Attacq Limited (ATT) Earnings Call Transcript & Summary

Good morning. I hope everyone can hear us clearly. So maybe if I can just get some thumbs up from staff members that everyone can hear us loud and clear. Thank you so much, Alan. Good morning, everyone, and thank you so much for dialing in with our pre-close update before we go into our year-end close. Today, you see, we've only got myself, Pete and Raj presenting today. The rest of our colleagues are on a well-deserved break on holiday with their kids. So we will be presenting today to yourselves. We'll provide you an update on the business, South African portfolio, developments, other investments and then a funding update. And then Raj will handle all the Q&As first today. That's Raj's forte. If we stand still, as we approach a new united government, we've observed the market response last week showcasing which I call a little bit of a spark of hope for our country. And that's a reminder with even the smallest spark of positivity in our country that can result in a profound impact in our businesses. And a wave of optimism in our business is always good because then it is decisive decision-making that we really convert discussions into leases. As we look at our business and our business alignment, we are committed in integrating our core business functions, areas with our key objectives in creating this alignment from a strategic point of view. Our focus always is with the integration of our businesses and to manage the uncontrollables that we always foresee in our country and the elements that we sometimes cannot control and to the greatest extent, try to control, and ensuring a cohesive and a proactive approach in our business, ensuring that when things are unexpected, we control it to the best through our objectives in our business. Focusing a bit on our key business focus areas in Waterfall City, we've got a healthy pipeline of development opportunities that is currently either in the ground. We've currently either just approved from an Investment Committee point of view. Notably, one of the biggest new developments, which will be starting in the next few months, is a new residential scheme. Through the success of Ellipse, we have decided to kick-start another development with a similar JV partner, and we will be launching that in the next few months, an exciting development close to the Mall. With our developments, we always try to ensure that our capital allocation is disciplined and sound, so that we do create the long-term sustainability support for our balance sheet. The rest of South Africa, our portfolio, slow economic growth. We really see that our South African portfolio with our diverse client mix, our prominent precincts throughout South Africa and our proactive asset manager delivered sustained growth. And today, going through the presentation, we're just going to illustrate some of those case studies of what we mean is proactive asset management in our portfolio. When we look at our business diversification, rest of Africa is the -- absolutely, the strategy is to liquidate the entire portfolio. Pete today will provide an update on that process. We're advancing in our PV systems, water resilience, a major CapEx project that we undertook a few months ago in portfolio. Really again to come back, what I said is making sure that the objective of the portfolio is of the long term. We ensure that our clients can operate and trade in our buildings. And a project very close to my heart and what the team is rolling out is a digital transformation of meter reading once again. A CapEx project that in the future will enhance the way we measure and proactively manage the utilities of our company. In our capital growth, we have done just over 5.3 million shares. We have bought back in the market at an average rate per share of ZAR 9.35. Raj will talk today about the DMTN program, which will launch in September, post our year-end. Mall of Africa transaction is unconditional, and we hope to achieve registration of our lease by beginning of July, and our guidance for this year remain unchanged. DIPS growth between 10% to 12.5% based on a dividend payout ratio still of 80%. When we dive deeper into our SA portfolio, and I want to stand still now on our occupancy rate. For our retail experience hubs, you'll see that our occupancy rate has improved to 96.1%. Most of the leasing that occurred was basically from 2 malls. We did about 3,360 meters of new leases at the Mall of Africa, and then the MooiRivier team did 4,100 square meters of new leases. If I delve a bit deeper into the case study of MooiRivier Mall and it's really what good active asset management the team has done, and we've really seen the success of the leasing efforts that the team has done. Collection rate healthy, 99.6%. 35 new leases as part of the growth in our occupancy rate that's contributed and then a healthy trading density of ZAR 4,000 per trading density square meter. In our last interim results, due to the Pick 'n Pay results that has come out and news from Pick 'n Pay, we thought we'll just provide an update on what is our exposure to Pick 'n Pay. In our portfolio, around about 1.5% GLA, rental contributing to 1.3% in our total portfolio. All our leases are corporate. The clothing trading really well, and we've engaged with Pick 'n Pay management. And to date, there is no space that Pick 'n Pay would want to forego or give up. So we are seeing also from a trade point of view that most of our Pick 'n Pays are trading relatively all right during the last few months. Looking at our trading density growth. The average trading density growth for the year was -- rolling trading density growth is 5.6%. Where we have seen some headwinds is in the movies throughout the portfolio. We really see some pain sitting in the movies. We've also seen over the last quarter that we've had a warm autumn which the clothing retailers were all stocked with winter warmer clothing and no one was shopping winter warm clothes because of the longer hot days that we've had. So we've really seen that April and May was slow months throughout our portfolio due to the warmer weather and the retailers being stocked with warmer clothes. We'd say that we've seen that Mall of Africa's growth is at 5%, Glenfair Boulevard 1.2%, Waterfall Corner at 6%, Eikestad Mall growing at 6%, Lynnwood Bridge just over 6%, Garden Route Mall 5.8%, MooiRivier Mall at 7.3% and Brooklyn Mall at 2.9%, so healthy trading numbers. But the last 2 months, we've definitely seen a bit of a slowdown in the retail, especially in the apparel and the movies as I've said. Moving over to our collaboration hubs. -- Sorry. This is what I've been talking about, active asset management at MooiRivier. We always try and look for opportunities to reduce exposure on 2 big boxes. Two big boxes, meaning boxes that are not optimally trading well. In this case, house and home has been -- always been a very big box, large user of space, low trading densities and also resulting in quite low rentals that we would achieve. The team did is they did a deal with @home, bringing in another new exciting tenant into our space, which resulted in higher footfall, improved shopper experience, higher rental. We've achieved a 53% increase per square meter on 2,200 square meters of GLA, which is a substantial increase in that old box. The asset value increased by ZAR 18 million and also the ability for future letting. And as always when I talk about the sustainability of how we build and operate our buildings, it's not always in the rental rates we achieved, it's also in how our space is configured. And well done to the team for achieving this. And I know that they've done another transaction with Edgars, where the team has reduced the Edgars' space and introduced another client in that space. So really looking at what can we do to make sure that our tenants thrive and that we've got space for future letting, which is much easier for our teams to lease. Now moving over to our collaboration hubs. Our occupancy rates increase to 86.5%. And I know that the team is busy working on a nice big deal that hopefully will close before the year-end by today or tomorrow. Our collection rate at over 100%. New leases signed, 18 new leases signed, which contributes to 16,500 square meters of GLA. Notable tenants is Nokia, Eppendorf, [ Modern ], Siemens, [indiscernible]. Really, our big driving forces are Waterfall clients. We said the collaboration hub space is not dead. And we are really encouraged with the quality and high quality of multinationals still transacting. And we are also encouraged by the lift of the average net rentals our teams achieving. Another great example of active asset management, our Allandale Building. Always a challenge with this building was, and you'll see on the photos, the before photo reception area, large common areas, much larger than what we usually will build buildings, which makes the building into a very big distinct, cold, uninviting and then also a large common area factor that our clients need to pick up. So the net effect was that we always had to discount some of the rentals in this particular building. A beautiful building, but structurally not efficient. What did we do is we spent some money and sometimes when we don't pay out all the payout ratio to our clients and we keep some of the money back, we really want to show that we use the money very, very effectively. We spent the money on upgrading the common area, lifting, making the space more inviting. We've put in a Seattle Coffee shop, free Wi-Fi in the common area, making informal collaborative hub spaces where people can work and also spill out from the offices into the large common area and making it very, very much more personable. Our result is, as you've seen, the graph will show that we peaked at a 6,100 vacancy. And over the last few months, the team has rapidly reduced it to 2,900. And again, the team is busy working on the last bit of that building. And that building will hopefully in the next few months be fully let. But we've improved the functionality of the space, the user experience of this space. Very important, we've increased the rentals of the space, and we've reduced the vacancies. Over to our logistics. And this is the first time ever being in Attacq that I'm reporting on a not 100% occupancy right in our Waterfall logistics portfolio. And for the reason we've just finished the 3 midi units. People go into the detail of the midi units, but one, you'll see one lease is signed of the midi units, 2 is left vacant and the team will give an update on some of the interest we've got there. But for the rest of the portfolio, fully let, trading well, no arrears, and we've got 2 boxes that's newly developed that we will use. I'm going to hand over now to Pete to provide us an update on the developments and then also on the other investments.

Thanks very much, Jackie. Just looking as an overview, during the most recent period, just over 23,000 squares of GLA completed. More importantly, total development activity in the pipeline is valued at ZAR 1.2 billion and that comprises just over 30,000 squares of GLA. Predominantly in there would be Ellipse, the last final tile of the Ellipse development, as well as a new office development at Ingress, Ingress Building 3. Just touching on Ellipse. If we look at total bankable sales of just under 90% based over the entire scheme. So we're going to -- obviously, 3 tiles have been completed and one is currently under construction. So we'll go into a bit of detail in Ellipse in further slides. Jackie mentioned the midi units, which are recently completed. It's totaling just under 15,000 squares. This was a land parcel that we had remaining on LP 9 South, and it was very well suited to doing a midi unit development. These units were developed on spec, just under 5,000 -- around about 5,000 square meters each. As Jackie mentioned, one has been let already and there's firm interest on another one. So we've currently still got 2 in the market, but hopefully it'll be down to 1 soon. Yes, that was completed literally a few weeks ago. On the residential front, this is the Ellipse scheme. So there's a lot of detail regarding the first 2 phases. Phase 1 was the first 2 buildings. Phase 2 was the taller Cassini tower. We're currently under construction on Phase 3, which is the fourth and final tower. Galileo comprises 208 units. Again, it's a JV with Tricolt, and we've got a 20% interest in this final building. At the moment, we are now sitting on literally 74% of the units. 154 units have been sold. Of those 154 pre-sales, 135 of them have been converted into bankable sales. And practical completion is targeted for Q1 of financial year 2026. Then moving on to other investments, which now only comprises our Rest of Africa retail investments, having disposed of MAS during the year. Obviously, we'd be happy to take questions on MAS, but if we can do that offline after the call, please. So yes, our Rest of Africa retail investments is obviously our investments into AttAfrica, which owns 3 malls in Ghana and a part holding in Ikeja City Mall in Nigeria, which is a 25% holding. The Ikeja City Mall has been subject to a long drawn-out potential transaction with Actis, whereby in the last iteration, they would have acquired 50% of it. We can inform the market that those talks have now been formally terminated. The conditions precedent to the transaction were not met and the agreement was allowed to lapse. As a result, those talks have been formally called off. We are having discussions with a single suitor who's looking to acquire both our Ghana and Nigeria interests. And our preliminary discussions, but as we advance them, if there's anything notable, then we will inform the market on a voluntary basis.

Thanks, Pete. In terms of a funding update, our gross interest-bearing debt was just shy of ZAR 5.8 billion at the end of May, marginally lower than the number that we reported in December 2023 of ZAR 5.9 billion. If you look at our weighted average loan term, we completed the majority of our refinancings towards the end of October last year and so our profile of our loan term maturities is following the same profile as at December 2023. If you look at our weighted average cost of debt, now 10%, so it's moved up very marginally from 9.93% in December to 9.97% by May. And that's just as a result of us redrawing and placing funds in RCFs, which ends up moving our weighted average cost of debt margin. Our liquidity remained very strong at the end of May. In total, ZAR 1.9 billion worth of cash and facilities. We are expecting to deploy ZAR 1.07 billion of that in the next week when we expect the [indiscernible] Mall of Africa transaction to transfer. We've also, in the meantime, secured some additional facilities to term out some of that acquisition price. If you look at our covenants, nothing's moved there since we last reported. But for the 6 months ending June 2024, we will be reporting an interest cover ratio for the first time, and we're well on track to meet that interest cover ratio with some material headroom in that. If you look at our debt roll-off profile, nothing material coming off in the next 12 months. In the following 12 months, just shy of ZAR 680 million falling due and very well managed. We don't have any concerns about refinancing that debt. If you look at from a hedging perspective, we've tried to remain within our stated hedging policy of a minimum of 70% hedge, not adding material hedges as we believe once the rate-cutting cycle begins, the curve will materially change. We've seen already in the last 2 weeks that the 2 years and 3 years slope curve have come down significantly. Looking forward from a hedging perspective, we have just shy of ZAR 500 million of hedges that we would need to put on before the end of this calendar year. And we're hoping that by the time we actually add those hedges, we'll hopefully lock in some attractive rates. Jackie mentioned the DMTN program. So we have appointed an arranger, a legal firm and the rating agency already. The work has commenced. So a lot of the rating work should be completed by the end of this week. We have a first draft of the program memorandum, and our intention is to launch a debt roadshow during the last 2 weeks of September, and we are then targeting an inaugural issuance in late October. Any questions for Jackie, Pete and myself?

You want to put some questions in the chat box?

Maybe a question for you.

All right.

Question from [ Yash ]. Why did the retail vacancy spike from 2.5% to 3.9% last month? And follow-up question to that [ sensitive ] conversions in both retail and office. [ Maybe we can deal with question 2 more smoothly ], we can deal with.

Maybe we can deal with question one.

Retail vacancies move from 2.5% to 3.9%.

No.

All right.

The occupancy, right, on retail -- sorry, you might want to just jump on and explain because June 2023, our vacancies was 95 point occupancy.

Jackie, I just want to clarify. So the 2.5 number I'm referring to is December 2023. So the last 6 months, there's been a change from there.

Okay. So the change is ECLS at Garden Route Mall. We are taking some of the space back and again, we're doing exactly what we did, as I explained on, that we did at Potchefstroom. We're taking space back, and we are reletting it actually also to an @home and subdividing the Edgars space. So it's a structural short-term vacancy that we're experiencing at Garden Route Mall. Next question?

Can you give us a sense of reversion at the retail and office level?

Retail, it's my numbers.

Positive growth in retail.

Yes. We're seeing positive growth in retail. Offices is -- what we measure in office is not so much. We do measure the reversion from exit rental to the new rental. But what we are very encouragingly seeing is the average net market rental moving up. For years, we've seen that stagnant and actually in COVID times and after COVID, that net rental has been reducing because of the oversupply and just the question mark on the office market. But what we are seeing is that the net rental is going -- is moving up in Waterfall. So where we averaged out the ZAR 145, we always quoted -- we averagely signing now ZAR 155 to ZAR 160 net leases. Very encouraging from a market rate rental point of view. What is our big renewals that's coming up over the next 6 months? We've got Novartis coming up. That's a very big client. So, yes, we are expecting some reversions in that lease because of the just -- it's a very high exit rental comparing to 2 markets. So structurally, we would see some reversions in that market. And retail, as Raj has said, we're seeing some positive movements on the market rentals and as well as the reversion rates.

How are we going to revise our approach in the new residential development compared to the previous Mix development?

Okay. Mix was a complete different developer. We're going to base it off the success of Ellipse. Similar team. We're going to learn the lessons from Ellipse, and we're going to improve the development of the learnings of what we've had in Ellipse, and we've also taken the success of Ellipse and we're rolling that forward.

Yes. I think in terms of developer, it's the same developer as the Ellipse. The product itself is very similar to Ellipse. It's a slightly more up-market product. So they have a slightly different pricing point. But in terms of look and feel and amenities, more comparable to Ellipse than The Mix, which was a micro apartment, more affordable-type development.

It is so different when you sell 450 units versus 200, the scheme is going to be just over 200 units, mixed with 440 units in one single phase development, which is -- it's a substantial also to sell that again. So, we're taking all the lessons learned, but we're also taking the successes and we're rolling that into the new development that we will be launching soon. Basically, it's your core focus for the day. Any offshore opportunities peaking at the moment? Not something of substance that we can report on. However, as a deal making executive team, we're always out looking for opportunities. But again, I want to reassure our shareholders and our stakeholders is if we look at opportunities, it needs to fit the purpose and the ethos of what Attacq is. We're also very aware of the lessons learned in the past. We've not got everything right. So offshore for us is definitely not off the cards or not -- we'll definitely look at opportunities, but we'll take the lessons learned and it must fit into that purpose. Otherwise, we won't be allocating capital to something that is not fitting to our company. Another one. This is yours.

It's a similar question.

It's on the offshore strategy.

Any other questions? If anyone want to rise or raise their hand or on the poll? All right. Yes, [ something ]?

The question is, you have more than half balance sheet debt since 2022 and significantly reduced financing risk in the business, why is it still important to incur hedging costs of this size with interest rates to remain at this level for long, if not coming off? [ Sunila ], I completely agree. I think from a financial risk perspective, we've certainly reduced the risk relating to interest rate volatility. One, by reducing the quantum of debt and then also maintaining a level of sort of hedging at a 70% level. I suppose the challenge with interest rates is that they are volatile and policy will dictate where interest rates go. It's risk that we take on at a later stage. A big part of our total income statement is still finance charges, even though we have reduced our debt significantly. And if interest rates were to start rising again, they could quite easily eat into distributable income and ultimately, shareholder returns. So I think there's a level of interest rate mitigation that is required by a REIT, notwithstanding the level of gearing. And we certainly think that remaining close to the 70% level is currently appropriate in terms of the amount of debt that we've got as well as where the sort of interest rate hiking cycle or reducing cycle is. But it's something that we operate within a bit of a band. And if we feel that gearing is increasing over a period of time and/or there's risk to the upside in terms of interest rates, then we'll move materially north of the 70% level, but currently comfortable at the 70% hedge level.

The next question is from [ Yako Scholls ] regarding the 20% stake in Mall of Africa that Atterbury approach us or to sell it the stake, or was it vice versa? Actually, I don't know. We always kept on talking about Mall of Africa. I think it was first Atterbury that expressed their interest a few years ago, actually, that they would like to sell potentially the asset. We weren't ready at that stage to acquire it. Another had other suitors that they could never land a transaction with. However, we always held the preemptive and then beginning of this year, we put an offer on the table to Atterbury. But we knew that they were willing to sell us at that stage. What has been the general investor feedback to the additional stake in the Mall of Africa? I'm going to talk for myself, and I'm going to look at the team and Brenda to provide a further feedback. So I think the general sentiment has been positive. I always say that Mall of Africa is the absolute anchor for Waterfall and the ultimate insiders for buying up the stake. And we continually allocating capital in Waterfall, building new residential departments, building the roads, the beautification. The more we add in Waterfall, more of Mall of Africa will gain the success and the shoppers from what we add in this fantastic precinct. So why not come in a little bit cheaper and early at Mall of Africa and grow the growth of Mall of Africa, including Waterfall together? So for us, it was almost a no-brainer. We will forever be thankful for the partnership of Mall of Africa from the Atterbury team. We've learned a lot. We've gained a lot of insights from that team. But I think it was an easy discussion for us at the right price, which we were happy with. I don't know Raj's sentiments.

Yes. I think there's been positive feedback from the investor community. I think we acquired it just shy of about 7.7% discount to the last valuation at a forward yield just north of 8%. So I think from an acquisition price perspective, there was an understanding that given the quality and the future growth of the mall, we acquired at an attractive price. And I think for those investors that understand Waterfall and the future potential of Waterfall and what it means for Mall of Africa as we densify the city, both from an office user and a residential user perspective, there's still a lot of growth from Mall of Africa. It's an asset that we fully understood, having managed the asset for the last number of years and having only 80%. So there was no protracted due diligence. Actually, there was no due diligence required at all because it is an asset that we fully understood. So I think, as acquisitions goes, it was, like Jackie said, a pretty simple decision from our perspective, understanding the future growth potential, understanding where the mall is currently and having management and control of the asset already. And I think a lot of the investors gave us some of the positive feedback.

The next question from [ Francois ]. With the cash balance around ZAR 1.5 billion on our modeling until NOI transaction concludes, can you indicate how much interest can you earn on cash currently?

So we have a couple of different products that we use to park cash in. We maximize our revolving credit facilities, but then also make use of some cash deposit type facilities. We typically earn somewhere between 8.8% and 9% on those type of facilities. But like you've mentioned, we'll be utilizing just shy of ZAR 1.1 billion in the next week, and then the remaining cash balance, we will earn some sort of return for the foreseeable future until we make dividend distributions, et cetera, et cetera.

No further questions? No more questions. There's no more questions. We go into a close period by the end of month. Please reach out to Brenda or myself or Raj or Pete or anyone if there's any unanswered questions. In the next week, we will be very happy to jump on a call on a one-on-one. If not, then we'll see you at our results. Brenda, what's the date?

10.

10th of September? And yes, if there's anything in the interim, please reach out.

We've got one more question.

And then one more question.

Impact of reduced load shedding?

Yes, it's a fantastic impact for us. So we budgeted for the diesel non-recovery for the last 2 -- well, I would say last 60 days, 90 days. We've had savings in our operating costs come through. Also the cost of occupancy for our clients is reducing and that cost of occupancy reducing, they can put that money back into their businesses. Our retailers are saving money. So I think net-net, it's a positive impact in our portfolio. And the unrecoverable portion definitely will come through in the NOIs come year-end. Once again, thank you so much for your time. Thank you for joining us. And we look forward to seeing you in September with our results and in the interim, if there's any questions that we can also reach out to at any stage. But thank you very much for your time and for the Attacq team for putting all of this together. Have a wonderful week further. Thank you very much.