Burstone Group Limited (BTN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Investec Property Fund Trading and Transactions Update. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Mr. Andrew Wooler. Please go ahead, sir.

Thank you very much and good morning to everybody. There is a fair amount to get through here. So we'll try and fly through it and leave time for questions at the end. So I think just maybe to kick off and clear out the trading update from last night and really at the pre-close. So we've reaffirmed our guidance going into March. We, obviously, updated our guidance back end of November last year, marginally negative, really driven by the significant movement in interest rates in Europe. But if you look at the operating side of the business and what's happening on the ground in both South Africa and Europe, it's very pleasing to see the results and the metrics coming out of both regions. In South Africa, we continue to see strong momentum. It's still challenging out there, certainly not easy, but the business has performed well. We're expecting to deliver between 4% and 6% growth in like-for-like net property income. The vacancy rates have continued to reduce. We're looking at around 5% in margin. Most pleasingly, if we look at the office vacancy, that's coming down further, 10% last year's September to kind of 7% -- 7.5% by the time we get to March. So I think that is certainly a great result. 90% of the space expiring during the period has been relet. Negative reversions persist. I think it's just a function of the market, the lack of underlying growth, but certainly happy with how we -- how the team has performed very low in terms of levels at around 2%, and we expect valuations to remain pretty stable in South Africa. Moving across to Europe. We continue to see very strong tailwinds at an operating level. You're seeing very, very solid NOI and top line contractual rental growth. So the contracted rent line, I think, we've captured somewhere around 10%, 10.5% over the last 12 months. And that drops -- and that's dropping through 8% to 9% like-for-like NOI growth for the year to March. Again, very strong performance and you're getting the benefit of both reversions. We captured -- we're looking to capture somewhere around 6% to 7% as well as the indexation on the leases that haven't come back. And with a 5-year WALE, we've got roughly 20% of the asset values and lease book coming back to us every year, which gives us the opportunity to pick up that rental growth and the NOI piece, and that is a strong underpin to valuation as we move forward. And certainly, what we're also seeing on the ground is an acceleration of some of the rental growth. So over the last 2 to 3 months, the team there have leased out approximately 90,000 square meters. And on that 90,000 square meters, we've captured around 11%. So you can see the rate of change and what that means certainly from a top line perspective as well as [ caption ] at a valuation level. We're putting the portfolio back by around 5%. The look-through on that from a yield perspective is around 4.9% or 5% at an asset level. And again, a lot of work is being done with externally valued who since checked it with the second valuer and we're comfortable given where we are from an ERV perspective with roughly 10% ERV embedded in the portfolio. So certainly, happy with how the business has operated over the last 12 months and certainly the last 6. The kind of operational metrics are very, very strong. And we're pleased. I guess the interest rate piece in Europe is something that has just dragged the bottom line earnings. If we move into the various transactions that were announced yesterday. On a -- as a basket of transactions, we're talking about the internalization of the management companies in South Africa and Europe, the acquisition effectively taking at our joint venture partner in Europe, so together with EDT. And then partnering up again with Graeme Katz and his team in Australia as we buy -- as we just bought out together with them the fund management business of Irongate from Charter Hall. The impact of those transactions as a whole is somewhere around 2% to 4% spending accretion. We'll have a business that we'll operate across 9 countries. And today, we operate effectively across the 8. We're just adding Australia. But for the total asset base of around ZAR 35 billion seeing across those territories, $150 million of equity under management, obviously, focused to Australia. And our balance sheet from an LTV perspective remains kind of unmoved. And we'll get on to that. There's been a significant amount of work done to recycle capital to effectively fully fund these transactions. And what we think this creates for us going forward is certainly a quite dynamic and certainly an objective international property company. So the shift overnight moves us to majority offshore if you look at it on a gross asset value perspective and exposure. We have a fully aligned management function across these 2 territories. It's important as we start to think about potential corporate activity and the introduction of institutional capital as most of you start to build out their capital fund management as strategy. And it's been very important to get rid of some of the perceived impediments in that. From a geographic perspective, we will be around 32% exposed offshore, and we would expect that to probably continue as you look to develop and push the businesses in both Australia and Europe. Certainly, not turning our backs on South Africa, just that when you are -- if we're successful in those 2 territories and you're multiplying everything by 20 and by 12, I think the math will naturally shift. In South Africa, you have a diversified portfolio, certainly, what we think is very defensive across retail, industrial and office of 1 million square meters of logistics space -- quarterly logistics space across Europe and an attractive entry point into Australia to really move on the capital light business and build on the success of Graeme and the team who only launched that side of the business a few years ago. And that gives us the opportunity -- certainly potential opportunity to take that capital light fund management strategy and roll that out across the broader framework within IPF across Europe and potentially South Africa. Paul and the team in Europe have been successful in the recent past, having aggregated portfolios doing Paul [ Simon ], Hansteen their businesses sold on to Logicor and then obviously, together with us. And Ares and the light industrial business that we've built up together and then sold on to [indiscernible]. So there's certainly a track record for us to build off of. And bring the capitalized funds management piece -- brings another [ lump ] to the revenue streams for IPF's ability to drive fee income to leverage our management capability and capacity across all our territories. We think there are synergies that -- in the capital markets that the guys who were in Singapore last week at [ PERI ] talking to the Asian capital markets around opportunities in both Australia and Europe, and then certainly some overlap. And as an example, one of our big investors in Australia is Ivanhoe Cambridge. We have been talking to them about coming into our European platform. But few years ago there was a company in institutional capital that we'd love to obviously talk to and introduced into our broader international footprint over ZAR 500 million. Also just from a management perspective, and we're bringing in new 50 people across the globe very, very heavily weighted towards property and asset management, so frontline skill. In South Africa, the team is run by a Graham Hutchinson. He's been with IPF since 2012 and he looks after that business. We've got approximately 10 to 15 people in SA that look after the asset management side of our business. In Europe, that business is headed by Paul Rodger. I know a lot of you would have had exposure to him over time. And again, we've got people on the ground across each of our core markets in Europe and middle of that -- and maybe talk to a little bit. As well as then Graeme Katz is well known to you guys from the Irongate days. And it is really great to have him back together with George and Adam and Christine and that really formed the core team in that Irongate's table. So great to have them and the ability to really now leverage international platform as we look to move the business forward. And then just in terms of where we end up, and I've mentioned the high level stats, but to break it down a little bit. South Africa, ZAR 15 billion portfolio diversified. And Europe, circa EUR 1.1 billion of logistics assets. And then Australia, the equity under management of about $450 million with a total build-out value and that was about $2.5 billion. Certainly, the way that we're thinking about that is best-in-class management teams at the forefront of an increasingly dynamic and changing real estate market, and we think we're well-positioned to navigate that and certainly potentially exploit that to a certain extent. And before we deep dive into the various transactions, I think what is important for investors and our stakeholders is just to understand what the evolution of our core investment strategy is over the next 3 to 5 years. But from a geographical perspective, as I mentioned earlier on the call, we do think that our international exposure will probably start to exceed South Africa. Again, it's not just in terms of direct investment, but also our ability to manage third-party capital and to grow the asset base off of that. There's a shift towards introducing capital light and funds management and right now, we are effectively 100% everything comes off our balance sheet. As opposed to in time we would like to have circa 25% of our overall kind of asset exposure kind of being managed on behalf of other capital. And I think from a risk and return perspective, we've been very successful over the last 5 to 10 years in the different geographies in terms of playing in our core plus value-add space. It doesn't mean that we're turning our back on core products. But certainly, that is -- that doesn't require as much management skill and capability. And we believe that the real focus for us will be playing in that core Australian space. In Europe, we've done it exceptionally well. And we've done the same here in South Africa and Australia. So we'll be looking to shift up the risk curve slightly, certainly not taking on more than we can chew, but understanding that risk and converting it. Walking through each of the individual transactions, we'll start with the management internalization, headline price of ZAR 975 million. And a significant portion of that is noncash. So there's ZAR 325 million, almost 1/3 of that is in deferred consideration, and we're settling another -- or just over 1/3 by the sale of the 2 regional head offices back to Investec. We're still in middle of, and implied cap rate on market rentals of around 8.5 -- 8% to 8.5% and contractual rental which includes the top size of 9.2%. So we think from a fund perspective, that's a good trade relative to what we're buying and the ability to invest in the management companies that will create operational leverage over time. We have also negotiated right of first offers across the Investec asset base. I think the 2 notable assets there are the Neighbourhood and Brickworks development down in KZN. And those were offers up for a period of 2 years and Investec has agreed to lock up the equity for at least 12 months post-closing. The impact of the transaction on an earnings level is circa 4% plus earnings accretion. And so we think that is a good result. From a pure process perspective, we've had an independent Board that was constituted to oversee the transaction. So those Board members that are conflicted in any way through their participation within either Investec, so the likes of myself, Nick Riley, as well as those Board members that sits on other Boards as independents Philip Hourquebie, Khumo Shuenyane are excluded from that committee. We have also had an independent experts appointed to oversee upon the transaction and their preliminary view is that it's fair. And we've had external property valuers most of which looking at the valuations of the property piece. And then from a process perspective, going into the shareholder vote, because this is relatively high transaction and its north, I think of 5% of our market cap, requires a vote. Investec will be excluded from that vote, meaning that around 75% of shareholders will be able to vote. It will require an ordinary resolution to pass, which means around 38%. As we then say, we've got support from 29% of the eligible vote, which really means 60% of what's required and that those levels of support are in writing. So we're very happy with the feedback that we received on the road from the largest shareholders in the group. Moving to Europe, and I'll hand over to Paul in a second, I'll give the headline numbers here. But we've, together with EDT, acquired our joint venture partner's stake. So effectively, that is now fully exited. The headline price on that for the 25% was EUR 126 million. When you back sold that to an asset level yield, it's 4.9% or around ZAR 1.1 billion, which really is around where our book value is. It was very important for us that we didn't tinker with the structure, we had to move very quickly in order to effect the transaction. It came about at the back of the pulling off the sales process last year and we've been discussing this with our joint venture partner. Reminded that the sales process was very opportunistic, really based on the inbound interest and pricing levels that have been kind of shown. And when the market shifted that kind of abnormal profit, just wasn't there anymore. It's been a long term, certainly Europe for us and the logistics space is a strategic hold and investment for us. So it's good to -- well, we feel it's a great result to have increased exposure there. But we needed to move quickly. The EDT come in pretty alongside us. If we've tinkered with the structure, it could have been hugely punitive from an overall tax perspective. And certainly, we'll be looking to bring in over time, strategic partners who look to grow that business. It also creates opportunity for us to introduce third-party capital and other partners, either within the PEL portfolio or other strategies and platforms that we've been thinking about for some time. So maybe Paul, I'm going to pause there and just let you talk about what you're seeing on the ground in Europe, some of the key themes. And yes, so over to you.

Thank you. Thank you, Andrew, and good morning, everybody. Yes, look, Andrew, I think you've covered it quite nicely when you talk about the underlying rental growth story being so strong in Continental Europe. I mean, that's really the key message here that we are seeing is that for a long time, we've been waiting for rental growth to come through -- in the content of markets. It was always expected, and we could see the strength of demand prior to COVID, but really see anything through COVID and we're now pleased to see that's converting into very strong rental returns. I mean when you look at the 90,000 square meters that you mentioned earlier, a positive reversion of around 11%. I think it's a very strong story. That's not an isolated situation. I mean just past week, for example, we're looking at a couple of transactions in the Netherlands on a releasing capacity, which will show similar sort of increases above the passing level for a couple of tenants that we're filling within our [indiscernible] estate. So I think that rental growth story is very strong and continues to be coming through, especially when there's such a restriction on development supply and there really is a severe lack of good quality stock in each of these local markets. I think that the next point to mention -- and I'm not sure what slide is in your deck, but it's the acquisition of the additional interest and location map. I mean, the point here is that the assets in Europe are situated on a very core heartland of Western Europe with 77% of the income really driven from those local markets. So it's Germany, Netherlands, Belgium and France. And I think that's not to say that the peripheral countries of Spain or in Italy are not performing strongly, and we are seeing very, very good performance in those low markets. But I think the key message is these properties are best-in-class and located in the real Continental European heartland. The lease structures, I mean, we've touched well over 90% of each of these leases that are acquisition. We have got a weighted average lease length of 5 years to expiry, 4 years to break. We understand the real estate very well and these tenants are very well-known to us and we understand the underlying businesses that occupy the space. So I think it's a very strong message from an existing portfolio standpoint. I think the other thing to mention on the opposite side of the coin really in Europe is the team that manage these assets are very well-honed, very experienced, dynamic real estate professionals. And I've been working with a good handful of these boys and girls since my Hansteen days, who were fortunate enough to rejoin the fold after we sold that business and came back into the PEL portfolio. And I think that gives us a really good balance in terms of people and relationships to build upon for this portfolio. The key point on the team side is that they are in-country, they're specialists. They speak the local language of the tenants. They understand the tenant's needs, and they're on-hand to deliver the results of those tenants when they come forward. And I think looking forward, the key part that we want to focus on. I mean we've got this year, 280,000 square meters approximately off space coming up for renewal. We have 130,000 square meters of that already struck, and then we have 110,000 square meters which is under offer. So essentially, there's a sort of fairly small 13% section that is still to be addressed, and we're fairly confident that will show good opportunities to be let in the coming months. And I think in addition to that, we've got the development sites that are situated throughout our key nodal points, and we look to bring those forward over the next weeks and the months ahead.

Thanks, Paul. I think the other point just around valuation and where we're getting in and also what we're seeing in our business. I made the point earlier, with around 20% of your lease book coming back every year, that does enable you to capture the underlying rental growth, not just indexation. And that is acting as a significant buffer in the current volatility around cap rates. Our original investment thesis in Europe is always predicated, one, on from a return perspective on rental growth. But also, as you thought about risk, the potential for interest rates to move out, and therefore, the ability of potential for cap rates to expand was again a premise by that. So it's good to see it coming through. And certainly, the fundamental reason why you're seeing in our portfolio of 5% write-down vis-a-vis some of the other bigger write-downs that are being taken by some of the other listed across Europe. Equally, the U.K. valuations are certainly coming off quicker and larger than in Europe. So those counters that have a big exposure to that footprint are certainly seeing bigger impairments. The last point on Europe, we made the point in our interim results in September. We've done a lot of work around the corporate cost structure. We said last time in the trading update we are ripping out around 40% of the corporate costs inside that business. We'll deliver that over the next 2 years. Half of that -- kind of EUR 1 million comes through next year, and we'd expect the other millions of a cumulative effect of EUR 2 million to either base the year after. And equally, what we've done is not just cut out the costs, but we've introduced the ability to flex and leverage that cost base going forward. So it doesn't become a linear cost base. We're really start to get the doors opening up. And with the revenue growth, as we're seeing together with the costs now, contained interest rates effectively capped out on where we are today, we would expect that earnings line start moving in the right direction going forward. And then lastly on to Graeme and Irongate, we've been keeping them up all week as we had to dial into various roadshows late at night, but it's great, as I mentioned, upfront to have him and the team back. Certainly excited about what we've done over the past together and equally excited about what we're going to be able to do together going forward. Just headline, and I'll hand over to Graeme is that we bought a very, very small amount -- maybe talking about here. But really teaming up with the management team have delivered over 200% total return to shareholders at a JSE level and over 60% to those -- on the ASX. So really started about the opportunity. Graeme, maybe if you can give a sense of what you're up to and where the opportunity lies.

Yes. Thanks, Andrew. And it is great to be back and great to see all friends in Western markets, albeit late at night. But yes, from our perspective, this is -- the work we're doing in our unlisted fund is very much within our DNA. And a few of those who've got long memories, remember that before we had an initial roadshows we listed in JSE, our heritage in fact was running 3 unlisted funds that's largely opportunistic mandates. With this, our case into some exchanges back to the future. When we internalized a couple of years ago, if you remember, we stifled on our unlisted funds. So this business has been running for sort of 2 or 3 years. And we initially started out by raising a fund out of Hong Kong with Hong Kong billionaires around circa $160 million. The point behind that is that we're trying to stretch that $160 million of equity effectively to $450 million of equity because. But that fund then co-invest alongside other third parties such as Ivanhoe Cambridge which Andrew mentioned before, to stretch that $160 million into effectively $450 million or $500 million of equity. So it's very much a capital light structure. We spread the risk amongst this particular funds of Templewater fund, office building in Phillip Street in Sydney, large-scale redevelopment of a [ wall shed ] in Melbourne on the sort of fringe of the CBD, retail center in Adelaide which has got Kohl's and Apple in there. So we've spread the risk. The properties are performing well. So we've got a good running start for our investors investing in this stage of the project. And we're looking forward to great opportunities in Australia. Certainly in the last year, interest rates and inflation has caused some dislocation and the market hasn't really come through valuations yet. But we're certainly seeing terrific opportunities in the next 2 or 3 years as the Australian economy kind of reboots back to normality. We're certainly seeing the education sector kicking around with the Chinese students coming back into the market and tourism is coming back. And to us people who are in a sense sitting on the sidelines and we sense there's going to be tremendous opportunities -- buying opportunities in the next 18 months or so. The team is excited to be part of the action again. We're partnering with Andrew and his team and we're really looking forward to a profitable next few years.

Thanks, Graeme. And so just to end off and summarize in terms of overall financial effects and the P&L and equally on the balance sheet. As I said upfront, the basket of transactions here that we're expecting to deliver somewhere between 2% and 4% accretion. The majority of that accretion comes out of [ Manco ] internalization at around 4%. The European lease in the short-term is marginally dilutive and the Europe and the Australian piece is effectively neutral. I think importantly, on the management piece, there is driving a lot of that accretion is the net management fee savings. I think in the results or the update we gave yesterday, it is around ZAR 75 million. And there, we've acquired and used certain -- we're not prevailing stock prices, because it is moving, but certainly using the fee structure off of an EV that is linked to market cap. And then we have introduced a bit of structuring with Investec from a deferred consideration perspective that gives us more benefit day 1 as we then build that management franchise over the next few years and deliver growing earnings. From an LTV perspective, I mentioned upfront that we're going to be around neutral marginal tick up on LTV. And that is because of a significant amount of work we've done to recycle capital. Around about ZAR 1.9 billion will come from the sale of our bridge loan that we have into Europe. We sold that to Rothschild that's a third-party financial institution. Paul and his team are about to conclude the sale of a property in the Netherlands at a significant premium to book value, that will generate roughly ZAR 300 million of proceeds. In South Africa, we've got ZAR 600 million of asset sales on the go, of which around ZAR 200 million is done. And so out of that ZAR 1.9 billion that was being recycled, only 400 -- ZAR 300 million to ZAR 400 million of that is effectively at risk. And the rest then gets put towards the Aussie deal, the Manco transactions and the building of the sites in Europe. And then from -- looking forward, so we're finishing at around about that 40% mark, we've got some real levers that we can pull over both the short and medium-term to bring that LTV down significantly as you're thinking about a target of somewhere around the 35% mark. We've obviously got the strategic focus about bringing in that strategic partner into the European business as a whole. And again, I don't mean that just in terms of PEL, but also around some of the other opportunities that Paul and the team are looking at and exploring. We've got a significant pipeline of other asset sales in both South Africa and Europe, and we're also thinking about utilizing that as we see potential new fund management and capitalized strategies on both sides of the world. And that will, obviously, hopefully drive both earnings as well as have a big impact on LTV. That is not an overnight thing. That is the building of a business we'd certainly like to see some momentum on that over the coming 12 months. And then we're not going to turn our back on opportunities. There's still a development pipeline in Europe that we're looking to roll out given the significant shortage of stock, supply really is almost shadowed completely. A lot of that has been due to the lack of credit availability in that market. So a lot of the development feasibilities are really -- are still there, especially given the uptick in rentals and we think we've got the ability to bring online the pipeline at around the same sort of initial yields that we bought about 12 to 18 months ago. And we'll continue to run the business very prudently both here and in Australia and in Europe in terms of the underlying cost base. So that kind of brings us to an end where we are. From a process perspective, all 3 transactions have been signed up. So Europe completed on Tuesday. We're foreclosing the Australian deal exchanged yesterday and the binding heads of terms with Investec and the management companies also took place on Tuesday. That obviously leads into the shareholder process, the former shareholder process. Circa will be posted in the next few weeks, and we move into the standard calendar thereafter. So no doubt, further engagement with shareholders between now and then and as we lead up into that. So that is it from us. I'm going to push pause and then open up to questions.

[Operator Instructions] The first question comes from Londiwe Buthelezi of Fin24.

So my first question is just really seeking clarity. So am I understanding correctly that now because of this internalizing of your asset management functions, you will have an asset management unit within IPF. And then the second one is about the additional stake in PEL. And is it fair -- I just meant to say that because you spoke a lot about the opportunities that are coming out there that you see -- you are seeing more opportunities in Europe than it is the case in South Africa at the moment.

Yes. Okay. Thanks, Londiwe. So I think the first piece around the effect of internalization is that you'll have -- a fully integrated team that has been looking after both South Africa and Europe for the last over many years or really move in sights. So nothing changes from who's doing the day job, just the overall structure of it shifts. And we've got both property asset management, fund management, finance, tax, marketing, company secretarial, et cetera, sitting inside that business. Opportunities, I'll let Paul maybe talk to Europe a little bit. Just to clarify between Europe and South Africa, the opportunity set is very different. We still think there are opportunities in South Africa. You've got to be -- I mean, we think about return and risk at the same time. Certainly, the risk profile here is heightened. But when you got people on the ground, no matter where you're operating, you've always got the ability and capability to navigate that risk and to drive return. And maybe, Paul, if you can talk a little bit to what you're seeing in Europe and where the opportunities lie. There's a lot of noise at the moment really around interest rates and inflation. And that has also led to the big capital sitting on the sidelines. That opens up the opportunity for like ourselves to go and play. We've done it very successfully in Australia over time. But maybe, Paul, you can give a little bit of sense as to what you're seeing.

Yes. Just -- I mean, from our perspective, the -- it has been -- quarter 4 last year was tough and there was certainly a lot of pullback from potential capital looking at new opportunities in the market. I think the sentiment going into 2023 has definitely shifted and there's certainly, even in the last couple of weeks, there has been a couple of approaches that have been made to us where it's private equity capital or institutional capital that has been sitting on the sidelines for the last 6 to 9 months observing what's been happening both in the U.K. and the continent. And I think those 2 markets are quite different at the present time. And yes -- and what seems to have changed is that capital, whether it's the institutional or private equity, is becoming more interested in looking at potential deployment over the next couple of months and really understanding what the management play is there to align themselves with key managers in certain regions. So yes, we're certainly seeing a lot of interest from capital warming up, let's say, as we go into 2023. On the stock side, and what's been encouraging/interesting for here is really the fact that we're not seeing wholesale opportunities present themselves across the pan-European market. But what we are having conversations with as managers who would pose themselves as, let's say, best-in-class operators of light industrial logistics or general warehousing property, who are finding it difficult to deal with certain problems, whether that's structural or from the tenant base. And they are sort of coming to ask us as if we could help and get involved in those situations, which I think is a good testament to the performance and the track record of our team. But I think it does present potential buying and co-investment opportunities as we go forward this year.

Thanks, Paul. Londiwe, does that answer your questions?

Yes, it does.

The next question comes from Mweisho Nene of SBG Securities.

Just a few questions about the logistics transaction. So can you just maybe explain the cause for that contract with different clause that you acquired with EDT?

Sure. So I mean, ultimately, what we needed to do is move as quickly as possible to close out on the transaction and there's risk associated the ability to due diligence, the portfolio of that size and the structure is not easy to do quickly. And so to kind of ensure that we are able to close out, we were willing to take on some of that risk. I think the key is that the kind of short to medium-term strategic priority for IPF and that business is to introduce the right capital, the right partner, the right strategic partner as we look to build that business. I've said to a few shareholders together with Paul over the last few weeks that it might not be that it all comes into one portfolio. We've got the opportunity now to cut that business up into different regions or portfolios that we like, depending on where we want to go. And so we've -- what we've done is we've ensured that we've retained optionality in that decision-making process over the course of the next 6 months.

Okay. But you're not concerned about them having an incentive to basically exit a bit sooner than maybe you guys would like?

Correct. I mean there's lots of protective rights around that, too, right? So that 6% can't just get traded overnight. There's a -- we have a huge amount of protection on that from an IPF perspective.

Okay. And do you guys have -- I suppose quite early to maybe know [Technical difficulty], but you guys have a sense of maybe potential replacements as well. It would be in it for the long-term and maybe take up a larger stake.

Yes. Yes, so -- yes, Paul, even early days, we've been very focused on getting this transaction done. We learned over the course of the last few years that when we try to introduce third-party capital into a structure with too many people at the table, it's very difficult. And this kind of cleanup gives that opportunity. I mean, that's about as much as we know right now. We've obviously had lots of conversations, coffees and beers, with capital around the world to understand what the odd or the possible is as well as what the odds of they want is. So I think we've got a good idea. But certainly, over the last few months, our primary focus has been on completing this transaction to make sure that we've got that opportunity to go and play. But we're fairly confident that there is the right capital out there looking to partner with us to do what we think is right. I think Paul mentioned in the earlier -- in his earlier response around some of the opportunities that are out there. And that can be done inside PEL or alongside it and whether it's one or multiple capital partners that come and sit with us in our journey, we'll see that in the next -- in the kind of next 12 or so months.

And then just to make sure that you guys won't be providing any type of like loan towards EDT, right, for the transaction?

Correct. That's fully funded on the back end.

Okay. And then just lastly, do you have a sense of what the sort of splits would be for that 90% that you're buying up in terms of like euro ZAR versus euro funding just to get an accurate sort of cost of funding there?

Yes. So because it is more short-term in nature in terms of that hold, we will fund it effectively all with euro-denominated debt, whether it's a hard currency loan or through synthetics. And so -- and that effectively sell all-in cost -- Jenna is with me here, so all-in cost of funding at around, what, 4.5 -- 4, 4.5. So you -- that's why you're marginally diluted. And then the reason we funded at the short-term or the full year denominated funding is, again, around optionality, the fact that you are looking to move the stake or part of the stake over time.

Okay. So one more question. So just with regards to the internalization of the Manco, I see the calculation included a revenue on your sort of growth assumptions. Is that ZAR 10.9 million which you expect to get as a benefit from just stronger performance in internalizing the Manco? Do you think that this is going to be more or less the same?

Yes. So just for clarity, I mean under the existing management contracts, there are transaction fees that can be charged. Others, if you look at the run rate over the last 5 to 7 years is more than the ZAR 10 million a year. But we're also -- so what we're doing is thinking about our broader business, capital-light in Australia, here in -- potentially in South Africa and in Europe and the ability to grow that business of bringing in either capital or the operational leverage that we get out of it. So we actually think that's a really conservative assumption and I'm happy with the level of kind of forecast growth in our numbers.

The next question comes from Paulo de Almeida of Clearance Capital.

Just 2 questions from me. Just on the invested equity lockup for 12 months, you mentioned there are certain big exemptions. Could you talk to that a little bit? And then my second question is, at what stage do you consolidate PEL? IPF economic interest now is going to be 84%. And you're deriving most of the benefit from the [ CFD ] agreement. Are IPF taking to control this thing. What is the thinking with regards to consolidating this? Is there some basis on for asset?

Thanks Paulo. Against the equity lockup, I mean, it's pretty simple in that the equity is locked up for the 12 months. And really, I think the only way to shift that there'll be more detail in the circular. The only way is for investor, they are allowed to shift the entire block. But there's no there is no ability to sell down during the 12-month period. And certainly, they remain supportive of our strategy. On the consolidation, I'll hand over to Jenna. She's a much better accountant than I am. So Jenna can just give you a view. I think just to keep in mind, Paulo, that this -- the very important thing for us, there were 2 elements. One is thinking, obviously, about consolidation, but the other is in that European structure. As I mentioned, if you tinker with it and you have control, there are potentially very, very adverse tax consequences. And so we're going to be doing a lot of work over the course of the next 6 to 12 months around the actual tax structure of that business just to see if we can simplify. But the last thing we wanted to do was trigger a big tax pool, day 1, which just would have been hugely uneconomical for everybody. So that was a big part of the consideration. But Jenna, you can just give some insight into the consolidation.

Yes. Concerning the consolidation, Paulo, so we have kept the joint venture agreement effectively in place in terms of the shareholder agreement, and we've kept the voting rights at 50-50. So in terms of AF rates, when you have a JV that's structured around working on a flatbed, it is a JV and it's linked to your voting rights as opposed to linked to the economic benefits that you get out of the structure. So we have that keep that sector, as Andrew alluded to in exactly the same position.

Yes. I think, Paulo, if we get to a position and taking forward a little bit, if we get to a position where we decide that it is best for us to hold this level of interest as opposed to introduce other capital. We'll work with Paul and the team to ensure that we get the balance sheet right and ready to come on -- ready to come on from a consolidation perspective. And there are -- I mentioned earlier some of the thinking around asset sales, ceding fund management portfolios, there's a lot of ways to do it. Again, it's -- this is more kind of short-term-ish and there will be a lot of work done either on their strategic capital partner or kind of rightsizing the balance sheet to be able to bring about in time.

Okay. And then maybe just the last one for me. Where would the looks to leverage be on the business once this transaction is in place? Do you have that number at hand? Or are you going to have to thought through it this year?

I mean, day 1, [indiscernible] look through. And again, we're not hiding away from that. You've got a -- we had a window to close here. We understand the risks associated with that. In Europe, the LTV of that business, specifically that business is 52%. That's after the impairment. So a significant amount of headroom there. And again, if we think around our strategic objectives, [indiscernible] manage our broader or kind of group level LTV as well as that look-through, we're very comfortable with what is achievable.

[Operator Instructions] And Mr. Wooler, we don't seem to have any further questions on the line. I will now hand over back for closing remarks.

Okay, great. Thank you. And look, we are, as a team, open to questions, the door is always open. So yes, please feel free to drop us a line or give us a call and if you would like face-to-face meetings, we're more than happy to do that. But thank you, guys. Thank you, everyone, for making the time this morning at such short notice. So it is good to have you all on here. Thanks to Paul and especially to Graeme to -- for staying up. I can see Graeme's screen. You got caught, it looks like you've got load-shedding in Australia. So we're not the only one. That's good to see. But yes, thank you for your continued support and we really do look forward to the next chapter of the story here. I think the team is fired up and ready to go. And I think we've got some really good opportunities that we look in to unlock in the very short term. So we'll keep you posted. Thanks again and we'll talk in -- talk over the next few weeks and again in May with our final results. Thank you.

Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your lines.