Burstone Group Limited (BTN) Earnings Call Transcript & Summary

Not often that I get to raise my voice at Riley, so I'll take the opportunity. But it's welcome, everyone, and thanks for coming. It's really nice to have you all here, first time in the better part of 3 years. So Nothing's changed for me. I've still got the stuffy nose and a bit of a splatter. So we're keeping our distance and I'll try not to talk too much, and it Zaida and Darryl will really guide you through the detail. If we flick through the last 12 months, certainly in our view, a very strong set of results in what has been an incredibly challenging environment, not just with COVID, but you throw in the riots, you throw in the floods and everything else, I think what we've managed to deliver really does stand out. So from an earnings or dips perspective, 10.8% up on the previous year, which is in line with our guidance. We've maintained a 95% payout ratio at a dividend level. We continue to have and grow a very strong balance sheet. So LTVs sitting post the ZAR 530 million of sales that will come through in the next few weeks, that will reduce further to 37%. So again, I think it gives us real comfort over where the balance sheet sits and how much capacity we've got to continue to grow the business. A key metric for us is total shareholder return. If you've been in the stock for the last 12 months, you'll take away roughly 34%, 35%, including the dividend and on a book value, 8%. From an asset perspective, the SA or South African portfolio certainly stabilized, which is comforting and Darryl will take you through a lot of the detail in terms of how we've got there. Europe continues to perform really strongly for us, underlying operating numbers are strong, and that's reflected in the 12.5%, 12.6% uplift in valuation at year-end offset marginally by what's happened in South Africa at 2.6%. And again, I think when we get into the operations in South Africa and Europe, we'll talk a lot about leasing activity, and that has seen a reduced vacancy across both regions, both sitting at around that 2% number, which is unbelievable. Projects, developments, a lot of traction now kind of as we're moving out of the COVID world, and we've got a lot more clarity over where and how to spend the capital and ESG, which has been a key focus for us over the last 2 years, really starting to gain momentum. I think if we go through some of the high-level operational numbers, the performance is really due to a deliberate approach to asset management, improvement, agility on the ground and the performance of the management team. We haven't got here by accident. It has been very, very deliberate in terms of how we've managed the business. South Africa on a like-for-like basis, NOI up almost 10%, vacancy reducing to 4.5% off of a high last year. This time last year of around 17%, 18%. Europe growing at 3% on a like-for-like basis and vacancy reducing there to 2.3%. And you're seeing a nice recovery in NAV off the back of the valuation uptick that I spoke about earlier. I think, again, just to reiterate the focus and agility, which has delivered the superior returns in South Africa really down to the active asset management what we've done on the office portfolio in terms of derisking that where vacancy is currently sitting at sub 10%, and we still remain opportunistic. It is a core market for us, and we are seeing opportunities. I think the balance sheet gives us the opportunity to go and experiment and play a little bit. In Europe, the focus over the last 12 months was to unlock the development pipeline. We'll get on to that a little bit later and also through the introduction of third-party capital, which has moved us into what we announced the other day on sales in terms of seriously considering a full sale of that platform. Again, we'll get into a lot of that detail a little bit later on. But underlying performance in Europe, our portfolio is capturing the tailwinds, i.e., the market rental growth, just over 3.5% positive reversions across pretty much every country in which we operate, and there's still forecast growth to come. I hand over to Zaida on the financials.

Thanks, Andrew. So I've never had the opportunity to present a bad set of results. So that's thanks to the team, a stellar effort during the year. In SA, your NPI has increased by 8% year-on-year. That's driven by good letting in the industrial sector as well as the recovery of -- or reduced COVID rental concessions in the retail sector. If we look at the straight-line rental adjustment, again, improving for the second year in a row, and that's off the back of the stronger leasing activity. Other operating expenses, well under control, slightly reduced year-on-year as a result of the reduced asset management fee because of the lower level of gearing that we have in place. Income from investments really just based off the power portfolio, a good set of results there. Andrew has alluded to that already. But if we look at it on a face value, on the income statement, your March '21 results had a portion of it still higher shareholding at 75%, hence the 18% variation. In terms of fair value adjustments, there's been a recovery in the derivative instruments. So ZAR 113 million, compared to the ZAR 227 million negative incurred in prior year. And that's of the interest rate swaps, cross-currency swaps as well as your FEC translations. Fair value adjustments in SA, although it has come down [ ZAR 2.389 million ] decline in the overall property values. It has been offset by the improvement in the underlying investment valuation of the portfolio in Europe. Net finance costs, the book has been well-managed. The reduced gearing has resulted in savings as well as the swap book that is managed on a continuous basis, ZAR 18 million, a 16% improvement in overall net finance cost, resulting in net profit after tax of just over ZAR 1 billion. If we look at our distributable earnings, some of the key highlights is the recovery of the SA base NPI of ZAR 100 million and the savings in the finance cost of ZAR 29 million, offset by your SA disposal income of ZAR 18 million and then that reduced earnings from your -- from the offshore investments [ in Powell ], resulting in the ZAR 866 million distributable earnings, which is a 10.8% increase year-on-year. In terms of the balance sheet, really well-managed balance sheet, no real pressure. Gearing has reduced. There's been little movement on the SA portfolio. Four properties were transferred by year-end, the write-down resulting in a reduced value of just over ZAR 15 billion European investment, the underlying investment evaluation has improved by just over 12%. If we take the ZAR 6.8 billion, which is your 75% interest and net that off with the outside shareholder interest, our net investment in [ Powell ] is at ZAR 5.9 billion. A couple of highlights on the balance sheet is the improvement in the trade and other receivables or the decrease in the trade and other receivables that's due to the proceeds from the U.K. investment that was sold and transferred by year-end, but the receipts were only received in the month of April '21. And then on the other liabilities, that has decreased by just over ZAR 300 million, and that's also because of the top-up dividend that was declared in the March '21 year-end that was paid at the end in April '21. A snapshot of your balance sheet therefore, summarizes that improvement of -- in NAV of 1.9%, 16.96% NAV per share driven by your mark-to-market improvements on your derivative instruments. The reevaluation of our offshore portfolio set off by the write-down in SA and some working capital requirements throughout the year. And because of the exchange rate improving at year-end, there was a translation -- negative translation adjustment on the net asset value of the [ Powell ] portfolio. In terms of the balance sheet, a lot of attention is focused on managing the balance sheet. LTV has improved over the year as well as our rating has remained stable. The last rating was performed in October. The outlook is stable, as I mentioned. There's been -- we had some activity during the course of last year in terms of our sustainable lending facilities. We benefited from a 5 basis point reduction, having achieved some of the targets in terms of that facility, and we're on track also to achieve a 10 bps saving on the larger ZAR 800 million and sustainably linked facility. In terms of overall covenants, there's been improvement across the board. Interest cover ratio has improved. The incumbents ratio has improved as well given the ZAR 1.1 billion settlement of certain facilities that released security during December last year. Very limited refinance risk, across the balance sheet of EUR 40 million facility that was maturing later this year has been refinanced. And we have sufficient facilities -- available facilities to us to settle any short-term facilities coming up for renewal with ZAR 1.2 billion in unutilized facilities over the year. And then just the last point to note, on the maturity profile of the SA debt seems unusually low at 2.1 years, but that's because of some of the proceeds that's been used to settle our facilities. And as we refinance those upcoming facilities, that maturity will improve over time. Darryl?

Thank you, Zaida. I just would like to emphasize that Andrew raised in the summary, the executive summary that it has been a deliberate approach. A lot of the results that you're seeing today is a culmination of 2.5 to 3 years' worth of work in this business, which was kind of stalled over the period of COVID. But customer experience, the asset experience, agility of the teams kind of we had mentioned, Gorilla tactics in the past about just being more aggressive, front-footed to the market, taking pride in the assets. This is a culmination of activities that has really led to this amazing set of results, and it's a big hats off to the asset management team and obviously, the support team that helps us deliver this. So we're sitting now at a vacancy of 4.5% across the SA portfolio. We had forecast of 6%. Sorry, I'm not using the slides. The WALE has improved to 3.3 years, and negative reversions of 17.5% across the sector. If you -- we've got 28% reversions as a result of two large office leases, one concluded in February and on really just before -- just after pre-close, that's 40,000 squares of space. So a negative reversion of 28.5% in office, 4.5% in industrial and 7.5% in retail, which is an outstanding result. It takes you down to 17.5%. In our office sector, we performed well. We're sitting at probably half the norm or half the average for the sector. As a diversified portfolio, it's an outstanding result. What we would caution the market on is we've done well in a catastrophic environment. There's massive vacancies, massive structural headwinds with oversupply. We're not seeing really a massive take-up in office conversions. There are opportunities of converting office to resi, but we're not seeing it at a grand scale to kind of suck out the 1 million-odd square meters that exists. And so our team has to -- we celebrate today, but tomorrow, be back on it because it's going to be another challenging year. We had mentioned last year if we could end FY '22 on where we started, in office, we would have done well, and the team has done that. So I think it's -- we've done 30 of the 177 leases this year -- 17 new leases, 30 of those were in the office sector. So it's an outstanding result, achieving a growth of 2.1% and extending the WALE of that to 3.6%. Our industrial portfolio, again, we were at 17.2% when we started the year. That's dropped to 1.6%, and I would again like to emphasize. We've always said, as anyone can buy diversified, they can make their own diversified portfolio. Our intention was always to be best-of-breed in every sector, and we benchmark ourselves against the best of breed in every sector. There's one fund that we believe would outperform us there. But at a 1.6% vacancy, it's an outstanding result for us. Marginal, at 7.5% downward reversions -- 4.5% downward reversions in Industrial is really -- it's an outstanding result. And I'll get to some of the detail later. It's off a very low incentive. So it's 10.5% based NPI growth, and we've got leases between 7 and 10 years in the new leases, which is a fantastic achievement. Retail was anticipated to deliver, and it did. Our malls we've always maintained are market dominant, the property fundamentals tick every box. You're sitting with this, a very resilient customer base of national retailers, some north of 80%. And that bodes well for a portfolio that's as well-positioned as ours. I think again, retail would carry -- retail carries risk, but we navigate it with good assets and good asset management. So we're seeing some recovery there. Turnover up 10.6% visitor and footfall is growing at 9%. The cost of occupation is still a respectable 7.1%, slightly uptick on 6.8%, but certainly, we've got -- there's still room there. We believe that 10% is the threshold. So I think we're doing fantastically. And the trading density at 2,500 [indiscernible] square meters, it's a good result. The improvement in NPI, this -- some of this has been touched on, but we would say we've achieved a NPI growth of 9.6%, really as a result of the reduction in vacancy down to 4.5%, much less COVID relief afforded. It was ZAR 11 million against ZAR 62 million the year before. Our bad debt expense has been reduced to ZAR 40 million. And our letting vacancy overall is ahead of forecast where we had said 6%, we're at 4.5%. The remaining vacancy is across the assets in Brownfisher, which actually the team has done an amazing job there. I think we're sitting with about 3,500, 4,000 squares of space available there. We've got 2 assets in Santen, which have always carried a structural vacancy, and then the design [indiscernible] and Balfour which our redevelopments carries around 9,300 squares collectively. The arrears are significantly reduced at ZAR 42 million, and we did a write-down of the SA portfolio by 2.6% to about ZAR 391 million, which is, I think, conservative. 50% of that portfolio was valued by external valuers. We took the lower of directors' valuations, relative to the external value. So I think it's a good approach and ZAR 233 million of that is in the office sector. The most important metrics for me here would really be on -- if you look at the line that shows subtotals because we've spoken about the reversions, the rental reversions of 17.5%. Escalation at 6.3%. It's a healthy escalation. The WALEs extended to 3.7 years. For us, the most important thing is the 4.7% incentive. It's a great result. It shows that our lease data is on point. It's accurate. It's transparent. And we're not buying leases here. So we're going at the right rental level with the right incentive level as opposed to inflating it. And I think it's a very important statistic for us to look at. If you look at the 91% of FY '22 expiring leases, which have been let, 177 leases concluded this year, 17 new leases, 30 of the 70 are in office and 72% of the opening vacancies let. If you want to understand kind of the activity in a very challenging sector of the 135,000 squares opening vacancy, 85,000 of that closed was in office. So it's a stellar result in a very, very challenging sector, which speaks words about the asset experience and the client experience because that's where you really have an opportunity of engaging and understanding your tenants. This slide probably makes for better bedtime reading, but I will -- I think what we -- this is our strategic filter, and we measure ourselves against this every single day. It's we pitch our assets across the ideal state versus a potential state, versus sell it at a price. And so your top left quadrant, which had 1 point and this is just purely for the office sector for now. What we've shown is we've shifted nearly ZAR 400 million worth of assets from potential into our deal state. And we've shifted assets that actually were kind of yesterday's heroes, and we're losing a bit of ground into our deal state. And that comes from active -- it does come from active asset management. And certainly, one needs to be frank and say, well, we've seen real opportunity in the secondary nodes, like [ Brinston ] and Fourways, where traditionally, those were nodes that were always classified as secondary today, they're becoming actually your star performers. We almost carry no vacancy in that node. The rentals exceed [ Santen ] and Rosebank. It really amplifies what Work -- from home has done. It amplifies what customers' needs are in terms of access to other amenities, close to work, schools, home. And those are nodes for us that become really, I think, a strategic focus going forward. And that's why we -- the two take -- well, the takeout from this is just to watch where the errors are going and ideally what you want to be doing is shrinking the bottom segments and pushing everything to the right. And that's our strategic filter. On the SA development side, we're very tough to announce now that we've actually -- we're well underway across the three assets that we've spoken about probably for 3 or 4 years. Design quarters on track for a fantastic opening the food hall, which is vacated by from the ex Woolworths space is now being filled by 4 restaurants, track bicycles from the U.S.A. And then we've secured [ checkers, checkers vets food or checkers pets and checkers liquor clicks ] and you'll have a fully let mall with a uptick of around ZAR 16 million worth of NPI when we fully let and fully trading. It opens in phases because we are shifting tenants around. I think it's one of the most exciting turnarounds and for us, it also gives us confidence that we have the ability to look at assets and see stuff that people don't often see in assets. So these are not quick fixes. It takes a lot of time to get it right. But we believe that we're really on point there with Design quarter. It's in the sweet spot now and it's going to take advantage of massive change that's happened within that area. So a very exciting project. ZAR 144 million of spend with ZAR 16 million worth of NPI uplift. Balfour is an evolving asset. We've always said it's challenging. First phase of Balfour was clearing out the corner of Highlands Mall. We're introducing two drive-throughs, keeping it simple just to allow better access to Balfour Mall. And we've got a lot of tenant movements taking place in Balfour as the first phase of redevelopment. So that's -- I would call it more evolving than absolute sweet spot for now, but it's something worth watching because its location is -- we believe it holds a strategic location in the portfolio. The first is -- will be trading in June. It's actually -- the Piazza is fully let, but we're engaging with one restaurant ready to switch brands there. It's a great redevelopment in a very challenging environment. But we've always said the assets that you're working on need to carry their own brand. The first for us is a bookend of Rosebank. It's a place where business people meet and eat, and it's just suffered as a result of COVID. It suffered as a result of the closure of the Hyatt. We were anticipating that opening first quarter this year, we hear it could be second in the second quarter this year. But we are rowing our own boat there. We believe we're on to something really good. So we would encourage you as investors to have a look at the assets. And if you wanted to see them, we're happy to take you around.

Okay. On to Europe. And I think just to set the scene, and I know you've spoken a lot about the tailwinds that have been behind that sector, but a lot of these stats do you speak for themselves and back that up. Starting from a take-up perspective, demand is far outstripping supply, and that continues even in the world where we are today where there's probably a little bit more headwind from inflation and interest rates. And in a lot of ways, when you start to unpack that, that continue to hamper supply. From a rental perspective, that's continued to move as you'd expect when the supply dynamics or supply demand dynamics are out of kilter. There still was certainly until the end of Q1. In Q4 last year from an investment perspective across our core markets, Germany, France and the Benelux massive inflows of capital. And it still remains -- is still coming in. And you've seen prime yields shifting and they're sitting at or around the 4% mark portfolio deals closing at premiums to that. So we still expect continued rental growth across the sector. Like I said, there's certainly some headwinds now in relation to inflation. But that is -- that actually has, in some ways, some positive impacts certainly from a supply perspective, we've put on hold for the moment, the Polish development really off the back of cost inflation and the fact that we're into a potential sales process. But we saw costs going up there between 25% and 40% from when we first started looking at the development. I want to flip forward two slides before I come back to the detail. And just to recap some of our investment highlights just from a portfolio perspective, where we are in some amazing locations across Europe. It was a portfolio that we aggregated across core markets, Amsterdam, Paris, Leon and Marseille. So this isn't just a scattering of logistics properties. We've been very definitive and focused on how we build that up. We've moved a lot of these assets from core plus value-add assets with risk into the very core space. And we're well-positioned, if you look at the WALT just over 5 years, that really sits inside the core bucket. From a rental growth perspective, where we're sitting today relative to market, there's approximately 8.8%, call reversionary potential based on where market rentals are today. And if you believe that the rents are going to continue to grow. That's -- there's obviously upside there. We have indexations running across the portfolio as at the end of December at around 1.5%, 2%. Those indexations over the next 12 months are going to be significantly higher than that. The value-add opportunities for us in the development or the redevelopment opportunities across Europe. 184,000 square meters of GLA is really the upside of what we could do. We've got 64,000 near term. Those are the 3 assets we've spoken about over the last 12 months, 2 in France, 1 in Poland. And like I said, we've just put that on hold pending the sales process that we're exploring at the moment. Going back to the operational performance. I mentioned some of these stats. But just to recap, 3.7% average rental growth across the portfolio, really fantastic leasing. I know we've had the tailwinds, but we've managed to secure some really exciting new tenants and expand or extend that lease profile, which has led to the valuation uptick of 12.6%. And again, the operational metrics from arrears and base NOI really moving in the right direction. We spent quite a lot of CapEx over the course of the last 12 months, mostly in Italy, where we secured or upgraded 2 buildings, and then secured 2 very long-dated leases on the back of that, I think, 9 and 12 years. And so where we're putting money to work, we're seeing the impact and the uptick in valuation, which is important. So this isn't just good money [ off the bat ]. The lease -- sorry, the P&L. I know there are a lot of numbers here, and it does speak a lot to what we've mentioned before. I think just to touch on the fund expenses, which is up 8% year-over-year. A lot of that is driven by the management fees, which is linked to the valuation of the portfolio. And we have seen some additional tax leakage come through the business as things move across the European region in terms of regulations. Again, leasing activity. I won't go through every single number like Darryl said, 1 or 2 numbers to really highlight here. Similarly, to South Africa, really low incentive number, which you would expect in a market where demand is outstripping supply. Long WALE on all the new leases when we bought the seed portfolio, just a reminder that, that had a lease profile of around 1.5 years. Typically across markets like France are only able to secure 3-year leases, 3, 6, 9. And so the guys -- or the management team on the ground there has done a superb job in pushing the length of the leases that we've managed to secure. And that's, again, been captured in the valuations that you're seeing upfront. Just a quick snapshot on Carpiano. This time last year, we had significant vacancy there. We were carrying quite a lot of risk in the asset. We had 2 -- it's effectively 3 big logistics assets inside of Park, and 2 of those carried major risk for us. Italy, it's the only asset we own in Italy. We didn't have a team on the ground there, and we did have some concerns. But with -- we spent the better part of, I think, EUR 5 million or EUR 6 million upgrading the asset. We've got, like I said, 2 long-term leases, 9 and 12 years. We've pushed the rents up by between 10% and 15% on both of those assets. And from a valuation perspective, we've seen double-digit growth in value. So that again talks to -- we obviously are conscious about income and making sure that we've got a cash underpinned to everything that we do, but a significant amount of value that we can create is in the medium and longer term through the active asset management and people on the ground and thinking about how we spend our capital. No doubt this is a question that you all have. And so just an update from a pale sale process and kind of how we've arrived here, if you recall, for the last 12 or so months, we've spoken about the introduction of third-party capital to support the growth of that business. During the interactions with potential partners, we received significant inbound interest for the portfolio as a whole. At the beginning of this year, the Board -- IPF Board then undertook a strategic review of that business with a view of looking to which option would create the most value for shareholders, certainly over the longer term. And so together with our co-investment partners in Europe, we agreed to explore a formal sale of that platform. It is very, very early stage. We've got advisers retained that are working with us to explore that sale. And as and when we have more information, we'll obviously come and talk to shareholders when we have something that is more concrete. At the moment, it's -- like I said, it's very, very early stage. We are cognizant of the potential size of the proceeds that will come back if the sale does happen if we move forward on that basis. And again, we have ideas around that, but it's too early to formalize and at the right time, we'll come and talk to shareholders about what we think is the best course of action with that. But I think the one point to take out of this is that we are and remain focused on a geographic investment strategy. We've been in Australia. You've seen us recycle capital there, the U.K. and now Europe and we'll continue to explore those opportunities with the management teams that we have or have worked with in the past. So yes, right now, not a huge amount to say. But certainly, we think the next 6 months could be interesting.

I think the client experience, coupled with the culture of our business really bodes well for a successful outcome. So I'll just highlight and really what that means and show you some real-time examples. I think what we set out the goal is really to either meet or exceed clients' needs, almost anticipate where their thinking is going and always be first to market. That's the challenge that we've set for the team. We're willing to experiment, but it doesn't come at a high cost. Most of what we do is redeployable, which we'll give you some examples later. It's a high-touch environment, understanding clients' needs. The way we show space, the way we engage with people, it is a strategic differentiator and it doesn't come without the kind of the right culture around people sitting in the business. These are -- this was kind of the first showroom experience. It was a white box. We basically stripped the floor. If you start from the bottom left and kind of work your way in a clockwise direction. We changed what the space looks like. We created a launch environment. We had -- with a complete video walk-through of showing what this potential of space could look like. We have set up boardrooms. We had even given floor plans of whether clients wanted to look at hybrid, what kind of hybrid space they wanted, whether it's offices, open plan, what kind of mix between the two? And if you look at the bottom slide, that is actually -- that's a poster. It wasn't -- we had filled the room with like life-size imagery of what the space would look like. The great thing about this, we let the space, 950 square meters, adding pretty much 15 bars of value against a ZAR 700,000 spend. and we realize it works. We lift it up to the next floor and so on and so forth. And we'll do the same across any vacancies we have. So we've learned some great lessons here. If you look at -- these are things that we actually spoke about 3 years ago, the first, the basement parking. These are small touches that can change a mall's experience completely. It's well lit. It's well-painted. It's attractive. At Design quarter and 2929, we have ignited really the entrance space. For [ Sanan ] Valley, we met tenant requirements there. So I'd say that some of it, the showroom, the boardroom and reception areas was managed by us, but a client required kind of lifts and storage for their bicycles and showers, which we put in. So some of it comes out of just getting feedback from clients doing your own surveys and some has that -- is around having the third eye and anticipating what their needs are. The great thing about every single one of these is that for the bang for the buck was astronomical. We've had a return in every single one of these assets where we have changed one aspect of the building. So we know what works. We're rolling it across the industrial portfolio now as well. So we anticipate seeing some great change. What does success look for us? I guess, it's client retention, first and foremost. -- and client attraction in the various sectors. Yes, our ESG strategy is well on track. It's fully integrated within the broader fund strategy. It carries the same kind of attention as we do with the assets, strategic filter, must be purpose-driven, has to be impactful and it must make a difference in the lives of the communities in which we operate. We're engaged with all stakeholders, which is tenant staff, communities, our shareholders and debt funders, and we've had a great outcome as a result of that. The real amplification of that in our business now really goes around tenants because, in fact, we are definitely carbon negative. In fact, we are we are saving carbon on our direct and indirect expenses, but the big play for us now is to help tenants get there as well. In a multi-tenant -- multi-tenanted portfolio, often -- the large corporates have access to ESG expertise. But multi-tenants rely on us, and that's going to be the big amplification and activity in the business. The European ESG strategy, like the developments was really, it was about to start. We've just put it on hold as you're going through the sale because we would be way behind the curve, trying to install solar, while a potential sale process is taking place. The Board has committed, I'm committed. I sit on the Green Building Council. It's one of my KPIs. I see Nick is in the room, and I hope I've delivered on it, Nick. And the key here is really to collaborate with industry bodies, best-of-breed service providers. and we're well on track. I think by our interims, we would have better feedback for you on our social and governance issues. Well, governance is kind of -- it's definitely much on track. In terms of social, we've got some interesting expenditure and interesting investment. We are just busy closing some of those deals at the moment, something at Balfour Mall, which we think makes a big impact on community in which that serves and we'll have better feedback for you at the appropriate time. We're still very much committed to the AMP program, and we have a number of activities taking place in the malls really where you can touch the hearts of the people and the customers of those malls. As far as the environmental targets go, we have -- the FY '22 was 4 buildings to be rated. We achieved 5. We've got 2 5-star ratings. One's new, one was a bump up. The target for FY '23 is 6. The targeted solar PV was 2.39. We exceeded that to 3.59. We're actually running out of roofs. So the next level of that is going to have to be around battery power, battery savings, a significant investment in LED, but we are running out of roof space to more impact. And I think if [ nurse ] would permit the spec capacity could be transferred, obviously, to the communities in which we serve, but we are where we are there. We've got a 5% saving across energy, water and gas emissions. It's been achieved. And this year, we will be doing 27 buildings -- will be applying for energy performance certificates across 27 buildings. Our carbon footprint submission is on track. We achieved a B rating. The outcome of that, the lenders required it. And as a result of that threshold being achieved, and it's a very good rating for a first-time submission. One of the loans carried a 5 bp reduction and there was a ZAR 300 million and ZAR 800 million loan. We got a tender production because of that target. So very much on track.

Okay. So if we look forward to the coming 12 months, strategic priorities, again, it always has been a focus on long-term value. Tenant retention, like Darryl said, certainly in South Africa is #1 for us. high-touch engagement, working with them tailoring solutions and really working with a tenant to work with their business and what they need, an agility there is going to be important. From an active asset management perspective, we've seen what it's done both in South Africa and Europe, and we'll continue to focus on that over the coming 12 months. Efficient capital recycling, I think that talks a lot to what we're thinking about in Europe and the execution of the redevelopment plans that Darryl has mentioned, design core to Balfour, the first, and then we'll move on to the next round of those that we've identified. Balance sheet still targeting a 30% to 35% LTV ratio, and that's really to give us the capacity to invest and further grow into areas that we like, whether it's local or offshore and then managing our funding profiles from a risk perspective and making sure that, that is diversified. If we look at some of the hard numbers from a group perspective, we're expecting to deliver low to mid-single-digit dips growth in the coming 12 months. The SA portfolio, we feel has stabilized, even though the macro environment remains very, very uncertain. We're looking at base or like-for-like NOI growth of somewhere between 3% and 5% retail remaining very, very strong and robust, but we continue to see headwinds in office, which we all know about. In Europe, again, the tailwinds are there from a rental perspective. So we'd expect to see continued rental growth there, NOI growth of somewhere between 3% to 5%, and that's in euros and coming off a high base from a vacancy perspective or occupancy perspective. So not as much work to be done there over the course of the 12 months over the last 12 to 24 months. And then balance sheet, very similar from a gearing perspective, but I think heightened risk or increased risk given the inflation and certainly the interest rate environment, I think the balance sheet, its swap profile and how we've hedged out both FX and interest rate risk, we're in a good position where we are from a risk perspective, is very, very low in terms of the risk on earnings.

And this brings us to the close. I think it's important to pay tribute to how we get here and how we got you. Sam Hackner passed away last year. He was Chairman of this business. He was a founder member of Investec Property and which culminated in the Investec Property Fund. He was a friend, a mentor, an unbelievable leader and we wanted to pay tribute. I know that Sam is looking down today, and he is very proud, I think, of the team of what we've achieved. Gary, I'm glad you could join us, and I'm glad you could be for this. So we pay tribute to Sam. I think as a business, it's a bit of sweet time as well as we bid farewell to Zaida, people would have read the SANS report this morning. Zaida came in into this business. On the first of December, you made a significant impact in this business. you learned and you picked it up extremely quickly, and you really presented a gravitas, confidence and a great stability in the business, and we wish you all the best on your journey, Zaida. And we remain friends, and we wish you and your family all the best on your journey. I think to give comfort to the market [ Jenna ] steps in as interim CEO, which is it's in the SANS report. [ Jenna ] as well has had the opportunity of being in it. then looking on it, and now she's back in it. And I think voluntarily, which is a good sign for us. It brings stability. She's known to the business. She's known to the market, understands the business well and the business process as well. So [ Jenna ] is based is not in bases in London at the moment, and I'm sure she's dialed in. So [ Jenna ], we wish you all the best in that. Importantly, we want to thank our people. This is an outstanding result. It's an outstanding result. Graham, your team. It's an outstanding result, which you guys have done in SA and Paul. I know you're watching somewhere. I mean it was much easier when we had it online because we could see exactly who was dialing in. But you should relate to your team. I know certainly, we're going to be celebrating this evening. It is cause for celebration. This is -- we've got there deliberately, and we've put a lot of sweat equity into this, and it's paying dividends. And Paul, you should, I guess, have the same celebration in the U.K., and we wish you all the best. And lastly, just to thank our Board. We thank our Board for access. We thank them for the support, the guidance and the knowledge. And certainly, if we thought COVID demanded a lot of their time, I think Project Portland is going to -- it's going to demand more. So we remain close, and we thank you for the support that got us to this point this year. So thank you very much. And now we open to questions. And Zaida will you join us?

Okay. So I think it's -- we start with the questions on the floor. And I think we've got a couple of questions here. [indiscernible] going to you first.

Look, I know you can't give too much detail on the proposed transaction or sale. But maybe just to sort of gauge magnitude right? You guys are going to be potentially bringing your LTV down to about 15%. I'm trying to figure out if post transaction, you could be sort of in that targeted range or maybe a bit above that, you give any color there? .

Yes, it's hard to give you a firm answer. But certainly, we wouldn't be -- if we were going through this process and looking to sell at book value, it's not saying we'd be exploring. We think there's an opportune time, just given what's happened out there. I think that number is a little bit off. Again, just to reiterate, we don't have firm offers, and we're not working with a firm offer. We're working through a much broader sales process at the moment. So once we've got more color as to where that's going, we will certainly update the market. Any other questions here? Is there any calls or questions coming in from remote, virtual?

Actually you have a look if you guys have done any developments on the [indiscernible] side of the business. So what was the like-for-like valuation uplift on the on the pulp business over the past year? .

Yes. I mean that is that 12.6% like-for-like. So there's nothing sitting in a new that's come on stream there. And I think if we look at where developments would have been coming in. So what we were kind of looking at a 7%, 7.5% for new developments in terms of being able to bring them on stream. Look, we're sitting on the land sort of like we've got greenfield sites that kind of sit within the parks that we own. But that 7.5%, we've just -- with the cost moving like they have, and we're waiting to see where rentals are going. Over the last quarter, you've probably seen roughly 50% of new developments kind of put on hold because of this cost inflation. And a lot of it is actually not just about costs, it's actually access to the supply, i.e., like the steel and the goods. We had one contractor in Europe in Poland effectively "and then -- or tender and then actually remote. So certainly just couldn't get hold of the goods. And that's playing out. So you're getting, say, half the guys deciding to just wait and see what's happening and the other half pushing ahead of it, but pushing the rentals up to get the same level of return. And so that's a positive. Certainly the way that we're looking at this at the moment in a sales process, potential sales process is that you get a fair amount of that value uptick in a price on the land without having to take the delivery risk of the development. So look, we'll look at it over time. I mean at 180-odd thousand squares that we've got, that's probably, I don't know, a 5-year roll out if we were to go -- there's a lot of moving parts to it, refurbishment. You've got to get smarter some planning. Yes, but we were -- obviously, if we don't pull the trigger on the sale, we'd look to unlock that over the next 3 to 5 years. We're just getting some questions coming through online. Nick and Darryl, do you want to take the first one. Your expectation of reversions in the office portfolio for '23 given FY '22 is so skewed by the two leases?

It depends. And I guess 1 must be mindful to set precedent here and make an announcement of where reversions go. Some of the portfolio is holding up. Some of our portfolio across [ Brinston ] for ways is holding up. We wouldn't expect reversions you have in weaker nodes where you have exposure, you might have to do what it takes to close deals, but I don't think it's fair to submit a percentage because it would skew the way you look across our portfolio. We carry pockets of vacancies in [ Santen ] and Rosebank and the rest of the portfolio is well bedded down. So it's a bit vague. But if you will indulge me, that's kind of as far as I'd be prepared to go on this one.

Okay. So I think, Ben, your question around the size of the development pipeline in Europe, we've kind of touched on that. So short term is around 64,000 square capital cost on that is somewhere between EUR 50 million and EUR 60 million. And yes, so if we were to look to unlock that, we would have more than sufficient capital between ourselves and the co-invest partner to do that as well as how we'd look to fund it probably majority bank debt and when it's being completed, the valuation uptick really means from an equity injection perspective, it's -- it to be very limited. In terms of, Paulo, your question. If the sale doesn't materialize, would we continue with that development pipeline. I think I've answered that, we certainly would. The inflation and cost headwinds would be taken into account. But like I said, I think you're also seeing rentals moving to support what the initial returns will model that. CGT. So -- sorry, Nick. Nick, the question is, can you suggest an appropriate listed REITs that can use to value PL. I think if you just look across Europe, [ Segro, Prologis ] maybe a [indiscernible]. But yes, there's quite a few comparables out there, not absolutely perfect, but it'll give you a sense of where the listed market is trading for assets of a similar quality. I think we're focused also on where the private market is trading in terms of some of the bigger deals, kind of north of EUR 1 billion and where those cap rates are coming in. Paulo also asked around City on the sale of PL. There's no CGT at an IPF level. The CGT is effectively incurred at a portfolio level, and that is modeled into our carrying NAV and obviously also comes down to a negotiation between buyer and sellers in terms of who takes on what and how much. So it becomes a commercial negotiation. But certainly, what you're seeing at our level at IPF is effectively incorporating the deferred tax assets in Europe. And the last question, how much debt sits in PL and the cost of that debt. So at a portfolio level, there's a total of EUR 590 million of debt. the LTV there is -- for book value right now is 47%, and the all-in cost of debt is [ 2.3% ]. You've got to then take into account that we've bought a cap -- 5-year cap, which is struck at 1.5% on 5-year rates, and we've seen rates move that cap is now significantly in the money. But that -- the cost of that cap is not factored into the funding rate to [ 2.3% ]. Okay. Any other questions, other we're happy to take questions outside. I'm sure our marketing and F&B team have put on a show if they haven't, we're going to have words because it's about time had a proper graze here. But it would be good to talk and catch up our site's been a long time. So thank you.