This article first appeared on GuruFocus .
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FFO:AUD 55.7 million, or AUD 0.176 per security, ahead of upgraded guidance.
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Distributions:AUD 0.166 per security, reflecting a payout ratio of 94.4%.
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Like-for-Like Income Growth:5.3%, underpinned by strong rent reviews and positive rent reversion.
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Re-leasing Spreads:21.4%, providing a tailwind to future earnings.
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Occupancy:98.8%, with 87% of income subject to contracted rental increases of at least 3%.
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Portfolio Valuation:AUD 1.5 billion across 90 assets, with a valuation uplift of AUD 19.1 million or 1.3% over the year.
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Look-Through Gearing:31.2%, at the lower end of the target range.
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Development Completions:45,200 m at Jandakot achieved a yield on cost of 7%, above the 6.25%+ target.
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FY 2027 Guidance:FFO of AUD 0.17 per security and distributions of AUD 0.166, in line with FY 2026.
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Distribution Yield:6.8%, paid quarterly.
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Release Date: August 11, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Delivered FFO of AUD 0.176 per security, above upgraded guidance, with distributions of AUD 0.166 per security.
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Strong leasing performance with re-leasing spreads of 21.4% and like-for-like income growth of 5.3%.
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Development pipeline at Jandakot achieved a yield on cost of 7%, above the 6.25% target, with 100% pre-leasing on completions.
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Maintained a strong balance sheet with look-through gearing of 31.2%, at the lower end of the target range, and executed a zero-cost hedge book restructure.
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Executed a securities buyback program upsized to 5%, with plans to complete it by March next year, and completed four acquisitions with strong leasing outcomes.
Negative Points
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FFO per security declined year-on-year due to a 60-basis-point rise in cost of debt and the sale of BTP.
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FY 2027 FFO guidance of AUD 0.17 per security is flat compared to FY 2026, impacted by the hedge book restructure and higher interest costs.
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The hedge book restructure will increase FY 2027 interest costs by approximately AUD 1.4 million or AUD 0.005 per security.
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Prudent lease-up assumptions for vacant units at Moorebank and Jandakot are expected to dampen like-for-like growth.
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Construction costs are forecast to rise, posing a risk to development yields, with some projects like 25 Centurion Place expected to yield below the 6.25% target.
Q & A Highlights
Q: Can you walk through the rationale for the hedge book restructure and what it means for FY 2027 and FY 2028 onwards? A: Jason Weate, Fund Manager, explained that the restructure was a deliberate move to bring forward rates to mark-to-market levels, establishing a flatter hedge cost profile from FY 2027. This allows underlying property income growth to translate more clearly into bottom-line earnings. The restructure reduces FY 2027 FFO by AUD 1.4 million or AUD 0.005 per security, accounting for the majority of the decline versus FY 2026, but was NPV neutral with zero upfront costs.
Q: How should we think about the payout ratio going forward, given it was about 94% in FY 2026 and guidance for FY 2027 reflects a step up to about 98%? A: Jason Weate noted that the new FFO settings provide a platform from which to grow earnings and greater options for distribution settings. Strategically, the fund considers underlying cash flow coverage and balance sheet settings, noting that lower gearing provides greater ICR coverage and flexibility. These factors will be considered when setting distributions for FY 2028.
Q: What is driving the 21% re-leasing spreads? A: Jason Weate highlighted that significant components relate to forward leasing at Derrimut (an FY 2028 expiry), Dandenong South (also FY 2028), and Epping (FY 2029), reducing risk well ahead of expiry. The standout was Derrimut with a 52% uplift above passing. The recent acquisition at 50 Jayco Drive in Dandenong South achieved a 21% positive reversion, outperforming the acquisition underwrite. Jandakot also achieved 15% positive spreads across the stabilized segment.
Q: Excluding the hedge restructure, expected FFO in FY 2027 would be roughly in line with FY 2026. Can you walk through the other moving pieces between FY 2026 and FY 2027? A: Jason Weate detailed the compositional drivers: positives include like-for-like growth of approximately 3%, supported by contracted rental increases and positive leasing outcomes, though with prudent downtime assumptions at Moorebank and Jandakot. Continued positive contributions from completed and active developments and completing the full 5% buyback by around March next year are also expected. Offsetting drivers include full-period dilution from the BTP sale, stepping up interest rate costs, and an assumed all-in interest expense of 6% in FY 2027.
Q: Do you view the buyback as a superior use of capital to acquisitions and development activity, and do you have the balance sheet capacity to pursue all levers? A: Jason Weate stated that of the three opportunitiesacquisitions, buyback, and Jandakot developmentthe latter two screen much more attractive and are the key areas for continued deployment. Assuming current share price levels remain depressed, the fund will keep buying. Starting at around 31% gearing, the fund is fully funded to continue full development of Jandakot and full execution of the buyback program.
Q: How do you think about where you want gearing to sit medium term or in the next 12 months? A: Jason Weate indicated the fund has an appetite to run gearing more conservatively, valuing optionality. Running look-through gearing under 35% will always provide deployment optionality, and the fund expects to continue managing at below that level.
Q: Post-FY 2027, do you expect to maintain strong yield on costs for the development pipeline, or do you expect that to fall? A: Jason Weate acknowledged construction costs continue to rise, posing a risk, but expects to continue printing yield on costs that are strong and arguably above the through-cycle target range. This is demonstrated by the AUD 20 million of new commitments post-balance date at a yield on cost of 7.0%.
Q: Why are you going ahead with 25 Centurion Place at a yield on cost of 6%, below your 6.25% target? A: Jason Weate explained that this development is unique, forming part of the airside portion of the broader estate, and reflects a 20-year lease to the government. The strength of the covenant and lease duration justify a tighter yield on cost. It also opens a pathway for additional development on that airside. In aggregate, with the vast majority of developments at 7%, the overall profile remains strong on a risk-adjusted basis.
Q: How much of AFFO are you paying out for the FY 2027 guidance? A: Jason Weate noted the fund does not formally guide to AFFO, but the annual report provides a breakdown of components. Post-BTP, the capital drag on AFFO has improved as industrial assets have a lower CapEx burden than suburban office. Distribution settings reflect both free cash flow to support distributions and balance sheet settings providing additional flexibility.
Q: Can you provide guidance on the remaining expiry profile and your perception of under-renting there, plus a comment on that metric for the broader portfolio? A: Jason Weate stated that remaining FY 2028 expiries are now under-rented by around 6%, down from approximately 15% at the half year. Across the broader portfolio, under-renting now sits between 3%-5%. The fund is not positioning as a broader under-renting story, as growth drivers are more development-focused, but the remaining under-renting supports a healthy medium-term growth profile.
Q: What is the average incentive level on leasing done in the last six months? A: Jason Weate confirmed the average incentive level over the last six months was approximately 15%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
