Attacq Limited (ATT) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Attacq's pre-close. We're at the end of the year, but we're still very much at the beginning of our full year. Reflecting back to this year -- the calendar year that we've had, certainly, a year that a lot has happened. I think sometimes people say we're really tired. Coming to this part of the year, reminding everyone that we've had elections this year with a great outcome. We've had no load shedding for this year. We've had our second drop in interest rate. So I definitely think we're ending off the year with a lot more certainty than what we started this year, as the year started off with quite a lot of uncertainty starting off this year in South Africa. I'm joined here by my executive team. And as we all know, Attacq, it's absolutely a team effort. So each and every one of my team members will provide an update in their departments. Also, Lourens du Toit joined this morning to talk about our operational sustainability and also Janine, our social executive to talk about our community events and all of that makes up the objective of delivering our sustainable growth in Attacq. If we go to first component of our objectives, our long-term growth. What we've concluded over the last 3 months of our financial year is Raj and his team concluded a DMTN program of ZAR 760 million. We were quite encouraged with the amount of bids we received on the day, and Raj will take you through the detail. We've also restructured the PwC loan. That was also not restructured when we did the [ GPN ] transaction. So we did this year. And again, Raj will go through the detail of the loan restructure. We're proud owners of 4.3% of shareholding in our Lango shares and then well done to Pete and to the team for concluding the transaction. And then our projected ICR will not -- will exceed 2.5x, and then our gearing will remain below 30%. And I think the reason for the call always for this time of the year, the question is are we are on track with our guidance? And yes, we are on track to achieve our financial year '25 DIPS guidance of between 17% to 20% growth. On our people side, we had our AGM a few weeks ago. And once again, thank you to all our stakeholders and our shareholders for supporting all of our AGM votes including our remuneration votes and everything has been passed at our AGM. On operational excellence, and this is where Lourens provide a lot of detail, especially in the operational sustainability component. On our infrastructure, as we've talking quite a lot about it, we've got our water connection, which has taken close to 4 to 5 years to conclude our water pipeline and the connection, which essentially opens up Waterfall Junction. Waterfall Junction is a great component from a growth point of view for us, where it's about 600,000 square meters of the development bulk. This phase 1 is about 180,000 square meters. We still need to obtain a Section 82. David will talk about it, but really -- we're really encouraged with the collaboration that our team, Council Rand Water, Johannesburg Water could achieve to get this connection through. On operational sustainability and really this is the part where we're very passionate about of the work that we have done. And Lourens will talk to the -- to this smart sustainability hub. Maybe just go slide back. There we go. Sorry -- there we go. Sorry, about this. We've got someone controlling this -- okay, there we go. Thank you so much. On our client focus, our occupancy rate is 92%. Collection rate of 98.7%. Mike will go into the detail on our reversions, our rental, our lease expiry profile, what the team is doing there. Retail growth, 3.6%. This is our annual trading density growth for the year. Collaboration of the office space, I always say the offices are not [ dead ]. We've done a total of 3,874 square meters of GLA of new pieces that the team has concluded. And in Attacq, we're not about awards, but we're really proud about the awards that our team, especially the development team received with SAPOA and our property awards. Brenda, you can click on the left side. And then on our environmental, we're currently busy with five PV systems. Lourens will go into the detail. On our community, Janine will take us through some of our great community events that we're currently busy with. But I think very notably, again, we've achieved a Level 1 BEE scorecard, and we are very proud of achieving our Level 1 scorecard. If I look at our achievements over the last 3 months, it's really a testament to our commitment, to our communities, to our staff and also the progress that we are seeing in Attacq. Our journey is driven off a vision to create long-term sustainability in all of the aspects of our business and creating impact and lasting impact in all of our communities, for our shareholders, for our staff and also the communities we operate in. I'm going to hand over to Michael, but before I hand over to Michael, we just want to say to our entire stakeholder community, thank you so much for the support during this calendar year. Thank you for the advice. Thank you for the commitment. Thank you to the support to our Board members to all of the stakeholders, and we look forward to meeting everyone in 2025 and making sure that we continue delivering to our objectives and executing on our strategy. So Mike, over to you.

Thank you very much, Jackie. Good morning, everyone. I'm going to take us through just some operational highlights over the last 4 months. If we turn to the next slide, Brenda, so first of all, our occupancy number at 92%. That's down from the number we posted in June of this year. If you look to the chart on the right of that, you'll see that the maybe blue line, which represents logistics hubs is down at 86%. The reason for that is the 3 midi-units we brought online, of which one was let at completion, the other 2 still vacant and then Dis-Chem vacating at the end of the lease in August. So that's mainly the reason that our occupancy number is down in the short period. But very encouragingly, if you look at the dark green line, the collaboration hubs continue to edge up our strategy of multi-tenanting, single-tenant buildings when they do go vacant still under in process. And I'm very grateful that, that number is close to 88% currently with the number of deals in the pipeline. If we look at our renewals and new deals, these are just on the expiries for the last 3 months. I want to highlight just the 3 numbers. So first of all, on the new deal reversions, you'll see 2 big numbers there, 31% and the 17.5% for collaboration hubs. Just some context. On retail, those are 5 new deals. They do include deals where we've cut our boxes like [indiscernible] and reduced our exposure to [indiscernible], replacing them with something like at living space. And of course, that new incremental rental on a smaller space has led to that increase on new deals. And on collaboration hubs, that is only one lease, and it was for 172 square meters so really in the bigger scheme of things, insignificant. So I wouldn't be too worried about that number. The trend on the renewal reversions of 8%, I think, closer to where the current run rate is when we reset the market on renewals for collaboration us. On collections, nothing really that stands out there. We've had 1 or 2 business issues in retail, but certainly, the teams have been very proactive in dealing with them before they become a big financial risk. Let's turn to some retail updates. So all these numbers are until October of this year. So this is 4-month numbers. So our trading density growth sitting at 3.6%. Once again, just some context, that's a 12-month rolling number. We had negative numbers posted for April and May, which we also discussed in our year-end numbers for June. So those 2 months that had negative growth numbers still included in this rolling number. Very encouragingly, we did see a positive growth number posted for October. And taking you through some of the work the teams have done, we are really, really excited about trade for December, specifically at Mall of Africa, maybe just touching on a couple of events there. Checkers expanding by 2,000 square meters that's opening this week before Black Friday. Decathlon opening this week is the first in-mall one in South Africa. So we're really excited to see what impact that will have. And then sort of maybe the hard work that happens outside of the limelight is where we do upgrades to stores while they trade or while they renew. And there's been 23 store upgrades at Mall of Africa in the last few months, really setting us up for a fantastic festive trading season, and we hope that we can report some good numbers in March. So more work done by the teams. Eikestad replaced the food lovers market with OK Foods. The franchisee remained in place. He just chose to trade under a different label. I was in Stellenbosch last week on Wednesday. It is a beautiful store and certainly really encouraging to see what the Checkers Group is doing with this franchise model. And then as I mentioned earlier, on those new deals we've done. So we've reduced our exposure to Edgars in Garden Mall and a beautiful @Home living space is open there. On the collaboration outside, I want to take us through just a bit of a case study. So our dealmaking and property management teams have entered into a number of early renewals during the last 4 months and certainly very encouraging. And the question is why. Now if you discuss this with some of our clients and maybe the reason they are happy to enter into these early discussions, we really feel that our precinct strategy is coming through here. The discussions with these clients are not about do you like to stay in that building, but do you enjoy being in our precinct in our node, whether that be Lynnwood Bridge node, it could be the Waterfall City node. And because the brands are highly visible here, they form part of the community, they're also encouraged to remain and not look for buildings outside. So it enables us to have these discussions, and we were able to conclude a number of deals in this period that only expired sort of in August next year and in July next year. What does that do for us? It extends our WALE. It allows us to not wait until expiry before we do these renewals and certainly very supportive from a financial and also a tenant retention perspective. Maybe just lastly, on the focus areas, I just want to highlight, there are still a couple of risks that our teams deal with. Of course, Waterfall Circle, there's 2 blue chip tenants in there currently in DP World and Bayer, but that building continues to be a multi-let prospect for us, still some vacancy we need to fill there. The Novartis lease is coming up in May this year. They will not renew in the entire building there. So we do know that there's a potential vacancy coming up. So our deal teams are already actively marketing that. And we've still got to conclude leases on 2 of these midi-units. Thank you very much.

David? Sorry, Lourens.

Good morning, everyone. I'll provide a quick overview of our environmental and operational sustainability initiatives and the positive impact we're creating through that. I think something we're really proud of is our utility hub that we've now fully developed. It's really changed the way we record, analyze and interpret our data. So we see it as an enabler from a data efficiency and integrity perspective, and that ultimately helps us measure the impact, it helps us set objectives and also measuring progress against those objectives. From a water perspective, we're still actively focused on demand management, making sure we don't have behind the bulk meter leaks, which is in our control. And secondly, we have various resilience projects under go where that involves mainly backup water. And to David's topic later on all new builds to also be fitted with backup storage in the event of council interruptions. From renewable energy side of things, we have got 5 plants that we're looking to implement. We have made great progress on Corporate Campus, which is set for completion early next year. Garden Route Mall will commence first in next year. And then once we have achieved practical completion on Ingress building 3, we will roll out those 3 plants as well. That will help us achieve our projected energy mix increase from 6.8% to 9.3% at a portfolio level. Our PPA or our power purchase agreement has made great progress in that our independent power producer has broken ground on site. So that is set for plant commissioning towards end of next year and in early 2026, we will go live on our power producer. From a power consumption perspective, we have a renewed focus on our HVAC and building management systems. So we've got various pre-feasibility work streams undergo and then a key focus on concluding a project for approval at Garden Route Mall. And then lastly, making sure we're compliant from an EPC or engine performance certificate -- certification perspective, we have got all our buildings certified, and we are reducing new ones as the requirements required from us. That's it from me.

Good morning, everybody. So just on the development side, I mean, Jackie touched on it a little earlier, but in the previous results, we've obviously been talking quite a lot about our battles around this water connection for Junction, as I mentioned in our end of year results. We have concluded that. It's commissioned. We are now just going through the paperwork to achieve Section 82 for Phase 1, which is, I think, a huge milestone for us. We've essentially been out of the warehousing and logistics space for about 3 years. And considering that's probably been the most buoyant sector, it has sort of hurt our development a little bit, but extremely excited. I think a phenomenal piece of land. I think it also shows you with the difficulties on unlocking the land at the moment within the same context how valuable land with Section 82 in place is going to be. So excited about that. It's just giving myself and our deal makers a bit more confidence in -- sitting in front of clients, giving them time lines so that we can obviously start making decisions. And at the moment, Lourens and I are obviously hoping for April next year to proclaim Phase 1. We are running on a couple of transactions there. And hopefully, we'll conclude some of them, but obviously, we'll only conclude once we have full confidence that April will be Section 82 approval. On the new res scheme, Aspire, so we're on track for mid-February launch 2025. We've obviously come out of a high interest rate cycle. You'll see there by the Ellipse numbers. We are 100% now on Phase 1 sold and Phase 2 on 99.5% and on Phase 3 at 8.5% (sic) [ 85.5%]. Those aren't bankable, but those are sales. I think it just shows you the robustness of Waterfall. People want to live in a quality environment. Attracting people, buying a product of this quality in this environment, I think, has been a testament to Waterfall as a precinct as well as a testament to our JV partner, which talks to a strategy of ours. We do want to do a number of JVs within the city and also deal with JV partners that are best-in-class. And Tricolt are one of those, and that's why we are backing them, obviously, with us on Aspire to launch in February. Aspire is not a massive residential development, it's only going to be 217 units where Ellipse is 670 units, and it's going to be attached to the mall, similar product in many ways, different in other ways. Our first sort of big development attached to the wall since we've become a 100% ownership there. So very excited for what that's going to do for the precinct and obviously to drive more people into Waterfall's City Center. If you look at the development activity, ZAR 1.5 billion, if you consider the 3 developments that are under construction being Ingress, Ellipse, Vantage and then if you include Aspire, which we will start launching in February, probably construction in about 18 months' time. So if you consider, we aren't rolling out any warehousing, I think it's a very strong number. I think very excited for the future. And you can see by the 50,000 squares of developments that we're currently under negotiations. I think what's quite unique there, it's a number of different types of developments. It's not one sort of standard. We're looking at warehousing only, we're looking at our office only and a number of them are actually going to be potentially attached to the Mall of Africa. Again, I think exciting for the City Center, Waterfall in the future. With that, I'll hand over to Raj.

Thank you. A bit of a funding update. We've been fairly busy over the last 2 months or so with some great outcomes. We look at our drawn interest-bearing debt, up to about ZAR 6.8 billion, up from just ZAR 6.1 billion at June. That increased around about ZAR 750 million, largely due to the bond that we raised during the month of October. But you can see on a net interest-bearing borrowings basis relatively flat at ZAR 5.6 billion. The reason for that is that the majority of the funding that we've raised is either sitting in our cash balances or we use it to prepay some of our facilities. And some of that you can see in our available liquidity, very strong at about ZAR 1.8 billion. Like I said, a large portion of that attributable to the bond that we raised. Our weighted average loan term at about 3.0 years and our weighted average term of hedges down to 2.2 years. And that's as a result of us monitoring the swap curve basically, fairly volatile over the last 2 months, looked really attractive in the month of September, but has moved up substantially in the last sort of 6 to 8 weeks, and I'll talk a bit more about that. We're still above our internal policy of hedging at least 70% of our drawn facilities. And then I think a really good news story, if you look at our weighted average cost of debt, both on an all-in basis and a variable basis, significantly coming down from 10% down to 9.6% and 9.7%, respectively. and I'll talk to that a little bit more shortly. If you look at the funding mix on the right-hand side, for the first time, our bond is now featuring at about 11.2%. We see that increasing over a period of time to somewhere between 20% or 25% of the overall group's debt. And the graph at the bottom showing that in the next 12 months, not much falling due from a debt perspective but a substantial amount of our hedges are coming off, obviously proactively managing that. If you look at the 13- to 24-month column graph there from a funding perspective, ZAR 2.8 billion falling off, but actually ZAR 2.2 billion of that is due and repayable in October 2026. So we actually have almost 24 months for that, and we'll proactively refinance that closer to the time. If we move on to the next slide. Just some high-level highlights. We have done in October, 2 major pieces of funding that we've done, our PwC loan refinance. If you recall that was not part of the refinance that we've done last year. We concluded that effectively 1 October, reducing the funding cost substantially by almost 40 basis points. We reduced the overall average term by about a year, but I think overall, a great outcome on a large chunk of debt. If you look at on the right-hand side, our inaugural bond issuance, which just concluded in the month of October, I think a great first issuance for us, ZAR 760 million raised between 3- and 5-year money. We had very good support by the investor market. We were just shy of 5.3x oversubscribed. And I think -- from a funding cost perspective, I think, we did relatively well, both 3- and 5-year coming in below our guidance at 129 basis points and 141 basis points, respectively. I think about our 4 RCFs, just shy of ZAR 1 billion that's due by the end of June next year. We'll have that all refinanced before June 2025. And then from a hedging perspective, I think we were fortunate from a timing perspective. We added ZAR 920 million worth of hedges in the month of September when the swap curve looked really attractive. So that came in at a weighted average hedge rate of 7.16%. The current 3-year hedge rate is 7.46%. So you can see it's moved up by 30 basis points in the last sort of 6 to 8 weeks. So we're monitoring the curve closely. We will be adding more hedges during the month of December. And hopefully, we'll be able to do something a bit more attractive than the current rates. The graph on the right bottom side, I think, tells a really good story. So if we look at our weighted average margin, that's down to 1.59% at the end of October. That's 13 basis points lower than June 2024. But if you look at this in comparison to June last year, we're down 36 basis points. So I think we're really pleased with what we've managed to achieve from a funding cost perspective. And I think over a period of time, we'll be able to reduce the 1.59% even further. I hand over now to Janine.

Thank you, Raj. Good morning, everyone. As Jackie mentioned earlier, one of our key objectives is to make a meaningful and positive impact in our communities. It's really key to our purpose. We strive to create remarkable experiences for all those that enter into our space of influence and those in our communities as well. So we run various community initiatives throughout the year, but I'm just going to focus on 3 of our most recent initiatives. So what you'll see over there is our Matric Dance initiative. It is Matric Dance season. And the youth in our communities is really important to us. So we really believe in supporting them, inspiring them to change or turn their dreams into realities. So part of that was partnering with a school called Kaalfontein High School. It's a school that due to financial constraints, they were never able to have a Matric Dance previously. Their principal, however, set quite a high academic target for them to reach in their prelims. So based on the students' desire to have this Metric Dance, they really put the effort, really studied hard and they achieved -- or overachieved the target actually. And this inspired Attacq to partner with them and to sponsor their very first Metric Dance. So a very motivational and inspiring Metric Dance took place. And post that, the class of 2023 managed to increase their metric pass rate from 55% previously to 89%, which I think is a phenomenal outcome. And just really surprising and inspirational to see how something so small like Metric Dance that we often take for granted can actually make such an impact. So the school went from the worst performing school in the area to the best performing school in the area last year. So based on that, we decided to support them again this year. So we hosted our second Metric Dance with Kaalfontein, and we are now waiting in anticipation to see their results, but we have set the -- principal has set a very high target of achieving a 100% pass rate for this year. So we look forward to seeing fair outcome. And what's also really nice to see is that this has now been rolled out throughout our regions as well. So all of our various hubs have also taken place in the Metric Dance. So we had Garden Route Mall and Lynnwood that hosted their Metric Dances and [indiscernible] is taking place in the next 2 weeks. Then something exciting that happened within Waterfall during heritage month was the introduction of 2 new art installations. So it really brought a great sense of vibrancy and history into the city. These were art installations that were created by young up-and-coming artists and that were inspired by the work of the internationally acclaimed artist, Dr. Ester Mahlangu’. And it was incredible to have her presence there as well when we unveiled this at Mall of Africa. It was -- really the excitement was tangible, but please feel free to travel around Waterfall and just embrace this incredible artwork that you'll now see on 2 of our brand staircases. So part of the local artists that also created the staircases was, yes, to bring some vibrancy and heritage into the area, but also to showcase their talent. So that is also part of our commitment to developing businesses within our communities. Linked to that to another example is our current program, which is our Green Seeds program, where we are supporting businesses within the green economy that can really meet our sustainable goals. So we ran a [ dragon stain ] type of a program where the businesses presented their business cases. Three businesses were shortlisted, and we're looking forward to the final that's taking place next week. The winning business will receive a lot of access to funding networking and also opportunity to pilot the solutions and products that they have. So really great work that we're doing within our community space, and we have no doubt that we'll continue to make great impact going forward. I think you see on the first slide, we also introduced additional community hours for our employees as well. So based on that, we really are able to do more work and create more impact in our communities.

Thank you very much, and thank you to my fellow colleagues for presenting. I will -- and this photo just illustrates what Janine has spoken about. This is one of our staircases in front of Novartis that the [indiscernible] students have painted. So thank you very much for your time for attending our pre-close. I will open up the floor to any questions. Questions in the chat box. If there's any questions that someone wants to direct -- directly to us, you're always welcome to reach out to us directly, Brenda, myself or Raj. If there's no questions, thank you very much for your time. I hope you have a wonderful festive season with your family, and we are looking forward to an energetic 2025. And thank you so much for your time. Thank you, team.

One question.

There's one question.

Could you please provide the yield information for current development activity?

The yield information for our current development activity. David, do you want to answer that?

Yes, we can. So obviously, varies on the type of asset class. On the res stuff, we look at a hurdle of about 20%. So on Aspire, we're at about 22%. Obviously, that does move around depending on the mix of units. So obviously, the bigger the units, the less cost you put in. So there is a bigger profit margin there. But obviously, we do design it that we can cut the units of smaller and then they become more sellable. So it's a balancing act. Then on your Vantage, so that we are at a 9% premium. So post [ year ] that you're looking at 8.5%, that is CapEx linked. So that is a set rate. So obviously, if the CapEx comes down, the rent comes down, but the yield remains the same and then on your offices, your collaboration hubs. So the reason we're building the Ingress is because we've obviously got quite a bit of some cost and infrastructure of about ZAR 27 million if you exclude the land. So we look at a cash yield basis there, and then we obviously look at a normal clean yield basis there. But on a cash yield basis, we were at about 10% on that.

If there's anything, please reach out to us directly. Again, thank you for your time, and have wonderful...

I'm sorry, there's another one.

There's another one -- I'm not going to say good bye. What is the question Brenda.

Please provide more insight on the Waterfall, trading density growth, seems to be slower than the 5.8 from last year. The weighted average trading density...

Yes. So again -- so giving that quick voice earlier. So what we had -- this is a 12-month rolling number. What we have in that 12-month rolling number are the months of April and May. So they were negative trading months. So I believe the May was negative 4.4% so that led to the change. If you look at the history between June 2023 and June 2024, that reduction would have been because of those months. Now those months are still in the calculation for the 12 months up to October. But potentially what we do lose is some of those very unique rolling numbers that we had back in 2023. So out of the sample in the 4 months that we now include after year-end, August was also static, but we saw some good growth closer to 7% for October. And once again, hoping for a good festive trading season. So I think it's more a sample of what's included in the 12 months. And as that period extends, I expect that number to change hopefully positively.

And a difficult question, what is the current WALE?

I don't know the current WALE as at 30 September [indiscernible].

I think on...

Estimate of the cost-to-income ratio.

I don't think it would have significantly changed from our June numbers. So they can maybe just [indiscernible].

Thank you very much. Bye.