Vicinity Centres Aktie

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.

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 emit 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 and 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 by 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 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 of 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%. And 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.

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.

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 RM 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 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, adders 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 and 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 Emporia in 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 UNIQLO'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 enormous 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 and 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. 2 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 two, 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 Instructions] Your first question comes from Solomon Zhang from UBS.

First question was just on Chatswood just wanted to hit on the 725 passing [indiscernible] 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 on cost, please.

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 will commence opening the second stage, which is really the luxury opening from the start of FY '26, and we expect that to be majority 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.

Second question is just on your premium portfolio, 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, the only margin on your [indiscernible] portfolio average. So I mean is that the appropriate spend, do you think? Or what sort of, I guess, occupancy cost, you think is appropriate given the productivity of that premium portfolio?

Yes, Simon, 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.

And do you see, I guess, headwind to getting back to your pre-COVID occupancy costs?

Look, we're confident we've been -- the pleasing thing, I would say, Simon, is we've been growing our leasing spreads and 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 where we're able to continue to grow our revenues through the portfolio.

Your next question comes from Daniel Lee from [indiscernible].

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.

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 to the market.

And just on corporate overhead, it looks like they were down 3.3%. Maybe if you could just give us some guidance as to what the drivers were there and how you want us to think about corporate or growth moving forward?

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.

Your next question comes from Simon Chan from Morgan Stanley.

Adrian, 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 branded stuff. In your prepared remarks, Pete, you talked about how you want to leave optionality and 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?

Simon, 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 by the what acronym is a 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 our 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 a 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 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.

That's very clear. I just got one more. Chatswood Chase the yield. I think in your answer to one of the previous Chaps question, if 264% next year and 6% the year after. It is effectively fully leased anyway, and you start collecting rent from day 1. I get it. 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 the word my question is, is your 4% going to 5% going to 6% over 3 years, a little bit too conservative?

I'd like to think so, Simon. We all -- 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.

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?

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.

Your next question comes from Howard Penney from Citi.

Just understanding the earnings impact of commencing upon and finalizing the developments 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?

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 event 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 and 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.

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 conclude 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.

And then just talking a little bit about residential and 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?

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.

Your next question comes from Andrew Dodds from Jefferies.

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.

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.

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 it's got a similar stabilization period to that of Chatswood. So maybe 4% trading to 6% over the 3-year period.

No, good question. If I back track when I first came to the company, we never used stabilization. So typically, we do now, we think 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'd 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.

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 of sales data that you've already picked up on throughout January and early Feb post BI rate hikes?

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 are 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.

Your next question comes from James Druce from CLSA.

One very quick one. What was the yield on the $327 million of divested assets?

Slightly over 6%.

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 is coming from the subregional portfolio, but can you just talk through the contributions of sort of market rents versus day assumptions and sort of the different movements across the categories, please?

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 valves. So we've rebooked at the sales price as part of market validity of those sales price. That also led to market evidence for the values for similar type of assets within the portfolio.

Probably the only thing I'd add is, typically, what we do for development is well as the project goes through development will change the valuation methodology to a as 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 in NTA growth in the future, but that was a contributing factor as well to the 2.6% gain.

Okay, fantastic. And just on the tax drag from profit expenses, does that is that sort of stabilized in the second half or not?

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 decay that we can control them in FY '27.

Thank you. Your next question comes from David Pobucky from Macquarie Group.

Just around the balance sheet gearing sits towards the low end of that range. 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?

David, it's Peter, and thank you for the question. Look, we're acquisitive at the moment. We have a very strict 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 such big assets allows us to deliver greater growth, which we've tried to highlight in the presentation as well.

Maybe one for Adrian, just around debt. I know you're monitoring a couple of 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?

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.

Your next question comes from Richard Jones from JPMorgan.

Just wondering if you could tell us what the estimated values of the luxury retail that Chatswood Chase?

Just the luxury, the end value, Richard?

Yes.

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 that luxury may represent in terms of that, but that's basically what it is.

Sorry. So my question was in relation to the luxury residential, sorry.

Residential. Sorry. Yes. We're just we're finalizing the numbers as we speak. And I know that's like I push your question down the road, but let's where 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.

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 a Chatswood Chase selling at Uptown. 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?

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, they deliver better returns above well above the portfolio average, then why not just hold on to about 100%.

Your next question comes from Adam Calvey from Bank of America.

Look, first 1 on NPI growth is 3.7% first half regarding the 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?

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. And clearly, 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 glories 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.

Okay. That makes sense. Just sticking with leasing spreads, I mean, I think Andrew touched on this, just a pathway back to p pre-COVID occupancy levels, I mean, the 7% expiring, probably to really drive rents in some of these assets. There's really no supply coming online. They're quality assets. I appreciate you're going to manage our relationship with the tenants. But I mean, I don't know how much power they have they really push back.

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.

Maybe just really quickly following on how many more options to tenants usually have in terms of boxes and other sites to go into when they're looking at either renewing or moving on.

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.

Your next question comes from Glen McHugh from Grand Street.

Just a quick one on Uptown ion costs. Appreciating your IRR framework too. So Brisbane's 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.

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 were formalized in terms of the development approval that we would have lodged with the city. We know the city is very supportive, fantastic 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.

Yes. No, I take your point on construction costs. I understand with union activity, productivity of construction workers is low international content. 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 IT committee meetings how you're evaluating your underwriting hurdles? How have they changed over the last 6 months against that backdrop?

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 3-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 cycle approach. Obviously, if volatility would 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.

Okay. And 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?

Yes, Claire, in terms of whether it's acquisition or development activity in the future, 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 as 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 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.

Thank you for standing by, and welcome to the Vicinity Centres FY '25 Annual Results Briefing. [Operator Instructions]

I would now like to hand the conference over to Mr. Peter Huddle, CEO and Managing Director. Please go ahead.

Good morning, and thank you for joining us for Vicinity Centres' results call for the 12 months ended 30th of June 2025. Joining me on today's call is Adrian Chye, our Chief Financial Officer. Before we begin, I'd like to acknowledge the traditional custodians on the lands on which we meet today and pay my respects to their elders past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples on the call today.

We will start today's presentation on Slide 5. FY '25 has been another important and successful year at Vicinity. The strategic decisions and investments we made remain anchored by our strong conviction that premium fortress-style assets located in great trade areas that are well managed by retail property experts have the potential to deliver superior and sustained income and value growth. What's more, with a growing shortage of retail GLA per capita in Australia, retailers are positioning themselves for the next cycle, becoming more discerning and selective in terms of partnering with owner managers of the best-performing assets and are committing to leases with longer tenure and typically in larger store formats.

In this context, we are curating a higher quality and higher growth asset portfolio by acquiring premium assets with strong growth potential at attractive pricing, divesting nonstrategic assets also at attractive pricing and selectively investing in important large-scale retail developments. To that end, we have successfully acquired a 50% interest in Lakeside Joondalup in Western Australia for $420 million, and importantly, secured the associated property management rights. Under our management, the acquisition was accretive to FY '25 earnings and achieved a gross valuation gain of $30 million since acquisition. We exceeded our asset divestment target by more than $200 million, having raised close to $460 million from divesting whole or partial shares of assets. Not only have asset sales provided an important funding mechanism for our growth priorities, asset sales have also provided a further trend towards our targeted premium portfolio mix.

We completed the development [indiscernible] Chadstone's revitalized fresh food precinct, The Market Pavilion, with the customer response and trading metrics exceeding expectations. Construction of Chadstone's new One Middle Road office tower was completed in May this year with the [ days ] commencing occupation in June and Kmart commencing their head office fit out in July.

We are particularly pleased to announce the extension of our partnership with the Louis Vuitton [ Moi Hennessey ] Group to open a Chatswood Chase in quarter 4 FY '26, which combined with other market-leading retailers, makes the successful reimagination of Chatswood Chase into Northern Sydney's fashion capital all but complete.

Adrian and I will cover our financial and operating metrics in more detail shortly. However, in summary, at $674 million, funds from operation was $9 million up on the prior year, and importantly, on a per security basis at $0.148, was at the top end of our guidance range of $0.145 to $0.148 per security. The Board declared a final distribution of $0.0605 per security, bringing FY '25 distribution to $0.12 per security, representing a payout ratio of 95.4% of adjusted FFO.

Strong income growth and improving portfolio metrics reflect the confluence of curating a higher-quality retail asset portfolio, especially in an environment of tightening retail supply, and of course, the team's steadfast focus on delivering leasing outcomes of robust earnings growth in a more resilient than expected retail sector. Disciplined financial stewardship together with a $349 million increase in asset valuations in FY '25 ensure gearing remained at the lower end of our target range of 26.6%. And having maintained our sector-leading credit ratings, our balance sheet remains a source of competitive advantage and strength.

It is pleasing to note that our significant focus on culture, strategy and performance was showcased by our FY '25 employee experience survey results, having achieved a score of 7.8, representing a 0.4 increase relative to the prior year. We look forward to building on this result even further in FY '26.

Lastly, I'm pleased to report that while we remain focused on embedding ESG into all aspects of our financial and operational decision-making, we have been intently focused on uplifting our data capture processes and systems as we ready ourselves for mandatory climate reporting, which comes into effect in FY '26.

At Vicinity, we believe that strong employee engagement relies on a strong connection existing between our people's day-to-day activities and the purpose and vision of our organization. Our purpose is to shape meaningful places where communities connect, and with a network of 51 owned shopping centers nationwide, our centers naturally play an important role as economic, social and employment hubs where communities can access essential and discretionary goods and services and connect in our entertainment, food and leisure precincts.

Our shopping centers welcomed around 380 million customers in FY '25. That equates to more than 1 million visitors per day. Our organizational vision is to prosper with our people and communities by creating Australia's most compelling portfolio of retail-led destinations. A key measure of industry success, especially sales productivity, where 5 of the top 8 most productive retail assets in Australia, are Vicinity assets. Vicinity's unwavering customer centricity, willingness and ability to transform assets into experience-led destinations coupled with trusted and enduring partnerships with the best retailers, local and international, are at its most fundamental level, the intended outcome of our investment strategy.

Which brings me to Slide 7, a slide often referred to as a strategy on the page. Our capital allocation model depicted on the top left of this slide highlights the means by which and indeed the magnitude of our deliberate strategy to recycle capital out of smaller nonstrategic assets where market liquidity and pricing continues to be robust and reinvest proceeds into premium assets, acquisitions and developments that present greater long-term growth potential. We have been selective, timely and disciplined with our acquisitions of the residual 49% interest of Chatswood Chase and more recently, with the 50% interest in Lakeside Joondalup.

In a similar context, in a constrained construction sector and with cost of capital remaining elevated, we continue to prioritize the most value-accretive retail developments being the transformational projects at Chadstone and Chatswood Chase, which I'll talk to in more detail shortly. These developments together with our acquisitions and divestments are each driving a meaningful uplift in the overall quality of our asset portfolio, which you can see in the chart on the bottom left. What's more, we have been able to make these meaningful portfolio enhancements with relatively little impact on our balance sheet. In other words, we've been able to self-fund much of our current and future income growth.

The premium assets remain the key source of sustained income growth, demonstrated in FY '25 by comparable NPI growth of 4.9% and leasing spreads of 6.1% or nearly 2.5x the average. Importantly, to transform an asset into a premium asset and/or to acquire and maintain a premium asset requires us to deploy our vertically integrated team of executives to identify and capture unlocked value. At Vicinity, our approach to unlocking value and maintaining our premium assets is depicted in the virtuous cycle where superior income and value growth is generated from partnership-based product allocation, capital and organizational capability, collectively delivering integrated placemaking as well as the execution of innovative activations and experiences.

Sustained retail sector resilience likely reflects population growth, the accumulated benefits of income tax reductions, federal government incentives to reduce cost of living as well as the recent and likelihood of further interest rate reductions. Despite this, we entered the year anticipating a softer first half, ahead of a steady return to growth in the second half. After a benign first quarter, we had a successful Black Friday period, which extended into a strong Christmas trade that underpinned a 2% growth in the first half, which then accelerated to a 3.8% growth in the second half.

What is more interesting, however, is the momentum of improvement across the specialties and mini majors over the second half. This category delivered a growth of 4.7% in the second half comprising 3.1% growth in the third quarter, accelerating to an impressive 6% growth in the final quarter. Interestingly, discretionary categories led the rebound, including leisure, jewelry and homewares and pleasingly, this rebound was observed across all segments. The luxury category remains highly productive at more than $61,000 per square meter in sales, and we are pleased to report that over the second half, luxury sales reported positive growth in 4 of the 6 months. Consequently, these robust retail sales results saw our specialty sales productivity increase 2.3% to $13,037 per square meter, setting a new high for Vicinity.

Importantly, however, retail sales growth and its impact on sales productivity are an outcome of highly strategic leasing activity, strong retailer demand, a higher-quality asset portfolio and, of course, tightening supply of retail floor space. We finished the year with occupancy at 99.5%, 20 basis points up on June 2024, achieving our lowest vacant shop count to date. In fact, all segments are now above 99% occupancy with our outlets essentially fully occupied at 99.9%. Notably, having mobilized our property and leasing plans for Lakeside Joondalup in the second half, we have already seen a 50 basis point improvement in that asset's occupancy over the period.

Leasing spreads for the year were positive 2.5% with the premium asset portfolio once again the strongest contributor at 6.1%. Importantly, our apparel and footwear category, responsible for 36% of rent transacted, achieved a 4.1% leasing spread underpinned by Chadstone and the outlet centers. The average tenure of new leases remain robust at 4.3 years. Also supporting income growth, we maintained the average annual escalators on deals completed at a healthy 4.8%. Excluding sites that have been strategically held for development, the portion of income on lease holdover is at a historic low at just 2.1% or 154 stores.

For some time now, we've been asked for how much longer can we sustain positive leasing spreads, especially given the resilient but largely benign retail sales environment in recent years as well as higher cost of doing business for retailers. Our specialty occupancy cost ratio, or OCR, has increased 40 basis points to 14.1% in FY '25, which we largely attribute to the subdued sales environment in 2024 and into the start of FY '25. While year-on-year movements in OCR are notable, with specialty tenants mostly on 5-year leases and given FY '20 was COVID impacted, it makes sense to compare to FY '19.

Relative to FY '19, lower OCRs across our premium, core and total portfolio are a reflection of specialty sales productivity growth significantly outstripping rental growth by a factor of 1.5x. Naturally, COVID sparked a resetting of rents. But what's more important is that sales productivity has continued to grow and occupancy rates are now incredibly tight. Consequently, headroom exists for sustained rental growth. From a sector's fundamental perspective, we have a more premium asset portfolio compared to FY '19 that can support higher OCRs. Tightening supply of quality retail floor space leads to demand-generated price tension, knowing these retailers are locking in longer-term leases in larger format stores in the best centers.

And while I say this with a degree of caution, the recent investments we have made in our retail assets will be the benefactors of strong employment, growing population and loosening monetary policy, which will drive consumption. That all being said, we certainly acknowledge the uncertain and volatile geopolitical environment and other potential exogenous risks that have the ability to impact our outlook for both sales and rent growth.

I'll now hand the call to Adrian.

Thanks, Peter, and good morning. Statutory net profit after tax for the year was $1 billion comprising $674 million of FFO and $331 million of statutory and other items largely relating to net property valuation gains. Funds from operations increased by 1.4% to $674 million, but adjusted for one-off items and higher loss of rent from developments, FFO was up 3.6%. Comparable NPI increased by 3.7%, which was supported by the continued strength of our premium asset portfolio, which delivered 4.9% comparable NPI growth and an increase in media income, which drove a 7% uplift in ancillary income.

External management fees were down $10 million with the reduction largely attributable to development fees. Having acquired the residual 49% of Chatswood Chase in March 2024, we ceased earning development fees and instead started capitalizing development personnel costs to the asset. This provides an offsetting benefit to corporate overheads, which I'll come to. In addition, the completion of the major development at Chadstone naturally resulted in a reduction in development fees. Disciplined cost management and development personnel costs related to Chatswood Chase development being capitalized to the project underpinned lower net corporate overheads.

Net interest expense increased by 9.6%, mainly due to the higher weighted average cost of debt at 5.1% relative to 4.9% in FY '24. The timing of transactions, notably the acquisition of Lakeside Joondalup in August 2024, and the settlement timing of divestments, which was skewed to the second half, also contributed to the increase in interest expense. Maintenance and leasing incentives were stable at $100 million, and we expect a similar level in FY '26.

Turning now to valuations on Slide 13. The portfolio delivered a net revaluation gain of $175 million or 1.2% over the 6 months to June 30, representing the third consecutive 6-month period where the portfolio delivered a valuation gain. Over this period, net valuation gains have been underpinned by consistently strong income growth, which has, in turn, been driven by the improved quality of the portfolio, in addition to strong asset management and leasing outcomes.

Outlets continued to record strong gains, reflecting their superior occupancy and consistently positive leasing spreads. Our CBD portfolio increased 2.4%, benefiting from significant tenant remixing undertaken in recent years and improvement in occupancy. Valuation growth was partly offset by increased property operating expenses, largely comprising additional and increased state-based taxes and levies. Pleasingly, transaction markets remain active across the majority of retail subsectors with increased investor appetite and market evidence supporting current valuation metrics. Looking ahead, we continue to expect that with lower interest rates and resilient income growth, Vicinity's portfolio will continue to be well positioned for future growth.

Turning now to capital management. Maintaining our conservative and disciplined approach to managing gearing and retaining our market-leading credit ratings continue to be guiding principles for Vicinity when managing and deploying capital. Vicinity maintained its market-leading credit ratings of A stable and A2 stable from Standard & Poor's and Moody's, respectively. And at 26.6%, our gearing remains at the low end of our 25% to 35% target range. Consequently, Vicinity enters FY '26 in a strong and flexible position to invest in its long-term growth priorities, both planned and opportunistic.

We continue to actively manage our funding risk. In January this year, we took advantage of attractive market conditions to issue $500 million of 7-year fixed rate AMTNs at a margin of 130 basis points over the relevant swap rate. With undrawn bank facilities of $1.7 billion, we have sufficient liquidity to fund all FY '26 debt expiries and committed development spend. [indiscernible] in January this year, we established a DRP as an additional source of funding for Vicinity and to provide optionality for our security holders. The DRP will continue to be in operation for the FY '25 final distribution.

Thank you. I'll now hand back to Peter.

Thanks, Adrian. Turning to our developments. Our willingness and our ability to invest in the vibrancy and quality of our asset portfolio remains a key differentiator and a source of competitive advantage. Vicinity has been one of the few developers of larger retail assets, which we believe positions us and our assets well as the fight for quality retail floor space intensifies. Against a backdrop of capacity constraints, elevated construction costs and increasingly burdensome regulation, the completion of Chadstone and the substantially advanced Chatswood Chase could only be achieved by the enormous effort of our highly skilled internal team partnering with industry experts. The completion and launch of The Market Pavilion at Chadstone has been widely touted as world-class and reinforces this asset as Australia's preeminent retail destination. It has also generated a huge sense of excitement and pride not just for those directly involved in the project, but for everyone at Vicinity.

The Market Pavilion alongside One Middle Road were significant developments that have brought a unique fresh food, dining and commercial offer to Chadstone. The precinct introduced a range of iconic fresh food outlets who have chosen Chadstone as the destination of their first in-shopping center retail store, including the likes of [ Brunetti's ], Flowers [indiscernible], Champagne and Oyster Bar and others listed on the left of this slide.

The results speak for themselves. In the first 3 months since opening, The Market Pavilion has delivered $67 million in sales, resulting in a staggering 36% increase in total center traffic since opening, which has boosted total static center sales by 4.4%. In June 2025, Chadstone welcome adidas' head office team to the One Middle Road office tower. Meanwhile, Kmart is fitting out its office space and is expected to officially commence occupation in early 2026.

Combined with the recent opening of the Chadstone Hotel in 2019 and the Social Quarter in 2023, the latest development continues to solidify Chadstone's position as a world-class retail destination that blends fashion, food, entertainment, leisure, work and stay.

At Chatswood Chase, with the center's transformation into Northern Sydney's fashion capital is preparing for market launch, the pre-leasing for the project is now largely complete with an enviable lineup of luxury and premium offers. I am pleased to report that owing to a very successful leasing campaign that the project's financial metrics have improved to a stabilized yield of greater than 6% and an unlevered IRR of circa 10%. During the course of July, we commenced the handover of spaces for retailer fit-out works to commence as common area finishes are progressing at pace. Our plans for a stage opening remain unchanged, comprising the redeveloped ground and level 2 being stage 1 is on track to open in the second quarter of FY '26, in time for Christmas this year. The opening will feature Australian designers, local and international flagships, along with leading brands in athleisure, jewelry, accessories and services. Both David Jones and Apple will also open for stage 1.

The eagerly awaited stage 2 opening will be the official unveiling of Chatswood Chase's new luxury precinct on level 1 and is expected to be open and trading by Q4 FY '26. As I mentioned earlier, we are especially pleased to have extended our strategic partnership with global luxury powerhouse, the LVMH Group, with 12 flagship LVMH Maisons augmenting an already comprehensive collection of globally coveted luxury brands. In addition to these luxury retailers featured on this slide, the center will welcome an elite mix of fashion and other category leaders that is unrivaled in Northern Sydney.

Please refer to Slide 28 to view the extensive list of retailers joining us at Chatswood Chase. Suffice to say, the completed Chatswood Chase will deliver a customer experience that is also commensurate with the world's best premium shopping center destinations.

We are also delighted to announce that Galleria is now set to embark on the next stage of its much anticipated revitalization, marking a significant milestone in the transformation of this asset. With a loyal customer base within a large trade area in Central Perth in Western Australia, the redevelopment will redefine Galleria's role in the community by returning the asset to its former vibrancy and as a contemporary destination where people visit to shop, dine, socialize and be entertained. Early works are completed with formal construction works scheduled to commence next month and the project completing prior to Christmas 2026. Key features of the extensive redevelopment include a complete revitalization of the iconic [indiscernible] across 2 levels; introduction of the terrace, a new alfresco dining precinct designed to bring people together in a vibrant open-air setting; nearly 100 refurbished tenancies across 2 levels; and a new entertainment and lifestyle precinct.

At our interim results in February, we shared that in November, the New South Wales state government approved the Bankstown rezoning proposal as part of the transport-orientated development program to create housing supply near major transport hubs. We are increasingly well positioned to advance residential development adjacent to our Bankstown Central asset and the new metro station, which is due to commence services in 2026. More recently, however, Chatswood Chase now presents an exciting near-term mixed-use development opportunity, given that we own 2 properties that are directly adjacent to the center as shown on the image on this slide. Sites at both of these centers are proposed for high-density residential and have been endorsed for inclusion in the state's housing development authority's accelerated assessment pathway. This provides an expedited planning outcome. Given their strong alignment and government priorities, both Bankstown Central and Chatswood Chase represent 2 of our most strategically located and exciting assets from a near-term mixed-use perspective.

Turning now to FY '26 earnings guidance. Akin to FY '25, FY '26 is expected to be a year where we continue to deliver strong portfolio metrics and make investment decisions that support current and future income growth whilst we simultaneously absorb the short-term impacts associated with the execution of our investment strategy, being earnings dilution from divestments settled in the second half of FY '25 as well as the ramp-up to FFO accretion in FY '27 from our developments at Chadstone and Chatswood Chase. In this context, we expect FY '26 FFO and AFFO per security to be in the range of $0.15 to $0.152 and $0.128 to $0.13, respectively. Adjusting for one-off items and a year-on-year reduction in the loss of rent from developments, our FY '26 FFO guidance range implies growth of between 2% and 3.5%.

Key assumptions in our guidance are on this slide. However, the 2 I'd like to draw out are comparable NPI growth of circa 3%, noting that excluding the impacts of newly levied local and state government taxes, comparable NPI growth is expected to be circa 3.5%; and loss rent from development of $25 million, down from circa $35 million in FY '25, relating to the completion of Chatswood Chase and commencement of Galleria. With the completion of Chatswood in FY '26, loss of rent in FY '27 should reduce to circa $15 million.

As we have said before, delivering predictable and growing income for security holders whilst at the same time, driving capital growth over time, remain at the core of our business decisions and investments. In this context, FY '25 has been a particularly important year for Vicinity, where we have made meaningful investments in the future resilient and growth potential of our retail asset portfolio. As we look ahead to FY '26 and beyond, the momentum of execution and focus on delivering our strategic financial and operational priorities will be maintained, perhaps accelerated, given the increasingly favorable long term fundamentals of the retail property sector, together with a cautiously optimistic expectation of a continued strengthening in consumer spending.

Before I hand the call over to Q&A, I, together with the executive leadership team would like to acknowledge and thank everyone who is affiliated with Vicinity for their ongoing support, most especially our security holders, retail partners joint venture and capital partners, customers and, of course, the Vicinity team and its Board. Thank you, operator. We are now happy to move to Q&A.

[Operator Instructions] Your first question comes from James Druce with CLSA.

Peter, Adrian, congrats on solid results. Just firstly, can we get a sense of how sales have been tracking into July and August? You talked about sort of the momentum building through the 4Q.

James, it's Peter here. We're just wrapping up July's results at the moment, but it continues on a positive trend, it's fair enough to say. Probably, July looks even more positive than the last 2 months of FY '25 at this stage. So having 3 months now of solid positive trends. We're turning a corner.

Yes. Okay. And then maybe just on the asset recycling story. I mean you've done a good job over the last 12 months. How are you thinking about the next 12 months? Is there anything in guidance? And is it -- can you provide any color on some of the quantums or any thinking about that?

James, there's nothing in guidance for asset recycling for '26. But in terms of recycling, we're still looking for opportunities in the marketplace. And obviously, one of the opportunities to fund that is through further asset recycling. So at this point in time, nothing is planned. But we're watchful where we can either have acquisitions that we can add value to. As I said, one of the opportunities for that is further asset recycling considering there's quite a fair bit of liquidity in the marketplace.

Yes. Okay. So it's fair to say you'd be managing acquisitions with -- well, you'd be matching assets out with acquisitions.

It's typically our go-to at the moment. It's definitely one option that we could fund acquisitions if they present themselves.

The next question comes from Cody Shield with UBS.

Just on the Chatswood redevelopment, could you provide some color on how long you'd expect that to stabilize and whether that yield will be initially on stage 2 opening?

So in terms -- so we opened the first stage in October, the second stage from April of next year. Typically, the stabilization period that we factor in is around 3 years. So -- and typically, it represents around about 4% to 5% of specialty rent coming through that stabilization period. So in terms of initial yield on Chatswood is around the low 4s in terms of percentage and then ramps up to in excess of 6% on year 3.

Okay. That's clear. And for Galleria, I mean, you're looking at a similar stabilized yield there. Should we think about the yield profile and ramp-up as kind of similar to Chatswood? Or are you expecting some differences for that project?

We -- so Galleria, we aren't anticipating the phasing of the project in the same way. The phasing is a lot closer together in terms of the 2-stage opening. The Galleria's initial yield will be higher than Chatswood's. That's risk adjusted. We required that. So -- but similarly, again, we would have 2 years' worth of stabilization in Galleria from commencement of trade, which is late next year, calendar year, and then 2 years' worth of stabilization to get to in excess of a 6% yield.

Okay. That's helpful. Maybe a last one, if I may. It's been pretty well publicized that there's potentially some movement in the fund space across the sector. Just on the acquisition point, do you see any opportunities emerging there? I mean would you be interested in an [indiscernible], for example?

I look at -- we know [ Aaron ] is on the market. So we'll have a look at [ Aaron ] just in terms of the potential of that asset. So we're active. Our preference though is to go in with a direct equity interest. And our sort of funds approach is more basically with a joint venture partner with the same equity interest going into assets like that. So ultimately, if we can find value in those larger major regional or super regional assets that really have significant market share in their trader and have some growth potential, then we'll be actively looking at those.

The next question comes from Lou Pirenc with Jarden.

Peter and Adrian, 2 quick ones. On Chatswood Chase, and maybe it's a bit too early, but when you bought the -- I guess, the remaining stake, you mentioned maybe further down the track bringing in capital partners around completion. Is that something that is on the agenda already? Or is that something for after stabilization?

Yes. Lou, in terms of Chatswood, it's a really tricky development environment at the moment. And the team, it was far easier delivering it as 100%. We want to stabilize that asset first. And if there is an opportunity to bring a partner in later, we'll look at that. But ultimately, it will be dependent upon our growth ambitions in the future. We don't need to bring a partner in on that asset either now or in the midterm. It just depends on other growth opportunities in the future.

Makes sense. And then maybe just on your future developments and the housing or the mixed-use component of that. Realistically, is that -- when will you start spending money on that? Is that 2 years away, 3 years away? Or could it be nearer term?

Lou, the processes that we identified here, including the HTA process, which is an expedited process through the New South Wales government, it is still a circa 18-month to 24-month process. So the real capital expenditure in terms of in-ground construction is likely to be 2 years away across all of our mixed-use developments, which we have identified to the market.

The next question comes from Simon Chan with Morgan Stanley.

Just wondering if you can give me some color on this capitalization of corporate overheads in the Chatswood Chase development. I know you spoke about it in the first half. But how much did it end up being in the -- on a full year basis?

Simon, Adrian here. It was about $5 million that came out of fees and then got capitalized into overheads for the financial year. Overall, overheads were down about $8 million. So about half of that, if you like, was really Chatswood.

And the other half was just cost savings, I would assume?

That's right. That's right.

Right. And what about into FY '26? Like I mean the project starts opening, right? So I imagine you won't be capitalizing as much. How much capitalization are you factoring into your $0.152?

Yes. I mean the capitalization looks at all assets on balance sheet, if you like. So when we think about the total capitalized development costs or personnel costs into '25, the total was closer to about $24 million. And into next year, we expect that to come down a little bit because of particularly Chadstone completing. But Chatswood is still going to have a large amount of personnel costs coming through. And then you've got Galleria as well, where there'll be a portion of the development personnel costs capitalized. So it'll probably go from circa $24 million, $25 million this year down to closer to $20 million next year.

Right. And you were saying $5 million of the $24 million was Chatswood Chase. Is that kind of what you were saying?

That was probably just a switch from when we initially treated as fees, if you like, to then when we moved it over. And that was a 49% for Chatswood.

Okay. Okay. Got it. Second question, just want to go back to, Peter, the comments earlier about Chatswood Chase redevelopment and the stabilization period. I mean you're essentially saying stabilized until FY '30, 3-year ramp-up, opening date for the 5% and then ramping up to potentially in excess of 6%. Can you just walk me through the mechanics of that? What happens over that 2- to 3-year period? Because are retailers not paying rent on day 1 and then they will be paying rent by the third year? Like why is there such a big delta between day 1 rent and day -- your 3-year rent?

Simon, it's just a provision we have in terms of stabilization. So typically, the stabilization budget takes into account vacancy that we don't anticipate. So it takes a while for retailers sometimes to actually occupy the tenancy. Potentially if we need to provide additional marketing contribution or if there's any rent rebates that we require to ensure that we get the new product to the market in a sustainable level, that's what we put into stabilization. Again, it's a provision. We -- my personal view is I expect Chatswood to stabilize a lot quicker. It's definitely not FY '30. It's around FY '28 in terms of when we have stabilization in there. And if you take, for example, Chadstone, we opened that at late March. We had 3 years of stabilization in Chadstone, but it's completely knocked it out of the park from its initial trading results. So we don't expect to use all that provision that we put to ensure that our developments are successful.

So what percentage of the redevelopment is leased now then?

For Chatswood?

Yes.

So we've -- essentially have 95% of all tenancies executed in terms of heads of agreement and formal binding agreements, 70%.

Right. And of that 70% that's formal binding, do you have start dates locked in? Or is that why you were a little bit blubbery on day 1 yield?

So essentially, we have dates that are locked in for stage openings. But it doesn't mean that every retailer will always get there in terms of that particular opening date. So yes, dates are locked in, but we have a range of openings between October this year, all the way through to around the middle of next year. And some of that is -- the provisions for some of that is part of the stabilization budget.

Okay. And they only pay rent when they actually occupy the store there, I would assume. So if they're a couple of months late, then you lose a couple of months' rent.

It depends on the circumstance. So typically, they have a set amount of period from handover of tenancy to when rent starts, regardless of whether they're open or not.

Next question comes from Howard Penny with Citi.

Thank you, guys, for a great set of results. I just wanted to ask -- just unpacking that number once more, I know we keep talking about Chatswood Chase stabilization. Just a back of the matchbox calculation, a $625 million incremental developments, starting off at in the low 4s and ending at the 6s. It seems to me that, that adds around 2% growth to bottom line in that stabilization, just over 2%. Is that the kind of number that you're seeing as well?

However the difference there -- so in FY '26, we don't -- because it's a 2-phase opening. And so we count the whole capital essentially for FY '26, but it's a staged opening. So you don't get all the income because essentially 2/3 of the center opens before Christmas this year and 1/3 of the center opens next year. So that's part of the ramp-up between the 4% and the 6%. So we can maybe break it down in a little more detail for you off the call, if you like, but that's essentially part of the reason.

Yes. And I think maybe just to add to that, Howard, there will be, obviously, the benefit in future periods of that ramp-up period. So obviously, FY '26, there is a bit of dilution from the development stabilization. But I think as you're alluding to FY '27, '28, we should get some better growth coming out of it as these developments have stabilized. That 2% growth, I mean, yes, it's not far off what we're expecting.

That's great. Just a second question on using the additional land around Chatswood Chase. I know it's smaller than the bigger picture, but certainly interesting. Right now, I know that some of those buildings are being used for development offices. Do you have a sense of what the profitability on that redevelopment is the -- I suspect the way to look at it is the land and buildings are sunken in the project and that incremental value uplift could be quite material. Do you have any sense on the profitability on that?

Look, we do, Howard. We are publicly releasing that at this particular point in time. But to the second part of your question, I mean, we obviously think particularly in that area that there is really good value in terms of both those opportunities. In terms of the land itself, we keep them as separate -- they're on separate titles. They're not included within the Chatswood development base case at all. They've got their own holding land value. Both of them are held for development offices at the moment -- as offices for the construction teams of Chatswood Chase at the moment, and they're soon to be vacated. So the intent is really that those sites are demolished. There's an approval in place and then we plan to execute on those. And whether we do it at 100% in partnership, that will be still to be determined. And the value of how much we can extract on that will be relevant -- will be a correlation of how much we plan to participate in the equity funding of those developments.

Our next question comes from Richard Jones with JPMorgan.

Just in relation to your question or your answer to James' question earlier on the call, just are you anticipating any sales in '26 to fund the CapEx program?

In asset sales -- at this stage, we have 1 asset that's being publicly marketed at the moment, which is [ Box Hill North ]. That hasn't transacted at this stage. It's not included in guidance. So unlike last year, Rich, we're not -- we didn't put -- we put a target in of $250 million and sold $460 million. We haven't got that same level of guidance into FY '25 as FY '26. We're just assuming that we're essentially holding the asset base that we have here. Again, if opportunities present themselves into the marketplace, clearly, with quite a liquid market, to be quite frank, attractive pricing, that we will use potentially asset recycling as one mechanism to fund future opportunities.

And just a second question. You've obviously got a great lineup of luxury retailers at Chatswood. Just interested in, I guess, your thoughts and the retailers' thoughts around the pullback we've seen in luxury sales globally. Just whether that's impacted, I guess, your ambition or the retailers'?

Yes. Rich, absolutely, it has. So we obviously are one of the -- if not the largest, we're one of the largest landlords of luxury retail in Australia. And we have spent significant amount of time with the luxury retailers, me personally to be quite frank, over the last 12 months because of the basically 18 months prior to these results being quite challenged comparable sales environment for them. So we have seen their ambitions across Australia pull back from very larger stores and multiple stores to fewer stores. What we are seeing though is they absolutely want to partner with owner managers of assets that they've had a track record with of success, such as us with Chadstone or Queens Plaza.

So in terms of Chatswood Chase, it's a significant agreement that we've reached with LVMH with 12 new stores. I mean that's unprecedented, but it was not without significant amount of negotiations. To the specifics of your question, I would see, post Chatswood Chase, it depends on the group of luxury retailers. But I would say that their ambitions will be far less in Australia than what it was 2 to 3 years ago. On a sales point of view, we have seen luxury sales come back stronger, particularly in the last quarter. And I would say that's continued into July, Rich, as well.

And in terms of putting these developments together, whether it's Chatswood, which we're doing at the moment, we always try and have a look through the sales cycle for luxury retail and really understand where they're underrepresented in Australia and then try and be the partner of choice to make sure that we're aligned with them in terms of their expansion.

That's good color. Just one more question. Just uptown with your partner looking to sell, what ramifications does that have for your interest and the future development there?

No, it's a good question. So that ISPT or IFM share is on the market publicly at the moment. We're hand in hand with them involved in that process in terms of making sure a partner coming in is really aligned to the future strategy of that asset. In our view, that includes a development strategy. ISPT has been fantastic in terms of that as well. It has slowed us down, I would say, a little bit in terms of uptown. And our focus -- these developments are super tricky to execute in the market for reasons that are well publicized around construction markets period. A lot of focus went into getting Galleria up and running, which we announced in this set of results. Our focus now turns to make sure we have the same level of rigor to get uptown up and running as well in the right format for the future. Part of that is making sure that the new partner that will come in, if that transaction is executed, is aligned to the strategy.

The next question comes from David Pobucky with Macquarie Group.

Just the first one on the occupancy cost ratio of 14.1%, up from 13.7% in '24. If you can just please provide a view on pushing that harder. And could it get to pre-COVID levels at some point?

Yes. David, I mean clearly, there's an increased cost of doing business from retailers since COVID to now. To the degree that we can, we also are pretty conscious on ensuring that we're monitoring the publicly listed retailers' net EBITDA ratios, et cetera. And we haven't seen a huge amount of impact on that over the last number of years. But we do expect to see some margin erosion on the listed retailers net EBITDA margins in the current set of results. That all said, we do expect OCRs will increase to as a minimum pre-COVID levels. Our view is it should go more for a number of reasons. One, where our portfolio is a lot more, as we say, premium than what it was pre-COVID. We've sold a lot of assets that we saw as nonstrategic. We've invested not only in the large assets that we've identified today but also a number of smaller developments to make our core portfolio more attractive and gain more market share. There is a shortage of space in the marketplace. Retailers are looking for larger asset spaces. So all the fundamentals for us indicate that we should be able to grow OCRs well and truly to at least the pre-COVID level mark.

And just this second question on -- in terms of guidance. You mentioned that adjusting for one-offs and lower development-related loss of rent '26, FFO growth is expected to be 2% to 3.5%. And then there's a footnote around transactions and reversals of prior year provisions. If you could please just expand on that footnote for me.

Yes. Thanks, David. I'll take that one. So if you're on the table on Page 21, really, what we're talking about is those one-off items, the [ 0.3 ] negative. That's transaction impact of about $12 million year-on-year, which is impacting growth at '26. That's really due to the latest settlement of some of the transactions or the asset sales, if you like, which is causing that $12 million reduction. Waivers and provisions were just some waivers and reversals of waivers and provisions, which were in -- which were in the first half of FY '25. So together, that's about 0.3 of a cent. The loss of rent, I think, is pretty self-explanatory, which is really the reduction in loss of -- sorry, the reduction of rent between FY '25 and '26, which we're anticipating to be closer to $25 million for FY '26.

The next question comes from Ben Brayshaw with Barrenjoey.

Just on the pickup in sales momentum in the second half, how consistent has that been across the portfolio?

Ben, it's actually been consistent across categories. So whether it's state or premium, core, outlet, CBD, it's been consistently positive across property classification and category in the second half and I would say, Ben, particularly the last quarter. And as I mentioned, we haven't released July into these results for obvious reasons. It's FY '26, but it's also continued even more stronger into July.

And is the completion of The Market Pavilion materially benefiting the second half comparable sales that you've reported?

No, because essentially Market Pavilion -- because Market Pavilion was not included in the sales last year, we didn't include it in the comparable sales this year. So -- but the rest of the center is -- for example, Chadstone, the comparable sales of 4.4% up since Market Pavilion opened is maybe a reference point.

There are no further phone questions at this time. I will now hand the call over to Mr. Huddle for closing remarks.

Okay. Thanks, operator. And on behalf of Vicinity, Adrian and myself, just a big thank you for those that have dialed in today. We're super pleased with the results that have come out and the momentum that our company is exhibiting within the marketplace. And it's a very strong position for retail property owners at the moment. So we look forward to catching up with everyone over the next couple of weeks. Thank you again. Good morning.