Burstone Group Limited (BTN) Earnings Call Transcript & Summary

All right. Good afternoon, and welcome to our first results as Burstone, the Burstone Group. Love to have you, and welcome to all those that are joining online. It has been a hell of a 6 months, and we're talking earlier, the holiday season is around the corner, and I know the team wants a holiday, but they actually just want things to settle down and stop coming at us, probably like the approach is right now, they want the Aussies to stop [ bowling ] at them. Hard to support that team sometimes. I think we've got a lot to get through, and we'll go through results, but at the same time, just unpack a little bit of the strategy looking forward. And as you think about ourselves as an integrated business and what that really means. So maybe we just start with unpacking what we look like today following the internalization. We really are targeting and focused on this integrated real estate business. And again, we'll give you some examples of how that's played out for us over the last 3 to 4 months as well as some of the thinking and strategies rolling forward and looking over the next 18 to 24 months. But just at a glance, we have around ZAR 37 billion of on-balance sheet assets in South Africa and Europe. We're managing at the moment ZAR 5.4 billion of third-party capital. We'd expect that and hope for that to grow significantly, that's in the more medium and longer term. We've got 50 people that sit across the world, and we're operating across 9 countries right now, across asset management for the focus and the target of growing into funds and development management. It's always been at the heart of what we do in terms of local presence. But today, we have a global reach, Europe with ZAR 1.1 billion of logistics assets sitting across 7 countries; South Africa remains diversified as a manager here with ZAR 14.5 billion, ZAR 15 billion sitting on balance sheet; as I mentioned earlier, Australia, our latest JV with the ex Irongate team, $450 million of equity under management, and we'll unpack what they've been up to recently. But that is our -- the start of our funds management strategy, and certainly, we'll be leading the way as we look to that in the future. Moving on to results. And really, if you look at the key takeaways from the first half, a real focus on integrating the group internationally. Strong operational performances on the ground, both here and in Europe. We obviously have the continued uncertainty of the global economic and interest rate environment. Although over the last week, we've started to see that settle. Probably next week, that changes. And from a results perspective, it's in line with our expectations. Unpacking that in a little bit of detail, the internalization completed in early July. And so we've only had the impact of that for 1 quarter. Again, we'll unpack that in a little bit. We focus massively on integrating the business. We'll give you some examples. The operational performance in South Africa, 2% up on a like-for-like basis, on an NOI basis and 7.9% in Europe, we'll unpack that further. And the bottom line results for the group impacted by interest rates as expected as last year that impacted the second half, would have been unscathed in the first half. So it's a catch-up, leads to our first half being down 5% year-over-year. But we maintain our guidance for the full year of somewhere between 0% and 2% growth, and that implies the second half DIPS growth of somewhere between 5% and 9%. So the second half really does give you a sense of what the business is able to do on a kind of stable basis when rates are fully in the base. Dividend payout ratio, we've kept at 95% in the balance sheet. LTV is currently sitting at 43%, and we think we'll get that down to 41% by the time we get to year-end. Unpacking the earnings. I guess we've spoken to the NOI and the number -- the most important number on here really is around the net management fee saving comparing to the internalization transaction. That's the second kind of dotted box. The numbers are -- it's difficult to reconcile to the face of the IFRS income statement. Sam Leon, you'll be happy to know that you never have to think about that again. But on a summarized basis, internalization has given us around ZAR 16 million of net management fee savings for the quarter. When you annualize that up, that's ZAR 64 million and that compares to the ZAR 74 million that we took to market earlier this year. The difference is the growth factor, i.e., linked to acquisitions and our new business. So we know that, that is lumpy and it's going to take time to unlock. So we're pretty happy with progress. Movement in finance costs towards the right there of ZAR 68 million really led by the increased activity towards the back end of last year, as well as the funding of the internalization and also marginal uptick on the ZAR cost of funding. From an NAV perspective, we are effectively flat. Biggest movements, obviously, linked to the internalization of the business and then the management companies as well as the sale of assets here in South Africa. And again, we'll unpack that a little bit, but a huge amount of work done here to recycle capital as we look to both reduce LTV and create headroom to participate in some of the disconnect that we're seeing in the global markets. I mentioned upfront that we'd just unpack a little bit of the strategic overview. We didn't get a chance to really do this at year-end. And we wanted to just talk through the 5 pillars that are central to our strategy over both the short, medium and longer term. They obviously have different priorities depending on where we are in the cycle. But certainly, management company internalization, optimizing the current portfolio's, growth our balance sheet and holistic sustainability. And just to give you a sense of some of the deliverables over the quarter or the last 6 months, we'll unpack that on the next few slides. But really, what we've been targeting is from a management company perspective, alignment and internal focus on the integration, the rollout of the brand, which I think the team has done an amazing job with. From a portfolio perspective, if you just look at the operational performance of that business, unbelievable at the top line, but a lot of work done in exiting noncore assets, extracting savings from our European platform. And I think a lot of the work that we've done on putting the 2 businesses together will yield results over the course of the next 12 to 24 months. Growth-wise, certainly a market that is difficult to access given the lack of access to capital. But as we look to generate the internal capital through sales and the rollout of our funds management business puts us in a position to potentially start participating sometime next year. On the balance sheet side, obviously, your focus on reducing LTV but also managing our risk profile and in Europe, that is linked to an early refinancing and also considering a restructuring of the balance sheet here locally. And sustainability, not just thinking about solar, but really embedding ESG across our entire business. There's a lot of work that's been done on both sides, and we'll unpack that a little bit later on. In terms of the management company integration, internalization, I have spoken about the integration, but let me give you a few examples of where this has played out from a global brand rollout perspective. So what you see here today, you'll experience in Europe. The global executive has been formed. Investment and Credit committees are running. That leads to information sharing, idea sharing, is bringing like-minded people together to deal with and think about opportunities and most importantly, in today's environment situations. We've got operations forums thinking about how we centralize the business, how we drive best practice. We've centralized some of the core functions, marketing, treasury, elements of finance, and we've been on the road together with our international colleagues looking for capital, both here and offshore, on a combined basis. So that's the start of it. It's not the end. And the integration and the ability to roll out and drive a fully integrated business is what we believe will be a differentiator for us over the medium term. Diving into some of the results, and let's deal with South Africa first. Really was -- I'm not sure pleasing is the right word. It can often get lost, these kinds of numbers in terms of how difficult it is on the ground and to deliver performance like this with vacancy coming down, specifically in the office sector, sitting at around 5%, which must be, I think it's half of what it was this time last year, but strong operational KPIs all across the business. I think some high-level numbers to extract here that we haven't spoken about. I think one that we're incredibly proud of is our tenant retention ratio of 95%. And that is -- that doesn't just happen overnight. It's not a one-off. That is linked to the focus on client experience, the agility, how we work with clients and how we see them as partners, and that is playing out. And I think in our industrial business where we re-leased 100% of the space that came up and every single client that had expiries renewed with us, whether it was in the existing space or a new space, we were able to accommodate them. We've got clients coming back from the office sector that left us a few years ago. They're coming back to work with us given the experience that they've had with us. So those are softer points that take time to ingratiate into your business and to be appreciated, but we're certainly seeing the benefits of it. Graeme and his team have done an amazing job of disposing of assets, so ZAR 1.1 billion of assets sold this half, and that's around 2% or at a 2% discount to book. We've got another ZAR 700 million sitting on the balance sheet as held for sale. Massive focus on cost of occupation, ESG initiatives, and we'll continue to roll that out over the course of the next 6 to 12 months. I've spoken a little bit about industrial, but you can see the impact of that, probably the strongest performing sector, 11.5% up in terms of NOI. Vacancy sitting at 2.2%, but look at that versus September last year when it was sitting at almost 7%. So immense amount of work done. Reversions have certainly tailed off and sitting at marginally negative. And so a really good work done by the team. There's some snapshots in terms of achievements, individual achievements in terms of the assets. Alrode, which continues to be a strong performer for us, 63,000 square meters of space let there, 100% retention ratio that I mentioned earlier. And 43% of our properties sit with backup power. So important as we think about the environment we're in. Retail, a continued growth story for us, certainly very defensive. All the trading stats are up year-over-year. Some of that is certainly driven by inflation. So we don't take all the credit, but certainly moving in the right direction. And those stats are reflecting in the operational performance of the business. NOI growth, up 6% year-over-year. Vacancy sitting flat, most of that 4.5%. So it's pretty much in 1 asset that shall not be named. We are fully aware of what's happening from a consumer perspective, and the growing pressure on the consumer is making us a little bit nervous. But the assets are well positioned. They're well located, very dominant. And we're seeing the impact of that as we run the business. Office portfolio, even though the numbers on a like-for-like basis are negative, we came off a low base last year, but amazing leasing activity, and we're starting to see -- definitely starting to see a resurrection of the sector. The bottom, it certainly feels like it's gone. We certainly passed there. The floor is back in terms of the rentals. Probably, this time last year, we would have stood up and said in Sandton, there was no floor. That's certainly not the case anymore. Significant activity or pickup in activity here in Sandton, but Rosebank, Bryanston are performing really, really well. So we are full all over the place. That's how we had to rent this for the presentation today. And I mean, even in Sandton, Sandown Valley Crescent, I think, we today are full. If I go back a year, 2, 3 years ago, that was probably 40%, 50%, 60% vacant. So very, very proud of what the guys on the team have been able to do. And again, I think a lot of this is driven by the way that we've been dealing with clients, with the market, with brokers, with agents, but also driven by the return to work that a lot of the corporates are driving. Valuations in South Africa remain stable. We don't do a full bottom-up at half year. We take a top-down approach, but certainly nothing to indicate any significant changes because moving the gross value is the disposals that I spoke to earlier, but we remain pretty comfortable with where the SA portfolio is valued. And just to unpack, we talk about -- and a little bit later on, I'll talk about the shift towards going up the risk curve a little bit. But Benoni multipark, just to give an example of where we spend our time and how we think we extract value, this is a property that's been with us for a number of years. But really, if you look over the last 3 to 4 years, the metrics on the bottom right there, where we've taken vacancy from 26% down to 0, we've increased the WALE by kind of 7 years and the income has almost doubled. That is an example of how we create value and where the team spends their time. And that's the kind of stock, that's the kind of kit that we're after. We don't want to just collect rent. We think that we can get to a position of converting a kind of risky, say, value-add core plus type of asset with a bit of risk associated with it to create the value. Otherwise, there's no need to have us run the business. The outlook for SA. We all know the macroeconomic situation here is fairly muted, although there are some green shoots, certainly still some own goals. We do expect -- I mean, the portfolio is defensive. We expect it to deliver relatively low growth over the coming WALE and it really is reflective of the operating environment, a big focus from our perspective on cost of occupation as we look to then drive top line revenue. And the focus over the coming 6 months really is around the quality and relevance of the portfolio, accelerating our capital recycling program and looking at how we recycle that into new opportunities. Europe, in terms of the underlying performance, very, very strong tailwinds on the ground. Continue to see growth in contracted rentals. So we see -- we picked up or captured 5.7% in rental reversions. That's on top of or combined with indexation across the portfolio of close to 7.6%. We expect that to tail off. Strong performance on both the top and bottom lines in terms of the property portfolio and a continued focus on the cost extraction at a corporate cost level in the business, and that will come through mostly in the second half. Again, on the letting performance, really strong performance. But really, if you focus on the tenant retention, similar to South Africa, north of 90%, a very strong result from the team. Continued focus over the next WALE on the refinancing of the European balance sheet, the rollout of our funds management strategy and implementation, sustainability in ESG as we look forward and think about how we access capital together with that sustainability lens. The income statement in Europe, there's a lot of detail there, but just to pick out a few highlights. We've covered the NOI. But I think just to look at the cost structures, which have come off, reduced by 10%. We said that we would be focusing on that. We'd expect more savings coming into the second half. The high interest costs that are dragging the bottom line where the distributable earnings come out of that platform are down 12.5%. So it's a story of 2 halves with operating performance very, very strong and then the drag from the unhedged portion of funding costs together with the roll up and getting to the cap, which is in place for the next 2 or so years. From a valuation perspective, we've kept that stable, but we do expect volatility over the near term. The contractor rental and NOI has grown, and we've effectively by keeping it flat represents a circa 15 basis point shift in cap rate to kind of 5.25%. So a little bit of further expansion, and we'd probably expect or anticipate that to move out over the next 6 months together with income moving in the same direction. So it should be an offset. From an outlook perspective, while the growth remains above the long-term trend, we do expect that to moderate. I think the impact of rates across Europe, the impact of inflation is certainly going to impact the ability of tenants to continually absorb rental growth. The supply remains constrained. So we see that we're inundated with opportunities from a development perspective. But the portfolio is well positioned. It's very defensive, 0.9% vacancy. I don't think we could ask for more. And although we do expect rental and top line to continue to grow, there is the impact of the interest rates that we need to consider as some of our facilities and hedges roll off, although that will only be after 2 or so years from now. If you move into the growth space, and we've spoken a little bit about our funds management strategy. But I guess where we are today with an internalized and fully aligned business globally, it does present opportunities for us to expand into that space. I think we're well positioned to deliver that. And again, the Aussies are probably going to lead the way with that and a lot to learn from them, but they've got a track record of delivery as well as the European teams who have done this before. We obviously do also understand that from an SA perspective, having grown up in a financial institution. And unpacking the benefits to us, not just about revenue, but it is also about releasing capital, enabling us to de-gear further than the 41% that we spoke about upfront diversifies our investment base. I think we can capitalize on some of the operational synergies across the globe and creates a new access to capital and different revenue streams to enhance our overall return to shareholders. So it's -- it will be a slow burn. We don't expect this to kick off and have a massive impact on our business over the course of the next 6 to 12 months, but there's a lot of work that needs to go in and preparation work that goes in our front to build the business, a successful business like that. In Australia, I mentioned Irongate and the fact that they will lead it for us. But they're actively engaged on several opportunities, some strong pipeline. I think we're pretty close on 1 or 2 small deals, and hopefully, we get to talk about that relatively soon. But just a great example, I think, of a management team that's got track record and is supported both from a capital partner perspective but also in terms of access to opportunities on the ground. So we're excited about where that goes in the very near term. In Europe, I think from a strategic partner perspective, we spoke about that in February and March as we took out our previous partner. It's a big element of an overall de-gearing strategy. But given the volatility and where pricing is for liquidity right now in the market, we've taken a view that it's just not the right time to introduce a new strategic partner into that platform. There is, if we unpack -- kind of contrasted to South Africa 4 or 5 years ago, if you needed liquidity in the South African market, the bid offer spread on whether it was equity or assets was significant. And only if you really needed to access that liquidity did you do it. And that's playing out in Europe as we speak. So we hold a lot of optionality in that business. It doesn't feel like the right space or time in the market to be using that optionality. And so we'll continue to explore it and ensure that we're looking to maximize shareholder value, but at the same time, managing the balance sheet and managing the option. Our focus over the near term has then shifted to de-risking the balance sheet in PELs, the refinancing, operational savings as well as exploring some sub-portfolio options on a smaller basis with other capital partners where that cost of liquidity is a lot smaller or the gap a lot lower. In South Africa, we obviously have the ROFO on Investec properties, a pretty average [ neg ] to be fair. But that gives us a good pipeline. There's the neighborhood center near Linksfield and Huddle and obviously, the land in [ Kasadin ] with the Corobrik development site. So we stay close to the Investec boys and girls on that. And also looking at a few longer-term opportunities in the impact sectors, retirement, residential, et cetera, et cetera, although that is much longer off than where we are right now. So exploring the funds management model. We're in discussions with a few people here. Again, this is a slower burn. It's a market that is taking time to unlock, a lot of education around that and working with capital to get them comfortable with the opportunity. Capital allocation. I know this is a fundamental right now in the market and gets spoken about a lot. And we are absolutely focused on what that means for us a recycling or recycling the capital into best international and local opportunities. They have to support our longer-term strategic plans and have to create longer-term shareholder value. And we've always said they don't always have to create short-term shareholder value because in real estate, it does take time to unlock. And with the right asset and with time, the right people, that's where the value gets created. So we haven't shifted off of that, and we remain very, very focused on that. In Europe, the market is dislocating. So we're seeing opportunities, but it's up the risk curve just from a macro perspective. Limited opportunities in South Africa that we think provide or present value. And in Australia, the guys are well positioned to take advantage of dislocation in the REIT sector as they look to delever. So it is a story of capital constraint. Our focus right now is then internally, we're generating that capital, internally to be able to recycle and/or delever. And there is a lot that we look at every day as we look at how we drive the business forward. Balance sheet, which has always been fundamental to how we think about our business. I mentioned the LTV focus is to get that down to around 41% in the very near term. The real focus on active treasury management, the upcoming swap expiries, both locally and then obviously offshore, and I mentioned the fact that we're exploring several refinancing opportunities, again, on both sides of the water. The debt book remains well diversified. We've got no debt expiring over the next 2.5 years, although we're getting ahead of that, and I think we've got some interesting ideas as to how to benefit from the current local conditions, given the weight of capital chasing some of the credit. From an interest rate perspective, we're 95% hedged at a group level and in Europe, 93% on the European balance sheet. From a capital recycling perspective, I mentioned all these numbers before. ZAR 1.1 billion sold here, ZAR 700 million awaiting transfer, so that cash will come in, in this final -- and hopefully in the final few weeks unless the guys have started to go on holiday early, which is likely, and we're targeting another ZAR 700 million over the course of the next 6 to 12 months. And we have identified a pipeline of assets in Europe for sale, although we're going about that nice and quietly as opposed to being a big bang approach. We've renamed this from a flight plan to indicative plan because I think we've all got tired of the flight plan. I heard glide path the other day. So we're trying to come up with new names. We weren't very good at that because we had IPF and IAPF. So we're not really that great at being dynamic in our naming. But we have done what we said we would do. We're sitting at 43% now. The shift -- the difference between that and the 40% that we said would be at really comes down to FX, some CapEx investments as well as some other investment activity that's taken place over the course of the last 6 months. And if we get some of those disposals right, just locally in South Africa, that's the 2% that takes us from the 43% back down to the 41%. If we get one or two things right in Europe, that number comes down even further. And if we get some of our funds management activity on the go and we don't see that as near term, that's the big mover or the big lever when it comes to that LTV number. The swap profile, there are a lot of tables there, but just to try and pick out the key numbers, and we highlight this because this is ultimately where the risk sits, not from a balance sheet perspective. This is risk that is going to potentially impact earnings going forward. We all know that. It's a fact of life. Rates have moved up. So the risk really sits in the bottom there in terms of where the roll-off of the various hedges across currencies and/or interest rate swaps. We're obviously not sitting on our hands doing nothing. So not only are we active on the treasury side, but the reason why we've really unpacked our strategic objectives, and the focus there is how we reshape the business and better position it for a high interest rate environment, what can we do to drive new business top line to absorb some of that bottom line earnings pressure? And that is what we're trying to get ahead of. So our expectation is to certainly absorb as much of that potential risk as possible should rates remain where they are. Obviously, if they come off, or it will start to come off, we'll be rather happy and we can probably relax a little bit more. But we're not sitting on our hands, and that's a key takeaway in terms of the proactive asset management, capital management and funds management side of our business. The swap profile in Europe, I think I've covered and that's where we sit today. 2 years to run on that facility, and we're actively engaging in terms of refinancing there as we speak. Sustainability. I'm conscious it's interims and we'll unpack this in a lot more detail at year-end. But really, this is a focus on a broader holistic sustainability strategy as opposed to just thinking about water backup or the rollout of solar. This is how we think about trading broader long-term stakeholder value right across the spectrum. So whatever we do needs to have a financial impact, improve livelihoods, act as an enabler for ESG and aim to achieve net zero emissions. And there are some examples there of what we've done up till now. And we've got a full plan. Again, we'll update you at year-end in terms of what we think that looks like. But progress to date, we're currently sitting at a Level 1 B status. From a European perspective, the guys have commissioned a decarbonization review and looking to roll out somewhere between 4 and 7.5 megawatts across the portfolio from a solar perspective over the next 12 to 18 months. In South Africa, 67% of our portfolio is already covered by backup power, and we've already installed 15 megawatts of solar generation. We continue to explore new options, wheeling, et cetera, et cetera. Our view is that our role should be in the buying and not in the provision from a capital perspective of power. We certainly are not electricity experts, although neither is Eskom, but we think that there are better ways to do this and to benefit both as a landlord as well as a provider into our tenant base. In terms of enterprise development, CSI, social development, we've committed over ZAR 4 million a year to this just in South Africa, but the focus for us is also going to be in Europe. We cannot forget that we are a social citizen or social corporate in a big market, 7 countries, and we'll continue to think about that. Looking ahead, tagline has transformed potential, and we won't give you the story of Burstone. Probably, I've given the story 100 times, but it is really about how we think about value and how we create value. We believe ourselves to be real estate purists, proactive management, client-centric, and we've seen the benefit of that over the course of the last 12 to 24 months. Dynamic capital allocation, I'll go with the word rigid, too. And then entrepreneurial yet disciplined as we think about how we combat this massive volatility, volatility in the changing markets globally and how do we stay relevant, how do we stay ahead of the curve. And holistic sustainability. I mentioned that earlier, this isn't just about ticking boxes. This is about creating longer-term value for all of our stakeholders. Reflecting on the past 6 months, as I mentioned upfront, our clear focus has been on repositioning the business from a pure property investment focus into a fully integrated international real estate fund and asset management company. And we hope to be able to deliver that over the course of the next few years. That is a key differentiator for us and is key to our strategic plan as we roll forward. The results of the last half year really underpinned by the operational performance of the 2 portfolios, and the asset base remains strong and well positioned to weather any storm that comes at us, which we hope is a long way away. Looking ahead, short term, it's all about the stability of the current portfolio, enhancing the quality of the recurring earnings, operational synergies, not just locally but offshore and how we integrate that. Reducing our LTV and effectively managing our capital as we see the opportunities that present ourselves in terms of the current market dislocation, we expect that dislocation to continue for some time. The rollout of the funds management strategy. And obviously, working alongside the opportunities with the Aussie boys and girls in terms of unlocking opportunities that are being brought to us at the moment in Australia. So a big focus in terms of both growth, risk management and extraction of operational efficiencies that really sit underneath on those as we stand also today. I mentioned earlier that maybe we'll give you a view of what we think life looks like over the next 3 to 5 years as we take what I've spoken about in terms of our strategic priorities and try and put it into pie charts. I thought -- we thought it was fitting that because it was Sam's last day and he likes pie charts so much that we would -- this would be his -- our parting gift to him. But really, give you a sense that from a geographic perspective, we do expect our international exposure as a broader business to expand relative to South Africa. That doesn't mean we're anti-SA. In fact, the way we think about life is that we're going to grow both portfolios. It's just that when you multiply everything by 20, international does tend to grow faster. The capital market is also deeper there, and our ability to grow different platforms is obviously larger. So we expect international offshore exposure to increase over time. The introduction of the capital light model funds management model, we expect that to grow, and we're kind of targeting 25% of the overall balance sheet management over the next 3 to 5 years. Investment strategy, that is really moving and ensuring that we're using our people and leveraging that skill set as we look to go, not up the risk curve, but certainly, that's how we want to extract value for our shareholders. I spoke a little bit about impact sectors, so bringing in the likes of residential or senior living as we look to expand the business and we look to probably start that locally, but that is not a near-term objective. Sectoral exposure, that is a guess. We remain very opportunistic. This is the one pie chart that we probably would never stick to. It is all about the quality of the real estate and the market in which we operate. So we certainly don't say no to opportunities just because it doesn't fit on the pie chart. And from a balance sheet perspective, we are working hard at getting the LTV down to around 35% over the next 3 to 5 years. It's not just about risk management but it's about how do we create the headroom and firepower to participate in the opportunities and the dislocation that we're seeing and continues to come through in a very volatile global market. And from a payout ratio, we're currently sitting at 95%. We remain -- we will maintain an appropriate dividend policy that supports our longer-term strategy. So in conclusion, performance in the second half of the year will be underpinned by the operational efficiencies that I mentioned, largely driven by what we're going to extract in Europe. The impact from the recent internalization will really come through in the second half. We only had 1 quarter in the first half. We get, obviously, the full 6 months in the second. Cost reduction measures. So we're on top of it. We know that we've got work to do if we're going to get ahead of the impact of the rates and a continued focus on the implementation of our strategic priorities. We've spoken a lot about rates and the impact and the fact that they continue to negatively impact, not just us, but the whole sector. I said earlier, we're not sitting on our hands. We're proactively positioning the business to absorb and to operate in the higher interest rate environment. And if we get some of our -- both strategic and tactical priorities right, we believe we'll be in a good -- a very good position. And then guidance. We've held it flat to where we were when we spoke to you guys in May. I think importantly, kind of looking at that second half of 5% to 9% in the second half, that does give you a sense of what this business can deliver when interest rates are fully baked into the base. So yes, quality asset base, a robust balance sheet. I think we do have the foundations for the future. I think we just want to end off with a few thank yous. I think it has been an immense 6 months. So firstly, to the team, the Burstone team, and I know the South African team is sitting here today and the European guys sitting, I think, in the office in London and across the continent. And the Aussies who are probably gloating about the cricket right now. But it has been an unbelievably challenging 6 months if we think about what we've had to deal with, both operationally as well as the exit from Investec. It is not easy leaving behind a big brother and the mothership and a business that you'd work with for most of us, 10 to 12 years. So it's also a big thank you to Investec as we've rebranded, we were kind of given our wings. There were some -- well, there were only really good times together until the very end when it -- that got interesting. But that's expected. And the amount that we have learned as a team as individuals and what we carry with us into the Burstone chapter, there's not enough ways to thank all the people that we worked with at Investec as we move on to the next chapter. And then to Sam, I'll try and keep it together today, Sam. But I don't think there are enough words or good enough words to explain how grateful we are to you. And for your contribution, not just to Investec, to IPF, to Burstone, to Irongate, but also to the sector as a whole. Unbelievable to think that there will be that gap when you step off today. But you reminded me earlier in a response you gave me, which is that, you aren't going anywhere, thank God. You have a desk in the office and that you continue to work with us. So from the whole team, from the Burstone team, and I'm sure from the whole market, it's a massive thank you. The gratitude that I have personally for what you have done for me, what you've shown me, both professionally and so on the field and off the field, there's no words to describe the thanks that I have you. So Sami, thank you, and we appreciate everything you've done for us. With that, we have -- look, we got rid of our banking license. And so we don't have the same grades that we normally have, but we have tried. We're in a cost-cutting measures here. But do join us outside. We have some drinks and some snacks. Before we go there, I think we've got some Q&A. Is that right? It's -- we start on the floor, and then we'll go to -- I think we've got some iPad stuff, and we've got some guys on conference call. And we do have Paul. Paul joining us from London. He unfortunately has a funeral he has to attend tomorrow. So that's why he's looking so grumpy, although that is pretty much his standard look nowadays. Nice that you joined us with a tie, Paul. That's a nice -- must be going for another interview. Do you want to -- we've got some questions here. Would you want to start on the floor? Anyone on the floor? Of course.

Just around the Pan-European logistics plan, right? Obviously, you're planning on selling down for a while, but you said now is not the right time to do so. Can you please just unpack that?

Sure. So I mean, Graeme [ Hutchinson ] can probably give you some examples in South Africa that we saw 4 or 5 years ago. When you're looking -- if you're looking for liquidity, to access that liquidity, that cost of equity is massive. If you think about it in the listed space right now, that's exactly what you're seeing. And I think I remember from [ SAPOA ] the conversation around the broader sector NAV, there's been enough transaction activity to support underlying book values mostly of the quality stock. And I think that's right. And so your disconnect with stock prices sit today relative to the underlying asset prices, reflects broader market volatility vis-a-vis other factors. So that is the cost of liquidity. If you go to Europe -- and Paul, you can also chime in. But if you go to Europe, if you want to access liquidity right now, whether it's with a strategic partner, whether it's with -- on an individual asset sale, the cost of that equity is just massive, right? And so we're in a position now where we hold all the options on what we think is a phenomenal portfolio, very defensive, well managed, well located. 1 or 2 little warts, but nothing dramatic in a very strong operational environment. Obviously, we are concerned or think about the operating space in terms of where the tenants are, the pressure that they're under and we're trying to get ahead of it. But a business that portfolio with a 5-year WALE, 70-odd, 80% sitting in the core markets of France, Germany, Netherlands, we don't want to give up the value. So it's a balance between that value or short-term impact on LTV, okay, and value to give up to attain that. And then thinking longer term and managing that LTV longer term and making sure that we hold on to as much of that value as possible. So we could go and hit a bid now if you wanted to. There's certainly plenty. There's enough capital around to do that, but it's very, very expensive equity. And so not only do we think we'd be giving up value but that kind of cost of that equity, if we're thinking about that at the top at a Burstone level, for us to then go and redeploy that equity and beat that in terms of return is very difficult to do. Paul, I don't know if you want to add...

Yes. Thank you, Andrew. I don't know if everyone can hear me okay, but good afternoon, everyone. I think the -- I think your sentiment is right, Andrew. I mean the point in the Eurozone really is that there's the highest base rate, interest rates that we've seen since the euro began in 1999. So the U.K. is sitting at 5, 5.25%, Eurozone is certainly less at 4% for the 3-month Euribor. And I think the point there is that the central banks and governments have been acting very aggressively to bring inflation under control, and that's obviously having a knock-on impact on the capital, which remains very cautious and pricing is having an impact because of that. I think the positive news is it's clearly working. I mean if you look at the headlines from yesterday, inflation is now ahead of its target in terms of the U.K., coming in at 4.6%. And you compare that to last month, which was sitting about 5.6% and the government's target of just under 5%, I think the measures are working. And it will be interesting to see what happens over the course of the next sort of 6 to 12 months as that inflation number comes down and central banks and governments start to focus on how they provide that growth into the GDPs of the local regions. So hopefully, that interest rate curve starts to change, and we see confidence and pricing trajectory working in our favor.

I think the other thing, just to note is one of the benefits that we've got -- hello -- one of the benefits we got of having the combined business, European -- Europe and South Africa is, they're running 2 different -- they run to different tunes. And right now, we can access better liquidity here. So you see that in the asset sales, there is a dislocation, but in a positive way here. So we're not forced to go and seek liquidity in one market at the expense of another. Right now we can access that here and utilize some of their capital to either delever or support growth. And so yes, when we think about capital allocation, whether it's LTV or access to new capital, new deployment, we'll think about it on a group basis.

[indiscernible] And just time, the disposal once you start to see interest rates dropping, maybe in a year's time, I'm trying to get a sense of when that could happen right like 18 to 24 months or something...

I think -- I mean, right now, I mean, that's crystal balling. I think it's very difficult to see even past 3 to 6 months forward. It is about what makes sense, where the business is sitting, where the opportunity is. There's constant conversations. So we don't -- we haven't stopped, right? We're constantly engaged in the market. Paul and his team are on the ground. We know exactly where things are. It's also about finding the right partner. That's as important. So we -- is it -- we're going to put it on the shelf and then revisit it when interest rates change? No. It's just we know that right now, given where the market is, no point spending a whole bunch of time trying to do it. We're going to focus in South Africa, creating the liquidity, focus on derisking the balance sheet, the refinancing that comes up in a couple of years' time, we want to get ahead of that. We can extract operational savings and synergies that drop right to the bottom line very, very quickly. That's a real benefit for us. So it's also how we use our resources and the people that's in the business to extract most value in the market we're in.

Cool. And then I see you've got some debt, perhaps some cross currency swaps that are expiring in FY '24. What is your plan when those expire?

Jen? Have you got a microphone there?

So those expire right at the very end. So there's very little impact on FY '24, which is why you see that doesn't come into the guidance. So the impact really comes in '25. Plan around them as we -- I mean, we're doing what we can. We're watching them actively and taking advantage of the market if the curve gives us an opportunity. But again, it's crystal balling, we can't rely on that. So the interest rates are effectively out of our control. So the plan really is to look at other ways of extracting value to, in some way, buffer the impact of the interest on the bottom line. And that's through operational synergies. We've got other levers in terms of some of the balance sheet restructure, in terms of margin, how we negotiate with lenders. I'm conscious the lenders are in the room. But there are other ways that we're going to combat it. But -- yes, I mean, that's -- we're not living on a hope factor that the curve works in our favor.

But also I think, Michail, what I'm guessing is are we going to roll that into ZAR?

Yes.

The answer is no. And that is because we're sitting hedged at somewhere between 60% to 70% on valuations that are stable. So we're not overhedged, and we're not having to unwind euro positions to dehedge our capital hedge. And that's a little bit different to some of our peers that have seen that ratio go the other way. So we've still got plenty of headroom there, and we'll continue to benefit from being able to fund and hedge our capital on a like-for-like basis.

Okay. Cool. And last question from me. I saw that there was an investment wealth guarantee. Just a bit of understanding for what that was on PEL.

There's a -- when we brought them in, which is in the middle of COVID, talked about cost to liquidity. So there, we've got a -- I think it's a coupon or a yield underpin there of 5% or 6% coming out of the platform. So with rates going up, that kicks in, but the maximum exposure for us on an annual basis is EUR 280,000. So that's the cost of having access to that liquidity during COVID, EUR 40 million. There's 1 or 2 questions here. Louis from [ 361 C3 ] LTV. It is in the presentation. So I didn't highlight it. it's stable, 58%. And in terms of pricing discussions with strategic partners. We got -- as I mentioned earlier, there's constant discussions. But it's also where the capital has gone. So what we've seen is capital that has historically been looking at core plus type of opportunities. They are risk-off and are seeking effectively value-add type of returns from core product. And really, a lot of the guys are playing in the listed space in Europe, the U.K., U.S. and targeting that. So I think deploying a lot of their strategic or special situations capital as opposed to the kind of core plus capital. Momentum, Benny, your question around our foreign exchange hedging policy, do you want to pick that one up, Jen?

Which part of it? So foreign exchange hedging policy in terms of income hedges, which is we've got -- we have [ X-1 ] approval to fund all of the income that we forecast coming back in from the various platforms which we do. So we have -- we almost -- I think we're 93% hedged for the next 5 years on income coming back. In terms of capital, our policy is 60% hedge. So we hedge in euros 60% and ZAR 40%. But at the moment, we're sitting at around 70% as we increased that slightly when we bought up the 19% in February.

Any questions on the Chorus Call, and we'll come back to the floor in a sec?

There are currently no questions on the conference line.

Okay. So hand up on the right there. Just behind you. Thanks.

I've got two questions. What regions are you looking at when you mentioned international growth strategy? And with respect to that, how does it look like in terms of partnerships, JVs? Second part is on the noncore assets, which assets are those? And what's the criteria?

Sure. So internationally, certainly short term is to remain in the markets in which we're currently invested. So Aussie, Western Europe -- and I guess, more of a lean towards the developed markets -- core markets of Europe, which we see as Benelux, France and Germany. Our peripheral markets right now are kind of Spain, Italy and Poland. I would probably say Spain would ratchet up the list. We just haven't -- we've only got 1 park there, same as Italy, but for probably less -- we see Italy as being less core to us. And we would look to continue to get scale in each one of those countries. We're not yet at scale there, right? So the cost of running that European business is immense. And so with scale, we'll unlock economies of -- or efficiencies. The U.K. remains on our radar. I mean, we obviously -- Paul and his core HQ team sit in London and our asset managers are spanned across the European continent. So it kind of makes sense to us to certainly consider the U.K. market, and we have been offered a few things. Looks attractive, but cost of funding is high. And I think do we expect to go anywhere else soon? No. From a partnership perspective, we -- if we're going to -- we would always like to manage both fund and asset manage. If we've got that level of control, we're happy to give up control in terms of overall ownership percentage. But -- so we'll look at the balance. Partnerships are massively important for us. It's not just about getting access to the capital, but it's having like-minded people around the table. We had a great partnership with [ Aries ] in the initial days as we rolled that strategy out with them, and you see the benefits. But , so we don't have a one-size-fits-all. We're happy in some -- in Australia, for example, in our capital light model there, you'll see us taking 10% to 20% equity stakes alongside third-party capital, but we operate the GP, the general partner. So most of the critical decisions get made by us as Irongate and Burstone. And we'd look to replicate that wherever we were. We want to be able to -- we're never going to relinquish full control and certainly not the control on the ground in terms of what happens at an asset level. The second question, I thought I'd remember, but I've forgotten. Noncore -- hedging. I mean, let's hit noncore here and then also noncore in Europe, Paul, will come to you now just hang on there, big boy?

Can you hear me? Yes. So noncore within the South African context, I think it's not necessarily because there's significant problems with any of the assets we've identified. I think it is fairly wide ranging. And I think some of them have just reached the top of the return profile from our perspective and are ready to recycle. There are also some smaller generally industrial-type assets, which are great little assets, but at the scale we are, sometimes it just doesn't make sense in terms of management time required to actually manage those assets and extract them. And then yes, there are a few smaller office assets that we would get out of over time. I think in that ZAR 1.1 billion, there are 3 office assets that we sold within that. But none of the core really has fundamental property issues. It's just we've identified it as a good source of unlocking capital and it served its course with us or run its course rather.

Paul, anything from your side on that?

I mean I'll just echo [indiscernible] comment really that we don't set our stall out to designate assets as noncore specifically or regions as noncore. And I think it's important to remember that we spend a lot of time analyzing and selecting the properties in which we acquired through the aggregation of the PEL portfolio as well as over the past 5 years, really working hard to stabilize those income streams to sort out any underlying issues that run through the properties. And we're very happy with the performance of the income from each of those properties. So I think it goes to the point of saying that we will selectively sell if the right opportunity presents itself, but it's not a case of a wide broad brush approach to how we do that. So it's a much more strategic and thought out process and where ultimately we think the capital has done its work and that we could extract it from the existing underlying investments and recycle into more accretive assets.

Yes. Any other questions on the floor? Anything -- just double check on Chorus Call. Otherwise, we'll hit the refreshments.

There are currently no questions on the line at this time.

Okay. Great. So that's it. Thanks, guys. I really appreciate you taking the time to come and listen. And obviously, the management team is around. And if you -- if we scare you off, feel free to give us a ring or drop an e-mail. So -- but yes, thanks very much for coming.