Burstone Group Limited (BTN) Earnings Call Transcript & Summary

Okay. Welcome, guys. And I think we've got -- we'll pretty much get everyone here. We've got a few people that have dialed in. So hopefully, you can hear us, but you're welcome to the year-end results for IPF. It has been quite a year, a lot changing. So what we will spend, obviously, time going through the numbers, the historical results, but spend a lot of time talking about the future. Yesterday was a big day in the life of IPF and the team, and we'll explore what that means and what the forward-looking vision of the business is. So bear with us. Also welcome to our Board members and the extinguished -- distinguished guests. We did try and extinguish you few years ago, Graeme. So Graeme and Paul, there is -- you've come up from overseas. So when we get to Q&A, please feel free to bombard them. Graeme says he really does miss the listed space. So make him feel welcome. I think just to start off to position the business and as we think about ourselves and where we're going, where do we operate, we're a ZAR 37 billion business that operates really across South Africa and Europe, a small foothold in Australia and we'll unpack that little bit later on. So ZAR 37 billion of GAV and $450 million of third-party equity that we currently look after. And really, our focus is on how do we create value, speed, agility, our passion for our clients, a partner of choice, whether we're thinking about our tenant base through, whether we're thinking about shareholders, whether we're thinking about banks, whether we're thinking about capital partners that we're looking to work with. Our purpose, and as I say that we think about constantly unlocking the potential of space is our current tagline, and you'll see that in a lot of our marketing collateral. But really, if we think about what we're doing on the ground in South Africa, on the ground in Europe, it's how do we curate space, how do we work with our clients and ultimately look to deliver consistent performance through the cycles. If we look as a snapshot over the last 12 months, it really has been a story of strategically repositioning the business and an unbelievable result. We think in terms of the underlying operations of our 2 businesses. Obviously, several strategic transactions concluded towards the back end of the year. [indiscernible] who sits -- and Investec level keeps -- keeps challenging us to try and get the deals done in time for 31 March, and this year, we gave them 3. And so it really was a rollercoaster ride, as we went into the back end of the year. As I mentioned earlier, really nice to receive the overwhelming support from shareholders yesterday as we look to internalize the management function across the geographies, strong operational performances, and we'll unpack that a little bit later on. But really, you can see that coming through and a lot of the work that the teams have been doing, and it's very different between Europe and South Africa, but you'll see that coming through the results as we unpack that a little bit later on. The results, we're in line with guidance. So DIPS and DPS down 2.8%, largely impacted by the interest rate hikes in Europe. We've maintained a 95% dividend payout ratio. And from a growth perspective, certainly seen and continuing to see strong growth coming through Europe, South Africa, managing to deliver strong like-for-like growth even against a challenging backdrop as we all know very, very well. Balance sheet sitting at a temporarily increased or heightened LTV at 42%. We're kind of 3 quarters the way through our plan, gearing that we presented in March and Jenna will unpack that a little bit later on. And from ESG perspective, we've made some significant headway in South Africa over the last 12 months. In Europe, we've got a rollout plan that will take you through that is -- will also be fairly well progressed when we talk to you this time next year. If we unpack and look at what the business is across the different geographies, ZAR 1.1 billion -- sorry, EUR 1.1 billion business in Europe, ZAR 15 billion diversified business here in South Africa, as I mentioned earlier, Australia 1%, which we hope to grow over time. But really a 50-50 JV with the Irongate team. And we've got an LP position that effectively, the fund is managing. But the key takeaways here is the diversified portfolio across developed markets outside of South Africa and a significant amount of optionality that if we look at how we -- how we're thinking about our strategic positioning and where we go to from here, creates that optionality to unlock value for shareholders over time. I'll hand over to Jen to run through the finances as well as the balance sheet.

Hi, everyone. Has been a little while since I stood up here. So it's good to officially be back and a lot of friendly faces in the audience, which I'm very happy to see. So I think this -- I mean, this is a year we've been proud of. Our results, our DIPS as Andrew mentioned, is marginally negative, which I think shouldn't take away from the exceptional operational performance in both regions. SA delivered 5.3% base NPI growth, which is not to be underestimated in the current South African economy. The PEL delivered 7.4% NPI growth. They did have the benefit of some tailwinds, but there was a lot of -- there was a lot of work that was done there, reducing vacancy and talking to tenants. This was also further supported by some of the FX that we got out of our hedging strategy that we've got, when you convert it into rand. And we obviously bought up the additional 19%, which has supported -- giving us a little bit more earnings coming through. The PEL expenses were slightly under pressure, but we have a very, very clear plan that's now well underway to reduce those, and we will reduce those over the next 12 to 24 months, EUR 1 million to EUR 2 million. And then the big, obviously, talking point is the interest rates and the fact that we did see the curve move almost 300 basis points in the last -- since around July, August last year. We are now currently at our cap, which is we capped out at 1.4% at that portfolio level, but we did really only see that impact come through in H2. So -- the key takeaway here really is that we are capped out at 1.4% and there is limited additional interest rate risk coming through. The rental guarantee we have highlighted here, it is fully utilized. It was fully utilized in the prior year, and it's really something we have now put behind us. It's out the system, but it did impact FY '23 growth and we move on. At a fund level, I think our funds have remained very well managed. Finance costs actually decreased slightly. This was largely as a result of disposals. We did have some good treasury management but the other thing to note is at a fund level, we didn't see a big impact on our euro interest rate position as we were hedged for the full year. So we will see some of that come through going forward. Overall, though, I think given the global economic environment that we find ourselves, we do remain very proud and very pleased with the performance on an overall basis. From an NAV perspective, I think the NAV really reflects the acquisitive year that the fund has had in terms of all the various acquisitions. We had the additional 19% of PEL come on, on the 28th of February. We closed the [Aussie] deal just almost on the nose on the 29th of March, but we were happy to have it in our numbers. I think the reduction in NAV is really driven by the decline of valuations that we saw coming through. The PEL portfolio declined 5%. This was largely driven by cap rate expansion, which we've seen across the sector in Europe. However, I think given the strong performance of the underlying rental growth, rental growth contractually grew just over 8.5%. That's gone a very long way to offset that and that is a reason why we're only seeing 5% as opposed to some of the other peers you're seeing a much higher number there. SA, I think, remains very stable. The write-down is limited to a single office building. Cap rates have remained largely stable. And I think in addition to that, our NAV has been supported further by our ability to sell almost close to book in all of the disposals that we have made during the year. I think we were within 4% of our book value on all our SA disposals. In Europe, it's not in these numbers because it happened in April, but the cash is in the bank, but we did sell an asset in the Netherlands for significantly more than its book value, 60% more. So I think it just does show that despite all there's still pockets of value and that -- there is to unlock. The other key disposal that we made during the year was the disposal of our bridge loan into the PEL. That was sold at a 6% discount. However, it was a very strategic sale in order for us to unlock the acquisition of the 19%. So from a strategic position and being able to position ourselves strategically, we're really very comfortable with the discount. Moving on to the balance sheet. And I think this is a core focus or should be a core focus of everyone in the sector, given the risk environment that we find ourselves in. But our balance sheet remains sound. We are very proactive, and we are constantly cognizant of the interest rate environment that we find ourselves in. I think Andrew mentioned already, but our LTV is temporarily elevated. This was expected. We are partway through our LTV flight path, and we are well on track to deliver reducing that to the 39.9% that we told shareholders earlier in the year. Acquisition activity has been supported by disciplined capital recycling. So we haven't done anything in isolation. That's all been planned and put together. Our debt book is well diversified. Group balance sheet is near to low -- has very low near-term refinancing. The interest rate is well managed and more than 85% of our book is fixed. This slide, I think -- so IPF has always been very active in terms of a strategic capital allocation. And I think the slide here was to demonstrate how all of this activity has played out. So as you can see, if you look through it, what we have strategically tried to do is make sure that IPF land is effectively in a neutral LTV position, but the whole purpose of this was really to successfully reposition the business to enable growth. It's also shifted our offshore waiting significantly. So I think in terms of the strategic levers that we've managed to unlock through the acquisitions that we've done and the capital that we've recycled, we've positioned ourselves exceptionally well for the future, and I think this is probably something that we're most proud of. LTV remains a strategic initiative of both the management team. It's also a very hot topic at the Board. As I mentioned, when we communicated to the market leading up to the announcement for the internalization, we do have well -- a plan to reduce gearing to below 40%. That plan is well progressed. Our longer-term plan is obviously to reduce LTV to closer to 35%, and we do have specific levers for us to get there. If you look at the flat path and some of the detail of the flat path, we're at 42% today, which is 31 March, but there is at 2.2% of SA asset sales in the pipeline. What I think is critical to point out is that's not pie in the sky. Those deals that -- that represents ZAR 1.2 billion worth of assets. ZAR 550 million of that is signed sealed, and we're just waiting for transfer. So that's effectively done. The other half of that is also -- it's not just being bid for. It is in well progressed. We're in legals and we're just negotiating final turns. So we are very comfortable that the 39.9% is fully achievable. And then we have additional levers, which are much bigger strategic unlocks that Andrew will go into the detail of, but that could move the LTV significantly if we get any of them right. I also just want to talk a little bit to the past and take some credit for some of what we've done before because we have done this before. We have presented us an LTV flat path in 2020 when we bought up the PEL acquisition. We put forward a firm plan on which we delivered on. I think the fact that we delivered on that despite COVID, despite uncertain macroeconomic environment just demonstrates some of our track record. We've done it before, and we will do it again. And as you can see, we're well progressed in what we can report. The next slide, I think, is also just to show what's our -- what we've done in the last year. So in the last year, we did a ZAR 6.5 billion debt raise and refinance, mostly towards the back end of the year. We did this through both banks, DCM. And I think it just proves the liquidity that IPF has access to. We are well supported in both the bond markets and with the banks. And I think that also -- that also helps demonstrate some of the quality of underlying paper that the banks and the bond market see. We have very supportive lenders. We managed to raise liquidity through new and existing relationships. We introduced a new bank in this last debt raise and we managed to extend the debt maturity. We don't actually have any bank debt expiring in the next 3 years. We also did this with a sustainability element, which I think is also just cognizant to the conscious nature of ESG that we consider. And what's also key to note is of this, we do have ZAR 1.2 billion of unutilized facilities, which will cover any near-term debt expiry that we have coming up in the next 12 months. So as I said, I think we're very comfortable at a group balance sheet level. The ZAR cost of debt, we've managed to maintain and keep flat. The Euro cost of debt -- the euro cost of debt, as I mentioned earlier, didn't see any impact of the increased euro in the last year, but it has been managed on a continual basis. We will see a slight shift up in that at a fund level. And the cost of debt, if you look in the table, you can see has moved to about 1%. The euro debt -- the graph below -- probably forgot how to use the laser -- the graph before this -- lower, the 75% euro debt position as a percentage of our investment into Europe. Normally, we keep that at around 60%. That is the policy. However, on the 19% acquisition, we elected to fund that entirely in euros with the strategic -- it was a strategic shorter-term hold, which we wanted to do like that to in order to facilitate an introduction of a strategic partner. So with that, we expect to settle with euro debt. So we are comfortable to have that at a slightly higher level. I think this, the graph below on the bottom left also was to actually demonstrate the impact of interest rates and interest rate tick up as we move out. We've always had a very active treasury management policy, and we do have a staggered treasury or staggered swap expiry profile. The numbers are small that come up in each of the relevant years. So I think the strategy has worked. In that, we know that the impact of interest is not one that we can avoid entirely. But in any 1 year, it's very manageable. In PEL, we do have in-country debt of ZAR 600 million. However, we have 2.5 years left to go. We're already engaging with lenders. We've always been very active, and we've always approached any debt refinance in any region on an early engagement basis. And have generally refinanced it fairly early. Lenders are very supportive in Europe. We're talking to a number of lenders both within the syndicate and outside. I think the strength of the underlying business, the operational performance, and the strong relationships we have give us comfort that 2.5 years is more than enough time to have sorted that out. From an interest rate perspective, we equally -- we capped out to -- for 2.5 years. So we have very limited interest rate exposure going forward from this point on. However, as I mentioned, we did only see 6 months this year, but going forward, it is capped. The interest rate risk, what I think is important to note, and Andrew will dive into the detail a little bit later when we go through the PEL section. But what we are seeing on the ground, in Europe, and in the logistics sector, on the whole is that rental growth is very likely to outstrip the impact of interest coming back at us. We may not see that in the next 12 months, but definitely over the next 2 to 3 years, I think the interest impact will be fully offset or almost fully offset by the increase in rental income. Thank you.

All right. Thanks, Jen. As we run through the different sides of the business, and just to recap the transactions that were closed at the back end of the year. Obviously, the internalization, which gives us increasing operating leverage as well as a fully integrated business across South Africa and Europe. The acquisition -- additional acquisition in PEL, which gives us a full autonomy around the decision making in that business increases our exposure to what we believe is still a very attractive business and portfolio and sector and also creates the ability to build multiple asset management strategies, and we'll touch on that when we chat about the funds management strategy, capitalized strategy little bit later on today. And the numbers on the right-hand side in terms of earnings or impact on earnings, that's obviously looking on a 12-month basis. We don't get to capture all of that upside -- these 12 months, just given where we are in the process, certainly with the internalization. So still subject to comp com. We expect that to close Q2, Q3. But that's a snapshot in terms of what the overall deal would -- or deals would be doing or giving us. And that's the snapshot, I think a lot of you guys would have seen this on the roadshows. Snapshot of SA, Europe and Australia but really best-in-class asset base, best-in-class asset management teams and teams across the globe with different opportunities in each of those regions and different -- at a different part of their life cycle, certainly Australia, obviously very capital-light today vis-a-vis where we are in Europe and South Africa, and we'd look to see that shifting over time. If we deep dive into South Africa, as Jen has mentioned, we were very pleased with the results there. A stable portfolio that has generated very strong like-for-like NPI growth, improved vacancy really driven by the industrial performance. The cost base has been well managed, it has arrears. I think they sit today below where they were pre-COVID. Valuations remain stable and the negative reversions, although they continue to persist. That's a function of where we are from a zero GDP perspective, the team is still able to grow the NOI line. From a financial perspective, operating and operating metrics, 3.9% vacancy down from last year, which was 4.5% or an improvement from last year is quite something. We're looking at the stats earlier today. I think the last time the fund was at 3.9% was pretty much 2015, 2016 right at the peak of the SA market. So it's fantastic to be back there. Leasing activity has been very, very strong, 90% of the space that came back at us has been [ relayed ] as well as almost half of the opening vacancy. Our incentive levels are incredibly low, only 1.7%, and we have a continued focus on the client experience. That is our unique differentiator. Otherwise, space is a commodity. And without that view on the client, how we work with them, we're just competing on the same basis as everybody else. Industrial, the smallest part of our portfolio, and certainly, we keep saying that we'd like to increase the size of this business. The broader sector is starting to see some growth in rentals emerging although infrastructure challenges do continue to persist. And we've seen our numbers, very strong growth in the top line, even stronger on the NOI line at 9.2% and vacancy today sitting at less than 2%. We were 43% of our properties with backup power and a rollout plan in terms of megawatts and solar coming over the next couple of years. Retail portfolio, which for us has always been a strong performer and continues to deliver. It is very defensive. It has -- the trading activity certainly across the sector has rebounded, although they seem -- well, there's definitely some concern around the consumer and the ability of the consumer to continue to absorb the cost pressures, and that's coming through some of the retailers' results. Our portfolio has delivered 5.3% like-for-like NOI growth. Reversions are effectively flat. And Australia off the back of very strong trading numbers with turnover up 8.5%. Density is up a similar percentage and cost of occupation sitting at sub 6.5%. That gives us room to continue to grow that rental line. And 46% of the properties with backup power puts us into -- or gives us a competitive advantage over some of our competitors or some of the competing centers in relation to load-shedding hours. Office portfolio, I mean, it's actually quite amazing that we can stand up here and really shout about it. We have focused immensely on this part of our business over the last 2 to 3 years, differentiating the space, how we work with brokers, agents, how we partner with our clients, how we think about return to work. I don't think there are many people out there that fully understand or know what they want and what the employees want in this return-to-work scenario. So we've done a lot of work to partner with clients, partner with external advisers, to help our clients navigate that journey. And the result is coming through. So with 7% vacancy down from 9.5% last year, I think the stat the year before was closer to 12% to 13%, and that's almost half of the broader industry average. Like-for-like growth, which is quite amazing to see and we're starting -- we've seen activity pick up across all of our core nodes, Bryanston, we're almost fully let. I think we've got 2,000 or 3,000 square meters left. Rosebank, we're fully let. And then we've leased up about 4,000 square meters in the last 3 months here in Sandton. So good to see the office activity coming back. And again, from a backup power perspective, almost 100% of the portfolio covered by backup. Load-shedding, obviously very topical. And just to put this into perspective, we think about it from the client's perspective and a cost of occupation because that is ultimately going to impact us down the line. So running through the numbers from a client's perspective, they're up 25% or the energy bill is up 25%, with diesel contributing ZAR 37 million towards that to give -- put that in perspective, last year, the diesel cost was ZAR 3 million or ZAR 4 million, this year is ZAR 37 million. We've done a huge amount of work in trying to reduce that cost or the burden for our clients, LED lighting, tariff optimization. We're also rolling out some of the solar savings to our client base. So we'd expect that -- or hope that, that number starts to come down. But a huge amounts of or big impact on the client base in terms of loss of trade, a loss of production capability if you're in the manufacturing side. And our team is investigating alternative types of backup to sources of backup. We're thinking about batteries and wheeling. Obviously, working with the European team a little bit further progress on the wheeling side but don't have as much [ solar ] rollout as we do. So there's a complementary skill set as we look to manage the situation on both sides of the water. Property valuations, as Jenna mentioned, have been very stable. Cap rates have also remained stable, even though they've moved out from a transaction perspective. Our portfolio I think has been derisked. The vacancy has come down and the quality of our earnings has improved. From a CapEx perspective, effectively 1-for-1 value enhancement CapEx which is also good to see coming through the portfolio. And so we think that the overall valuation level there is fair and supported by some of the transaction activity, as Jenna mentioned. Most of our asset -- pretty much all the asset sales closed to book round about 4% discount. And just to give a little bit of color on some of the projects and some of the thinking in the SA business, The Firs, which is being completed, it takes time to work these things out. It takes time to work out what the asset needs in what was a transforming market. Rosebank was under regeneration. The client base was shifting, pedestrian traffic was moving. We weren't about to just spend capital of -- [ shoot of the hip ]. So we did a lot of work in terms of where this thing -- where the asset, what the precinct was going to look like. We ended up spending ZAR 31 million on the repositioning. When we pulled the trigger on the CapEx, our vacancy rate across that asset was 30%. Today, we sit at 0. The restaurants, they've seen their revenue tick up by 50%. We're obviously excited about the ability to now potentially push rents. But it's a great example of sometimes go slow to go fast. Design quarter. I mean, hopefully is the last time we ever talk about design quarter because it took us a long time to work it out. But I think what we've landed with and the result that we've had and certainly looking to achieve over the next couple of years is testament to the time and thinking in what this asset was, where it should be positioned. It was uncertain impact of the Fourways Mall redevelopment. We were thinking about convenience, vis-a-vis lifestyle as well as fashion, et cetera, et cetera. But ultimately, when we pulled the trigger on this business, ZAR 144 million of spend. There was also 30% vacancy today post the opening of Checkers in a few months' time, we'll be sitting around 1.5%. Vacancy, massive reduction. Offices are sitting at 100% let. That's above the building as well as in the back of the precinct. And that precinct today is worth somewhere between ZAR 900 million and ZAR 1 billion. So the decision here was not about just a retail positioning. It was how do we protect and enhance the value of that precinct over time. We've seen an NOI on a stabilized basis, move up by around 10%, and that will come through over the next 12 to 24 months. Strategically, in South Africa, we have been light on capital allocation here over the last 5 years. We've sought to shift that towards offshore opportunities and expansion. But the opportunities do exist locally. We're alert to them. We've got a pipeline of them. But given the macroeconomic factors, given the political risk, we do think that the return requirements here have increased. The focus for the team over the next kind of 12 to 24 months incremental value extraction from existing assets, the continued asset disposal program. The pipeline is built around core plus value-add as opposed to core product or very dry income-producing assets. A real focus on cost of occupation, energy and water security and a continuous focus on spending or upgrading our assets because we've seen what happens when you don't. And that is certainly providing some of the opportunities that are falling into our pipeline today. The outlook for the business, as I've mentioned before, is stable and defensive. Retail will continue to perform low-to-mid NPI growth. Industrial, if we capture some of that rental growths running through the market, will deliver a similar result. And office, although reversions are going to persist, we expect to be very close to flat NOI growth over the next 12 months. Moving into Europe. And just to recap, the business as a whole of the [ EUR 1.1 billion ], 77% sits across what we would term our core markets of France, Belgium Netherlands, and Germany. So we're operating across the 7 countries, and I think you look to see us probably trim that exposure down in terms of the peripheral countries or take the decision to bulk up. In terms of the business snapshot, 47 properties with very strong tailwinds coming through the sector. Delivered from a financial perspective, 7.5% -- 7.4% like-for-like NOI growth. Operational performance, 0.9% vacancy. The WALE has improved to north of 5 years and although -- we'll get on to the valuation although down, we're very comfortable with where it is today. I think we've also got some cost saving initiatives to offset some of the interest rate increases that will flow through the business. And we've communicated to the market previously that we think we'll be stripping out circa [ EUR 2 million ] of cost overhead over the next 2 years. Letting performance, 8.6% positive reversions on north of 200,000 square meters of space let and a continued focus on the clients and you're starting to see the benefits and synergies that are taking place across the 2 sides of the business. The income statement, we've probably unpacked pretty much all of this. But just to unpack the NOI growth a little bit, we have achieved or so 6% indexation across the top line through the year, coupled with 8.6% reversions, A little bit of cost leakage. Obviously, cost-to-income ratio is around 8%, 9%, and that's delivered the NOI growth. Higher corporate cost I spoke to earlier and a plan to strip out EUR 2 million over the next 2 years. And the effective tax rate, we do see creep every year sitting at 12% today, but with the tightening regulations and ever changing regulations, we'd expect that to shift up marginally every year. Valuations is a hot topic. Obviously, in Europe, with cap rates moving out aggressively over the last 12 -- 6 to 9 months. And we've got to be very careful about what the benchmarks are. So just kind of looking at that in isolation, the market yields have moved by circa 75 to 150 basis points depending on the asset type. And that is off the highs. We had never marked our book to the peaks. So we are probably at 3.5%, 3.75% yield at a peak. We marked our book to 4.2%. Today, our yield on that is 5.1%. So we've moved up by 90 basis points. At the same time, we've grown our revenue base or contracted revenue base by 8.5%. And the difference and the cushioning effect here is with the WALE of 5 years and on average, 20% of the lease book coming back to be regeared on an annual basis with embedded ERV potential of roughly 10%, that provides, underpin or the cushioning effect from a valuation perspective. It's very different to long-dated income assets, 10, 15 years where one yields are extremely tight, and that's -- those cap rates have moved up by, the wider part of that range 150 basis points and that's on the back of not being able to get to that rental growth in the short term. If we look at our portfolio, the net impacts is 5%. But if we hold at the cap rates to where they were, and we look at the impact of income growth in that portfolio, we would have seen EUR 123 million write-up. And obviously, the shift in the cap rates has led to the EUR 182 million write-down. So very comfortable with where this portfolio is currently held, although there's certainly still downside risk in that market. And just to sum up, again, the interest rate piece and put it all into context of the business with the revenue line expected to grow with in-built ERVs, the supply-demand dynamics playing out as they are in Europe. And we expect that rental line to continue to move up. The corporate cost line to come down over the next 12 to 24 months, interest costs are capped for the next 2.5 years. And the [ net effect ] to that just on an illustrative basis is that we believe that there is room for earnings out of that business to continue to grow. The underlying real estate fundamentals, I think we all probably understand, you've heard us talk about it a lot, but the sector is very, very strong. There's still an increase in e-commerce penetration rates. Structural challenges remain, supply remains effectively at close to zero given the increased cost of building, the lack of credit or access to credit. And so we're in a sweet spot there right now. Priorities over the next 12 to 24 months, thinking about asset disposal pipeline, we've got a few assets that we are talking to the market about the funds management piece will come on to -- looking at how we unlock the development pipeline, ESG and BREEAM rollout and most importantly, the introduction of a strategic partner into that business over the medium term. Outlook for the business, as you would expect, is strong. We expect to see mid-level NOI growth over the next 12 months supported by the underlying fundamentals. And as I mentioned, a lot of the cost savings initiatives as well as the revenue line will certainly lead to a stronger or better quality of earnings coming out of the business. Irongate in Australia, and that's really the reason why we have Graeme here. Really the business only came into -- we went into business at the back end of the year. And it's really to reemphasize the opportunity of the investments. JV with Graeme and his team, a team that we've known for a long time, built businesses together and have a tremendous track record. They've built a funds management business and capability for which we could leverage in South Africa and in Europe, and we're starting to see some of those or some of the conversations are already starting to happen and take place around some of the synergies of capital partners and some of the strategies and platforms are looking to build across the different regions in which we operate. But it's great to have them back -- and the joke that I used to have on the road was that we have an attractive entry point. Graeme thought I was talking about him, but I was talking about the platform. But it is exciting to be back in a market that we think is going to perform and continue to perform really strongly. I'm looking forward to the day that Aussie does have negative GDP growth. This has been about 28 years of listening to Graeme talk about positive GDP growth but for as long as we invested, they would like that to continue. ESG from our perspective, is a massive part of how we think about life and how we think about integrating it into everything that we do. From a financing perspective and raising debt to how we think and work and talk to potential capital partners as well as our partners and clients on the ground. In South Africa, over the last 12 months, we've hit every single one of our targets. We now have around 15 megawatts of solar power or solar capacity across the portfolio. That's up 30% over the last 12 months. We have 60% of our offices that have been green star rated. And we're piloting the industrial green building ratings at the moment. We've got 6 assets going through that process. We've got 57% of our portfolio that has backup power. And we're exploring further energy and water security initiatives across South Africa. We're also incredibly proud of our social contribution in our communities. And over the last 12 months, at Balfour introduced or brought in the Scatterlings crèche and early learning center that today, within the space of 3 months has introduced or providing 73 kids from the community. So that is something that gives us all goosebumps and is the kind of thing that makes us get out of bed in the morning. In Europe, on a very different path from an ESG perspective, obviously, developed market and a very different way of attacking this. From an energy performance certificate perspective, 100% of our buildings have gone through that exercise. Solar, as I mentioned earlier, is at the early stage of rollout. Over the next 12 months, we hope to put out between 5 and 7 megawatts, and that will really satisfy our existing tenant demand. But there's the ability to explore or utilize further roof space and sell that into the grid and wheel, which is at a far or further progressed relative to South Africa. BREEAM ratings, we've gone through that process. We've got a significant amount that is kind of on an equivalent of a 4-star here. And we plan to spend around EUR 2 million to EUR 3 million over the next 3 months to further enhance the ratings and energy efficiency of our buildings. The funds management business, I don't want to spend too long on it because we haven't started it. We don't have any new deals to talk to other than, obviously, in Australia. But the operating model and the benefits of the fund management strategy is going from top to bottom, really enabling the reduction LTV as we think about seeding some of the new opportunities with third-party capital by utilizing our existing asset base. It gives us -- or provides access to a different part of capital, whether it's here or in Europe, diversification of the investment base and not having to constantly leverage our balance sheet. It obviously brings in new potential revenue streams from fund asset management and performance fees. It leverages our team as opposed to just the balance sheet and obviously improves our operating leverage and significantly enhances the ROE. So we are in the infancy of this. Obviously, Australia is well progressed. And hopefully by the time we talk to you later in this year, we have a little bit more to talk about. So to close off, as we look forward over the next 12 to 18 months, we do expect our underlying portfolios to continue to perform well. Although our results will be impacted by the high interest environment. As Jen mentioned earlier, the majority, only half of that interest rate increase went through our numbers this year. So the first half of next year, we'll see an impact. South Africa is solid with low growth expectations and PEL will continue to drive our earnings growth. From a guidance perspective, we are communicating to the market and that we will deliver low single-digit DPS over the next 12 months. Just recall that the 19% additional stake in PEL was dilutive in the short term. And as I mentioned earlier, the internalization, we only capture the full accretionary nature of that at once Comp Com has come through, which will be later in Q2 and Q3, and we'll continue to target a payout ratio of between 90% and 95%. And to wrap up, I guess, as we think about ourselves post all of these transactions as an attractive international property company, fully aligned from a management perspective, geographically diversified with the weighting towards offshore, diversified income streams in South Africa and north of 1 million square meters of logistics assets sitting in Europe, an attractive entry point into Australia with a focus of trying to roll out capitalized strategies, a growth story underpinned by efficient balance sheet and management. With a clear strategic focus and excited about the future. Management company internalization is earnings accretive. It unlocks the longer-term growth prospects of the business. The optimization of the current portfolios, the focus on our clients, our partnerships, and our people. From a growth perspective I think I've mentioned all of the different initiatives, but to just to recap the EU development pipeline, the cost savings, the funds management rollout and the associated capital redeployment of those funds, I think, puts us in a good position. And we'll continue to maintain and focus on our balance sheet to ensure that we have a strong platform to work from. So that brings me to a close. I know it was a little bit longer than normal. If Sam was sitting here, he would have been looking at his watch a hell of a lot. But just to close off, I did want to say thank you to a number of people. It's not a wedding speech. But first of all, to the Board over the last 12 months, with all of the activity that has gone on. And I know some of you signed up for the 4 meetings that became 12, that maybe became 16, but immense amount of support from me and thank you. In subcommittees, equally the amount of time that was put in to getting us to where we are today. The teams on the ground, Europe, South Africa and now Australia. That is what we've built our business around. And our partners JHI, BNP, Yield Plus that do all the hard yards and often go unnoticed. It really is a pleasure to have you guys. Our advisers, I know some of them aren't here today, but I know the investor corporate finance guys are [ Seabury ] JLL, Eastdil and the works -- that -- it's all part of coming to where we are now. So thank you very much, and it's a massive amount of work that has gone here. So thank you. So I think we're up to Q&A. I think we'll open it up -- we'll start by opening up to the floor and then we'll go -- I think we've got some questions that have come through online as well as it will open up to Chorus call afterwards. So we've got microphones for -- okay. Cool. All right. Always, first?

Probably don't -- this one, just with regards to [actually relates] to -- has the risk of a -- will consolidation increase significantly since [indiscernible]

Yes. So it hasn't. I mean it was well thought of beforehand in terms of managing that position. I mean ultimately, there's 2 things that we've got to consider. It's the joint control, and that's where the EDT is effectively playing the role for us as we think about a more permanent strategic partner. And then the second is managing the tax risk, and this is more of a capital risk as opposed to income risk of the structure and kind of moving through the 90% barrier. And once you go through 90%, you start -- it can create challenges for you. So we've spend a lot of time making sure that the structure is sustainable and that can't happen. And yes, so I don't think the acquisition doesn't put us in any different position relative from a consolidation perspective today relative to, say, 12 months ago.

[indiscernible]

So it's hard to give an exact number. It's going to depend on that partner. I mean, we're not in a rush here. The market is volatile, difficult to see through pricing. But I think you want to get ultimately to a point of JV. Does that happen day 1? Are there equalizations that happen over time? But yes, set out a clear path of where you can get to that sort of position but there's going to be growth equity. There's got to be the ability to continue to see that business. And if -- we would certainly look to take capital off the table to recycle back in alongside and grow that business or any other strategies that we roll out in Europe, Australia or South Africa.

[indiscernible]

Yes, I think it's too early to say.

[indiscernible] regards guided, probably get a sense what makes that up, have you included these savings from the internalization and have you also included the disposal on you current asset...

Jen, do you want to pick that up? I'll ask the mic...

No, but I've got one, that seems to turn on. So yes, guidance going forward, it kind of takes everything in its path. So you look at the base portfolio, what we would have expect to come growing out of that portfolio, which has been through the presentations we've given. We've assumed -- we've assumed that the internalization comes in sort of pathway through the year because -- so that will reduce. I think we told the market that it would be 4% accretive. We won't get the full benefit of that in the first year. And then that's marginally offset by the 19% increase, which is marginally dilutive which will give us kind of land us all in an overall position of low to -- kind of low single-digit growth.

Effectively, if you look at that LTV plan, everything that you see in there is included in the guidance number. It's just around timing. And the 2 biggest impacts on the year are the PEL increase, which is, like Jen says, marginally dilutive in the short term and the accretionary nature of the internalization, which comes in Q2, Q3. So while we wait for you guys to pack up the courage to ask a question, we'll just look at what's come through online. So from Anchor [ base ], Jen, I think this one is for you. Based on our calculations, you find that IPF has negligible net hard currency exposure due to cross-currency swaps, hard currency debts, what's our views on the use of CCS's going forward?

So I mean just to give the actual numbers, so we have about 100 -- not about, we have EUR 100 million hard currency debt and the balance of what makes up the difference, which is around EUR 200 million of cross-currency swaps. Our view is that cost currency swaps are effectively the same thing as hard currency debt. If you strip it out, it's -- yes, it's effectively the same thing. If you have to refinance a euro debt facility because you can't refinance that you are going to have to settle it in rands, it is exactly the same on our cross-currency swap when you roll it. And you swap out the ZAR debt for the cross currency swap. So it is a -- some basic instrument that we view in the same way.