank you, Matt, and good morning, everyone. We have delivered excellent results from our $4.9 billion Logistics platform with 69 investment assets complemented by a $3 billion development pipeline. Partnerships and mandates now stands at $1.4 billion, inclusive of our second Logistics strategy with QuadReal. We are targeting continued expansion in the investment management component of AUM as we grow through acquisitions and the creation of new investment products. We're activating the development pipeline with 4 facilities currently underway. Three of these are in Western Sydney with a lease already in place over part of this space. In Melbourne, the Asahi pre-lease at UniSuper's Deer Park Estate commenced in the second half. Our focus remains on creating a portfolio weighted to growth corridors that attracts the highest levels of tenant demand, driving rents and superior returns. The portfolio is over 95% weighted to the Eastern states with nearly half located in the sought-after Sydney market. Our team has delivered outstanding leasing outcomes with high portfolio occupancy and an active management approach, achieving comparable income growth of 5.1%. Leasing deals totaling 188,000 square meters were agreed in 2025. Over 60% of this was renewals, which has substantially reduced our near-term expiry. Strong rent outcomes were achieved with face leasing spreads of 28%, led by Sydney and Melbourne at 34%. Leasing velocity has continued through the start of the year with an additional 50,000 square meters of terms agreed, bringing 2026 expiry down to 4.5% and 2027 to 10.4%. This progress demonstrates our proactive approach to customer engagement. We are seeing building momentum in leasing markets with inquiry increasing by 1/3 over the past 6 months, now sitting at over 3 million square meters nationally. Turning to growth drivers. Australian logistics ranks as one of the tightest markets globally and is favored by investors on the strength of its fundamentals. Looking ahead, we expect to see supply that is aligned with demand with vacancy rates to stabilize and start to contract. Structural tailwinds of population growth and rising e-commerce remain. Within the Investment portfolio, delivery of comparable income growth through leasing and high occupancy will be the priority. We will capitalize on our $3 billion pipeline with over $400 million of developments underway. We have a stable of shovel-ready projects and are engaging with tenants who are attracted to the delivery certainty these projects offer with DAs in place. Further growth will come through expansion of the investment management platform and creation of new products with aligned investors. I'll now hand back to Russell for his closing remarks.
Russell Proutt: Thank you, Chris. Looking forward, we are excited and optimistic about the opportunities in front of us. We will be an active investor with the clear objective to deliver exceptional value to all stakeholders. In doing so, we will continue to set ambitious goals combined with disciplined execution. Barring unforeseen circumstances, in 2026, we expect to deliver FFO growth of approximately 4% or $0.354 per security. Now excluding trading profits, this represents growth of 5.7% above 2025 earnings. We also expect distributions in 2026 to be $0.245 per security or a 2.1% increase over 2025. Thank you for your time today. I will now hand over to the operator for questions.
Operator: [Operator Instructions] Our first question today comes from Solomon Zhang from UBS.
Solomon Zhang: Maybe first question for Matt. You previously had disclosed the actual or rent paying occupancy, which is sitting at 88.6%. Could we perhaps just get an update on where that sits today? And maybe just work through some of the 2026 expiries and how much have been derisked confirmed renewing and how much is expiring?
Matthew Brown: Yes. Thank you for the question. As we stated, occupancy, including heads is 93.2%. If you exclude Grosvenor, it's 95.6%. We've actually now aligned our occupancy disclosures with industry peers to ensure consistency and comparability. So as a result, we've actually stopped disclosing that actual rent paying occupancy metric. But just a couple of points. Just given the nature of office leasing and that lag between signing leases and leases become rent paying, you're always generally going to see a lag between the 2 data points. That gap generally is around 300 to 400 basis points. And generally, we're tracking within that range.
Solomon Zhang: Just in terms of your...
Matthew Brown: We've made some good inroads in relation to those 2026 expiries. There are a number of conversations that we had late last year, which is now being opportunities that we're looking to convert within the first quarter of this year. As you know, no single expiry in '26 is really more than kind of 1.5% of total rent roll, but we are making good inroads. And hopefully, we'll be able to give some positive announcements over the course of the first quarter, as I mentioned.
Solomon Zhang: And maybe sticking with the Office theme. Just from Grosvenor, I understand that the vacancy is around 30%, but could you provide any color as to the lease expiry and how much has been derisked for 2026 specifically?
Matthew Brown: Yes. So we've made some good inroads on the leasing front post settlement in December. So the nature of deals that we've seen there, it's been a mix of existing tenants renewing and taking more space and actually new tenants leasing vacancy. So we've got roughly 20,000 meters of active inquiry running at the moment for that asset. We're tracking underwrite in those deals that we are signing, and we're hoping just given the positive market momentum that we're seeing that we'll continue to chop into that vacancy over the course of calendar year '26.
Solomon Zhang: Great. And maybe just a final question for Merran. So you called out $8 billion of refinance debt. Could you just confirm what margins you're achieving on the new debt? And I guess, how much you saved versus the old debt? And maybe your spot debt margins across the entire platform as of December '25?
Merran Edwards: Look, of the $8 billion, about $1.5 billion of that is actually at the group level. And what we've achieved there for line and margin is on average, we're getting around 115 basis points. What was your next question, Solomon?
Solomon Zhang: Yes. So across maybe your balance sheet debt, where would your average margin be versus your 115 that you're getting on incrementally?
Merran Edwards: Line and margin across the group debt is about 160 basis points.
Operator: Our next question today comes from James Druce from CLSA.
James Druce: Just on -- first question is probably just around the equity raise in Retail. I think you're looking at $500 million in August. Just how that went and just some color on that, please?
Russell Proutt: Yes. Look, we highlighted that just under $300 million has been raised a combination of clearing secondaries as well as primary. They're still in the process of raising capital. We expect that to continue through the half. Remember, we just only restructured the fund at the very end of 2024 and started marketing into '25. So it's ongoing, and we're pretty positive on the pipeline that we've developed.
James Druce: Okay. And can we just get some broad sort of drivers for '26, just in terms of like-for-like growth from the different divisions, what the cost of debt is doing? Just a bit of color on the makeup of the guidance, please.
Russell Proutt: Yes. So why don't we just go macro across all 3, probably north of 5% like-for-like growth across the business on investment properties and our co-investments. And from a debt perspective, remember, about 72% hedged. And I think in the appendix, we -- for 2026, we're about 3.2% base rate. So a pretty predictable cost of debt for the year. And then really, it's about the transition to the management operations, how we can grow that during the year, year-on-year. But the guidance we gave was a reflection really of that underlying 5% growth and continuation of management operations around current levels, given that the restructuring at GWOF will have a minus $5 million to $6 million revenue hit.
James Druce: Okay. And just one more, if I may, just on the payout ratio. So the DPS growth is slightly below where FFO growth is coming through this year. How do you sort of think about that going forward?
Russell Proutt: Yes. Look, the range is 95% to 105% of free cash flow, and it's free cash flow based. And so the 2% growth seemed like the right number for this year as we have CapEx coming through on all divisions for maintenance and leasing, but also bringing Grosvenor on as well. We want to make sure we're conservative around that. So despite the very strong earnings growth, we thought distribution growth of 2% was appropriate and well managed within free cash flow.
Operator: Our next question today comes from Simon Chan from Morgan Stanley.
Simon Chan: I've got 2 questions today. One is focused on development, the other is focused on fundraising, perhaps development one first. Both in both your Retail and Logistics presentation today, you focused a lot on development. I was just wondering if you could give us a bit more color. I mean in industrial, we've been hearing that the market is probably not as easy or lucrative as 2 or 3 years ago. So just trying to get a feel for the sort of development return you're expecting there, the incentives you're handing out there. And likewise, in Retail, just after a little bit more color on Melbourne Central, please.
Russell Proutt: Yes. Sure, Simon. It's Russ. What I'll do is I'll hand this over to Chris Barnett first and then Chris Davis for Logistics.
Chris Barnett: Thanks, Russ. I'm always very happy to talk about Melbourne Central and really excited at the opportunity to announce the commencement of the project because I think we all know that Melbourne Central is the most productive shopping center in the country today, and that's actually no main feat because it doesn't have an Apple store and it isn't anchored by [Audio Gap]. We entertain the 55 million people a year that enjoy that asset. And as a consequence of that, we're able to kick off the development there. We're adding around about 7,500 square meters of new building. It will be on the rooftop of the existing Lonsdale building, where we'll add a Level 3 and a Level 4. And when we finish the development, it will be anchored by a first-to-market major tenant and a best-in-class dining precinct. And the other thing I think we should acknowledge here is that it is also anchored by the newly refurbed HOYTS Cinema which is really the only cinema in the country today that's got both luxury cinemas at D-Box, which is the 4-dimensional cinema mega screen that has the shaking seats. It has an IMAX and it also will have by the end of March, an Apex cinema, which is Australia's largest LED screen. So we think all the things that are great about Melbourne Central will continue with its development. The development is about $170 million, and we should be completed by mid-'28.
Chris Davis: Yes. So in terms of the market, so I mean, the starting point in terms of vacancy of 3% is low. And as I mentioned in my presentation, we've seen a pickup of inquiry. And then when we look at the supply side, it's actually going to be a little bit lower than historic averages this year, circa 10% across the East Coast. So overall, the market is well positioned. We have seen normalization of incentives sort of -- in that sort of early 20s sort of range. And then our projects, we are well positioned. So we've got a lower historic land base in terms of cost, DAs in place. And as you've seen, we've started 4 new projects in the second half. And our returns are sitting in that sort of 6% to 6.5% range yield on cost. And obviously, that just depends on the particular submarket.
Simon Chan: Great. That's very clear. Just my second and final question. Russ, you started this presentation today by flagging this year, you're expecting to grow with existing partners and new [ instos ] coming on to the platform. I would think that you actually have a pretty good idea as to where your ideas and propositions could be most responsive with partners, right? Perhaps could you give us some insights as to where you think some of your ideas are going to be most effective or taken up by [ insto ] partners? Or which one of your ideas are going to be leased taken up by [ insto ] partners?
Russell Proutt: I don't really stratify my ideas that way, Simon, but at least the most. But it's absolutely essential, obviously, we service and serve our existing partners. And you've seen that opportunities come from doing so, whether that's adding Macquarie Centre in ACRT, adding Grosvenor in our CSC relationship or establishing a new one with Perron. So obviously, the relationship, the investment capability and the partnership is critical. As far as where the next stage goes, I would expect growth across multiple platforms, existing ones in the business, but also, look, you saw us start a new value-add partnership at the end of December, relatively modest first investment. We think that is an opportunity to grow. And there are a series of new investors that we're talking to about opportunities across all 3 sectors. So there's active dialogue in Office, in Logistics and in Retail. But where they hit and where they land, it really depends on the opportunity and whether we can reach agreement on terms and whether it makes sense for both organizations. And as you know, there's a long list of deals I think everybody has or hasn't done, but only those that get done get disclosed. So I would expect us to be active in all 3 sectors this year. So it's a very long way to say I'm not going to go into detail on any one particular opportunity. But like I said, I think we're very well positioned in 2026 to execute.
Operator: Our next question today comes from Adam Calvetti from Bank of America.
Adam Calvetti: I mean what's the assumed lease-up for Grosvenor in 2026?
Russell Proutt: Yes. We're assuming a let-up period of between 12 and 30 months post settlement. That's how we've looked at it in our acquisition underwrite. As I mentioned earlier, we've made some good inroads in relation to early leasing post settlement. So we've got leasing either in heads or signed of around 6,000 meters with active inquiry of around 20,000 meters at the moment.
Adam Calvetti: Okay. That's pretty clear. And then on the wider developments, where the precommitment levels sitting at?
Russell Proutt: Well, right now, we don't have anything in Office that's underway. So speaking to Logistics and Retail. Retail really depends like on Rouse Hill. Maybe Chris, you can speak to Rouse Hill, Melbourne Central where we're at with respect to...
Chris Barnett: Happy to. Adam, the -- at Rouse, as I said, we commenced the development there at the beginning of the year, and we are actually looking in really good shape from both a building perspective as well as leasing momentum. I think we've actually only got a handful of deals to complete there. And at Melbourne Central, the anchor tenant is obviously the most important thing, which we're just in the process of finalizing AFLs, but we'd look to have 30% to 40% pre-commit before we commence that development.
Adam Calvetti: Okay. Great. Maybe just on the industrial side.
Russell Proutt: Yes. So we have 4 buildings that are underway. They start in the second half of '25. So one of those is leased to Asahi in Melbourne, which is UniSuper's project. We've got 3 specs in Sydney, which are small buildings. One of those we leased last week and the remaining 2 will finish in the second half of this year. We've got good inquiry on those.
Adam Calvetti: Okay. How is that lease that you've just done last week compared to underwrite or maybe where you assumed?
Russell Proutt: It was slightly ahead.
Adam Calvetti: Right. And last one for me. I mean, Yiribana Logistics Estate West has been delayed 6 months. What's the rationale or reasoning behind that?
Russell Proutt: So that's a really good project for us. We've got the first 2 buildings finishing sort of mid this year, as I mentioned, and the final building will be next year. So there has been just general delays in the market generally because of authorities, but we're now well and truly on track.
Operator: Our next question today comes from Andrew Dodds from Jefferies.
Andrew Dodds: I'd just be interested following the announcement of the GWOF modernization last year, just how much of that upfront 25% liquidity window has been utilized so far?
Russell Proutt: We had submissions in December, and so we'll be looking to satisfy that 25% over the course of the next 24 months. We have 750 Collins obviously already under contract, which should settle in April, and that will go a long way to partially satisfying that. But the 25% is the focus right now.
Andrew Dodds: Okay. So is it safe to assume that the whole 25% gets hit?
Russell Proutt: Yes, yes, absolutely. And that's what we expected.
Andrew Dodds: Okay. Great. And then just on Grosvenor, sorry, are you able to talk to how much sort of capital you're assuming or you're expecting to spend in order to get it back up to sort of decent shape sort of quoting the 30% vacancy figure, which was asked about before?
Russell Proutt: Yes. As you noted, the real opportunity here is to stabilize occupancy post settlement in improving markets. So when we look at our assumptions for year 1 CapEx, the assumption is around $30 million to $35 million. If you look at the split between maintenance and leasing CapEx, it's roughly a 70-30 split between leasing CapEx and maintenance CapEx. And as I mentioned earlier, we've made some good inroads in relation to the early leasing of vacant space within the building.
Operator: Our next question today comes from David Pobucky from Macquarie.
David Pobucky: Just the first question on the management operations results, really strong result and a large step-up in the second half versus the first half, I think about 18%. So if you wouldn't mind just talking to some of the moving parts in that half-on-half step-up, please?
Russell Proutt: Sure. A lot of that movement came from the bringing on of the 5 shopping centers for the whole year. And obviously, they'll be fully operational in the second half. So a lot of that shift was there. And then also just general momentum in the business and the other growth. But it's really those Macquarie, Cockburn, Belmont, Sunshine, MacArthur coming on board for the full period.
David Pobucky: And just a second one on MC and TI. Thanks for providing guidance for FY '26 in terms of that stepping up a bit. Have you seen -- or have we moved past the peak year in Office incentives, noting your incentives have reduced modestly? And when can we expect that to really start coming through in your earnings?
Merran Edwards: I can take that, if you like. I think '26 will be the peak year from an Office perspective. What we can now see is there's been a nice shift with fit-out versus rent abatements, and we're seeing the rent abatements being predominantly the amount of the lease incentives now with that going to about 65%. So you should see '26 as the last peak year for Office.
Operator: Our next question today comes from Daniel Lees from Jarden.
Daniel Lees: Just in relation to FY '26 guidance, is there any skew that we should be assuming in that number, first half, second half?
Merran Edwards: No. Look, it's expected to be quite even throughout the year. At this stage, we don't expect any skew first half, second half. Though I would note we typically always have a skew in CapEx to the second half, and that's just our average year.
Daniel Lees: Great. And just one more for me. It looks like on the hedging front, FY '27 has dropped a little bit, but you've disclosed FY '28 for the first time. Is that new hedging or a bit of a blended extend? Or can you talk us through what's going on there?
Merran Edwards: It's a combination of a few things. There's definitely new hedging. We were quite proactive with our hedge book in the second half of last year. We put a lot of new hedges on, which increased our hedge rate. We did do some blend and extends, both obviously done at no cost, and we did some restructures towards the end of the year as well, which increased our hedge rate. Our average hedge rate is 72%. We sit at 78% today, and it tapers off throughout the year and then the average for the next year is 55%.
Operator: Our next question today comes from Liam Schofield from Morgans.
Liam Schofield: Just on the balance sheet, can you just talk about interest rate sensitivity? Like obviously, you've outlined gearing, just the prospect of higher rates, how does that impact you guys going forward and your capacity to maintain distributions and fund developments?
Merran Edwards: Liam, it's Merran. We have, as you can see, quite a high hedge rate. So we do have a little bit of risk with interest rate rises. We assume that there are no further interest rate rises in our '26 guidance. If there was an interest rate rise in August, for example, that would have a small impact of about $2 million. And in '27, you can see the same thing. We've assumed the cash rate.
Liam Schofield: One final one. Just on Grosvenor...
Russell Proutt: There's no unfunded liabilities in the business.
Liam Schofield: Perfect. And just the final one there, just on Grosvenor, obviously, early days. What's the plan for like partial divestment of that type of asset? Is it going to be just held on balance sheet for the foreseeable future? Or should we think about some potential divestment?
Mark Harrison: Yes, it's Mark. I think -- thanks, Liam. It's Mark. I would say, given the active inquiry that we have from a leasing front, we're working through that in the immediate term, but you can absolutely assume at the right time, we would look to bring capital partners into that investment opportunity.
Operator: Our next question today comes from Adam West from JPMorgan.
Adam West: I guess my first question today is just on the Office cap rate. Obviously, it's compressed 6 basis points, but I'm just wondering what assets were driving that? And if the 10-year was to hold at its current levels, do you expect cap rates to sort of stabilize? Or would you expect some expansion in the next year or 2?
Mark Harrison: Yes. Thanks, Adam. It's Mark again. What we saw was, as Matt outlined in his presentation, we just saw differential behavior by assets and submarkets. So we saw higher quality assets like Grosvenor and 2 Park Street firm and secondary and noncore assets slightly softened. So I think overall, you can expect cap rates to remain stable from here based on what we're seeing in transactional activity, with a firming bias for better quality assets and potentially a softening bias for secondary and tertiary assets.
Adam West: Yes. No, that's clear. And I guess just in terms of the leasing spreads in the Office portfolio, what assets were driving, I guess, the higher spreads? And then following on from that, where does the under-renting sit relative to FY '26 expiries?
Mark Harrison: Thank you for your question. So on leasing spreads, it was actually relatively spread across the portfolio. If I look at it on a state base, really on a gross base basis, Brisbane and Sydney really led the charge. But interestingly, Melbourne also posted a relatively positive result at around 5.1%.
Adam West: Yes. No, that's clear. I guess just final one for me. Just on the Retail trading performance, do you have any color you can provide, I guess, slower growth in quarter 4?
Chris Barnett: Adam, when you say slower growth, our total centers still achieved 4% growth for the quarter. You can see that really we had an acceleration of performance in the second and third quarters, but the fourth quarter actually mirrored the first. And as I said, we're very happy that the total center sales growth for the period ended at 4.2%.
Operator: Our next question today comes from Richard Jones from JPMorgan. [Audio Gap] We will try and reach out to Richard to see what's going on there. Our next question today comes from Peter Davidson from Pendal Group.
Peter Davidson: Just a question for Chris Barnett. It's a pretty strong Retail results [indiscernible]. Chris, can you just tell me about Melbourne Central [indiscernible] Monopoly Dreams? How has that triggered in your results [indiscernible] with that because I think they [indiscernible] bankruptcy? Can you just walk through what's happening there?
Chris Barnett: Peter, thanks for your question. Without wanting to speak about specific tenants, it is public that Monopoly Dreams went into administration at the beginning of the year. As a percentage of total GLA, it's reasonably insignificant contribution to the group or certainly to the center. What I'm happy to say is that we've been able to re-lease that tenancy with a flagship international retailer. And we would look to ensure that we have those tenants replaced and trading by the second half of this year. And the replacement has been accretive to both valuation and cash for '26.
Peter Davidson: And what happens to the bank or the rent receivable, Chris, how do you treat that in the accounts?
Chris Barnett: Peter, I'm sorry, I didn't hear that.
Peter Davidson: How would you treat the...
Chris Barnett: The total loss of cash will be covered by bank guarantees that the tenant had in place. And as I said, the new deals that we've replaced with are accretive and won't have any impact to '26.
Operator: Our next question comes from Yingqi Tan from Morningstar.
Yingqi Tan: I dropped off for 5 minutes before, so I hope my questions have already been covered. So my first question is on office leasing. I noticed that your lease term has averaged about 6.5 years in the past 12 months. And I noticed that it has generally slowly increased for the past 2, 3 years. Just wondered if you can talk about if you're observing this -- is this a general trend that the leasing terms have ticked up in the past 2, 3 years and whether there's anything changed structurally for the last 12 months or so?
Mark Harrison: Thank you for the question. In relation to leasing terms, what we've seen at least over the course of the last 12 months is larger tenants now coming to market to either take more space or renew space. Generally, post-COVID, they have a lot more look through in relation to their forward space planning. And on that basis, they're looking to generally take longer lease terms. You still have those smaller tenants sub to 1,000 meters that generally take shorter lease terms than those longer tenants. So definitely a trend that we have witnessed over the course of at least the last 12 months.
Yingqi Tan: And in regards to that 7.2% leasing spreads in your Office deals, just could you talk to what are the drivers to that 7.2%.
Mark Harrison: Yes. So it's really a combination of increases and improvements in face rents achieved on relet and also a reduction in the incentive that's offered as part of that relet. They're really the key drivers.
Operator: Our next question today comes from Howard Penny from Citi.
Howard Penny: Just 2 questions on below the line. So I see income tax expense has reduced a lot. Could you just take us through what you've done and initiatives you put in place to get that down a little bit? And then the second question, just looking forward, we've seen across the sector some refinancing at better margins. Can we expect that to come through in GPT next year, perhaps?
Merran Edwards: Howard, it's Merran. I can take both of those. First question in regard to income tax expense. There is a reduction from 2024 to 2025. In 2024, the FFO tax rate was about 36%, and that was driven -- so it was higher last year, and that was driven as a result of some one-off tax -- nondeductible tax items. In 2025, we have an effective rate for FFO of 30%. And in 2026, we expect that to continue. So you can expect a 30% effective rate for FFO again. In regard to -- what was your other question, refinancings?
Howard Penny: Yes, refinancing margins.
Merran Edwards: Yes. Okay. So what we have done is across our debt book, we've looked at our loans and whether or not we can refi and extend those loans. And as a result, we ended up with, on average, the ones that we have completed about a 10 basis points reduction in the line and margin fees, which you will see flow into '26, and you'll see our cost of debt for 2026. The weighted average cost of debt is expected to be 5%.
Howard Penny: And maybe just a second question back on funds under management. Your conversations with both domestic and offshore investors, are any of them raising the fact that we're in a high interest rate environment or at least rising interest rate environment, that's becoming a deterrent? Or are they still very attracted to the fundamentals of your portfolio in Australia?
Mark Harrison: Yes, Howard, it's Mark. I'll take that. I'd say in our recent discussions following some interest rate volatility, there's still really strong interest for capital from reallocation to real estate out of other sectors, primarily being driven by strong income fundamentals and like-for-like income growth. So given where we're seeing asset values at a discount to replacement cost, it still seems to be positive equity tailwinds for us.
Operator: Thank you very much. There are no further questions at this time. I will now hand back to Mr. Proutt for closing remarks.
Russell Proutt: Thank you again for everybody for being on the call this morning, and thank you for your questions. And I'll hand it back to the operator now.
Operator: Thank you very much. That concludes today's event. You may now log out. That concludes today's meeting. You may now disconnect.