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Edited Transcript of GPT.AX earnings conference call or presentation 12-Aug-19 12:00am GMT

Half Year 2019 GPT Group Earnings Call

Sydney, NSW Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of GPT Group earnings conference call or presentation Monday, August 12, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anastasia Clarke

GPT Group - CFO

* Chris Barnett

GPT Group - Head of Retail

* Matthew Faddy

GPT Group - Head of Office & Logistics

* Nicholas Harris

GPT Group - Head of Funds Management, Group Strategy & Research

* Robert William Johnston

GPT Group - CEO, MD & Director

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Conference Call Participants

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* Benjamin J. Brayshaw

JP Morgan Chase & Co, Research Division - Analyst

* David Lloyd

Citigroup Inc, Research Division - Director & Analyst

* Grant McCasker

UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate

* Pete Davidson

Pendal Group Limited - Head of Listed Property

* Simon Chan

Morgan Stanley, Research Division - VP & Equity Analyst

* Stuart McLean

Macquarie Research - Research Analyst

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Presentation

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Robert William Johnston, GPT Group - CEO, MD & Director [1]

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Good morning, everyone, and thank you for joining us for our interim results presentation. Before commencing, I'd like to acknowledge the Gadigal people of the Eora Nation, who are the traditional custodians of this land. I'd also like to pay my respects to elders past, present and emerging and extend that respect to other First Nations people present.

Our presentation today follows our usual format as outlined on the slide. Chris Barnett, our new head of the Retail business, will be presenting the Retail update for the first time today. Chris joined us in April and brings deep experience in the retail sector having spent 20 years with Westfield and Scentre in both Australia and in the U.S.

It's been a productive 6 months for the group, and the sale of -- with the sale of the MLC Centre, the acquisition of 5 logistics assets and the more recent acquisition of a 25% interest in Darling Park Towers 1 and 2 along with Cockle Bay Wharf and the future development opportunity that that brings.

These recent acquisitions are consistent with our strategy to further increase our exposure to the office and logistics sectors, particularly in Sydney and Melbourne. These cities continue to deliver above-average population and employment growth and will remain attractive investment destinations for global capital.

The acquisitions complement our existing high-quality portfolio and our development pipeline now has an end value of $1.6 billion, including the Cockle Bay Park development opportunity.

Our wholesale funds platform is an important part of the group, with assets under management of $13.3 billion, and when combined with the balance sheet assets, we now have total assets under management of $24.8 billion. The fees generated from our funds business now represents 6% of our recurrent earnings. The acquisition of the Darling Park assets demonstrates the integrated nature of our business, given it was through the wholesale funds -- Office Fund platform, GWOF, that we were able to secure this off-market opportunity for the balance sheet.

As you can see from the table of the top right, we have delivered strong returns for investors over the last 5 years, and we believe that having a portfolio of the right high-quality assets in the strongest markets, positions us well to continue to deliver attractive returns from investors.

As you can see from this slide, the proceeds from the sale of the MLC Centre and recent equity raising are not only being utilized to fund the recent acquisitions, but also to fund the developments currently underway and those planned to commence in 2020, including the Rouse Hill Town Centre expansion, the 300 Lonsdale Street Office Tower and the Melbourne Central Retail expansion.

In addition, the proceeds will support our plans to increase our capital allocation through the logistics sector through further development and acquisitions.

We have logistics developments currently underway in Melbourne, Sydney and Brisbane, and we continue to assess the investment opportunities that are in markets we believe will benefit for both new and existing infrastructure along with population growth. As flagged at the time of the capital raising, there will be some near-term earnings dilution until the proceeds are fully deployed.

Turning now to an overview of our performance for the half year. FFO growth per security for the first half was 2% on the prior corresponding period. I note that our FFO result for 2018 was slightly skewed to the first half and accordingly, first half growth is lower than our full year forecast.

Distribution growth for the 6 months was 4%, in line with the guidance we provided in February.

NTA increased 1.4% to $5.66 per security and the 12-month total return to June 30 was 9.6%. Portfolio occupancy is down slightly on December at 95.7% primarily due to 2 recent expiries in the Logistics portfolio, one of which we've now agreed terms for with a new tenant. Occupancy for both the office and retail sectors remains consistent with December.

Valuation metrics remain stable during the period for the Retail and office sectors while metrics for logistics assets continued to firm. This reflects the strong investor demand in favor of macro trends we are seeing for the asset class.

Like-for-like income growth across the portfolio was 3.5% driven by outperformance from our Office assets of 6.5%. Retail like-for-like growth was lower than expected at 1.4%. This was driven by increased downtime, a reduction in turnover rent and the impact of the challenging Darwin market on our Casuarina assets.

The softer consumer sentiment has meant that Retailers are taking longer to make decisions, and remixing has also been a factor in a number of our shopping centers as we continue to exit underperforming retailers and respond to competition.

During the period, 65% of our portfolio is independently revalued. This resulted in net revaluation gains of $131 million. The weighted average capitalization rates firmed slightly and is now just under 5%, reflecting the quality of our portfolio and the capital allocation to Sydney and Melbourne.

The revaluation gains were once again driven by Office and Logistics, partially offset by a 0.6% reduction in the valuation of the Retail portfolio, which was largely attributable to the Casuarina shopping center.

So overall, it was a very active half for the group, as we position the portfolio and the business for the future and continue to deliver earnings growth.

I'd now like to invite Anastasia Clark, our group CFO, to take you through the financial results and this will then be followed by our sector updates.

Thank you.

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Anastasia Clarke, GPT Group - CFO [2]

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Thank you, Bob, and good morning, everyone. I'm pleased to be reporting our interim financial results for 2019, which are in line with our expectations.

Funds from operations is $295.9 million, representing an increase of 2.2% on the prior half. Growth in FFO half on half reflects a positive skew to FFO in the first half of 2018. Today's result is underpinned by fixed rent increases across the portfolio, plus the contribution from acquisitions and completed development across all 3 sectors. This has been offset in Retail by elevated downtime due to remixing tenancy and lower turnover rent.

Our statutory profit was $352.6 million for the half, reflecting modest portfolio valuation gains compared to prior periods and mark-to-market losses across the hedge book due to a significant reduction in interest rates.

Maintenance capital expenditure is higher this period in line with our commitments to reinvest in the portfolio. During the period, the group has paid lower lease incentive in office offers, overall resulting in AFFO growth of 4%.

FFO per security is $0.1636 and interim distribution per security is $0.1311, which is an increase of 4% on first half 2018. We expect FFO growth to be higher in the second half in all 3 sectors, and we also expect to see the benefit of lower interest costs as a result of the 2 RBA interest rate cuts this year.

Turning to the segment results.

Retail profit is flat for the period with rent increases offset by lower turnover rents and longer vacancy periods between leases.

Office has delivered strong growth of 3.9% driven by higher rents secured through leasing deals, higher average occupancy and the contribution from the acquisition of 60 Station Street, Parramatta, partially offset by lost income following the sale of MLC Centre.

While the Logistics segment result is flat this period due to a lower contribution from development profits in 2019, operating income has grown strongly at 9.8%, driven by the contribution from acquisitions and completed developments in Sydney's west.

Funds management income grew 7.6% to $22.7 million due to assets under management growth driven by the GPT Wholesale Office Fund, revaluation gains and the acquisition of 50% of 2 Southbank Boulevard, Melbourne.

Net interest expense has remained flat half on half reflecting a higher average debt balance, despite the recent reduction from the sale of MLC and the equity raising. This has been offset by reduction in our average cost of debt over the period.

Tax expense is lower in the period in line with reduced development profits compared to the first half of 2018.

Turning to the balance sheet. NPA has increased to $5.66 per security as a result of asset revaluations, partially offset by treasury mark-to-market losses. Gearing has materially reduced to 22% following the sale of MLC Centre and the group's recent $800 million equity raising, which has resulted in the repayment of debt in the short term prior to full deployment of these funds, which Bob spoke to earlier.

The group is targeting gearing to be back within the lower half of our preferred gearing range of 25% to 35% by the end of 2020.

Our cost of debt has reduced to 3.8%, driven by a reduction in our fixed interest rate resulting from January's expiry of a $250 million fixed rate bond and the restructuring of our hedge book following the sale of MLC Centre.

Over the next half we will see some further reduction in our cost of debt as a result of the 2 RBA interest rate cuts in June and July. This will be partially offset by the higher holding cost as a result of the near doubling of our liquidity in the second half compared to the first half, which provides the group with funding certainty for our investment plans.

It is pleasing to have been able to increase our sourcing from the debt capital market to 90%, which has increased from 60% when we last reported. We have achieved this through the issuance of a USD 400 million in the U.S. Private Placement market for an average line period of 12.9 years at an attractive margin of 170 basis points. This issue has been -- has seen GPT's debt duration extend to 8.2 years.

In summary, our balance sheet is strong and well positioned to fund our strategic growth plans. Matt will now present to you on Office and Logistics.

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Matthew Faddy, GPT Group - Head of Office & Logistics [3]

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Thank you, Anastasia. The GPT Office team have delivered excellent results for the first half with comparable income growth of 6.5% and the total portfolio return for the 12 months of 10.9%. Net revaluation uplift was $115 million, with a weighted average capitalization rate of 4.94%.

Our portfolio of 24 assets is valued at $5.9 billion, including our share of the GPT Wholesale Office Fund, with total assets under management now increasing to $12.5 billion.

90% of the portfolio is weighted to the deepest markets of Sydney and Melbourne and higher occupancy has maintained -- has been maintained at 97.1%.

We have executed on key strategic initiatives in the Office portfolio over the half. The MLC Centre was divested from $800 million. The sale capitalized on the significant repositioning of the asset and crystallized a return of 20% per annum over the last 3 years.

A 25% share of Darling Park 1 and 2 has been acquired for $531 million. The complex, made up of 2 premium grade office towers and an entertainment precinct, also provides access to an exciting 73,000 square meter development opportunity.

During the half we have signed leases totaling 38,000 square meters with a further 79,000 square meters at terms agreed, and we have seen supportive conditions in our preferred markets of Sydney and Melbourne.

The high-quality GPT Office portfolio has seen a valuation uplift of $115 million in the first half, with the majority of gains coming from increased market rents. Melbourne assets, Melbourne Central Tower, 181 William Street and 550 Bourke Street, have led the valuation uplift together with Australia Square in Sydney.

Vacancy rates remain low in Sydney and Melbourne at 4.1% and 3.8%, respectively. Effective rents continue to grow adding to increases reported in prior years. As supply is delivered over the medium term, both the Sydney and Melbourne office markets are well positioned with low vacancy and a high level of tenant pre-commitment.

In Brisbane, vacancy is contracted in the past 12 months to 11%, with this trend expected to continue with the limited new buildings being constructed. Strong leasing results have been achieved in the half with 117,000 square meters of leasing completed including terms agreed. High occupancy of 97.1% has been maintained and the weighted average lease expiry is 5 years.

In Melbourne, 53,000 square meters of leasing has been completed, including the renewal of William Buck at 181 William Street and the new lease to Momentum Energy at 530 Collins Street. Nearly half of the leasing completed in 2019 has been in Melbourne, securing future expiry.

In Sydney, leasing totaled 40,000 square meters including renewals with Nine and Sunsuper Australia Square and expansion of Adobe at Darling Park. The average incentive for Sydney deals was 16%.

In Brisbane, leasing of 24,000 square meters has been completed including the renewal of Morgan Financial. The majority of space at Riverside Centre has now been committed, reducing our Brisbane vacancy to less than 1%. This leasing demonstrates our strong focus on customer relationships and investing in the portfolio to deliver modern and efficient workspaces across our portfolio of prime assets.

In June, we announced the acquisition of a 25% stake in Darling Park Towers 1 and 2 and Cockle Bay Wharf for $531 million. The group now controls 75% of these assets including the stake held in the fund. The acquisition provides further exposure to these high-quality complex of 2 premium grade office towers across 100,000 square meters and an entertainment precinct fronting Darling Harbour.

The office towers are 99% occupied including leases for CBA, IAG and Adobe with a WALE of 5.6 years. The Darling Park precinct is exceptionally well located in the Sydney CBD. The location, in close proximity to Town Hall Station, will further benefit from investments in the light rail and metro, and the rental price point compares favorably to other premium assets in the Sydney CBD. This acquisition also provides access to the unique development opportunity in Cockle Bay Park.

The Cockle Bay Park development, formerly part of the Darling Park complex, has achieved a significant milestone. The stage 1 development application was approved by the Independent Planning Commission in May and an international design competition will soon commence. The proposed development provides a fantastic opportunity to create an iconic and business and lifestyle destination. This project will deliver 63,000 square meter office building, combined with 10,000 square meters of Retail, dining and entertainment.

Cockle Bay Park will rival the best global waterfront precincts and incorporate public open space connecting the city to the harbor. We are targeting commencement of the project in 2022.

Moving to Melbourne. We are progressing the planned 20,000 square meter office complex above Melbourne Central that will integrate with the Retail center below. We have had positive engagement with a number of potential occupiers attracted by the proposed timber construction and access to Retail and transport amenity.

Construction of 32 Smith Street is also progressing well and is on track for completion in late 2020. The Parramatta market is demonstrating strong fundamentals with prime vacancy below 1% and significant government infrastructure spending projects across Western Sydney. The development is 51% pre-committed to QBE, and we are engaged with a number of potential occupiers to implement our strategy of re-leasing the remainder of the space to multiple part or full floor tenants.

Now to logistics. The team continued to execute on our growth strategy with the portfolio growing 20% over the past 6 months to $2.3 billion. Comparable income growth of 2.2% has been achieved in the half, with a total return for the 12 months of 16.9%. Strong leasing outcomes have been achieved with 121,000 square meters of leases signed.

During the half, we have acquired 5 investment assets in Western Sydney for $212 million and development land for $51.5 million in Sydney and in Melbourne.

Following the completion of the $70 million Eastern Creek development in the first half, we have a further $200 million of development projects underway.

Portfolio occupancy at 30 June was 93.4% with this increasing to 95.6% including deals completed in July. Our strong investment and development activity during the half has resulted in a portfolio WALE extending to 7.4 years, and the portfolio is now 91% weighted to our preferred markets of Sydney and Melbourne.

Valuation uplift of $51 million has been delivered in the first half with strong contribution from Western Sydney assets. The weighted average capitalization rate has grown by 24 basis points in the half to 5.54% and the portfolio have delivered a 12-month total return of 16.9%. We continue to build on the high-quality nature of our portfolio, now totaling 1 million square meters across 34 properties.

Over 40% is made up of assets we have developed and the quality of the portfolio has attracted high-caliber tenants with over 70% of income generated from groups that are ASX listed, or global entities including Coles, TNT and Toll.

The team has delivered excellent leasing results in the half with 148,000 square meters of leases signed and terms agreed across the investment portfolio and the development pipeline.

Turning to the markets. As shown on the chart on the right, demand for industrial space is strong, with vacancy declining across the 3 markets. This has been underpinned by positive state economies, infrastructure spending and shifts in demand driving supply chain improvements. This take-up has delivered solid growth in rentals and land values.

Over $282 million of acquisitions and developments have been completed in the half, and we have $200 million of developments underway. An additional $240 million of projects can be delivered from our active pipeline.

In Melbourne, our 23-hectare Truganina development will deliver 140,000 square meters of prime logistics space, with an expected end value of $200 million. During the half, we have commenced constructing a first 26,000 square meter speculative facility, which is due for completion later this year.

In Brisbane, work has commenced on 2 facilities at Berrinba. An international logistics company has precommitted for 20,000 square meter -- a 20,000 square meter facility for 10 years, and we will also deliver 14,000 square meters speculative facility on the adjacent lot.

In Sydney, we have acquired 5 fully leased investment assets, increasing our weighting to this market to 69%. Three assets were acquired in Kingsgrove, Villawood and Blacktown for $105 million. These assets have a WALE of 6.8 years and an initial yield of 5.6%. We also acquired 2 assets in Erskine Park for $107 million. These assets have a WALE of 10.4 years and an initial yield of 5.3%.

Looking at our Sydney developments. Our $70 million Eastern Creek facility reached practical completion in January 2019. This asset is fully leased on an 8-year term. A fund-through opportunity in Western Sydney has also been secured. This 50,000 square meter facility will be leased for 10 years from completion in the second half of 2020.

Finally, in Yennora, we are constructing a 5,000 square meter preleased facility, activating surplus land to be completed in the first half of 2020.

To close, we continue to deliver on our strategy to grow our Office and Logistics portfolios. With a strong underlying investment portfolio, complemented by strategic acquisitions and the build-out of our development pipeline, we are well positioned to deliver strong returns.

I will now hand over to Chris Barnett to present the Retail results.

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Chris Barnett, GPT Group - Head of Retail [4]

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Thank you, Matt, and good morning, everyone. I am delighted to be here today to present the interim results for the Retail portfolio, and I do look forward to meeting most of you in the upcoming weeks.

I am pleased to announce that the majority of the portfolio has performed well during the past 6 months. Our Retail assets have delivered comparable net income growth of 1.4%. Whilst our results have been positive, they do reflect a reduction in turnover rent, particularly from the cinema category, which has had one of the slowest starts to a year that we've seen for over a decade.

Additionally, Casuarina continues to be affected by the weaker economic conditions of the Darwin market. And excluding Casuarina, our like-for-like growth would be 2.3%.

Sales are growing across the portfolio, benefited from our investment strategy to upweight to Retail growth categories. This strategy is delivering further increases in specialty store productivity with our portfolio now trading at well over $11,500 per square meter.

The success of this strategy was further evidenced earlier in the year when Melbourne Central was acknowledged as the most productive Retail shopping center in Australia.

In March, the Sunshine Plaza development was completed, introducing an expanded Retail offer, which includes international retailers such as H&M and Sephora, and a further 40 first-to-market specialty brands. After the first 3 months of trade, sales performance is positive and in line with our expectations.

On asset valuations, there was a minor downward movement for the portfolio of $35 million or minus 0.6%. This is predominantly attributed to Casuarina, which offset gains from Sunshine Plaza, Penrith and Charlestown.

Overall, our portfolio is well-placed, enjoying low vacancy and high sales productivity. We continue to invest in our assets, offering compelling Retail experiences for our customers aimed at maximizing the market share in each of the quality markets in which our centers are located.

Now to Retail sales. The team remained focused on remixing our centers towards higher performing Retailers to drive growth in specialty sales productivity, which has now increased to $11,512 per square meter across our portfolio.

Total center sales growth remains positive, albeit it has slowed compared to the first half of last year. Our specialty sales productivity on a dollar per square meter basis is outpacing our total center sales growth, meaning our centers are becoming more productive, more efficient. We are seeing strong sales performance across the majority of our specialty categories particularly in food, technology, leisure, beauty and lifestyle product.

Within food retail, we have seen solid growth from retailers such as Breadtop bakeries, Craig Cook Butchers and Harris Farm, which highlights that when retailers are offering quality and service, this is truly resonating with the consumer.

Within technology, retailers such as Apple and JB Hi-Fi are still delivering excellent results and continue to outperform.

Health and beauty remains the growth story of powerhouse brands such as Mecca and Sephora, and we're also adding to this category with the introduction of Korean beauty brands, along with the expansion of Laser Clinics Australia.

Our general Retail category has been impacted by the closure of Toys R Us at High Point, and we have continued to downweight our exposure to the fashion category, as evidenced by the strategic reduction of total specialty fashion GLA from 35% to 27% in the past 5 years.

Now to leasing. Leasing performance for the first half has delivered strong results. Our quality portfolio maintains a high level of occupancy, and this is largely consistent with last year. In addition to having low vacancy, we're also achieving longer average lease terms of 4.8 years with strong annual fixed increases of 4.8%. Both of those metrics are showing improvement on our 2018 results.

Our leasing spreads are slightly behind last year, minus 0.7%. However, we continue to see positive leasing spreads on stalls greater than 400 square meters. An important measure of retailer health is their liquidity measured as debt as a percentage of total rent. Our June debtor position remains exceptionally strong with only 0.6% of our annual billings remaining uncollected by 30 June. This position is consistent with the same period last year.

We remain focused on ensuring our Retail offer is relevant and drives sales productivity and introducing new brands that are meeting the ever-changing demands of our customers. Despite some headwinds in the Retail industry, we have been able to introduce 58 new brands into our portfolio for the first 6 months of 2019. And these stores are either existing retailers growing their network through brand extension, new retailers opening stores for the first time or nonretail users coming into our centers.

A great example of a retailer growing their network is Trybe, which is a new children's footwear concept brought to us by the Accent group, who also brought us Platypus and Sketchers. Worksmith, which represents a new nonretail concept -- sorry, a new concept is a group who offers hospitality-focused events and co-working space that recently opened with us in Melbourne Central.

Online brands are also seeing value in opening physical stores, with trendsetting brands like the Scandinavian retailer Rains, which sells trendy raincoats around the globe, choosing to open their first Australian bricks and mortar store with us in our portfolio.

Moving into the second half of the year, we expect the current Retail market conditions to continue, but our portfolio is well-placed given the investment we are making in our centers, culminating in high levels of productivity from our retailers.

Now to Retail developments. We have made strong progress on the development proposal for both Rouse Hill Town Centre and Melbourne Central. At Melbourne Central, further to Matt's update on 300 Lonsdale, we have plans for new 7,000 square meter Retail expansion. The development application is launched and will advance with planning authorities and we expect approvals later this year.

Our leasing pre-commitment levels are very encouraging and we are targeting an early 2020 commencement. At Rouse, the development scheme continues to evolve, and we are well progressed on design and discussions with our key catalyst tenants. Similarly to Melbourne Central, we expect authority approvals for our development applications later this year, with a project commencement in the first half of 2020.

In summary, despite the current market Retail conditions, our quality portfolio has remained resilient and is continuing to attract new Retail demand, resulting in high occupancy and driving sales through sales productivity. Our strategic investment in the portfolio is ensuring our assets are aligned to the ever-changing needs of our customers.

As we look forward to the remainder of the year, we remain optimistic that Retail spending should benefit from the recent government tax cuts and the reduction in interest rates, both measures that are aimed and improved and providing an environment of greater consumer confidence. Our portfolio will be well positioned to benefit from these measures given we are located predominantly in the stronger markets of New South Wales and Victoria.

On that, I thank you, and I hand over to Nick Harris to present funds management.

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Nicholas Harris, GPT Group - Head of Funds Management, Group Strategy & Research [5]

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Thank you, Chris. It is my pleasure to present interim result for funds management. We continue to grow our position as a leading fund manager. Over the year, assets under management grew by 7.2% to $13.3 billion, driven by acquisitions and valuation growth in our Office Fund.

GPT generated a total return of 8.2% on its significant coinvestment in the 2 funds, which is currently valued at $2.6 billion. The profit growth in funds management earnings for this reporting period was 7.6% as a result of the growth in the platform.

In line with the Office Fund strategy, its portfolio has been strengthened by the acquisition of the 50% interest in 2 Southbank Boulevard in Melbourne, providing us with full ownership and control of this asset. The fund has grown to $8.5 billion.

During the period, we raised an additional $45 million of new equity for the Office Fund, taking the total raising since it was launched late last year to $320 million. This demonstrates the strong ongoing support for our platform from both existing and new business.

Post period end, the fund successfully raised a $200 million, 6.5-year medium term note at an attractive margin of 130 basis points with a fixed coupon of 2.5%.

The redevelopment of 100 Queen Street in Melbourne has commenced. This project will incorporate a comprehensive asset upgrade and repositioning, capitalizing on its prime location on the corner of Queen and Collins Street and is expected to be completed in early 2021.

At 30 June, gearing in the fund was 16.8% and we're planning to commence another equity raising later this calendar year. This will provide additional capacity to fund development and acquisition opportunities.

The Shopping Centre Fund continues its asset recycling program to reweigh its $4.8 billion portfolio towards super regional shopping centers. Last week, we exchanged unconditional contracts for the sale of Norton Plaza for $153 million. This equates to a 1% premium to its book value and reflects a capitalization rate of 5.5%. Our settlement of this sale, the super regional weighting of the fund will be 71%, which is significantly up from where it was in 2016 at 46%.

The GPT funds management platform is very well positioned for the future. We have strong ongoing support from our domestic and offshore investors, given our demonstrated discipline, governance and performance over many years.

I'll now hand back to Bob to provide his summary and closing remarks.

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Robert William Johnston, GPT Group - CEO, MD & Director [6]

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Thank you, Nick. So we're pleased with our progress we've made in the first half in executing on our strategy and positioning the business for the future. We have a robust pipeline of opportunities, which combined with a disciplined approach to asset acquisitions, will see us deploy the capital we recently raised into accretive opportunities and achieve our capital allocation targets for each sector.

The current lower growth environment though is something that we are mindful of as we progress our plans. The recent fiscal and monetary stimulus should be a positive for the economy, particularly if the recent stabilization of house prices continues and leads to greater consumer confidence.

We do expect that the New South Wales and Victorian economies will remain resilient and deliver economic growth, supported by the ongoing investment being made in infrastructure and further population growth.

Employment growth in both New South Wales and Victoria remains robust and a pickup in residential sentiment should see a flow on benefits.

The fundamentals for the Office and Logistics sectors in Sydney and Melbourne remain very positive with near record low vacancy rates and manageable supply pipelines over the next few years. And we're also seeing improving conditions in Brisbane for both of these sectors.

Retail headwinds do persist, but assets in the right locations are continuing to attract demand from domestic and international brands and shopper visitations have remained resilient.

In terms of valuations, 10-year bonds have fallen approximately 130 basis points over the last 6 months, which suggests to me that discount rates being used in the valuations are not likely to expand in the near term and which clearly provides support for our asset valuations. Recent transaction evidence for office and logistics suggests that the rate of cap rate compression has moderated but there is still strong demand supporting pricing levels. Retail transaction evidence remains relatively shallow, but quality assets that have traded recently have been broadly in line with book values.

Consistent with the update we provided with the recent equity raising, we are providing guidance of 2.5% FFO per security growth and distribution growth of 4% per security for 2019. In support of this guidance, we do expect the second half contribution from our Retail business to be up on the first half. This will be driven by a full 6-month contribution from the Sunshine Plaza expansion as well as lower downtime on a number of assets.

Our Logistics portfolio will benefit from the $212 million of recent acquisitions and development completions in the first half. And the Office portfolio continues to benefit from fixed rental increases, a level of under-renting being unlocked through new leases and the contribution from the Darling Park acquisition. Underpinning all of this is a very strong balance sheet position with gearing of 22%.

Well, that now concludes the presentation. And I'd now like to invite the leadership team to join me up front here for your questions. Could you please state your name and the company you're from before your question? Thank you.

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Questions and Answers

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Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [1]

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Bob, Ben Brayshaw from JPMorgan. I just had, firstly, a question perhaps for yourself or Matt on Cockle Bay, the development opportunity that's been secured with the recent acquisition of DP 1 and 2. Matt, you mentioned in your presentation that you would be in a position to -- or you're targeting, rather, a commencement in 2022. That's a few years away. Is that a strategic decision on where you see Sydney in the cycle? Or is that more about getting access to a space that is encumbered by leases that inhibit you getting access to that space earlier? Just appreciate your thoughts on the timing, please.

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Matthew Faddy, GPT Group - Head of Office & Logistics [2]

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So thanks, Ben. The timing is largely around working through the process. So as I said, we have the international design competition, so we're close to starting that. And there's a process that needs to be gone through there, and then obviously with the work required with the other stakeholders going over the Western distributors and so forth. So it's really around the time to be able to bring it to market. It's not a core on a cycle.

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Robert William Johnston, GPT Group - CEO, MD & Director [3]

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It also gives us time to secure the right pre-commitment as well, Ben. But it's really a timing of how long things take, and that's why you see the supply pipeline is quite muted here in Sydney. It takes quite a while to bring things out of the ground.

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Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [4]

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And does the group have all of the floor space entitlements that it needs to deliver the NOI that you're targeting? Or would you be looking to procure those in the market?

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Matthew Faddy, GPT Group - Head of Office & Logistics [5]

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Under the Independent Planning Commission approval, we have the right to build that area, the 63,000 square meters of office, we have that as a right and also the 10,000 square meters of retail restaurants and entertainment, we have that as a right. So there's no requirement to do anything other than that.

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Robert William Johnston, GPT Group - CEO, MD & Director [6]

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That was secured through the Stage 1 BA process.

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Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [7]

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Great. And perhaps a question for Chris. Firstly, Chris, on Melbourne Central, the sales growth has slowed in the last 6 months. Could I just get your thoughts, please, on some of the key drivers that have contributed to a marginal slowing of sales growth for that asset? And secondly, where you would expect sales growth to finish for the calendar year 2019, please?

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Chris Barnett, GPT Group - Head of Retail [8]

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Thank you for that. On Melbourne Central sales growth, I think, predominantly, that would come from entitled dollars, has come from the downtime that we've had with the [other] development, which is the restaurant precinct that we've done on the corner of Elizabeth and Latrobe, which will -- is down -- fully open in trading, so we'll see the total dollars coming through in the second half.

In retail sales in general, our portfolio is still growing at 1% MAT. I think for our first half -- sorry, over Q3 2018, we actually saw some pretty strong growth come out of the GPT portfolio, which I'm not sure whether or not we're going to do better this year. But Q4 2018, we saw some pretty soft growth, which I think we will benefit from, from a comparable sales perspective. So 1% MAT growth today, I think that will probably maintain for the rest of the year.

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Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [9]

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Okay. And the sales growth at Casuarina Square has been negative for this period. You called that out in your presentation. When do you expect the sales to stabilize with that asset?

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Chris Barnett, GPT Group - Head of Retail [10]

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That is a good question. Casuarina, as I think we know, it sort of has a double-whammy at the moment. It's had a tough trading condition with the downward economy. On top of that, we've got a competition where we letted 100 stores to the market in a market that probably didn't need an extra 100 shops. But the last quarter, when you look at how we've traded for the first -- for the last quarter is the first time that we've actually seen positive market share coming out of the shopping center. So we're actually growing our market share. We're no longer losing market share to our competitors.

And the second, probably, green shoot you would see in Casuarina would be that our specialty sales are now outperforming our MAT, which leads to sort of sales stabilization. It's still a pretty tough market out there, but the 2, market share gain as well as sales stabilization, hopefully will hold us through for the remainder of the year.

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Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [11]

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And insofar as being the new Head of Retail for GPT, your initial impressions on what the opportunities are for you coming into the role to do things slightly differently to what's been done before?

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Chris Barnett, GPT Group - Head of Retail [12]

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Interesting question. Very early days, given I sort of hit the ground the beginning of May. But to be honest, no surprises. GPT is a preeminent owner of some pretty awesome assets around Australia. This company has an incredibly strong culture. It's a leader-level organization. It's very results-driven. It's very results-focused. But the thing I have found that I love about GPT is it's very people-centric, that the leadership team here has a genuine interest in developing its people which leads to a very engaged workforce. And on the assets, the vast majority of the spreads are in growth markets, so I think I've been blessed with an enviable portfolio.

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Robert William Johnston, GPT Group - CEO, MD & Director [13]

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And that wasn't a rehearsed answer.

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Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [14]

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Grant McCasker, UBS. Maybe I'll just start with some questions on leasing, maybe talk to Matt just across the office and industrial portfolio, a lot down over the half year, but talk about sort of where the rents came in relative to passing, but then also recent trends you're seeing from various tenants across both those portfolios.

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Matthew Faddy, GPT Group - Head of Office & Logistics [15]

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Yes, okay. Thanks, Grant. So maybe starting with Office. In Office, we have seen an uplift on passings, so we've seen the ability to capture rent increases, which is the point about our under-renting that we've seen in Sydney and Melbourne. So we're capturing upside there.

As far as trends, the demand other than existing occupiers, we're seeing a lot of existing occupiers looking to stay in situ, and that's largely around the fact that opportunities aren't that high. There's very low vacancies in both Sydney and Melbourne, so therefore people are more inclined to stay in situ, and we are seeing that.

Also as far as demand outside of existing property and business services, like co-working has been a big driver of occupancy in Melbourne. We've seen obviously education, which Monash University has gone into 750 Collins Street, it's one of the drivers of that as well. And then also what we're seeing down in Brisbane is still some government take-up as well. So we still are seeing demand, underlying demand. But the fact that market is so tight, we're seeing people not necessarily going out and looking for new accommodation or not being able to necessarily find new accommodations, so they're staying where they are.

In the Logistics space, we're seeing continued interest from those that are related to the retail services, particularly third-party logistics. So we're seeing a lot of third-party logistics operators that we're talking to have retail contracts. So they're doing retail distribution, and we're seeing they're one of the big drivers of occupancy in the logistics space in Sydney and Melbourne.

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Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [16]

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Sorry, just back on the Office portfolio, are you happy to put some numbers on the sort of the re-leasings or the rents above passing and then also under-renting across the portfolio?

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Matthew Faddy, GPT Group - Head of Office & Logistics [17]

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Yes. So under-renting, we see that in Sydney/Melbourne around 6%, under-rented across the portfolios. And then as far as what we're achieving, we're achieving around about that sort of uplift as well, on the deals we're doing.

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Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [18]

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Okay. Great. And then maybe turning to Funds Management. Are you able to talk through sort of trends you've seen in the secondary market across both the office and retail fund?

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Robert William Johnston, GPT Group - CEO, MD & Director [19]

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Sure. Nick? Yes.

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Nicholas Harris, GPT Group - Head of Funds Management, Group Strategy & Research [20]

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So in office, Bob mentioned we -- or you said primary -- secondary, so I think it's better to give a whole picture because then you say what trades have happened sort of across the 2. So we've had $320 million of new equity over the last 12 months. We've also had $180 million of secondaries traded in the Office Fund as well. And if you look at the buyers of that, 54% have been from existing investors and the balance have been, from the 46%, have been new investors. So we've introduced 6 new investors into the platform as well. When we look at who they are, 80% are domestic and 20% are offshore. So turning to the Shopping Centre Fund, we've only got one seller at a small discount, and there were no -- there was no trading over there.

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Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [21]

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$180 million are the secondaries in the office. How have they traded relative to -- in the press?

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Nicholas Harris, GPT Group - Head of Funds Management, Group Strategy & Research [22]

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I would -- most of them were done at CV and some were done at a small discount.

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Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [23]

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Okay. And just then just one final question on the development income, sort of been a feature of the results. It's only small, but it was negligible. This is -- is that something we should expect going forward, i.e., no sort of material contribution?

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Robert William Johnston, GPT Group - CEO, MD & Director [24]

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We -- I think we've historically said 1% to 2% would come from development. We do expect a little bit of development property coming through in the second half, but that's a sort of run rate, so it'll be at the lower of that for this year. We do have some settlements, so we've contracted some land sales out of -- so which we're expecting to settle at the end of this year. So there is some development contribution. As we've said, 1% to 2% will be the lower end of that range this year. So there was none in the first half though.

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Pete Davidson, Pendal Group Limited - Head of Listed Property [25]

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Pete Davidson from Pendal. Just one for you, Nick, with regard to the shops fund, have there been units sold in the last 6 months in the shops fund, and were they trading in a unit -- what unit price are they trading at?

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Nicholas Harris, GPT Group - Head of Funds Management, Group Strategy & Research [26]

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Yes. So in the Shopping Centre Fund, there were no secondaries at all. So we got this one seller who's put them through -- who got a preemptive process at a small discount, but none of those have tried it in the last 12 months.

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Robert William Johnston, GPT Group - CEO, MD & Director [27]

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Any other questions from anyone in the room? Oh, Ben?

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Benjamin J. Brayshaw, JP Morgan Chase & Co, Research Division - Analyst [28]

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Just a question for Nick. Gearing in the Shopping Centre Fund is 24.9%. Where do you see gearing stabilizing over the medium term for that vehicle? Where do you think investors would be and yourself happy to have the Shopping Centre Fund here?

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Nicholas Harris, GPT Group - Head of Funds Management, Group Strategy & Research [29]

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So we have a policy range of 10% to 30%. And typically, we like being in the bottom end of that range. So that's where we would like to be. Post the sale of Norton, it will go from 24.9% to 23%. So we'd like to see that a bit lower, but there's no urgency to do that. And any investors are comfortable.

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Robert William Johnston, GPT Group - CEO, MD & Director [30]

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Investors are comfortable with where it is today as there's been no push to actually lower the gearing at all.

So what about any from the phone lines? See if we have anyone on the phone? We have 2, I think, so hit for it.

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Operator [31]

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Your first telephone question comes from Stuart McLean from Macquarie.

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Stuart McLean, Macquarie Research - Research Analyst [32]

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Just first question on the outlook for earnings, obviously you kept it there at 2.5%. But one worth studying is the impact of cost of debt. So when you started out at the beginning of the year, what were your expectations for cost of debt? And how has that played out? Obviously, it's coming down. Do you expect it to come down further? So I would set out some few offsets in there, holding costs, but kind of just surprised that -- maybe a little bit more positive on the outlook for group earnings in light of cost of debt coming down so significantly from when you originally set your guidance.

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Robert William Johnston, GPT Group - CEO, MD & Director [33]

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Thank you, Stuart. I'll ask Anastasia to answer that.

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Anastasia Clarke, GPT Group - CFO [34]

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So we reported in 2018 a cost of debt for the period of 4.2%. We've reported today, for the 6 months, 3.8%. I've given commentary that with the 2 Reserve Bank rate cuts at the midpoint of the year, we will be going lower in the second half of 2019. I wouldn't call it out to be materially lower because as you point out, Stuart, there is that extra carry cost of the liquidity because we're now holding $1.4 billion of liquidity, which is about not quite $700 million up on what we have or were holding prior to the recent equity raise. And we've got a U.S. Private Placement that's just scheduled that we're holding that liquidity. We're not canceling bank facilities.

So if you -- what were the drivers of the rate reduction from 4.2% to 3.8%? We had a high rate medium-term note coupon of 6.75%. That was a bond that we issued in 2012 for 7 years. It expired in January. So being at fixed rate in our cost of debt, you get a material reduction just from that instrument maturing in its own right, probably about 10 basis points. So we did indicate we'd have a lower cost of debt this year anyway because we knew about that maturity.

We also when we sold MLC, we reduced hedging. We were quite clear that we didn't think it would be appropriate to be over-hedged. If we hadn't have reduced hedging, we would have been 106% hedged with the sale of MLC. So we broke hedges and naturally, we broke the higher rate hedges. We did describe it, at the time, the sale of MLC would be earnings-neutral to guidance and that's had -- that was achieved. So that's in the rate of 3.8%. We do expect it to reduce, as I say, going further, going to the future.

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Stuart McLean, Macquarie Research - Research Analyst [35]

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Okay. But do you expect it's going to reduce, it's going to be awash on those higher holding costs? It's not like sort of -- the other part of the question really is, is retail coming through weaker than expected and your lower cost of -- lower net interest costs are really just offsetting that?

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Anastasia Clarke, GPT Group - CFO [36]

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So the cost of debt in the second half, you're probably only going to see it reduce by about another 10 basis points, so we're not talking material levels. I think what we've reported today is you can see some really good strength coming through Office, the like-for-like growth, but also the contribution from the developments office, also the acquisitions that we've made in logistics and Darling Park. So you're seeing that offset partially the part of the weakness of retail. Undoubtedly, interest cost reduction is helping, but it's a combination of all those elements.

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Stuart McLean, Macquarie Research - Research Analyst [37]

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And maybe just going to retail. Those spreads of minus 0.7%, I'm not sure if I missed it, but can you just give an idea of what are new deals and what are re-leasing spreads there? And where do you expect this to trend given your specialty MAT growth is at negative 0.1%?

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Chris Barnett, GPT Group - Head of Retail [38]

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Yes, I can answer that. I think if you look at our 0.7% leasing spread, so we've done around about 250 deals for the first half of this year. And just putting that in perspective, that's about the same result as we achieved in 2018. It's about the same result as we achieved in about 2017. So as far as the volume and momentum of leasing deal is going, we've been able to achieve what we've been able to achieve over the last couple of years.

Of the 250 deals, about 50% of them are new merchants. These are tenants that are coming into the centers for the first time or growing within our business -- sorry, coming into the centers. And we're achieving positive leasing spreads on our new merchants.

On our renewals, it's about 50% of the deals as well, and we're achieving negative leasing spreads on those, both averaging around about that 0.7%. We think that we'll continue volume of deals for the remainder of the year, probably close to 500 by the time we complete. And I would expect that, that leasing thematic would continue.

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Stuart McLean, Macquarie Research - Research Analyst [39]

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And so leasing thematic, are you talking about the moderation in spreads over the last 6 months or the last 12 months? Or are you saying that it's going to stay around that kind of minus 0.7%, minus 1%?

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Chris Barnett, GPT Group - Head of Retail [40]

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I mean to be honest, not wanting to give guidance of where we think our deals will land for the final 6 months of the year. I can't see -- I think that the volume that we're achieving and our expectation of volume for the next 6 months should mean that we'll end up around about the same.

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Stuart McLean, Macquarie Research - Research Analyst [41]

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Okay. And so therefore, similar kind of comp NOI growth as well, around that 1%, 1.5% for the full year? That should -- or should that create a downtime if reduced?

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Chris Barnett, GPT Group - Head of Retail [42]

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I think our likelihood...

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Robert William Johnston, GPT Group - CEO, MD & Director [43]

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It should increase with the reduction of downtime. We are expecting turnover rent to be a little bit better in the second half as well. And also we've got the contribution from Sunshine coming through in the second half, a full 6-month contribution. So we are expecting a stronger second half.

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Stuart McLean, Macquarie Research - Research Analyst [44]

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Perfect. And then maybe just on revaluations. I think that the equity raise is said to be positive revaluations of around $100 million. Since you're coming at $130 million, just wondering kind of what's changed there. Was there something that maybe wasn't revalued previously that has been now? Or what's the delta there?

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Robert William Johnston, GPT Group - CEO, MD & Director [45]

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Matt?

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Matthew Faddy, GPT Group - Head of Office & Logistics [46]

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Yes, it's Matt here, Stuart. So that is 2 items. The first one is in the Office Fund reflected post the transaction of GPT acquiring DP 1, 2 and Cockle Bay Wharf. The fund reflected that increase, about a 5% increase on their book value. So that happened as a subsequent event to the equity raise, and that was about $15 million. And the other was the MLC Centre, which wasn't included in the equity raise pro forma but is included in the 30 June results. That drives -- fundamentally, that drives the variance.

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Robert William Johnston, GPT Group - CEO, MD & Director [47]

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Thanks, Matt.

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Stuart McLean, Macquarie Research - Research Analyst [48]

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And then maybe one last one for me. Just some leasing down in Melbourne that is to come, 100 Queen Street, I think, at development stage, and obviously you had to lease up that over the next -- the course of the next 18, 24 months as well as the Deloitte expiry at CBW. Can you just give an indication there of expected downtime or outcome there?

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Matthew Faddy, GPT Group - Head of Office & Logistics [49]

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Yes, I can. So Melbourne is coming off a great position where you have vacancy below 4%. Today, you also have with the developments that are coming on in that market of over 80% committed. So it's a very strong market for us and we're seeing that in the deals we're achieving down there.

With regard to 100 Queen Street, we're in the market now and we're having good discussions on that, and we're very positive about our chances of getting some momentum there quite quickly.

With regard to 300 Lonsdale Street, as I said, we have a number of interested parties particularly attracted to the timber. The location, it's quite a unique location there in the center of the city and also sitting on top of Melbourne Central retail and Melbourne Central rail, which is proving to be something that's very interesting to a number of occupiers, potential occupiers.

And then the last one is Deloitte. Deloitte are moving out in May next year, 20,000 square meters. We're investing in the lobby of 550 Burke Street, the building they're in. But we're also engaged in seeing inquiry from some larger occupiers who are interested in that 20,000 square meters. So very positive engagement across all 3 of those assets at the moment, and we're in good shape.

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Operator [50]

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Your next telephone question comes from Simon Chan from Morgan Stanley.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [51]

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A question for Chris. Melbourne Central re-leasing spreads, can you give us some insights into what they were? Because I think a year ago, you guys called it out and it was big as double-digits positive. Has that trend continued?

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Robert William Johnston, GPT Group - CEO, MD & Director [52]

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Chris, on leasing spreads at Melbourne Central?

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Chris Barnett, GPT Group - Head of Retail [53]

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So the last -- is that trend the same as it was at the beginning of the year?

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Anastasia Clarke, GPT Group - CFO [54]

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Is it a double digit one on last year?

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Chris Barnett, GPT Group - Head of Retail [55]

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Well, look, both -- I think in Melbourne Central, both had new leases and new merchants. We're not double digit at the moment, but we're certainly high single-digit growth at sort of leasing spreads.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [56]

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Yes. And on Casuarina Square, is this too early for you guys to, I guess, review the structural ownership of that asset? I mean I'm just saying that against the backdrop of -- like you mentioned there's been a competition there. The asset has been declining in performance over the last couple of years. What's your plan there?

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Robert William Johnston, GPT Group - CEO, MD & Director [57]

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I think at the moment, I would say, Simon, that, that market has been -- has come off quite significantly, as Chris spoke about. Our plan is to stabilize the asset. It's still the most productive asset, the dominant asset in the Darwin market. We think it'll continue to stabilize. Our approach is to make sure we attract the right retailers to it, continue to reinforce its dominant position in that market and hopefully start to grow the income out of it. That's the current position for it.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [58]

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Right. And just one last question. I think during the presentation today, you guys mentioned the downtime in retail having hurt your NOI a little bit. Can you put some numbers on that? Like, has downtime blown out this half? Like, what was it used to be? What is it now, et cetera?

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Robert William Johnston, GPT Group - CEO, MD & Director [59]

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Chris, did you want to speak to that?

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Chris Barnett, GPT Group - Head of Retail [60]

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I think when you look at downtime, the centers still have incredibly high levels of occupancy. I think that the issue that we're finding today is that albeit a lease has been signed, we are -- the retailers are taking longer to get the tenancy open. So our downtime is more as a consequence of the close-to-open cycle than it is about actually having or housing a vacancy. I think if you look at our downtime today, our average downtime sits around about 26 weeks, from a close-to-open cycle. And our job obviously is to try to get shops that are leased as open -- as early and as soon as we possibly can.

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Robert William Johnston, GPT Group - CEO, MD & Director [61]

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Is there any more on the -- yes?

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Operator [62]

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We do have one more telephone question from David Lloyd at Citigroup.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [63]

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Just a question to Chris, if I could start. Just on sales and interest rate cuts. Obviously, the first rate cut was made in June, quickly followed up in July. Just wondering if you're starting to see a response in sales in August, I know it's early, or in July?

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Chris Barnett, GPT Group - Head of Retail [64]

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Where we are, basically, we're still actually analyzing our July results, which we should firm up by about now, the middle of August. So we haven't seen that translate into sales yet. I think I read a report the other day that the Reserve Bank was saying that they expected 50% of the rate cuts and tax cuts to be spent, and 50% to be saved. So we are looking forward to seeing how both of those measures translate into sales in Q3 and Q4.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [65]

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Okay. Just another one. I think you mentioned that there were like 58 new brands, I think, come to the portfolio. Occupancy was down a touch, 10 bps, so I don't want to make a big deal of it. But -- so how many -- there were probably implied that maybe more than 58 brands are to lift or reduce store numbers. Would that be a fair take?

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Chris Barnett, GPT Group - Head of Retail [66]

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The 58 brands predominantly have come through remixing within the existing portfolio. So a lot of that is -- as I've said, we've talked -- we've got a strategic down-weighting from fashion, from 35% to 27%. And in that, we are bringing in new brands in the growth categories like food, food and retail, leisure, technology and beauty. So the majority of the re-weight has come in from introducing new brands into the center from down-weighting our fashion categories.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [67]

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Right. And any just quick comments on Highpoint? Now you said it's about 100 basis point slip in your -- in there. Is that sort of temporary or any one-offs in there?

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Chris Barnett, GPT Group - Head of Retail [68]

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The Highpoint at the moment is holding the Toys"R"Us vacancy, which we have re-leased to an international [mini major], which will be opening in the first quarter of 2020. The residual space will be a 600 square meter sort of first-to-market Platypus store, which we're very excited to see open in Q4 of 2019.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [69]

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Okay. Cool. And Nick, if I could, just one question for you. Just I note your plans on go off raising. Any plans in Shopping Centre Fund? Or what do you think your ability would be like to raise equity in that fund today?

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Nicholas Harris, GPT Group - Head of Funds Management, Group Strategy & Research [70]

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Yes. So as I mentioned in terms of the secondaries, there were no secondaries at a small discount. So we don't think there is active demand there for retail. There are a number of other funds in the market which have redemption request. So we don't have any redemptions because we have our liquidity event in 10 years' time. But I don't believe we have the ability to attract new equity right now in retail.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [71]

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Are there any opportunities? I suppose some investors are not taking any opportunities out there. I mean if there are redemptions coming out of other funds, it would suggest maybe there's some opportunity. But would that -- is it too early to sort of, get on the front foot here with trying to buy some of this perceived value in retail then?

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Nicholas Harris, GPT Group - Head of Funds Management, Group Strategy & Research [72]

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We're constantly looking at opportunities in the market, so there's nothing that we can talk about now. But I think there may be opportunities if -- in the future, there may be, we just don't know.

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Robert William Johnston, GPT Group - CEO, MD & Director [73]

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I would say, David, to the -- there hasn't been a lot of transaction activity in the market. But those that have traded have traded around -- in line with book values. So I don't think we've seen too many desperate sellers out there selling high-quality assets, put it that way. And we really would only want to be interested in something if it's the right quality.

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David Lloyd, Citigroup Inc, Research Division - Director & Analyst [74]

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Okay. Just a quick question on quality. I mean your portfolio productivity is very strong, but sales growth is still relatively sluggish. Is that sort of something to be concerned about? Isn't it -- would you think of -- would you have thought maybe a portfolio of your quality would have slightly higher sales growth?

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Chris Barnett, GPT Group - Head of Retail [75]

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I think when you look -- at the end of the day, the portfolio is currently trading at $11,500 per square meter, which is by far the most productive portfolio in the market today. I think at 1% sales growth from an MAT perspective, I think if you look at the trading conditions that we've experienced over the last 6 to 12 months, I mean I think that 1% is probably -- is something that we will carry through for the remainder of the year.

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Robert William Johnston, GPT Group - CEO, MD & Director [76]

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Okay. Thank you. If there's no further -- Oh, Julia. We do have one here.

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Unidentified Analyst, [77]

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Just wondering about the incremental cost of debt. You got quite low gearing and you're paying full liquidity. I'm just wondering, to draw down, what's your incremental cost of debt for acquisitions or developments?

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Anastasia Clarke, GPT Group - CFO [78]

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Yes. The U.S. PP, for example, was 170 basis points of margin, and that's debt that's just come in that essentially is midterm replenishing undrawn bank lines, but will be soon enough drawn with the development plans. So margins on bank lines are about 150 for 5-year debt and 130 for a 3-year debt, so call it 130 debt -- shorter debt that is undrawn, plus the base rate. So base rate is less than 1% at the moment.

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Unidentified Analyst, [79]

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Okay. So about 2.3 all in?

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Anastasia Clarke, GPT Group - CFO [80]

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Yes.

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Unidentified Analyst, [81]

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Okay. And can I ask about holdovers in the retail portfolio as well, just what the level of holdovers are?

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Chris Barnett, GPT Group - Head of Retail [82]

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We've currently got 145 holdovers, which is down on this time last year. And I think when you look at holdovers, the thing that's pleasing to me is 60% of them are expiring within the current year. And I think that plays out to 80% of expiries from the last 18 to 24 months. So it's all work in progress. It's all just ongoing negotiations. But what's important in relation to holdovers is that the -- of the 145 we have today, they're all paying passing rent and we have a 0 debt position with each of them.

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Unidentified Analyst, [83]

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And just, sorry, with the new retailers that you're bringing in, are they coming in on cap spec opt deals or are they just coming on?

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Chris Barnett, GPT Group - Head of Retail [84]

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Preferably not.

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Unidentified Analyst, [85]

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I'm just wondering what it takes to bring new retail...

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Chris Barnett, GPT Group - Head of Retail [86]

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No, no, no. We've -- if you look at the [Villa] development that we've recently just launched in Melbourne Central, none of those were on-camp occupancies.

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Robert William Johnston, GPT Group - CEO, MD & Director [87]

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That's the exception, to be quite honest, capital cost is for us, yes.

All right. If there's no more questions, thank you, everyone, for joining us this morning. We look forward to catching up with each of you in due course. Thank you.