Good morning, and thank you for dialing into Centuria Industrial REIT's Full Year Financial Year '22 Results. I am Jesse Curtis, CIP's fund manager.

Joining me today is CIP's Assistant Fund Manager, Michael Ching. I would like to commence today's presentation with an acknowledgment of country.

I'm joining you from the lands of the Gadigal people of the Eora Nation. Centuria manages property throughout Australia and New Zealand and pays it respects to the traditional owners of the land in each country, to their unique culture and to their elders, past, present and emerging.

Throughout the year, CIP achieved significant leasing success across the portfolio driven by tenant demand for urban infill markets where industrial space is in very short supply. In fact, Australia now has one of the lowest industrial vacancy rates in the world.

Subsequently, the REIT benefited from strong double-digit rental growth on prior passing rents. To capture the strong tailwinds of the sector, CIP considerably expanded its portfolio with both strategic short WALE acquisitions and by executing value-add development opportunities to support the income of the REIT.

These activities resulted in a portfolio growing to $4.1 billion across 88 assets and being able to deliver on our upgraded FFO guidance for FY '22. Moving into FY '23.

Inflation and rising interest rates present a heightened cost of debt. And in setting CIP's guidance, we have factored these forecast impacts.

However, the operating environment for industrial property remains strong with elevated tenant demand and sustained rental growth forecast. CIP remains well positioned to benefit from the industrial market strength and deliver a strategy into FY '23.

Earlier today, we published various documents on the ASX, including this results presentation, which I'll step you through now. Today, we will provide an overview of CIP's full year portfolio activities and our financial year '23 outlook, along with earnings guidance.

At the conclusion of the presentation, we will offer the opportunity for questions. Let's begin on Slide 4.

CIP is an externally managed REIT that forms part of the larger Centuria Capital Group family, a leading Australasian real estate fund manager, operating under the ASX code, CNI. With more than $20 billion of assets under management, Centuria Capital Group specializes in real estate markets, including decentralized offices, urban infill industrial assets, cost-efficient health care property, daily needs retail, large-format retail and agriculture across Australia and New Zealand.

It also provides nonbanking real estate financing for the Australian market through Centuria Bass Credit. Centuria is a strong supporter of CIP, and there is a clear alignment with the broader Centuria business.

Advantages are being managed by Centuria is that the group has a long and successful track record in property funds management and has a substantial commercial property platform. With in-house property and facilities management, Centuria provides deep leasing capability and hands-on management of the CIP portfolio.

Slide 5 outlines CIP's unchanged strategy to deliver reliable income and capital growth from a high-quality portfolio of industrial assets across Australia. Our consistent vision is to remain as Australia's leading domestic pure-play industrial REIT.

Slide 6 details CIP's key metrics. The portfolio as at 30 June was valued at $4.1 billion with 88 high-quality industrial assets, high occupancy of approximately 99% and a WALE of 8.3 years.

CIP delivered on its upgraded FFO guidance of $0.182 per unit and its distribution guidance of $0.173 per unit. Net tangible assets also increased 11% to $4.24 per unit during financial year '22.

Turning to Slide 7, which outlines CIP's financial year '22 summary and an outlook. Our team's active management approach drove strong leasing success with terms agreed over more than 185,000 square meters during the year, accounting for 14% of the portfolio.

Most significantly, re-leasing spreads showed growth of 11% over prior passing rents. This strong leasing activity supported valuation growth, up $326 million from FY '21.

CIP's income is well supported with over half generated by its top 20 blue-chip customers. Importantly, 20% of CIP's income is derived from CPI index leases, and circa 30% of portfolio leases expire before FY '26, providing further opportunities to harness the market's strong rental growth.

Portfolio increased with 23 high-quality urban infill industrial acquisitions and 3 development sites secured for a combined $765 million. The REIT also divested $45 million worth of assets at a 32% premium to book value with proceeds recycled into accretive opportunities.

CIP maintains a strong balance sheet with gearing at 33.2% from a diverse range of lenders and a staggered debt profile. During the period, we broadened our capital sources through a bond issuance and achieved a Moody's Baa2 rating with stable outlook.

We acknowledge that inflation and a change in the interest rate environment has created an increased cost of debt. In formulating CIP's financial year '23 FFO guidance, we have provided buffers to manage potential interest rate movements.

Specifically, we have forecast an average BBSW rate of 3% over financial year '23. There remains both potential upside and downside risks to this forecast, and we will continue to monitor guidance.

That said, the industrial property market nationally remains strong, and we anticipate CIP will deliver like-for-like net property income growth over the financial year '23 period. For FY '23, CIP provides FFO guidance of $0.17 per unit and distribution guidance of $0.16 per unit with distributions expected to be paid in quarterly installments.

Based on the recent trading price, the distribution guidance equates to a yield of 5.4%. Moving to Slide 9.

Despite having extremely low vacancy rates, Australia still provides relatively affordable industrial rental rates in comparison to established markets in America, the U.K. and Southeast Asia.

With continued tenant demand, this demonstrates a long runway of rental growth for industrial rents in Australia to converge with other markets around the world. Looking locally, on Slide 9, positive industry tailwinds support further occupier demand and strong market rental growth.

As previously mentioned, the domestic market has one of the lowest vacancy rates in the world. Put simply, supply cannot keep up with demand.

Research shows approximately 3.5 million square meters of average forecast demand annually until 2025 despite approximately only 1.3 million square meters annually of supply to be delivered in that same period, showing a large mismatch between supply and demand. Already, only halfway through calendar year '22, we have seen approximately 2.4 million square meters of gross take-up, demonstrating we are likely to exceed original take-up expectations for 2022 and further the gap between supply and demand.

Couple this with historic low vacancy and despite already seeing double-digit rental growth, this is providing further opportunity to capitalize on rent reversions within CIP's portfolio. I'll now hand you over to Assistant Fund Manager, Michael Ching, to take you through the financial results.

Thanks, Jesse. Moving to the FY '22 financial results on Slide 11.

CIP delivered funds from operations of $111.7 million or $0.182 per unit over FY '22, which was in line with the upgraded earnings guidance provided at the half year. Gross property income increased by $42.1 million to $199.1 million, as a result of acquisitions and positive leasing outcomes achieved over the year.

Pleasingly, income on our like-for-like portfolio of assets was up 3.4% in FY '22, driven by leasing success and increased occupancy. The $1.8 million of other income recorded in FY '22 relates to the coupon received on our south side industrial estate development in Dandenong South.

Under the development management agreement, CIP received a coupon on all capital deployed until practical completion of the asset. Capital management initiatives undertaken during the year enables CIP to manage the interest rate expense in FY '22 despite a rising interest rate environment in the second half of the year.

CIP delivered distributions of $0.173 per unit, in line with guidance. And with strong NTA growth, delivered a strong return on equity of 15.2% over the year.

Looking at capital management in more detail on Slide 12. During the year, CIP was assigned the Baa2 rating with a stable outlook by Moody's Investor Services and subsequently completed its inaugural 6-year $350 million medium-term note issuance in December 2021.

This issuance, together with the introduction of 2 new lenders during the year, broadened CIP's branch of capital sources and increased its weighted average debt maturity to 4.4 years. Approximately $300 million of new equity was also raised during the period.

Gearing at the end of FY '22 was 33.2% and an interest cover ratio of 5.4x, both provides substantial headroom to our debt covenants. In FY '23, we expect that CIP's all-in cost of debt would be materially higher than the 2% incurred through FY '22.

To reiterate, in making guidance, we have adopted an interest rate forecast with buffers to manage potential further interest rate volatility. The floating BBSW forecast averages 3% over FY '22.

Having ended FY '22 with $259 million of cash and available debt headroom and with only $50 million of debt maturing in FY '23, CIP's balance sheet remains robust and continues to be well supported by its financiers. Now on to Slide 14, which shows a snapshot of CIP's portfolio composition and geographic spread of our assets.

The portfolio value as of 30 June was $4.1 billion across 88 high-quality industrial assets. More than 98% of which are under freehold ownership.

We maintain critical mass in each of our core markets with a 90% weighting to the strong performing eastern seaboard markets. Through targeted acquisitions over the year, CIP increased its exposure to core urban infill markets to 85% of the portfolio.

We expect these land-constrained urban infill markets close to population catchments and with limited future supply to outperform on rental growth over a sustained period and consider our increased exposure to these locations as one of CIP's main competitive advantages. I will now hand back to Jesse to take you through leasing and transactions over the years.

Thanks, Michael. Taking a closer look at portfolio leasing and WALE on Slide 15.

During financial year '22, CIP executes a significant volume of leasing, having completed 49 individual leasing transactions across over 185,000 square meters of industrial space. This leasing success represented 14% of the portfolio.

Most importantly, we achieved an 11% average leasing spread over prior passing rents, demonstrating the embedded growth within CIP's portfolio and rising market rents across all Australian markets. Our leasing success included 27,000 square meters at our South side industrial estate development in Dandenong South, bringing the asset to 67% pre-committed.

Renewal of Opal Packaging across 19,000 square meters as manufacturing facility in Bibra Lake, Western Australia. Looking forward, the portfolio offers a near-term opportunity to capture the continued rising market rents with 30% of income expiring over the next 3 years.

Looking now at Slide 16. Transactions during financial year '22 have continued to complement the scale and quality of CIP's portfolio.

Our focus on urban infill assets increased CIP's exposure to industrial markets with limited land supply and competition. These markets are forecast to outperform in terms of tenant demand and rental growth.

CIP secured $765 million of urban infill industrial properties across 23 high-quality industrial assets and 3 development sites during the period. Acquisitions provided a short average WALE of 4.3 years, again, providing an opportunity to capture rental reversions in the near term.

Importantly, 100% of CIP's acquisitions were in land-constrained urban infill markets with the lion's share located across Australia's Eastern Seaboard. CIP also recycled capital with the divestment of 2 noncore assets with $45 million, providing an average 32% premium over prior book values.

Our leasing success has extended to our value-add projects, which are detailed on Slide 17. CIP continues to focus on opportunities to leverage Centuria's management capabilities through value-add projects to reposition and refurbish assets to drive value for investors.

Recently completed projects include 160 Newton Road in Wetherill Park, New South Wales, which was acquired in July 2021. We undertook a refurbishment program and leasing results, achieving a 21% valuation uplift.

Next was 8 Lexington Drive in Bella Vista, which was acquired in May of 2021. Refurbishment works are underway, and a 10-year deal was achieved with Amazon, providing a 5.5% yield on cost and providing a 45% increase in value from acquisition.

Active projects include 1 International Drive, West Meadows in Victoria. Our rolling refurbishment program is underway to reposition the multiunit estate to capitalize on significant rental growth experienced in the Melbourne market.

Across financial year '22, rents at the asset increased 22%, increasing the acquisition yield on cost to 9%. With a short WALE of 2 years, near-term reversion provides additional upside of the asset.

Moving to Slide 18 and our development pipeline. Development activities provide CIP the opportunity to introduce new, sustainable assets into our portfolio to capitalize on current strong rental market.

These assets include the latest sustainability initiatives and aim for 5-star Green Star ratings. CIP has recently completed the industrial facility in Bundamba, Queensland, was awarded one of the first -- one of Australia's first 5-star Green Star ratings under the new system.

And it's a pleasure to announce the development is now fully leased to 2 high-quality tenants in Australia Post and Jaycar. We are also approaching practical completion for our South side industrial estate in Dandenong South.

Leasing is progressing extremely well with 67% of the 40,000 square meters estate pre-committed. This again illustrates the high demand for sustainable urban infill industrial assets.

Leading on from acquisitions, Slide 19 details our site consolidation strategy. This has been a long-standing strategy of the REIT: To build scale within land-constrained urban infill submarkets.

CIP has now achieved 9 separate examples of consolidated land holdings in key markets around the country. Most notably, 3 adjoining assets in Wetherill Park, creating a 5.3 hectare site, providing future potential development within this highly desirable land-constrained market.

Also during the year, CIP secured an additional 5 acquisitions in Derrimut, Victoria to increase the total submarket landholding to 25 hectares across 10 assets with $245 million. The Derrimut portfolio now provides assets ranging from 3,000 square meters to 14,000 square meters and a diverse subsector of customers.

This consolidation strategy is beneficial to unitholders, as it provides optionality for future development sites of scale to meet the growing demand from industrial users while maintaining income and access to rental growth. It also provides diversity across tenancy size and type to facilitate higher portfolio retention, leveraging a networking effect from that scale, which we'll touch on in a moment.

Slide 20 outlines our customer base. Its key focus is to ensure ongoing reliable income streams with 56% of fixed income derived from its top 20 blue-chip customers.

Most of them are ASX-listed multinational or national companies. During the period, CIP introduced a number of new high-quality tenant customers through leasing and acquisitions, and the portfolio was now supported by 167 diverse tenant customers, adding to the resilience of CIP's income streams.

A long-standing focus for the CIP team is building strong relationships with our tenant customers. Slide 21 illustrates the networking effect across the portfolio, which leverages the scale CIP has built to grow and service customers across multiple locations.

This networking effect drives value by assisting customers to expand their businesses by offering multiple sites throughout Australia and reducing downtime on our vacancy and increasing retention. The large churn base also provides invaluable insights into future demand from our customers, which allows us to leverage our development pipeline.

A great example of this is Australia Post, who recently expanded their real estate footprint with us at our new development in Brisbane. In fact, multi-location customers account for 33% of CIP's gross lettable area, and CIP had an average of only 1 month downtime in FY '22, supporting the benefits of scale and a customer-focused strategy.

Turning to valuations on Slide 22. Net tangible assets, or NTA, continued to grow with 11% increase during FY '22.

The growth in NTA was driven predominantly by valuation gains of $326 million, an 11% increase on a like-for-like basis. The valuation uplift was driven by major leasing and continued demand for industrial assets.

Moving to sustainability initiatives on Slide 23. CIP, by its nature as a REIT, has no stop and is solely a portfolio of assets.

CIP is externally managed by Centuria Capital Group and aligns itself to Centuria's sustainability framework consisting of 3 core strategies: Conscious of climate change relating to environmental considerations; valued stakeholders relating to social initiatives; and responsible business principles referring to governance. Specific to the environment, during financial year '22, CIP joined the NABERS Accelerate program, which is looking to create a standardized energy-efficient rating for warehouses and cold storage facilities.

Our social initiatives are measured through both Centuria's annual tenant satisfaction survey and employee engagement survey. Both produced excellent results during the year.

96% of surveyed tenants were satisfied with Centuria as their landlord, and 94% of Centuria's employees are proud to work at the company. Centuria is also committed to gender diversity and inclusion.

At present, there is roughly a 40 to 60 split between female and male staff. In relation to CIP, our responsible entity board has 50% female representation.

Also on the governance front, we have adopted the Task Force on Climate-related Financial Disclosure recommendations. This means climate change is now a standard investment consideration with plans being developed across the Centuria portfolio.

Over to Slide 24, which illustrates a few case studies. For CIP's current development pipeline, we are targeting a 5-star Green Star rating.

This high rating was achieved at our Bundamba resident in Queensland, and we aim to replicate the success at our South side estate in Melbourne, which is under development, and our 2 pipeline projects at Campbellfield and Canning Vale. Additionally, we have worked with our key tenant customer, Woolworths, to deliver green energy through solar power systems on the assets they lease from us.

Woolworths has a goal to use 100% green energy by 2025. The solar project on our Townsville distribution center is now complete, and the Warnervale project is currently being installed.

To conclude on Slide 26. Globally, industrial real estate continues to benefit from strong tailwinds.

E-commerce and a tenet focus on securing supply chain resilience, are driving strong demand. According to JLL data, Australian industrial property remains one of the most favored investment sectors.

Despite having seen rents rise across all markets, rent growth remains in its infancy domestically. Sustained high demand from industrial users across the Australian market has driven an extremely low vacancy rate of less than 1%.

Typically, supply of new space into markets brings supply and demand back into balance. However, with labor shortages, supply chain disruption and limited industrial-zoned land, the volume of supply is not meeting forecast demand.

Additionally, substantial increases in both industrial land prices and construction costs is putting upward pressure on economic rents. This backdrop is creating an environment for prolonged rental growth, particularly within urban infill markets.

As Australia's largest domestic pure-play industrial REIT, CIP has delivered a strong result in financial year '22. Substantial leasing was undertaken as significant re-leasing spreads were achieved, reflective of the strength of the market.

Strategic acquisition of short WALE, value-add and development assets re-risk the portfolio to gain greater near-term exposure to rental growth while divesting a number of noncore assets at a premium to book value. Valuation gains drove NTA to $4.24, and together with acquisitions, grew the portfolio to $4.1 million.

Looking to the year ahead, the changing interest rate environment has resulted in a higher cost of debt. And in formulating CIP's guidance, we have provided buffers to manage potential interest rate volatility.

However, as outlined in this presentation, the operating environment for industrial remains strong. And over financial year '23, we expect CIP to benefit from the market strength to deliver like-for-like NOI growth on the back of continued rental growth.

For FY '23, CIP provides funds from operation guidance of $0.17 per unit and distribution guidance of $0.16 per unit, with distributions expected to be paid in quarterly installments. Based on a recent trading price, this equates to a distribution yield of 5.4%.

Thank you for listening. And at this point, I will open the call to any questions.

My first one was just around what informing guidance may provide some color on the BBSW there, but commentary around like-for-like NOI expected to increase, did you get 3.4% today and obviously some pretty positive outlook in terms of the supply/demand mismatch, as you mentioned. Do you have to provide anything in terms of what we might expect in terms of like-for-like NOI growth going into FY '23?

Thanks for the question, Caleb. Look, I think during the presentation, we gave some pretty good color around where we're seeing the market dynamics for industrial and certainly around where we're seeing rental growth.

If you look at what we achieved this last 12-month period, that was showing re-leasing spreads of 11% over prior passing rents. So for the year ahead, we've got 5% of the portfolio that will expire.

The balance of the portfolio is linked -- about 20% is linked to CPI. And then about 75% of the portfolio is then linked to fixed indexations of circa 2.8%, 2.9%.

So when you aggregate those, you should get a pretty good read as to where we think like-for-like NOI should land.

Yes, that's clear. Just on this other income line item, looks like that's ticked up to about $2 million in the second half of '22.

Are you able to just provide a bit of color in terms of how exactly that's derived? And if there's any expectations for that item going into FY '23 as well?

So that item covers off a coupon that we receive on development projects within the portfolio. So the wave 2 of our funds through development works, and I'm just specifically talking about our south side development in Dandenong South and our Campbellfield development in the North of Melbourne.

As we deploy funds into each of those developments, we, in turn, receive a coupon back from those developers. That coupon is in the vicinity of 4.5% that we receive on both of those.

So we anticipate that, that other income will carry into FY '23 on the back of South side completing and Campbellfield starting and may even drag into 2024.

Okay. Sure.

That's clear. Just a final one for me on guidance.

Do you have to provide any color in terms of what you're expecting on revaluations that will inform you responsible entity fees through FY '23 as well?

We're holding values flat throughout FY '23.

Fantastic. And just one final one for me.

Just on the outlook for the hedging profile and managing interest expenses. It looks like there might be about $300 million or so of hedging rolling off by the end of 2023.

So I'm just wondering how you're viewing willingness to execute on additional hedging from here and other means of managing interest expenses throughout the year?

Yes. We've spoken about holding a flexible hedging strategy.

And to date, we've seen a pretty big variance between the cash rate and what the forward-looking slot curve looks like. That's now starting to normalize, and we'll take the opportunity to, where we see appropriate, putting hedging in place or exploring caps.

Sure. Is there a minimum hedging policy that sits within CIP?

50%.

Just on the guidance again. You said that there's a material step-up in the cost of debt.

Are you able to give us a range of what you're thinking of that the all-in cost of debt is going to be?

So we've given guidance that our BBSW or floating rate we've averaged 3% or forecast 3% on average over the course of FY '23. If you then look at margins in the market at the moment at somewhere between 130 and 160 basis points, that should give you a pretty good bonus as to where falling all-in incremental cost of debt should land.

Okay. Got it.

And your leasing spreads were obviously very good. Are you able to talk about what kind of spreads you're seeing in the different markets that you're in?

Absolutely. Both Sydney and Melbourne, we're seeing the most significant re-leasing spreads.

So both those markets over the last 12-month period to June experienced near 20% growth in both of those markets. So we're certainly seeing, of the results we've delivered to date, significant movements in both Sydney and Melbourne rents.

However, both Brisbane and -- looking into FY '23, we're seeing both Brisbane and Melbourne -- sorry, Brisbane and Perth really starting to fire in terms of the rent growth in those markets. Right across the country, the average vacancy rate now sits at less than 1%.

So there's a very, very strong environment and a mismatch between supply and demand which is generating solid rent growth in all markets.

Okay. Cool.

And then just probably final one for me. Your stock is trading on a very large discount to NTA at the moment.

What are your thoughts on perhaps selling some of your assets to prove up the value at this point in the cycle?

I think if you look back at our history of managing this vehicle over the last 5 years, we've sold about $150 million of assets over that period at approximately a 20% premium to book value. This last year, we've sold $45 million of assets at an average premium of 32% over book value.

So we'll continue to find opportunities where we've maximized value or see mispricing of assets to capitalize on that.

Okay. But in terms of your guidance, what are you assuming for acquisitions and disposals this year?

Nothing that we haven't otherwise announced.

Just wanted to sort of go back to that hedging piece. And I think all your hedgings rolled off by the end of '24, calendar '24.

And at that point, interest rates saw some important curves could be substantially higher, and obviously, then your interest cover comes down. How close to your covenant are you comfortable operating?

How much headroom do you need at a minimum?

So can you repeat the question, Tom?

I was just wondering what sort of the minimum headroom you're prepared to operate with relative to your interest cover ratio?

I think we're comfortable with where we're at today. I think if I sort of address your comments on forward-looking interest rates, I think there are a number of different focus -- a number of different forecasts out there in the market that there's one CBA forecast that says rates will peak over this year and then come off into FY '24.

So I think we'll continue to assess the market. We'll continue to watch the interest rate environment.

And then where we see appropriate, put debt initiatives in place to manage the vehicle.

Okay. Sure.

But a 5% interest rate, interest cover drops closer to 2x, and that's where you're coming in. Are you comfortable being that close to the covenant?

As I said, Tom, we'll continue to monitor debt markets and put appropriate initiatives in place to manage the debt.

On the other question is on the payout ratio. It sort of dropped from 95% to 94% based on your guidance.

Where do you want that to be long term?

Somewhere between 90% and 95%, we've consistently said.

Okay. All right.

That's great. And finally, if you do sell assets, as you sort of say you've continued to do over the years, do you think you would look to then redeploy to buy new assets or just reduce gearing at this point?

We'll continue to assess that on a case-by-case basis.

Jesse, just interested in whether you can provide some color on industrial transaction markets and just how they've shifted over the last 6 months. Can you maybe just discuss, is it as competitive and whether you're seeing pricing soften in the particular parts of the market?

Yes. I think transaction volumes have certainly dropped in the first half of this calendar year.

They're certainly not at the elevated levels that we've seen in previous years. But we're still seeing very, very strong support and investment demand for industrial assets.

The number of acquisitions that we could run you through out there in the market that provide very, very strong support for not only our current NTA, but some results potentially in excess of that. So I think transaction volumes will continue to probably moderate over this near term.

But to date, we haven't seen any evidence that values have seen any kind of decline across industrial. And I think one of the major things driving that is the rent growth story.

Yes. Okay.

And can I just ask, just in terms of your discussions with valuers, just their thoughts on discount rates and how they might be moving?

All of it, we have had discussions with our valuers into our 30 June valuations, as I disclosed in the accounts today. And at the moment, those valuations haven't shown any softening in those assumptions.

And are they -- I mean, obviously, rates have moved a lot from certainly a cash rate perspective, and long bonds have been pretty volatile. But just can you touch on how they're thinking about incorporating that into their DCF?

You'll have to talk to the valuers about that one, Richard.

Okay. You can't give us any feedback, Jesse, on the same year?

As I said, Richard, I think that's better got from the horse now.

Okay. We'll ask the horse.

In terms of where the portfolio rent sits versus market, you obviously talked about 11% re-leasing spreads. Can you give us a rough mark-to-market on the underrenting in the portfolio as it sits today?

Yes, based on value assessment of the portfolio and if we carve out our 2 biggest assets being Telstra and Arnott's, the portfolio sits at roughly 5% under left on value assessment. Our management view of that is it's obviously wider than that.

And in a market that's moving day by day, and we're seeing better deals every day and better rental growth every day, your next question is probably going to be, can I tell you what our view is, and it is literally changing day by day, but it's certainly more than that 5%.

Look, just one quick one for me. Just on the development side front.

Just wondering, obviously, you're entering to a lot of fund through surprising obviously relatively well known. But are you seeing anything in terms of counterparty risk on delivery?

Or are you seeing anything that would give you concerns from a timing perspective in terms of supply chain?

I think there's 2 things on that, Andy. One, on the timing side, both of our funds through developments have coupons.

So whether they are delayed or not delayed, we will still receive income on those assets until they reach practical completion. In terms of counterparty risk, the parties that we have entered into across our building contracts, our developer fund throughs are extremely strong covenants, and we have appropriate security and step-in rights to be able to complete those developments should there be any risk there.

But today, we have been very comfortable with the parties we have contracted with on both.

Makes sense. Final one for me just in terms of development as well.

Fewer pricing, something today, obviously you're doing more and more development. What do you think the yield on cost would look like today?

And how would that have [indiscernible] some of these other projects you've entered into in the last 12 months?

The last 2 developments that we announced earlier in the year demonstrated yields on cost of above 6%.

And expectations for what that might look like over the next 12 months?

I expect we'll probably -- we'll consider that, we will consistently see that above 6%.

I was wondering if you could just comment on construction cost inflation for distribution. What you're seeing in the pre-lease market over the course of the last 6 to 12 months.

Just I suppose, what you consider to be the increase in the costs required to justify new development. Any comments or feedback on that, please?

Across the market, if we go 12 months or 18 months ago, construction costs have probably come up somewhere between 25% and 40% over that period. So that's had a pretty strong pressure -- upward pressure on economic rents.

But on the flip side of that, the pre-lease market has been exceptionally strong. So take Sydney as an example, about 70% of the stock being developed today is pre-leased, and we're anticipating that will continue to grow.

Melbourne has a very, very similar situation at the moment with about 75% of stock within the Melbourne market pre-committed.

And just as a follow-up to that, if I may. Roughly the economic rent required to justify new construction that current land values.

I mean how do you see that across Sydney and/or Melbourne? Just interested as to sort of the range that you could perhaps talk to around that, please?

I think if you're looking at some of the rates paid for infill development sites within Metropolitan Sydney at the moment, that's pushing $2,000 a square meter. And our back of the envelope says that, that rent needs to be well in excess of $200 a square meter.

If you're looking down in Melbourne, again, I'm broad-brushing these markets. But you're looking at economic rents somewhere in the vicinity of $150 a square meter for average product in Melbourne, based on current land rates and build rates.

Just from a tenant demand perspective, are there any sectors in particular you're seeing stronger demand from others?

E-commerce, warehousing and distribution have certainly been the 2 outperformers in terms of where the majority of demand has come from. But that said, manufacturing is still a very strong contributor to our leasing volume.

About 20% of all leasing volume comes from manufacturing users across the market. So whilst we've certainly seen an uptick in e-commerce and general distribution center and warehousing tenants, we've also continued to see manufacturing businesses hold their share of market leasing.

And just on your expiry profile, so you've got 5.5% expiring in '23. Do you see any scope to bring forward some of the expiry from '24 and '25 and sort of when and extend style deals?

For the right deal, potentially, we will. There's obviously the trade-off.

And certainly you do the deal, the more of the upside you give away further down the road. So we'll continue to look at opportunities where we can bring forward expiries.

In some cases, we're better off waiting.

I've just a couple of follow-ups. As you said, the portfolio and the value was sort of 5% underrented.

What do you think the spreads will be this year, given that 11% last year? What are you forecasting the sort of spreads or a range of spreads for this year?

I think as I said before, Sholto, the market is moving at a pretty rapid rate at the moment. So any forecast I give you today is probably going to be under where it actually lands.

So we're not providing, but I think...

That's sort of similar to '22 or obviously, strong growth in '22, but it would be probably less than the 11% you got in '22 given where rents are run?

I think you can continue to expect very strong re-leasing spreads across our portfolio.

Okay. And then just on the derivatives, I noticed you had in your cash flow statement, you paid like in this half, in this year, you paid $13.1 million in your deferred borrowing costs and derivatives.

And you sort of talked to stepped up materially from the second half. I think first half was $5 million borrowing costs for derivatives, sorry, and $1.9 million borrowing costs, and that's gone to $8 million and $2.3 million.

So just want to see what was that for because hedging has gone up. Is that for hedging?

Or what was that so high for the year?

Sure, it's Michael here. Predominantly, that was to do with the hedging that was taken out during the course of the year and the restructuring of debt that we undertook in the first half of the year as well.

It looks like it stepped up in the second half. So did you do a lot more hedging in the second half because it did go up a bit?

We did take out hedging in the second half.

And was any colors or sort of cap some things like that on? Or is this pure hedging?

No, we take, just hedging, yes.

Okay. And then what was the goodwill write-off for ANI of 10.5?

Why was that written off again through the period? It was a goodwill expense.

Why did you write that off?

It's a long-standing item back from when we took over from 360 Capital Group. And at this point, we decided it was the right time to be writing that $10.5 million off.

Okay. And then I think we've talked about demand from sectors.

Are you concerned that if there's -- obviously, retail sales are strong, and people are growing the supply chain business slowdown in demand. Does that worry you for the next 12 months on the consumer perspective and demand for goods?

Do you worry about that? Or is it so far not seeing any of that because the data doesn't suggest any slowdown yet?

I think it depends on your exposure. And the majority of our exposure is with nondiscretionary goods, which we anticipate will continue to be very, very well supported.

I think you can't also underestimate the severe lack of supply and virtually no vacancy in the market. So even if there was a slow off in demand, we're well that the supply/demand equilibrium is well and truly out of balance in favor of the landlord at the moment.

Okay. And then just on the -- Lauren's question about talking about the gearing.

Obviously, asset base you're holding firm this year, but if you look at the yields, they're still pretty tight and you're getting circa 5.5% yield on cost on the recent acquisitions. Have you considered selling like half of -- the Telstra sits on a 3.1% cap.

And it $560 million [indiscernible] like potentially half of that to redeploy into revisioning and development where you get a higher return than market. Is that something you'd consider?

As I said earlier, Sholto, over the 5 years we've managed this vehicle, we've divested about $150 million worth of assets, all at a strong premium to book value. We'll continue to assess opportunities where we think they're right within the portfolio.

Okay. And then just finally, when you said construction, you expect yield on cost to be greater than 6%.

How is that -- I know rents have risen, but if you're getting greater than 6% now and costs are up 25% to 40%, how are you sort of still getting out the 6% for this year? Is it because you've locked in contracts, so they're already fixed price so, then with the cost escalation in it?

All our current developments that we have on foot are all on fixed price contracts.

Just -- most of my questions have been answered. Just for borrowing costs, obviously very low in FY '22.

How much interest was capitalized? And what should we expect going into '23?

No interest is capitalized, so there will be none going into FY '23.

Okay. And then just in terms of strategy, you've kind of touched on it a bit, but you guys have grown the portfolio pretty aggressively via acquisitions in the past.

Just with interest rates where they are, is that still the strategy? Or is it time to be more cautious?

I think the way we're thinking about our acquisition strategy is where we can find accretive opportunities not in the current market conditions. We will continue to look to deploy them, particularly where there's an opportunity to grab rental growth and realize that rental growth in the near term.

If you look back at our last 2 years of acquisitions, it has almost exclusively been short WALE, value-add and development assets where we can get that rental income pop on the other side. So for our forward-looking strategy, it's going to remain the same.

Where we find those opportunities to provide an accretive outcome for group, we'll want to deploy.

Thank you, everyone, for dialing into the call and for your ongoing support of Centuria Industrial REIT. If you have any follow-up questions, please don't hesitate to contact either myself, Michael or Tim Mitchell, our Group Head of Investor Relations, and we look forward to discussing our results with you over the next few weeks.