Attacq Limited (ATT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Attacq's Interim Results Presentation for our 6 Months Results Ending 31st December 2023. It's a beautiful sunny morning even though we're already in autumn in Johannesburg, we are still sweating here and we're very proud with the results that we bring to the market today despite a very, very uncertain landscape in South Africa. So we're really proud sitting here today talking about our results. So just let me introduce the team this morning, helping me deliver the results. So I've got Peter de Villiers here with me. Peter will talk about our other investments. MAS, not so much MAS today, Pete. And then investments in Africa, then Raj Nana, our CFO; Mike Clampett, our Asset and Property Management Executive; and David on the development. So I put the people that's spending the money the furthest from me and Raj sitting here today. Yes. So once again, very welcome to everyone online to our Board members, to our key stakeholders. Thank you so much for taking the time and dialing in today. Just going through our performance highlights for the year. So we've closed the very important GEPF transaction. And in the next slide, I'll just go through a bit of the detail of the transaction. We're declaring an interim dividend of ZAR 0.30 today, and it's an 81% -- based on 81% payout ratio. Our debt metrics has really improved, and that's all resulted because of the GEPF transaction, and Raj will go in today more the detail of the debt and also the future plans for Phase 2 of our debt plan. Our SA portfolio and Michael will go in the detail today, but occupancy is increasing, trade continually to be good in our retail experience hubs. And we're very proud of the operational metrics that we're achieving in terms of the diesel recoveries, the utility management, but Michael will go into that today. And like I said, David sitting really far from me, 44,000 square meters of development under construction or development activity in Waterfall, which close to a cost of ZAR 1.4 billion worth of construction activity which is quite a significant amount of construction activity again in the backdrop of a country that's got low GDP growth, almost no GDP growth. We've got load shedding, high interest rates, and we managed to get ZAR 1.4 billion worth of development activity in the ground and you would ask why, I really think Waterfall is special and our clients are saying, this is where we want to be, we feel, secure and the precinct is really paying off to what it should be. And I think our distributable income per share, and we're going to highlight this throughout the presentation today again. And the other things that came out this morning is the disposal of all of our MAS shares, of the rest of our MAS shares, 6.5%, 46 million shares we've disposed to a price of ZAR 16.75, which is an aggregate cash consideration of ZAR 773 million that we will get in. And why the disposal of MAS? And I think let's just answer the questions. We've always earmarked that MAS has been a medium term for Attacq. Why did we hold the shares? We really enjoy the great income, the yield on the investment. And then towards last year, towards the end, when MAS came out and said they will not pay out a dividend, and we did quite a bit of work understanding what is the fix to Attacq and also what is the timing of the dividend suspension from MAS. We then made the decision towards the end of last year that strategically, we will dispose of the share when we feel right. We're long-term shareholders of our investments. We don't believe in knee-jerk reactions. And the beginning of this year, we really sort of gearing up to dispose of the share. And it's allocating -- it's a capital allocation strategy for us where we significantly influence the investment. We don't influence the MAS Board and we feel that we could utilize the money much better in South Africa. Our guidance has been revised subsequently to the disposal to between 10% to 12.5%. Previously, our guidance was growth between 8% to 10%. And that's largely because -- driven because of the MAS disposal. And then Raj will go into this today is the impact of the GEPF transaction is only effective 2 months the interest cost saving in our 6 months. So again, the latter part of the year will be a much bigger impact the finance cost saving because of the GEPF transaction. Looking at the implementation of the Waterfall City transaction with the GEPF, I think this marks really, once again, a significant milestone for Attacq. It unlocks long-term strategy for us to further develop Waterfall and what it's supposed to be and really bolstering our balance sheet to unlock these opportunities. We've also remained strategic control of our investment of a 70% shareholder. And also very important and close to my heart is we've managed to -- we are continuing as the development, asset and property management as Attacq. Further to that, from a governance point of view, we self constituted a new AWIC Board with our new shareholders and I'm very proud to announce our independent chair is Keillen Ndlovu, a property specialist, a doyen in the industry and welcome Keillen to the Board, and thank you for putting your hand up for that. And that's just bolstering the governance structures. Now that we've sold MAS and Pete will give an update on the African investment. What is our focus areas of Attacq? So our focus areas really will remain Waterfall City, the development of Waterfall City, our South African precinct, the retail experience of creating the dominance of these experience hubs. And then future-fit future investments. So we're not walking away from other investments, but the key strategy needs to always play makes sense for us that capital allocation, we influence significantly, and that will be the focus of Other investments into the future onshore or offshore, but it needs to fit in our strategy. In order for us to focus on these investments, we need to operate optimally. In the backdrop of South Africa, I love saying that managing assets is like having your eye on milk. If you take it off for 1 second, the milk spills over on the stove. And that's really how we manage our assets. We need to make sure that we optimally manage our assets and very much so that we make sure that our objective is to manage it. A further other objective that you'll notice today is there will be no separate ESG slide. As a business, we really believe that ESG must be fully aligned within every single objective of what we do. We're not here to ticking boxes for rating agencies. We're here to make sure that our purpose is aligned with what we do. That it resonates with our people, our communities and environment. So these objectives that we are highlighting here today need to ensure that it really resonates with everyone and everything we touch and do in Attacq. So how does these objectives play out? So we've got our long term -- right, there we go. There we go. Sorry. We've got our sound capital structure, which is in the blue. So long-term growth through our capital structure. I really believe over the last few years, Attacq is really focused on building a sound financial foundation. It's robust, ensuring stability and resilience in all but ever unchanging and uncertain environment that we operate in. People centric approach and people in the Attacq team is in the heart of everything we do. That's the driving force behind what Attacq is. It's a driving force behind our progress and our success. And I think it's evident with the way we look after ourselves, the well being, the development and the learning throughout Attacq. Operational excellence and then including the digital integration of our business, and Michael will talk a lot about that today. In an ever-changing business landscape, you can never, never just sit back and think we've got it all. We're trying to embrace innovation, and I'm going to say, try to seamlessly integrate digital transformation, as we've all got the scars of trying to integrate a new system or a new platform within the business, but I fundamentally believe it's vital for the future of our business. Client centric, our clients is our everything. Success of our clients is success of Attacq. So we need to make sure that we listen, we understand, we tailor make leasing solutions for our clients to ensure that we've got clients for life and that they stay with us. And we've always got this upward reversion in rentals when the lease negotiation is due. And then lastly, and this is where the ESG really integrates into our business, a positive impact in our communities and environment. I would love to say in the next few years as we stand back, we're not just a business about a balance sheet. We have business about way beyond profits. It's our commitment in making a difference, championing sustainability practices, uplifting our communities and protecting our environment. And that I firmly believe is where Attacq's legacy will live further than the balance sheet. I'm going to ask Mike now to give an update on the SA portfolio.

Thank you very much, Jackie. A quick update on the performance of the last 6 months in our operating portfolio. This slide captures the key KPIs that we measure. I'm just going to highlight 3 of them or 4 of them for your benefit. First of all, the occupancy rate increased 1.2% to 93.7%, fairly positive, and some more detail on that on the next slide. Turning to the health of our assets, the 6 precincts that we own and manage. The property income from these assets grew by 6.4%. So once again, a nice key indicator that the underlying assets are in good health and performing well. The reversion rate was positive 1.4% in the 6-month cycle. That was made up by retail, 5.5% growth, and there was 102 leases that expired there. And then we had a 21% negative reversion for collaboration hubs and there was only 11 leases that expired there. The last item I want to highlight on this slide is the 9% trading density growth for our retail assets, still extremely positive in the context of the Rest of the Market but certainly a slowdown from the 14.7% we saw 12 months ago. So in our assets, we are also seeing a slowdown, although we still see a lot of positive growth. Touching on the occupancy. This is a fantastic result for our team. There was a net uptake of 10,250 square meters in our portfolio in the last 6 months or the 6 months for the reporting period. That was made up by just over 30,000 square meters of renewals done in this period, but an additional 31,000 square meters of new deals brought to our entire portfolio. And you will see there given the expiries at 45,000 square meters that meant that there was a net uptake of our portfolio. Certainly very positive. And there was a bit of a buzz in the office this morning, another 4,400 square meters leased or deal landed in our office. So we'll cross the i's, dot the t's, make sure we're happy with it and then that should be more square meters out of our vacancy in Waterfall. Just show you the trend line of the performance of the portfolio. I want to highlight top right. Notwithstanding the environment post COVID, we were able to grow gross rentals, both in the retail experience hubs and the collaboration hubs. Just remembering that this would include net rental rates and taxes and some operating costs. So we are able to pass on some of those costs. But you can see in the bottom left, to a degree, it's coming at a cost of our escalations coming under pressure. And so we're able to obtain that starting rentals, but your escalations going forward, in an uncertain environment from a tenant perspective coming under pressure. This is what I really love. So there's a lot of numbers. This slide doesn't have a lot of numbers. But when you put strategy into action and you can actually see the results, that really is what gets me up in the morning. So if we look at our community focus, which we communicated a while ago, we've implemented SOOK, this micro retail offering at the Mall of Africa last year and some key statistics out of that. Since October, when it opened until January when we collected these statistics, we had 138 inquiries for that space. So just a reminder, it's flexible space. You can rent it on a daily basis and it's open to anyone that isn't really -- or hasn't experienced formal retail yet. Our occupancy based on days only is 94%. And the most successful part for me of this is we were able to convert 4 of these occupiers to permanent leases at Mall of Africa. And certainly, I think that is something that we need to do. We need to support and cultivate these new retailers and hopefully, Mr Price and TFG don't come and snap them up soon. From an operational sustainability perspective, all our generators now are equipped with energy automated controllers. That means we can switch them off when they're not necessarily needed. That has led to some savings on the diesel expense side, and our recovery ratio also very positive now at 84.6%, which is above previous metrics that we've recorded. Water, a very topical issue in the city of Johannesburg. We've made this decision almost 8 months ago, and we've approved and we're busy implementing 5 water resilience projects at our precincts. Then I believe you're only as good as your clients says you are. So what we did last year in November, we did our first Net Promoter Score in Attacq. We surveyed all our clients at the 6 precincts that we manage. And we've also implemented and given some feedback to our clients based on that survey. But really insightful. It's good to understand where your blind spots are and how we can improve our business, but from the point of view of the client. And as Jackie mentioned earlier, our integrated digital platform. It's fantastic to say that today, all our property management staff get information to key metrics in time. So that, that means on a daily basis, they can check the foot count for any asset yesterday, what the collection rate might be for all the assets yesterday. And so really having access to this information allows us to make decisions quicker. We've also got a smart utilities hub. This is where we centralize bulk meter data to our own platform. The reason for doing that is to allow us to see if anything is wrong. And so we can then advise our service providers in the utility management space that the meter might be down or something might be wrong. So it's a tool for us to make sure that our buildings are run optimally. We've got retail leasing tool where we zero in on the type of tenants that we want using customer spend data. And then on MyBuildings, it's a way for us to manage our facilities to try and lessen the administrative burden on our property management teams as far as possible using technology. Just some highlights on our category performance. So what we've seen is significant growth in food, food services. So that would be restaurants as well as takeaways, food, mostly our grocers and department stores. Just a note once again that our department stores would include the Checkers and Woolies at Mall of Africa simply because of the catalog that they carry there. So they might be classified as food in some of our other assets, but department stores at Mall of Africa. And then I just want to highlight in apparel, it grew by 6.3%, but we did see a bit of a divergence in performance if we segregate the brands. So when you've reinvested in stores or upgraded the brand, there was good performance. Also niche players, focusing on certain areas seem to do really well. I mean, of course, our bigger format stores where you carry everything it seems that the growth is very muted in those type of tenants. So just something for us to watch out for. Just benchmarking ourselves from a retail performance perspective against the Clur Shopping Centre Index. So this is an industry accepted benchmark created by Clur. You will see that Mall of Africa outperforms the super regional index if we use January 2021 as the starting point. So there, we grew at 53% versus the 39% of the average. And you will also see that Garden Route Mall, which is classified as a regional mall, and Eikestad Mall and MooiRivier combined classified as small regional malls outperformed both the benchmarks as well. And certainly, we are very proud of this performance. This is detail and of course, you can go through most of the detail for the classification of Waterfall City and the Rest of South Africa afterwards. I just want to highlight once again the retention rate in Waterfall City quite high from a retail perspective. Also the reversion rate is high, performs really well from a retail perspective. On the collaboration hubs, those were only 4 leases that expired. Let me just confirm that. Yes. So there were 7 leases that expired for collaboration hubs in Waterfall City. So from a GLA perspective, renewed 21% of that. Rest of South Africa, RoSA, once again, we had lots of positive news from a valuation perspective on the recent retail assets. And once again, a retention rate both for collaboration hubs and retail experience hubs very high at 76% and 87%, respectively. A quick note on our cost management. This is something we follow very closely from an executive perspective. Just a small -- just a note that you would see on the repairs and maintenance or the other cost, a slight increase in that, the ratio of those costs. And just remembering, once again, that the Waterfall Circle building was vacant. To get it ready for DP World's occupation, we spent some money in refurbishing not only the facade, but also inside of that building. And also with that increased activity in leasing that we discussed earlier, that led to an increase in our commissions paid for this period comparable to the previous period. And so those 2 events sort of pushed up our other expenses on a comparable basis.

Thanks, Mike. So I'll touch on the individual development separately a little later, but this is essentially a summary of where we are as a development division. So in the last 6 months, we've completed just over 8,600 squares of development. That essentially is the Nexus 2 building, which -- where we did a turnkey sale to DP World for their new head office and then the Amrod expansion. The ZAR 1.4 billion development activity is essentially split between transactions that have been approved or developments that are currently under construction. So the quantum there totals about 44,000 squares, that is split between Ellipse Phase 3, which is currently under construction. We will be commencing a top structure within a week and also the 3 warehouses, which are the midi units scheme, which we will be finishing back end of April. The pipeline developments that have been approved, there's a client-led development, which unfortunately, I can't talk to. So you won't see it in this deck, but it is baked into the numbers. And then a new collaboration hub spec development at Ingress on the back of the DP World transaction as well as the 7,600 squares we've let to DP World in Waterfall Circle, we thought it prudent to bring on a new spec scheme. So that will be kicking off in May of this year, completing May next year. So we show this slide in every results, but we try to unpack it into a little bit more detail. So you'll see the Waterfall City bulk number. We used to split that out between Waterfall Junction and then the rest of the city. What we've done here is we've combined the 2 to show a total value of 2.5 million squares, which Attacq is responsible for development. The total remaining bulk of that is 56%. What we've done with that then is to split it out into the pie chart to the right. So that 1.4 million squares, we've gone per leased area type. So you've obviously got your retail, your logistics, your collaboration hubs, et cetera. And I think what's very positive and I think what to note here is I've been quite open about our battles at Waterfall Junction due to the water connection. So we commenced that infrastructure about 5 years ago. Due to delays on the water connection, we've essentially been out of the logistics market for the last 2.5 years. That connection has been tendered, awarded, and they are currently on-site implementing the connection. So we are hoping at the back end of this year, we can take Waterfall Junction to market officially. That obviously provides us a much more diversified development pipeline and obviously, on the back of us buying up to the 50% from Sanlam at the back end of last year, we've got 600,000 squares in total of logistics development bulk still to go, of which we have obviously 300,000 squares of that. And then if you take the 1.4, and you split it out per land parcel area, I guess the question is what is our strategy in the short to medium term. So we obviously talk a lot about capital allocation and a part of that in my space is obviously to do developments where we spent capital already and where there's a drag on the balance sheet. So the 2 big pockets, obviously, where most of the bulk sits is in your dark blue, which is around your city center and then obviously, the red, which is Waterfall Junction. So the infrastructure and drag with the rates and taxes and levies through proclamation sits predominantly between Allandale and Simlak within the city center. We've also got top structure drag there because the way the mall is designed, you're carrying basements, which essentially needs to plug onto future developments. So that will be a big focus for us in the short to medium term to unlock those sites. And then obviously, on the Waterfall Junction side of things, if we can get to market at the back end of this year, that will be able to bring to market about 150,000 squares of first phase. If we look at individual development, so this is DP World Building 2, which we completed in Q2 of this financial year. This is next door to where we're currently obviously sitting. This was a turnkey sale. So this is DP World's head office. On the back of this transaction and the relationships we've curated, we've been able to let a further 7,600 squares in Waterfall Circle, so they've become a really prominent part of the Waterfall network in the last sort of 6 to 12 months. This building is a green rated 4 GBCSA by design. On the back of this building, we completed the Nexus Piazza, and we are in planning stages in Building 3 and Building 4, which will add an additional sort of 10,000 squares, but we will unlock that on the back of tenant-driven transactions. Amrod, so this is in LP 22. You'll see behind it is Plumblink. So we completed that during the course of the previous financial year. We did the expansion here of another 3,500 squares for the embroidery business. It's designed to have a further 3,500 squares on top of it. It's a fully air-conditioned part of the facility. It's also fully automated as is the rest of the facility. Ellipse has really been a fantastic product. It's our first residential scheme within the city center. It's a partnership with a very well-known residential developer called Tricolt. So Phase 1, which was the 2 towers, we obviously finished a few years ago. Phase 2, we finished the previous year, and we are obviously under construction now in Phase 3. We had a total bankable sales figure on the entire scheme of 87%. If you look at a percentage on sales, you're looking at 90%. So that essentially is sitting at about 60 units left which all are sitting in Phase 3. On the back of the success of the retail, so we built some retail into Phase 2 where Olives & Plates are based, Life Day Spa and we've signed 2 heads of agreements with the 2 remaining retail boxes, so essentially retail is done. We are looking at building where we are building an additional basement level there to unlock an additional 50 bays. That basement will be complete back end of this year. And what we've also done to improve the salability of the last phase is we've taken the units up to 196 units from the 150. And what we've done is stripped out penthouses and added additional 1 and 2 beds to make it more sellable. These are the 3 midi warehouses based on LP 9 South. So Mike actually mentioned, we've signed a lease, it's actually on one of these. We've just got to obviously finalize the details. This will be completed sort of April of this year. We built 5 of these about 5 years ago with huge success. We've got clients in there like Superga, GloTool, Pirtek and a large mining company, which I can't mention. These are very generic warehouses totaling 14,000 squares in total. We built 3 of them at a time because essentially, you can create economies there from a construction point of view rather than building one. 10-meter eave height allowing for good racking, simple office designs but are scalable if obviously, a client requires more office space. This is the spec collaboration hub based at Ingress, which is across the road from us. So PSG are currently in this precinct. Why are we creating an additional collaboration hub spec? Well, essentially, we've seen an uptick within deal volume within the office space in the last 12 months. I guess the question people ask is what rentals is that being achieved at. Well, what's unique about this is we built this basement 5 years ago when we built Building 1 and Building 2. So essentially, we can build this building cheaper than if we have to go to market now and build the basement. So our view is we're going to finish this around May. It's about 4,400 squares. We're going for an EDGE rating. We're very focused on efficiencies with our ratings and also on the back of obviously the DP World transaction at Circle, we feel now is the opportune time to bring a new product to the market. And then this is Waterfall Junction. So that's an aerial of the entire precinct. You could see there is the K60, which goes from here and crosses into Sunninghill, it's only built up to where you could see the K113. The K113 is going to be the new logistics arterial from north to south, which we're very excited about what that's going to do to unlock this as a logistics precinct. As I've mentioned, we have put in a substantial amount of infrastructure in here over the last sort of 5 years, delayed a bit on the back of municipality with the water connection, connecting to our ZAR 40 million water pipeline that we put in a few years ago. That connection has been awarded, approved and they're currently on site constructing it. So we are hoping at the back end of this year, we'll be able to officially go to market, to unlock Phase 1, which will bring on an additional 150,000 squares of developed bulk in the logistics space. Phase 1 is to the western side of the K113. And with that, I'll hand over to Pete.

Thanks, Dave. Other investments, which obviously comprise our -- used to comprise our investment in MAS and then our Rest of Africa retail investments. Jackie has already touched on our exit from MAS, so there's not a lot more I can say. We had 6.5% until earlier this morning. And I just received confirmation that the trade has been booked. So those shares have now got a new owner. So that 46.1 million shares sold at ZAR 16.75 per share to generate gross proceeds of ZAR 773 million. I think it's important to touch on, as Jackie mentioned, the strategy, it was a minority position that we've held. It's a legacy position. And the trend with most of our disposals over the last few years has been to dispose off assets where we don't have direct ownership or control or at least significant influence in the case of an investment. So I think it's also important to reflect on MAS as a company. Their results came out last week. They definitely had a good set of strong operational results. So we -- it's not a reflection on them that we are exiting our position. It's more just a change in -- or an implementation of our strategy and gives us the ability to invest these proceeds into other income-generating activities. Rest of Africa retail investments that comprise our stake in Ikeja City Mall in Nigeria and then 3 retail assets in Ghana. From a numbers perspective, from June last year, AttAfrica investment is up slightly to ZAR 352 million from ZAR 327 million. I'll remind everyone that we invested a further ZAR 40 million into AttAfrica during the period. So -- and the exchange rate of fairly flat or slightly negative, so slight strengthening of the rand. That just shows you that there is still underlying -- the underlying assets are still getting devalued. We have them externally valued every 6 months. So still a small devaluation coming through there period-on-period. Then with respect to Ikeja, you'll note that we had a loan last year, shareholder loan impaired at ZAR 226 million. We've now fully impaired that loan. The reason for that is, as I mentioned, it's a shareholder loan. And in terms of IFRS 9 we are required or need to demonstrate a probable set of cash flows as to when we would be receiving cash from that asset in order to be able to present value and put a number on our balance sheet. And just given the economic uncertainty in the Nigerian environment, it's pretty much impossible to do that at this stage. So we fully impaired the asset. We'll obviously keep on reevaluating that position and the valuation thereof but for now it's fully impaired. With respect to disposed activity on both of these investments, the market will know we've had a long-standing transaction with Actis that has been -- it's been dragging on for a fair amount of time, obviously hampered by things like lockdowns and currency volatility, et cetera. We're now going to restructure that transaction. We've entered into a nonbinding MOU in order to just let the broad commercial terms in that respect, and we're progressing to long-form legals. The transaction restructure would include Actis only acquiring 50% of the asset. It's half of our stake and half of our co-shareholder, Hyprop's stake. And the funds would not flow to the shareholders or the exiting shareholders. That would flow into the company and be reduced to settle bank debt and to make the company more sustainable from a debt funding perspective, just given how quickly the exchange rate in Nigeria has moved out. So we hope to progress that soon. And ideally, if we can implement that, it should be before June this year. With respect to Ghana, as of our last reporting period, we said there are no firm suitors, and we weren't in any serious discussions at that stage. We are now in discussions with -- preliminary discussions with suitors and we'll have to keep the market appraised as to how that develops. If something does come from that, it will take a number of months. So hopefully, we'll have better and more positive and firmer news to report on -- for our June results. But at the moment, only preliminary discussions, and our focus remains on asset management, collections, filling vacancies and the like. I'll now hand you over to Raj, who will take you through some of the numbers.

Thanks, Pete. A warm welcome to everyone that's joined us. Well, I think we've got a good set of results, distributable income growth of 2.8%. And if you had to look at this in the context of the operating environment, interest rates have gone up period-on-period by 220 basis points. We've had a material investment of ours, being MAS not declare a dividend during this period, which has weighed negatively on our own set of results. And so if we remove the impact of the MAS dividend out of our base from December 2022, our DIPS growth would have been 17.4%. So I think a reasonably good set of results in that context. As Jackie mentioned, the Board has declared a dividend of ZAR 0.30 per share, slightly up from the comparative period. And then we've been obviously quite busy in the first 6 months of this year, having concluded and implemented the Waterfall City transaction, setting a substantial amount of debt, which has really improved our credit metrics. You can see that our gearing down to 25.3%, I think one of the lowest gearing levels within the sector and our interest cover ratio improving significantly to 1.93x, and we expect that to improve further before the year is over. If you look at our available liquidity of ZAR 1.1 billion, combining that with our gearing capacity, we're certainly well positioned for further development activity or acquisition opportunities as they arise. Looking at the distributable income per focus area, Waterfall City contributing 65% of the group's total distributable income and growing by 13.7% period-on-period as a result of higher NOI growth, lower finance costs. And for the first time ever, offset by a 30% minority adjustment as a result of our new partners in Waterfall City. Rest of South Africa growing by 24.5%, also due to higher NOI and rental incomes, but also as a result of reduction in finance costs as well as some fee income we're now receiving on the back of the minority shareholder in Waterfall City. As mentioned before, our other investments comprise of MAS as well as the Rest of Africa investment, both contributing null to this period, and we actually have some holding costs against those 2 investments, resulting in a negative ZAR 1.5 million contribution overall. So total distributable income just shy of ZAR 260 million. And on a per share basis, ZAR 0.369 per share, an increase of 2.8% period-on-period. What we don't include in our distributable income is the profit on sale of our Ellipse units or our sectional title units in general. And this period, we recorded 46 sectional title units being transferred to end users. Our share in that is roughly 20% with our JV partner accounting for 80% of that. Also, what's included -- excluded rather from our distributable income in this period is some one-off transaction costs related to the Waterfall City transaction. So we substantially reduced our interest-bearing debt, which incurred some prepayment penalties, and we raised some new funding that equated to roughly ZAR 24.8 million, which we then excluded from our distributable income based on the one-off nature of that. If you look at our distributable income bridge period-on-period and focus on the large movers. Of that, the absence of a dividend rather from MAS impacting us negatively by ZAR 30.5 million. The minority adjustment that I alluded to earlier of ZAR 27.7 million negative and then a number of smaller adjustments grouped together for a negative movement of ZAR 9.7 million. And then looking at the positive adjustments, our diesel -- overall diesel costs reducing significantly by ZAR 6 million due to lower utilization as well as better recoveries, contributing a positive ZAR 6 million to our bridge. And then like-for-like NOI growing just shy of ZAR 30 million for the period. Contributions from new buildings being completed during the period of ZAR 3.4 million and then a significant contribution from the de-gearing of the balance sheet of ZAR 36 million, giving us a total distributable income of ZAR 259.9 million. As mentioned, we exclude our income from sectional title sales which would have given us a total income of ZAR 266 million. Based on the dividend declared, we'll be retaining roughly ZAR 55.8 million and paying out ZAR 210 million. Turning our focus to the balance sheet. Overall, total assets increasing by 1.2%, a melting pot of positive fair value adjustments in our completed portfolio on a like-for-like basis of 2.8% but also having to mark-to-market our investment in MAS for the period due to a lower share price at the end of December as well as what Pete alluded to, we effectively wrote down our loan into Nigeria down to null based on IFRS 9 principles. So that gave us an overall increase in assets of 1.2%. Our total liability is reducing substantially due to the repayment and settlement of interest-bearing debt, gave us a total equity of ZAR 15 billion, but that includes our minority shareholder. If we had to exclude that equity attributable to Attacq shareholders is roughly ZAR 12.1 billion and on a per share basis, ZAR 17.25, reflecting a decline of 2.3%. Looking at a high-level view of our interest-bearing borrowings, for the first time we've disclosed Waterfall City numbers separately just to show that both portfolios have degeared significantly. So Waterfall City with a gearing ratio of just over 23%, reflecting a substantial capacity to fund developments going forward. The Rest of South Africa, just shy of 29% gearing an overall gearing level of 25.3%. If you look at our weighted average loan term, very healthy at 3.8 on the back of all of our renegotiations towards the end of last reporting period. Our hedging is now back up above our policy -- minimum policy rate of 70%. It's now reflecting 73.5% of committed facilities. The swap curve is still quite steep. And we're hoping to see a reduction in the swap curve later this year once the sort of global cutting cycle starts and hopefully making hedging a bit more palatable. If you look at interest cover ratio, like I mentioned, 1.93x for the 6 months, but we're expecting that to increase to over 2.2x for the full year ending 30 June 2024. For the first time, we do have an interest cover ratio which will be effective at the end of this financial year. This interest cover ratio is set at 2x. And like I mentioned, we expect to be above that when we measure that for the 6 months ending June 2024. If you look at the runoff profile, both on debt as well as hedging, we have basically no debt coming up for refinance for the next 12 months, but a substantial part of our hedging book does roll off. That's at roughly a hedging rate of about 8.2%. Currently, JIBAR is at about, I think, 8.4%. And the 2-year swap curve or swap rate rather, is at 7.9%. So we're expecting hedges to fall off if we replace them. I think we'll be, net-net, still positive, but we're obviously expecting rates to cut and hopefully, hedges to become a little bit cheaper. So I don't think we're expecting significant erosion from earnings as a result of interest rates going forward. We implemented our Phase 1 of our debt refinancing activities, and that was concluded at the end of October. We've now focused on Phase 2, which will be the implementation or the establishment rather of a debt capital markets program before the end of June 2024. And we're also looking to refinance a piece of the PwC head office development finance that we put in place many years ago, and it will be in conjunction with our partners being the PwC partners on that office building. If we turn to sort of our guidance, Jackie has already alluded to this. I'm not going to spend a lot of time on it. So if you look at the first 6 months, we're showing growth of 2.8%. If we had to annualize that, we've used this bridge to sort of depict that. We're expecting that the next 6 months will benefit from 8 months' worth of debt reduction and significant savings in our interest bill which will give us a substantial increase in our total distributable income. Part of that savings will be shared with our minority partner, which will then eat into some of that. We expect that we'll be able to reach a total increase on the back of those initiatives of 10% growth in our distributable income per share. And then on the back of the disposal of the MAS shares this morning, we'll be reinvesting that into income-producing activities, and we believe that for the remaining 3.5 months of this financial year, that will provide us with an additional 2.5% income at the tip end of guidance, giving us a total increase of 12.5% for the year.

Thanks, Raj. In conclusion, as Attacq, we stand tall, we've got a resilient balance sheet, and we've got staff that try and push the boundaries from an innovative point of view and then also drive our business with purpose. So we forge ahead for the next 6 months with our unwavering commitment of delivering excellence in everything we do. So thank you so much for your time, and I'm going to open up the floor for questions. Yesh?

Just a few questions from me. My first question is actually for Raj. How to look at your operating expenses, and it did spike quite significantly above, I think, over 50%, I think, about ZAR 135 million. So I just want to get an understanding what's driving that, so what's behind that?

So a portion of it is attributable to employee costs, so share-based payments bonuses that are skewed towards the first half of this -- of the total financial year. We've also had some once-off costs related to the Waterfall City transaction and the approach that we took there was up until the point that the transaction was not approved by shareholders, all of those costs, so those were advisory costs, legal costs, et cetera, we expense for the period. Once we've got the shareholder approval, all of the costs that incurred post that which results as a once-off cost that we didn't take through our distributable income. But in combination, if you're looking at distributable income, there's an amount that we've excluded. If you're looking at operating costs, it includes ZAR 25 million worth of prepayment penalties, which are once off. And like I said, some additional costs related to the transaction of roughly ZAR 5 million, which then contributes to the sort of period-on-period increase that you're referring to.

So if you could put a percentage to that in terms of once off cost, maybe 30%, 40%.

Yes.

Close enough, yes. Okay, cool. And then I'll stick with you. Just a second question. You did touch on the hedging book, but maybe if you can give us a color on if rates had to be cut in the second half of the year, can you explain how you would benefit from that in terms of your caps and your swap structure and the composition of that?

So we're approximately 73.5% hedged, a significant portion of that, just shy of 25% of all of our hedges roll off in the next 12 months. If you look at our average -- weighted average swap rate, we're currently at 8.2%. So if we had to revert, i.e., we had to add no hedges, would go -- on the piece of the book that rolls off would go from 8.2% to JIBAR, which is 8.5%. So we'd actually be paying more. If we had to add on new swaps, those would come on the book at 7.9%. So we'd be going from an average of 8.2% and we'll be averaging that down to 7.9%. So I don't think we're negatively positioned for where rates are if rates would start coming down substantially. And so if we expect rate cuts to start at the end of June globally, and I think local banks are expecting at least a 25 basis point cut locally, I think that could accelerate and we could then benefit from lower rates, lower swap curve. And so net-net, I think we would actually start benefiting from a lower interest rate market.

So just to clarify, do you have more caps to swaps or is the other way around?

We have more swaps. We have -- a very small part of our books is related to caps, I think probably about ZAR 500 million worth of caps. But we also then amortize that over the period. So some of that cost you will see coming through, even though the premium was paid for in the previous period.

Perfect. And then just a last question for David. I just want to get a sense of your developments. And have you missed your cost of capital in this first half year when you get the approval for projects in developing?

Yes. So we have. So to give you an idea, the way we structure it so the Amrod is a CapEx-linked transaction. And then the client-led transaction is also a CapEx-linked transaction. On the Ellipse, we are hitting our GPs that we went to [ Ascension ]. So we got no issues on that. Obviously, your spec, you can debate are you doing that. But we feel the rentals that we're bringing it on is within market. And then obviously, with Ingress, we feel we're actually slightly below because we've obviously got embedded costs sitting there already. So we should be able to bring it on slightly below market. So yes, I'm comfortable that we are reaching our hurdles.

We got questions on the line.

First question from [ Sinclair ] from MSM Property Fund directed to Mike. Regarding the upcoming 4,000 square meter lease Mike mentioned, which sector and region, Waterfall or Rest of SA would it impact?

Thank you. Dave actually touched on it earlier, so it's 4,400 square meters. It's logistics, and it's Waterfall. But as I said, so we've received the lease on the client. So we'll just do the last few checks on our side before we have to decide.

Okay. Then I've got another question from Sandile Magagula from Umthombo Wealth. Would you have sold your stake in MAS should MAS have hinted a dividends resumption or if there's evidence of progressive improvement in liquidity and solvency of both MAS and the DJV. What informed your decision to upgrade FY '24 distribution -- the distribution range for FY '24?

So we discussed MAS, maybe we can discuss this. So I think MAS for us, we've always indicated it's a medium term and I really want to stand still on timing of the disposal, it was really because of the suspension of the dividend. But then also a catalyst -- catapulted our decision to say we really do not control the Board or the investment. So it made sense for us to dispose off the share. And then really that's the view of capital allocation going forward. How do we reinvest the funds back into Waterfall in our existing portfolio or potentially new opportunities? But I think the ethos is can we control the opportunity, sit on the Board and unlock the opportunities, driving the income from an Attacq point of view. And that's really the decision we made. If they would resume dividends in the next 12 months, I don't think it would have changed our decision. The time was right for us to dispose off our stakeholding in Attacq -- in the MAS.

And then Jackie, just to add to that. I mean, fact of the matter is MAS is another listed entity on the JSE. So our investors can quite easily access that investment opportunity and structure their own investment affairs more effectively than going through Attacq to access MAS. So without having influence on the Board and having this opportunity available to our shareholders, we added little value by holding that stake. I think in terms of the guidance upgrade, I think we have sort of chatted to it. So I think on the back of being able to effectively take unproductive capital or nonyielding capital from our MAS stake, which has now realized proceeds of about ZAR 770 million and redeploy that in income-generating activities, we expect that to add sort of 2.5% in terms of our growth, which then takes us up to the upper end of our guidance of 12.5%.

Thanks, Raj. Another question from Sandile. On redeployment of MAS proceeds, income generating commercial assets, what IRR are you looking at on redeployment of the proceeds. Can you achieve a higher return than the safest government asset, which I presume is a government bond? It just depends on which country.

Yes. I think temporarily, we bring it in a combination of drawn RCFs and sort of cash deposits where we can save between 8.5% and 9.5%. So we think it's a good place to park the capital in the short term. In the longer term, like Jackie alluded to, we have the opportunity to potentially deploy that in direct property assets here in Waterfall. And that's certainly then we target a cash and cash yield and we have certain hurdles around that as well as longer-term IRRs which we target around 20%.

A question for Mike. Mike, can you please give some color on retail tenant demand, which retailers are still looking to expand their footprints and bring new brand concepts to market?

Thank you. So I think a few years ago, we were very reliant on international brands entering the South African retail landscape, and they found their way into most of our shopping centers. Today, it really is dominated by a number of big retailers. So you've got the guys down in Brackenfell, ShopRite, Checkers, they need to close, they need to bid, they need to do a lot of things now that they weren't into 5 years ago. Mr Price is also following into different areas like baby and kid. So we certainly see demand from those bigger national retailers. And then in the Attacq portfolio, we've also seen demand on the food services and the restaurant side. So that category performed really well for us, and we see a lot of sort of letting activity in that area. So it's not difficult for us to potentially replace or attract new restaurants. And then as I mentioned in the slides earlier, I think it's up to us, maybe not solely as landlords, but if you look at that SOOK micro-retailer concept, GALXBOY is a lease that we've signed in our Mall of Africa. That's a homegrown brand from Limpopo, and we've given them an opportunity in a super regional mall. Somizi will open his first -- and he tests with us. He's going to sign his first 5-year lease with us. So he's opening his own kids brands, Sompire Kids. And so these are brands that we have to sort of assist in trying to develop and mature them and get into maybe 20, 50 stores in South Africa.

Thanks, Mike. Question from Jarred Houston from All Weather. Does the MAS share sale increase the capacity for share buybacks? How much has been done thus far?

ZAR 5 million worth of share buybacks have been down. And yes, more liquidity as long as we've got target pricing for sales on Attacq. So it does open up further opportunity to buy more shares back. Do you want to say something?

No, no. So I think there's a few questions related to share buybacks and allocation of capital from MAS, et cetera. So I think we're dealing with most of them by answering that question. I think just to reiterate, in the short term, we're placing the funds, giving us effectively a sort of 8% to 9% yield, but sort of low growth opportunity in that in the longer term, we look to allocate it within the property portfolio, which will obviously then give us some capital growth in addition to some yield.

Yes. And I think also maybe to touch on what type of assets and developments. We really looking at assets that can give us continuous growth on income and NOI. It's pointless keeping it parked in a low geared -- in our gearing. Gearing gives no growth for year 2 and 3. So we're really focusing on getting the funds efficient as possible into income-generating assets that we also can see the potential of growth in NOI.

Thank you, Jackie. Chris, I think that will deal with your question as well. I'm going to jump to Luqman Hamid's question. And Luqman is from Ninety One. Can you advise your thoughts around capital allocation, specifically post the MAS sale. What is your priority list in terms of acquisitions and share buybacks? So I think the share buybacks we've dealt with. Any comment on priority list.

Long list which we are working on at this stage. So I think watch this space.

Okay. That's no comment. Errol Shear from Sasfin. Excellent results. Well done. Can you give some detail on the negative reversions of 18% in collaboration hubs, Mike?

Yes, I can, and I'm going to sound like a broken record, but the samples are really small in this sector. So if we look at Waterfall City, the collaboration hubs, there were 7 leases that expired, 2 of them renewed. And Rest of South Africa collaboration hubs 4 leases expired, 3 of them renewed. So it's a sample of 11 only that, that data comes from. In one of these specific cases, the lease was 7 years old. In most of the other cases, the leases were 5 years old. And once again, what we keep saying is what we watch really closely is the level of the net rental we are able to achieve, whether it's in Pretoria or whether it's here in Waterfall City because that tells us if the trend is positive or negative. New reversion rate is usually a consequence of either the length of your initial lease and the starting rent and escalation rate of that initial lease. And that determines how big that lease is back to the net market rental is. And certainly, what we found recently is that our net market rental is growing specifically in Waterfall City. So that gives me comfort.

Thanks, Mike. We enter our last 3 questions at the moment just for setting expectations. [indiscernible] from Salandia Capital. What is the highest income-producing assets in your portfolio at the moment in terms of yield on asset value?

And that would be one of our collaboration hubs, which I think is in double figures. But I think also a bit misleading because I think maybe the sort of reading between the lines, would we go and use capital to acquire these higher-yielding assets. So I think that's -- we get the question quite often, why are we investing in lower-yielding assets. And I think we always looked at -- and as a property company, we all should be looking at it like this that the income part of the return calculation is just half the calculation, and we also need to look at capital growth, long-term prospects around being able to grow that revenue. And the yield is sometimes, if it's properly priced, is reflective of the quality and the growth opportunity. So buying a high-yielding asset is certainly not our sort of modus operandi. We believe we've got a high-quality portfolio of assets, and those typically generate returns between sort of 7.5% and 8.5% for the majority part of those assets. And again, effective of the quality of those assets. Those assets that are in double digits, those are the challenging assets, the tail end of our book that we -- which have been sort of on our disposal list for some time. And certainly, we don't want to be allocating capital by diluting the quality of our portfolio. So the question is going by assets that are yielding 12%, that is in our strategy.

And then also, I think, Raj, it also talks to the mix and the diversity of our income generating portfolio. What is retail focus, logistics focus, collaboration hub focus? And what is that ideal mix we want to achieve? And then also the specialized nature of buildings. We do not want to allocate capital to specialized buildings that we cannot re-let, it talks about the sustainability and the future income that we can achieve.

Okay. Also a question from [indiscernible]. Which income-producing asset in your current portfolio has the highest growth potential in the next few years? And what growth do you expect?

So it's a combination. I think logistics over the last 3, 4 years have really been very stable in our portfolio. So definitely, logistics have grown. And also, we've seen a positive upward reversion in our lease renewals. So I would definitely see -- say that logistics have shown consistently the best growth. But then retail has also bounced back so strongly post COVID. But again, we're very much dependent on a consumer and the high interest rates. So we're bit nervous to say it's the best, but retail has also performed exceptionally well over the years.

Thanks, Jackie. Okay. Last 2 questions, 1 added. [ Nick Krieger ] from [ Single Aim Asset Management ]. Do you have any intention to increase your shareholding in the Mall of Africa to 100%?

That's a mall we know, we understand, we manage, we built. So it would be an easy increase in our capital allocation, but always it must come at the right price.

Okay. Last question is for Mike. And I just don't know if Mike is old enough to answer this. When last did the retail portfolio deliver positive reversions?

In terms of rental growth.

Yes, in terms of rental growth.

2019. I think the portfolio was always growing prior to the pandemic. And I think we feel that the pandemic, that should be behind us now.

Okay. That's it online.

Thanks. And we've got more questions here.

We will take the questions from the floor.

Well done on the results, very impressive. Just on your -- I mean, you are awash with liquidity now, and you've got an 80% payout ratio. And I understand the tax implication of that. Would you consider doing a return of capital in the form of the dividend where you can get up to 100%? I think probably Raj will have to explore that. And maybe even pay a special dividends, if you can, but also go a long way in the market starting to find a reconciliation between your discount to NAV and what we can -- what return on the equity you can get. And I think they can go a long way to close up that gap of your discount to NAV. I think is there more options on more tax efficient way of returning capital to investors?

I'm going to let Raj talk about the tax because it's dangerous if I talk about tax. But I'm just going to talk about principal and the 80% payout ratio. And yes, we sit with very low gearing, but we've got 1.4 million square meters of land to develop in Waterfall. So we really see that we will gradually grow -- increase our gearing as we develop Waterfall, I guess, we'll have some capital growth alongside that. But really, the ZAR 55 million that we've kept back really goes and works very hard, especially in Michael's portfolio. And I think it's evident, the recovery ratio of 84% on diesel recovery took amount of money that we had to spend and control as the way we operate building a utility hub costs money and time and effort. But I really believe that we -- by us holding back that money, we're really future-proofing and enhancing the NOI future growth of the portfolio. We look at it as a Board every single year. What is the appropriate capital that we want to retain to further invest in the portfolio and then what do we pay out to our shareholders. So it's not a fixed rate to say it's 80% indefinitely. We look at the need and then we will make sure that we distribute what we feel that we can.

So the liquidity of the shares are quite thin. So as an alternative to doing share buybacks, maybe consider doing a return of capital.

Can I maybe just talk about the tax? I think to date, the payout ratio being less than 100% has been done in a tax-efficient way. We haven't needed to pay any tax on the sort of 20% that we've retained. And we've, I think in the past, explained that we have historical assessed losses in the majority of our major operating subsidiaries. So we've done that effectively. I think going forward, it's going to be a little bit more challenging. One, those assessed losses are depleting but also, there have been some changes in tax legislation, restricting the amount of assessed losses that you can apply in any particular year. So it is something that we're doing some work on and trying to figure out how do we go forward from a payout ratio. But for the time being, we haven't changed our intention of withholding 20% for the reinvestment. I think you point around the liquidity, and we've had those sort of, I suppose, issues or challenges raised by a couple of other asset managers that are looking to acquire more shares in us. But yes, I mean, also that are under consideration.

Questions from the floor?

One final question. So we've called last rounds. Errol Shear again from Sasfin. Also to Mike, follow-on question on negative reversions on collaboration hubs. I understand that the number of leases were small. However, looking forward for the next 5 years, assuming the leasing environment does not change, are major negative reversions unlikely?

So if market rental doesn't move in the next 5 years, then that sort of will be it. And the market rental will be determined by the supply of space in our node as well as our competing nodes. And certainly, there's been a lot of success in Sandton recently, whether it was residential conversions a year or 2 ago. Today, some of the BPOs that can't find space in Cape Town are entering the housing market through Sandton. So certainly, in my view, there's a net absorption of space already in collaboration what's happening in housing. But honestly, it will be a function of what the net market rental does over the next 5 years because once again, our starting rental today and the escalations we program today will determine if there's a reversion in 5 years' time or not.

Thanks, Mark. We're done.

Thank you very much. Thank you for your time, and hope to see everyone soon. Thank you.