HDNRF (HDNRF) Q4 2026 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the HomeCo Daily Needs REIT FY '26 Full Year Results Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Sid Sharma, HMC Capital Managing Director, Real Estate and HDN CEO. Please go ahead.

Thank you, everyone, for making time to attend today's call. For those new to us, HomeCo Daily Needs REIT is Australia's leading convenience retail real estate investment trust serving the essential needs of 12.7 million Australians. Joining me on today's call is HDN Fund Manager, Paul Doherty; our Real Estate CFO, Phil Dooley; and our Real Estate COO, Kylie Green. Before we commence today's presentation, we want to acknowledge the traditional custodians of country throughout Australia. We celebrate their diverse culture and connections to land, sea and community, and we pay our respect to elders past, present and emerging, and we extend that respect to all Aboriginal and Torres Strait Islander people. Let's start at Slide 6. Before I talk through the excellent FY '26 results, I wanted to provide a bit of an overview on where we're at and where we're going. A few key takeaways from today. Firstly, the sector is buoyant. At half year, we said convenience retail was the most in-demand subsector in retail, with over $3 billion of our types of assets having traded in the sector over the last 12 months and metropolitan cap rates in the low 5s, this has proven to be the case. The investment market for high-quality defensive assets in metropolitan sites also shows no sign of slowing down. Secondly, consumer spending and consumer sentiment is uncorrelated and retail sales are trending up. The team will go through the detail, but our key job as landlords remains very, very, very simple. Our job is to get wallets past windows. With over 126 million visitations across the HomeCo network, we continue to deliver for our tenants. Retail spending in our centers, which we know is a data point all analysts really love, is up 6% year-on-year through our assets and over $2.6 billion sales went through the tills of our tenants. While quarter 4 was slow for retailers at the end of '26, July and August sales have shown a noticeable uptick in consumer spending. Thirdly, our FY '26 result delivers on guidance and our FY '27 outlook reflects what is a choppy interest rate environment ahead of not only us, but everyone else. I'll come to the '27 outlook a bit later in the presentation, so please do stay tuned as we discuss the optionality in our business. Let's now talk through the FY '26 results. We delivered funds from operation per unit of $0.09 and distribution of $0.086 per unit, both in line with guidance. The result was supported by recurring portfolio income growth and comparable NOI growth of 4% and continued leasing spreads that are positive at 5.9%. Occupancy and cash collections continue to be maintained well above 99%. Our NTA continues to grow, reflecting an increase to $1.56 per unit. This has been supported by income-driven valuation gains, accretive tenant-led developments and moderate cap rate tightening. Noting that we were net sellers of approximately $90 million through the period, our total value of our assets has grown over 10% for the period, reflecting the underlying income growth that I'm talking about. We've also strengthened our balance sheet. During the year, we established a new $2.15 billion unsecured debt facility, increased liquidity and extended debt tenor, providing flexibility to fund growth through disciplined capital allocation. I'll now hand over to Paul to talk through the operational performance.

Thanks, Sid. Turning now to Slide 7. Our investment strategy has remained consistent since IPO and is clearly focused on creating daily needs community hubs that are defensive and diversified across geography, subsector and tenant. Starting with our portfolio construction. Our target model portfolio is 50% neighborhood, 30% large-format retail and 20% health and services. This mix balances the best characteristics of defensive, reliable income streams with sustainable growth and is anchored by some of Australia's strongest covenants, including ASX-listed groups, Woolworths, Coles and Bunnings. Our strategy is positioned around last mile real estate infrastructure, underpinned by low sustainable rents with an average gross rent of $448 per square meter. This supports leasing spreads of 5.9% with low incentives and provides a basis for recurring rental growth. The portfolio is weighted to metropolitan locations with 84% of our assets in capital cities. These are the markets that provide exposure to the population growth centers with approximately 12.7 million people living within a 10-kilometer radius of a HDN center and approximately 126 million customer visitations across the group this year. The portfolio's 2.3 million square meters of land and a low site coverage of 36% provides embedded development opportunity. The $650 million development pipeline remains tenant-led and returns tested, and we target a return on invested capital of more than 7%, where market conditions and returns support deployment. On Slide 9, I want to make further comment on the strategic location of the portfolio. Our portfolio has grown to $5.2 billion. And as I've just pointed out, is diversified across key metropolitan growth corridors. 39% of the portfolio is in the Sydney metropolitan area, a further 19% is in the Melbourne metropolitan area and 16% is in Greater Brisbane and the Gold Coast. These 3 cities are the fastest growing in Australia, giving our portfolio exposure to the increasing population and demand from retailers this creates. I'll now hand over to Kylie to go through our property portfolio.

Thanks, Paul. On Slide 10, we provide our portfolio summary. Portfolio value increased to $5.2 billion, reflecting income growth and moderate cap rate compression with the weighted average cap rate now at 5.53%. This outcome further provides evidence of demand for well-located daily needs assets and supports the resilience of HDN's NTA. Our operating metrics remain consistent with the prior year. Occupancy was 99% and rent collection above 99%, supported by the quality of our tenancy mix and the strength of our tenant counterparties. HDN also maintains a highly diversified tenant base of approximately 1,350 tenants with average gross rent of $448 per square meter and outgoing recovery rate of around 60%. The rental structure continues to support recurring organic growth with a weighted average rent review of 3.6%. The combination of fixed escalations and CPI-linked reviews provides embedded contracted income growth each year. Turning to the lease expiry profile on the right. The portfolio has a smooth and manageable expiry profile. We have already secured a large portion of FY '27 expiries, which leaves only 7% of income to be secured in this financial year and 12% in FY '28. This provides both income security and flexibility to capture positive reversions as leases roll. Importantly, as Sid noted at the outset, our role is to bring wallets past windows. Few metrics demonstrate this more clearly than customer visitation with approximately 126 million visits across our HomeCo network of centers this year. We understand that sales are a metric of interest to analysts. However, we do not consider it the strongest measure of performance as it is not directly correlated with the key metrics that drive our results. In our view, rental growth and cash collections are the most meaningful indicator of portfolio performance and both continue to deliver strong outcomes. Comp tenant sales growth remains healthy with a 1.7% MAT increase, while comp portfolio sales has grown 6% year-on-year to more than $2.6 billion. Taken together, this is a $5.2 billion portfolio that is diversified by subsector, tenant and geography and continues to deliver the consistent earnings growth that sits at the heart of our strategy. Moving now to Slide 11. We highlight our diversified tenant base. By subsector, income is well balanced across neighborhood, large-format retail and health and wellness, with each contribution around 40%, 40% and 20%, respectively. This gives HDN high exposure to defensive, noncyclical expenditure that performs consistently through the cycle. The top 10 tenants make up 33% of gross income with no single tenant contributing more than 10% of revenue. The tenant base includes large national retailers that provide essential and nondiscretionary goods and services, further supporting the defensive nature of the portfolio. Income growth is underpinned by a weighted average rent review of 3.6%. Around 72% of our rent is subject to fixed escalations, with a further 17% linked to CPI, providing a high proportion of contracted income growth. HDN has delivered positive leasing spreads over multiple periods while maintaining low incentives. In FY '26, leasing spreads were 5.9% and incentives of 4.9%. This supports real rental growth across the portfolio. Together, these metrics support the recurring nature of portfolio income and provide a direct link between operating performance and earnings durability.

Thanks, Kylie. Turning now to Slide 12. With sustainability -- turning now to sustainability on Slide 12. In line with HMC Capital, the real estate platform is reviewing its sustainability strategy and objectives to align with the next phase of the group's evolution. We remain committed to ESG initiatives that support both long-term value creation and positive social impact. On the environment, we achieved a 4-star Green Star rating at both HomeCo South Nowra and Glenmore Park. Our Tuggerah development will be filed in FY '27. Across HDN, we now have solar installed at over 90% of feasible assets and continue to roll it out at new sites as they're integrated. Socially, we maintained 50% gender diversity across independent Board Director roles at HDN and our reconciliation initiatives continue to advance, including funding education pathways through the HMC Capital Foundation's Indigenous Leaders Scholarship, and we've also continued our support for Eat Up Australia and our partnership with Youngster.co. In governance, HDN was recognized as a 2026 ESG regional top-rated company by Morningstar Sustainalytics and for the fourth consecutive year, was awarded Prime Status in the ISS ESG Corporate Rating. Overall, we remain focused on embedding strong ESG practices across the platform as we continue to grow a resilient and responsible portfolio. Moving now to HDN's growth opportunities. As I discussed earlier, HDN owns 2.3 million square meters of high-quality strategically located property with low site coverage of 36%. We, therefore, retain significant in-built growth opportunities across the portfolio. We've demonstrated our capability to deliver growth throughout our evolution. In this pipeline, we've delivered more than $300 million invested and delivered an average return of 8.5%. We also have $120 million of projects in progress at Armstrong Creek, Warilla Grove, and our HUG Fund investments. All of these are on track for completion during FY '27, and each will begin generating income as they complete. HDN has more than 13 projects identified in its $650 million development pipeline. The projects are a combination of near-term opportunities that are permit approved with existing tenant demand and are available to be activated at short notice. We also have longer-term projects that are in various stages of planning and will be available to be activated in the future. The important thing with our pipeline is that we own and we control it. This allows us to be deliberate on timing and to ensure that our strict minimum return hurdles will be achieved before pushing the button to commence. Alongside development, our second lever of value creation is disciplined, accretive acquisition, and Slide 15 demonstrates that track record in action. Lutwyche in Brisbane, which is a triple supermarket anchored daily needs center just 5 kilometers outside of the Brisbane CBD, generating over $125 million in annual supermarket sales. Since acquiring the asset for $119 million, we've executed a value-accretive repositioning, replacing an underperforming food court with a 700 square meter mini major tenancy leased to The Reject Shop and leasing up long-term vacancies. The strategy has grown NOI from $8.4 million at acquisition to $9.9 million today and driven the value to $148.4 million, a 24% uplift on modest $6 million of CapEx. And at the bottom of this slide, we've shown HDN's ability to acquire, reposition and actively manage assets to create embedded value, highlighting that the Lutwyche example is not a one-off. The examples we have provided from Marsden in 2020 to Lutwyche today and in the future Warilla, which is in development, all deliver net income growth above HDN's comp 4% and accretive valuation growth. Together with the development pipeline, this disciplined approach to acquisition and repositioning supports HDN's recurring earnings base and provides a pathway for future growth. I'll now hand over to Phil to take us through the financial results.

Thanks, Paul. Turning now to Slide 17 to go through the earnings summary. For the full year, we delivered FFO of $187.1 million or $0.09 per unit, a 2% increase on FY '25 and in line with guidance. Property NOI increased 3.6% to $298.7 million, underpinning comparable NOI growth of 4.0%, positive leasing spreads of 5.9% and weighted average debt reviews of 3.6%. Below NOI, net interest expense increased [Audio Gap] consistent with the higher interest rate environment. For FY '26, revenue growth was partly [Audio Gap] this increase, supporting distributions of $0.086 per unit. Overall, these results reflect consistent portfolio execution and continued focus on disciplined financial management. Turning to the balance sheet on Slide 18. HDN remains in a robust financial position at 30 June with net assets of $3.3 billion. Our NTA increased to $1.56 per unit, up from $1.47 at June '25, a 6.1% increase, mainly driven by $180 million net portfolio gain, noting the quality of the uplift underpinned predominantly by income-driven valuation gains rather than cap rate movement. During the year, an increase in borrowings of around $140 million, together with net asset disposals of $87 million, funded accretive acquisitions, development CapEx and their investments in HUG and HARP unlisted funds. Looking ahead, our balance sheet is well placed to support growth through targeted recycling, selective acquisitions and disciplined investment in our development pipeline. Turning to capital management on Slide 19. Our balance sheet settings remain sound and continue to support the business through the current rate environment. During the year, we refinanced and upsized our debt platform. We replaced our secured facility with a new senior unsecured facility, upsized by $300 million to $2.15 billion. This extended our weighted average debt tenor to 3.1 years, up from 2.3 years. We also received our inaugural BBB+ credit rating with a stable outlook from S&P. Total liquidity increased to $288 million, up from $108 million, comprising $250 million of undrawn facilities and $38 million in cash, leaving us well positioned to fund capital deployment when appropriate. Gearing sits at 35.7%, around the midpoint of our 30% to 40% target range. On the debt maturity profile, our next maturity is the $800 million facility in FY '28. We are currently 68% hedged, increasing to 75% in December. At June '26, our weighted average cost of debt was 5%, up from 4.8% in June '25. Looking ahead, it's our priority to fund growth through retained balance sheet capacity, selective recycling and disciplined investment. I'll now hand back to Sid to provide guidance and closing remarks.

Thanks, Phil. As you can see, our FY '26 results are fairly straightforward. Our FY '27 guidance is really driven by strong top line income growth, which we believe will continue and possibly improve, offset by a step-up in weighted average cost of debt and drawn debt. We won't opine on the interest rate outlook moving forward, but we are a defensive portfolio with a conservative balance sheet that is well positioned to deal with any macro headwinds as we have done in the past, but are also in a position then to take advantage of a more favorable environment beyond FY '27. We have a very flexible balance sheet, very liquid assets and a sustained track record of asset recycling for a very long period of time. For the avoidance of doubt, because I'm sure I'm going to get asked, all capital initiatives are under consideration to close the NTA discount for investors, as you would expect. However, I view this moment as a time to pause and position rather than take any actions hastily. We have a great portfolio of performing assets in a sector that has great read-through for fundamental value and underlying supply-demand fundamentals that are strong. We also have a consumer that is more resilient than most sentiment surveys would suggest and a buoyant market driven by increased wallets past our windows. We will be active through the course of FY '27 to ensure we outperform for our investors, but our stated guidance is $0.088 per unit for FY '27 and $0.086 distributions per unit for the period. I will now hand over to the moderator for questions.

[Operator Instructions] First question comes from Michael Armstrong at Bell Potter.

You've mentioned selective asset sales to reduce the gearing. Is there a particular quantum your target?

Michael, I'll probably answer it a different way. So in FY '26, we sold about $170 million of assets. And if you go back through the last 3, 4 years as interest rates have increased and elevated, we have been net sellers. Like I've said every reporting season, we get a lot of unsolicited offers. And even at this point in the cycle, we're sitting on somewhere between $400 million and $500 million of unsolicited offers for our portfolio that we're considering. All of them are there or thereabouts book, if not higher. But I'm not going to pin ourselves to a number on that. But we are considering what's on the table, and we will have -- we will turn our mind to it over the course of the next few months.

Okay. And then just on your comments around sort of the difference between consumer sentiment and sales, sales still seems to be holding up. What's your sense on if this can continue for an extended period?

Yes. It was -- look, people much more qualified than me can opine upon the consumer outlook. But a couple of data points, which I think are interesting. You would have seen CBA came out and said July mortgage applications are up. Residential listings had a record month in July of 268,000 across the country. Car sales had a record July month, 4.4% up. Sales across our network through July and August are in excess of quarter 4 last year. So my read is interest rate outlook deteriorated leading into Christmas last year. The consumers learn how to adapt pretty quickly. And I think they're starting to adapt and they're starting to figure out that the environment is going to be choppy, and they're adjusting their spending habits accordingly. I'm expecting that we're going to be surprised on the upside on retail spending over the course of the next 6 months. And I think we're well positioned for that.

Your next question comes from Andrew Dodds at Jefferies.

Maybe just a follow-on to that one, just around your opening remarks that July and August spending was where you saw a bit of an uptick. Can you just maybe call out, I guess, any anecdotes here or any sort of remarks you've heard from some of the retailers just in terms of store rollout programs or anything like that?

Thanks, Doddsy. So without naming kind of retailers and names, right, you can have a look at our top 10 retailer list. And it's -- I think it's pretty simple to get a look through on their store network growth given most of them are publicly listed. And they remain buoyant on that network growth plan, which is fundamentally a driver of -- driven by 2 things: population growth, a bit of cost of goods inflation and also volumes increasing as the consumers adjusted to having a reasonable amount of savings in their back pocket. What I would say is most retailers said that May, June were a little bit soft, end of financial year sales weren't as strong as they would have expected previous years, but the bounce back in July has been material and noticeable. And that goes across discretionary and nondiscretionary sectors. So I've noticed an uptick in our supermarkets in our daily spend, and I've noticed an uptick across electrical, household goods and furniture. And a lot of people kind of correlate a downturn in the housing market from a pricing perspective as being correlated to furniture and household goods spending. I would suggest that household goods spending is more a function of housing churn than housing prices. And that little data point around the 268,000 residential properties being listed in July, which I believe was like a 12-, 18-month record kind of points to the fact that pricing is adjusting, sellers and buyers are starting to find the middle ground. So you're going to start to see some housing churn come through, and that kind of reflects in what the banks are saying around mortgage applications in July. So I think the consumer is adapting and starting to spend.

All right. Great. And then just on interest costs in FY '27, it looks like it's about, call it, a $0.06 per share headwind once factoring in 4% comp NOI growth. You guided to earnings going backwards in '27. So I guess could you just maybe talk to the strategy around how you're managing the hedge book and just the outlook for it?

Yes. Thanks, Andrew. Yes, the story for '27 is really simple. Earnings growth, as you called out, again, is really strong from a property NOI perspective, and it's offset by a material step-up in interest expense, which is a function of a weighted average cost of debt, which if you go back 12 months, was around 4.8%. And as you kind of look forward 12 months, it's probably going to land somewhere around 50 bps higher. And then the drawn debt is about $100 million more off the back of our development pipeline rollout. So as I see it moving forward, the outlook on interest rates remains really choppy. I don't think anyone can pick either way where it could go or won't go. By resetting our balance sheet now and taking some of that issue off the table and putting it in our numbers, it kind of positions us to focus on how we recover and build from here. So if you do the math around selective asset sales that are below that weighted average cost of debt, that's going to be earnings neutral to earnings accretive. So there's -- that's a lever. We get asked about share buybacks. That's always a lever. We get asked about development pipeline. So we've paused on that for the moment. So yes, as I said, it's a time to pause, position and reflect and then move as soon as where clear on what this choppy interest rate environment is going to throw off.

Your next question comes from Connor Eldridge at JPMorgan.

Just picking up on your previous comments you've made around the narrowing spread between development returns and the marginal cost of debt. Obviously, you have redevelopments that you committed to for FY '27. But I guess just keen to understand how you're thinking about that next line of projects and if the spread you're seeing today is wide enough to greenlight those new projects kicking off in FY '28.

Thanks, Connor. Really good question. That really goes to the pause that I suggested. I think over the last few years, we've set our target on cash-on-cash yield on our development project is 7%. Happily, over the course of the last 5 years, we've delivered closer to 8.5% cash-on-cash yield, which shows that we've outperformed in that space. With where we're at now, noting the little bit of supply constraint, we're one of the few listed groups that are still developing real estate. My view is that yield on cost right now probably needs to be a little bit higher before I pull the trigger on it. So we're just going to pause for a moment. I think medium term, 7% is the right number. But short-term, it probably needs to be higher. So we'll just assess each project on its merits, and we'll just be disciplined as to when we start investing into that development book, which not only remains intact, but with everything else going on, that book is probably going to get bigger in terms of potential.

Sure. And just a follow-on to the previous question. Just in relation to guidance, are you assuming any FY '27 divestments in that guidance number?

No, there's no divestments included in that guidance number and no acquisitions either.

Your next question comes from David Pobucky at Macquarie Group.

I just had a follow-up on capital allocation. So you've spoken about it a little bit already to help close that discount to NTA. So I was just curious how you're weighing up all those different capital initiatives right now to help do that? Obviously, you paused developments for now [Audio Gap] more assets, buybacks. Was the key really kind of focusing on divesting assets at book to prove out NTA and also given where our current gearing sits currently?

I think we've proven NTA every year for the last 4 years by selling assets at a premium to our book value through the cycle. So I don't think I need to prove that. And I think the market with the $3 billion of asset sales that have happened in the last 12 months at a tighter cap rate even to our book has proved that. So I don't think we need to do anything to prove up our NTA. I think the direct market values these assets very highly, and these are very rare assets in metropolitan Sydney, Melbourne and Brisbane. So there's just a disconnect in the listed market valuations to the direct market, which continues to persist. So we have to weigh that up and think about that very, very thoughtfully as to whether that kind of disconnect is something that HDN should take advantage of.

Sid, and just in terms of the $400 million to $500 million of unsolicited offers that you mentioned, if we think about potential divestments over the next 12 months, what assets are most likely to be recycled?

I'm not going to get into that. And to be honest, every year I sit here, we probably have a similar number of unsolicited offers sitting on our desk. So that's not news for this asset class. It's very, very highly sought after by high net worth, by institutional capital. We're just going to consider those and make the right decision at the right time.

Okay. And just last question on your strategic investments across HUG, HARP, et cetera. How should investors think about the long-term role of those vehicles? And just how much has been deployed in HUG at this point in time?

Yes. So it's still pretty small figures that have been deployed to date. Each of those funds are sitting on double-digit returns for us since inception, which is really strong. Obviously, those assets have a different risk profile to HDN. In terms of your question on HUG specifically, that's what -- for those that don't know what that fund is, that's the unlisted grocery fund, which is a partnership with institutional capital and one of our key anchor tenants to roll out greenfield neighborhood centers around the country. That's a unique strategy that only this management team can really put together. So we are thinking through how that vehicle relates to HDN and whether HDN looks at those assets a bit further and maybe balance sheet divestments are a bit slower, maybe deployment into that is a bit higher, but we're yet to make a call on that. Ultimately, it will go down to the economic return weighed up against all options.

Our next question comes from Solomon Zhang at UBS.

I just wanted to come back to capital management. So you mentioned that everything is on the table effectively in terms of your options. Just wanted to ask around the potential for a buyback. Do you think that gearing levels right now are prohibitive for you to actually undertake one right now, given you're still rolling out the development pipeline? Or could you even deploy right now given your 36% gearing?

It's not on the top of our list, but it's under consideration. And while we are an externally managed REIT, if you look at the track record of our REITs across HMC, we have done it before in one of our other REITs. So preferably, we will deploy into accretive opportunities that are within our cohort. And look, I'm going to, obviously, over the next week or 2, meet with our investors and get some feedback around that. Historically, our investors have always said we should reinvest back in our assets because we do get a meaningful spread on our yield on cost to any kind of share buyback. So we'll just assess it on its merits.

And do you have sales data from July yet? I'm just wondering if that's in excess of your comp MAT growth of 1.7% that Kylie mentioned earlier.

We have anecdotal data at this stage, and we have some sales data from some of our larger anchor tenants, but not a full data set across the whole group.

Your next question comes from Lauren Berry at Morgan Stanley.

Sid, on your point about the development book and you're saying that you potentially need higher yield on cost. The $650 million in the pipeline, what is the range of feasibilities for yield on cost, you've got on those at the moment?

The range would be between 6% and 11%.

So I mean, if you do have projects that are at 11%, that's pretty attractive. What's stopping you from hitting the button on something like that at the moment?

Nothing. Just have to take advantage of the fact that there's no new retail supply coming on stream, and I've got to pick the right projects that also enhance the existing assets and don't detract from the existing flow of those assets and make sure the rental rates we're getting from our tenants are at the level that we believe those projects should earn. So there's nothing stopping us.

So when you've been talking about a pause, should we be thinking that there's no new development starts for FY '27? Or is it more about having some discretion and looking at what you can do later in the year?

Yes. I think you've answered that perfectly, Lauren. It's -- the pause we're talking about is 1 month, 2 months, 3 months. We're not saying we're not going to commence projects in '27. Ultimately, as I said at the outset, we've got a basic job, which is to get wallets pass windows for our tenants. And as part of that, we've got to service our tenants. Our projects have always been tenant demand led. That demand remains strong. And if our tenants, frankly, need us to help them grow their footprint, we're going to find a way to do it, and we're going to hopefully get an appropriate level of yield on cost along the way.

Okay. Great. And second one is just around the debt book. You've moved from a secured to unsecured platform. Have you had to pay additional margin to get unsecured debt?

No, the margins came down overall, Lauren.

So the margin...

Can you quantify that?

Sorry, we're average book at the moment is 1.2, 120 basis points.

120. Okay. And I mean, you've got an $800 million bridge facility. I would assume that you would be looking to term that out at some point during the year. Have you factored that cost into the guidance? And what kind of margin would you be thinking on a capital markets facility at the moment?

No, no plans for that at the moment, Lauren.

We got plenty of time.

Happy to have a bridge. Okay. Is there a higher cost of debt associated with the bridge facility?

No.

No.

No, Okay.

No. So just to be clear, blended margin now is 1.2. For that $800 million tranche that you're referring to, the margin is 1.15. The guys also got a BBB+ credit rating. And I'd encourage everyone on the call to go and grab a copy of the report, which is now in the public domain from the ratings agencies, which provides some good color. We -- our credit in HDN is better than well regarded from the banks. And if you actually look at the guardrails they've put on us compared to our peers, they're much more favorable. So no, I think that's an outstanding kind of outcome the group has delivered. I think there's a footnote in the investor press that calls it a bridge facility. That's not how we view it. We just -- we've got plenty of time and space and lots of demand from lenders to continue on the similar margin. You won't see us rushing off to the MTN market anytime soon because I think a few analysts are inferring that's where we're heading.

Your next question comes from Ben Brayshaw at Barrenjoey.

Sid, do you have a preference for lower gearing?

At this point in the cycle, Ben, yes, I do. I would like to see our gearing trend towards 30%. Now there's a few ways to get there. Asset recycling is one. But if you look at our asset base -- sorry, our total asset value 12 months ago, it was around $4.87 -- sorry, $4.83 billion. We were net sellers of about $90 million or $87 million to be precise, and our asset values today are $5.2 billion. I'm expecting valuation growth to continue to come through, which is naturally going to delever the balance sheet. And then we have capital recycling initiative optionality as well.

Your next question comes from Tom Bodor at Jarden.

Just a very quick 2 ones from me. Firstly, just Castle Hill Stage 2 has gone from active projects to the future pipeline. Just wanted to understand, is that one of the projects you paused?

It's still on the page, if you look at it, it still stays in the middle column. That's probably going to be one of the first ones we do, and it does deliver a yield on cost that's double-digit. So we're just firming up a few things from a design perspective, but that's one that probably is first cab off the rank.

Because in the first half, it was under the active projects, it's sort of just a pause. Is that the way to think about that?

Yes. So we delivered the rooftop extension last half. That's performing really well. And this is an extension on the other side of the road, which is through the car park. So it's more of a design issue that we just want to get the car park flow right. So we -- that one is not far away. That's a very good, strong incremental yielder. So it's just a pause to get that design layout just nailed on, and we are quite finicky about our car parks here. As you know, one key part of our business is flipping cars. We're not interested in dwell time. We want people to come in, shop and leave within 28 minutes. That's our goal as a business, and those car park flows are very important to get right. That's all about convenience.

Yes. And then the other one, just you did top up your '27 hedging quite a bit, but you haven't touched '28. Just wanted to get your thoughts around that. Is it more a view that -- expressing a view that rates might come down? Or you're just sort of thinking more around your hedging policy in the short-term?

Just short-term, take a little bit of risk off the table for this year. There's still enough floating to take advantage if rates do come down. And I think it can be inferred to express an outlook as to what '28 looks like. But I think we can all agree '27 is a bit choppy. So it's appropriate for '27. And to be clear, we didn't pay for any swaps. These are all vanilla and it's just to firm up the short end of the curve.

Your next question comes from Thomas Ryan at Green Street.

Just a question. I know you guys have mentioned a few times around that pause. But just in terms of the last 6 months in construction costs, what are you seeing at present in that regard?

It's really different in every geography. Southeast Queensland is very challenging from a construction cost perspective at the moment with a large amount of infrastructure spend happening over there. Victoria has got some challenges that are continuing with the union issues that, that state is facing, albeit that's starting to moderate. West Sydney is where a lot of our assets are, it's actually starting to look a bit better. Trade availability is looking good. The material cost pricing has moderated and been fairly well predictable one way or another over the last 12 to 18 months. The volatility is always in kind of labor costs. And for those 2 reasons I've outlined, Queensland and Victoria are particularly challenging. New South Wales is a little bit easier.

One last question for me, just maybe together in terms of the incentives and the spreads, just in terms of those couple of figures. Could you just separate that out geographically? Just any color in that regard?

No. Look, I think nationally, the trends are pretty similar. You're not going to get a great read-through on separating out the geographies. What I'd say is we're pretty selective on churning tenants. So our new lease spreads are north of 8% to 9%. Our renewals are sitting at just shy of 5%. That's probably a better read-through. So when you make the decision or you work to improve your tenancy profile, you do so off the back of having a material step-up in your revenue, but also bringing in customers and tenants, sorry, that add something to your asset. So when you think through that other stat, Kylie gave you earlier, around a 6% uplift year-on-year in total retail spend across our asset base. That's not just a function of comparable tenants, but it's also tenancy mix optimization. So we've done that, I think, pretty selectively over the last few years, and that's starting to come through, which is encouraging.

That concludes our question-and-answer session for today. I'd like to hand back to Mr. Sharma now for some closing remarks.

I'd just like to thank everyone for making time in attending today's call. Look forward to catching up with everyone over the next few weeks. And a big thank you to our Board and management team. The operational excellence in this business continues as it's done so for half a decade. And just a shout out to everyone that run our assets day in, day out and the love they show them. We thank all of them also. Thanks, everyone.