Burstone Group Limited (BTN) Earnings Call Transcript & Summary

All right. Good afternoon, everyone, and thank you for coming, and welcome to those that are joining on the call and on VC. So nice to have you here. Good Winter's Day. Welcome to our European and Australian colleagues, who've come to join us. And they'll be around later, I'll introduce them as we go along. But yes, we're going to run through the presentation and get to Q&A. But if we just take a step back and look at the business as a whole, we are currently sitting with around $37 billion of assets across our 3 key markets, most of that sitting in Europe and South Africa, managing around $4.7 billion of third-party capital. And we're operating across 9 countries with 50 people. So a business that we're looking to integrate and grow over time, $1 billion and a bit sitting in Europe across the logistics space. In South Africa, $14 billion diversified across retail, office and industrial. And in Australia, our capital-light vehicle JV with Irongate Graeme Katz and the team, currently sitting with about AUD 490 million of third-party equity. And we'll get into some of those details as we fly through the deck. I think we turn to highlights from the year and starting really with earnings. We are pleased to be coming in, in line with guidance, 1% up on the prior year. That has been underpinned by strong underlying property performance in both Europe and South Africa. So like-for-like income in South Africa up 1.5%, that's dragged down by office, and we'll unpack that a little bit further later on. And in Europe, like-for-like income up 6.2% in euros, and that has been underpinned by strong rental growth as well as indexation. From an NAV perspective, it is down -- we're down 4%. You've got to strip out if -- you strip out the mark-to-market on the hedge book, that is closer to 1.5%. So marginal impairments in Europe and South Africa asset or the South African asset base being flat. From a dividend perspective, as we mentioned in the pre-close, we've, for the second half, reducing that to 75%, and that will -- we'll continue that on -- as we go forward. But for the year, it means that our payout ratio is 85%. The key numbers as we think about the internalization over the course of last year was the net management fee saving. And we put forward a deal case or transaction case of around $74 million. We're ahead of that by around 8%. In Europe as well as across the group, we've continued to absorb and save costs. So in Europe, we've ripped out EUR 2.1 million of corporate costs and as a group, managed to absorb EUR 66 million of increased funding costs as a result of the increased rates across the globe. In South Africa, in terms of asset sales, we sold ZAR 1.3 billion of assets, as we told the market we would at 1.5% premium to book. So very happy with that, and we continue to see and gain traction in that regard in South Africa. Pro forma LTV is slightly up on the prior year at 44%. And as we unpack it, you'll see the clear plan to get that down to between 37% and 40% within the next 12 months and that's through a series of asset sales, both here and in Europe. And we've concluded a significant amount of those or have a significant amount under offer as we stand here today. In terms of capital light, a good year and a base for which to build, currently capital-light activities contributed around $61 million to our bottom line, and that represents around 7% of our total earnings. If we unpack the earnings for the year, I think we benefited from the internalization. And those benefits have been offset by the higher funding costs as we had expected. So moving from left to right, as I mentioned earlier, South African income up 1.5%; in Europe, 6.2%. The $43 million you see under the cost savings is really our share of those cost savings in Europe. The funding activity, the negative, as we disclosed in February, March last year, as we took up the additional stake in PEL. And we expect that to be marginally dilutive in the short term. Australia as well as the capital-light revenue that we earned, the 61 is bucketed together. And if you look at the 54 on capital light, the leasing comp saving, the management fee saving that we would have incurred at PEL as well as at IPF or Burstone level, offset by the costs that we've absorbed that gets you to your $80 million, which is on an annualized basis, and then we pro rata that for 9 months. That's the $54 million that you see coming off is just the pro rata-ing for the 9 months and then obviously absorbing the increase in rates, together with the funding of the maintenance CapEx in the business, which drags earnings and we end up at $851 million for the financial year. Moving on to the NAV bridge, I think a couple of key points here. As I mentioned upfront, NAV decline of around 4.5%. If you strip out that 404 mark-to-market on the hedge book, that NAV shift is around 1.5%. And you'll see the significant amount of work done on the asset base in terms of the sale proceeds, effectively funding almost all of our investment activity over the course of the last 12 months. In terms of LTV and reconciling that in terms of year-over-year, obviously, the internalization is expected, ticked it up by just over 1%. The asset sales concluded in South Africa combined to almost a 3% reduction. New investments into Australia, the Smithfield deal, which we'll unpack a little bit later on, together with some structural CapEx added 0.9% to that. And FX as well as the mark-to-market derivatives, valuations, et cetera, account for that 2.7% uptick. And we'll unpack the fly path in a little bit. I think as we turn to the strategic overview and maybe as we think about the business over the short and medium term, certainly for us, the 5 key pillars remain, as we talked through last year. The integration as we think about unlocking distribution synergies and capabilities across our international platforms, the cross-border skills, knowledge, experience and expertise as well as how we leverage our processes, our people, our systems to maximize efficiencies and drive best practice. And we're certainly seeing benefits coming through, and we'll unpack that a little bit further in the slides to come. From an optimization of our current portfolio, this is really what our teams on the ground do best. Client retention and experience, we look to enhance the quality of our earnings streams, big focus, especially in this current environment of higher rates and the impact on our tenant base is how we think about cost of occupation. And we'll unpack, again, some of the initiatives that we've rolled out across the group to work with our tenant base to ensure their sustainability, which is key to our longevity. The balance sheet, obviously, an absolute focus for us. #1 is reducing that LTV in the very short term to below 40%, so 37% to 40%; thinking about and actively recycling our capital and managing the refinancing risk, specifically in Europe, as well as being opportunistic here in South Africa. And Jenna will unpack that in some detail in the next few minutes. In terms of growth, this is more of a medium-term focus, as we think about managing that LTV down, but certainly gaining traction and thinking about how we best invest today for tomorrow's return. And from a sustainability perspective, looking to wrap that up; across our business, embed our ESG principles. A key focus for us over the next 12 months and later is developing the [ solid ] strategy, particularly in Europe, where we've got about 4.5 megawatts that we're looking to roll out over the course of the next 12 to 18 months. If we unpack the integration, and effectively, the internalization was completed in July of last year. We believe the integration and offering an integrated solution does unlock several key advantages for us as a group. Obviously, from what we've achieved over the course of the last 12 months, there's been a lot of activity and there's almost a lag effect until we see that coming through the hard numbers. But there has been a massive global brand rollout as we look to rebrand from Investec as well as from Europe. In Europe, the centralization of some of our core international functions, marketing, treasury, et cetera; so looking to drive best practice but retain local knowledge, local expertise. We've been on the road together with Graeme and his team as well as with the European team as we look to combine our international capital-raising efforts to drive the funds business over time. And we're certainly starting to see those benefits come through. As I mentioned upfront, an 8% -- we ended up 8% ahead of the deal case on the net management fee saving. A new third-party management mandates in Germany, around about EUR 160 million, EUR 170 million light industrial portfolio. As I mentioned, the global equity roadshows as well as the delivery of those cost savings in Europe, and we're expecting more to flow through into FY '25. As we unpack effectively operational performance and as I mentioned upfront, this has been very, very strong for us on both sides of our portfolios. South Africa, certainly stable operational performance against the backdrop that is consistently challenging. From a leasing perspective, some really stellar numbers coming out of the team, so almost 90% of the space expiring. we managed to deal with a very strong tenant retention ratio of 88% to 89%, and that is underpinned, again, by our focus on client experience. Negative [ revisions ] do persist, we'll unpack that a little bit, and very, very low incentives. So we are always kind of at the bottom of the market there in terms of what we pay out as part of a leasing transaction. Our average vacancy, you won't see it in the year-end vacancy, but our average vacancy has declined or reduced from 6.2% last year to around 3.7% this year, and especially industrial has been a big driver of our overall NOI growth. Disciplined cost management. I mean, just to give you a sense, our net operating expense base when, you ship out bad debt, for example, in the prior year; is only up 4% this year. And valuations remain stable across our portfolio at a yield of around 9%. I mentioned upfront the disposal of assets, and we continue on that path over the next 12 months. Unpacking retail, our trading metrics across the portfolio remains strong. They underpin the like-for-like growth of 5.9%. And I think a key number for us, as we track this, is the cost of occupation at just over 6%, which means there's healthy headroom to be able to continue to move rents forward. Still capturing [ reversions ] on leases, again, underpinned by that low cost of occupation. And vacancy remained low at around 3.7%. Industrial has been a good story for us. It is the smallest part of our portfolio, but it is a sector that we really like and have done very well here in South Africa, continue to do well, and we obviously have a big exposure to that in Europe as well as in Australia. Like-for-like income growing by 9.5%, underpinned by that reduction in average vacancy, which last year was 5.4%. This year, it's 2.2%. And the [ reversion ] on leases, what we've done here is just unpack what really drives it. So negative 13.7% for the whole. But if we look at longer-dated leases, so these are leases that are 5 years and longer, i.e., those that were struck 5 years or longer -- 5 years ago or longer. That negative reversion is, as expected, higher than those that had a [ short-term ] amount of expiry to them. So 17% on the longer-dated stuff and the shorter dated 3.5%, 3.6%. And that is because market growth just is not keeping up with escalations. So as long as we are -- the market is not growing at 7, even on the shorter-dated leases, we would expect potential negative reversions. The office portfolio, we are very, very proud of where it is today. Vacancy of 8.4% is remarkably low, given the sector challenges. We have seen strong uptick in the market. Clients coming back, work from home or not disintegrating but certainly taking back -- a back step. Certainly our tenant base is focused on the aesthetics, how an office works, amenitization. We've seen a pickup in Sandton. And nodes like Rosebank and Bryanston are almost fully lit. Our portfolio does remain round about 10% to 15% over rented. And you'll see that consistently coming through in the negative [ reversions ] until we start to see positive market rental growth. But some big leasing deals done over the course of the last 12 months. Woolworths, 30,000 square meters in the center of Cape Town, renewed on for a further 6 years, and [ Samsung ] and Bryanston on 8,000 square meters. So some big pockets of space that we've managed to deal with over the course of the year. If we think about the outlook for our portfolio, certainly stable and mature portfolio defensive. The economic backdrop remains challenging, as we all know. We think that the portfolio will deliver low single-digit growth over the near term. And our current focus really is, again, on cost of occupation as well as that asset disposal program. Turning to Europe and maybe just stepping back and looking at the market as a whole, the logistics sector remains robust. There is still strong demand, and you see that in the low vacancy across the continent. Rental growth continues. And there is still positive indexation, although we are starting to see that slow. So certainly there isn't the same speed of rental growth as in every single market. It is going to dislocate. And as expected, with inflation coming down, indexation will also start to come off. We've started to see the occupier market slow marginally and a real focus on quality and location. But new supply does remain constrained. Cost of building is still high, development funding costs are still high. So that barrier to entry remains for us. Interest rates, obviously, have created huge volatility from a pricing perspective in terms of asset value. And we'll get on to it a little bit later, but we are starting to see with rates forecast to fall, certainly, the debt and credit markets have firmed up, and we're starting to see a real interest coming back into the equity markets as we move into effectively the second quarter of the year. Unpacking the business, its performance, as I mentioned upfront, strong like-for-like growth, underpinned by what's happened from a leasing perspective, 96% of space taken up, north of 90% retention ratio and 5% -- north of 5% [ reversions ]. And again, with very, very low incentives. We captured 7.8% of indexation. And that all combined has driven the like-for-like increase in NOI of 6.2%. Our vacancy remains low at 2.2, is the marginal uptick off of last year. That's one space that went vacant pretty much right over year-end in [ Hannover ]. And we'll continue to focus on the capital optimization, which really is the focus of -- for the group really in relation to the asset sales, the role-out of the funds management strategy that's predicated on the potential opportunity in Germany and the completion of the debt refinancing, which we're very close to pulling off. Unpacking the income statement in Europe, and I've spoken through a lot of these numbers, but you can see the impact of the increase in rates on earnings and how much of that is eaten out of the effective top line growth as well as the savings that we generated through the cost lines. And at the bottom, we're dropping 1.3% uptick in earnings in euros with the overlay of FX that's up 11.5% year-over-year. In terms of the valuations, we had a marginal write-down of around 1%, really driven by yield expansion. So our portfolio today is sitting on a yield of 5.5%. We've been able to absorb the yield expansion through the growth in the NOI line, and that has continued to grow at around 3% to 4% annually. And that underpinned our entire investment thesis, not just in terms of income, but as we thought about a potential shift in the rate cycle over time. As we think about the next 12 to 24 months in Europe, the business continues to be underpinned by a very strong defensive portfolio, good sectors, good assets. You're seeing that in the pricing that we're getting on the assets that we're looking to trade at or around or even better than book value. We continue to see growth in contracted rent. The portfolio still sits at around 8% to 10% in terms of ERV, so there's still room to move. And the impact of rates is now fully in our FY '24 base. So that uptick that we get next year in contracted income and NOI growth should drop through to the bottom line. l'll hand over to Jen.

Hi everyone. Welcome, and thanks so much for coming. It's good to be here. So moving on to the balance sheet. So balance sheet and treasury management, specifically linked to risk management, remains a key strategic priority for the business. In fact, with the exception of bringing down LTV and leverage, this is our top strategic priority. Through the course of the last few years, we've built really strong relationships with lenders across the globe. And in terms of liquidity risk, I think our key focus was the European refinance, which expires vast majority of it in October 2025, with a small slither that expires this year in October. We ran a full process with JLL as our advisers across Europe to make sure that we could -- that we were running a competitive process and we had the right competitive tension within the system to get the best pricing and the best terms being presented. And I think it was -- I think the feedback that came out of that whole process has been exceptional. Incumbent lenders have been hugely supportive not only of the business and the delivery of what's been performed in the last 4, 4.5 years, but also really complementary of the management team and the underlying operational performance that they have delivered. We had great -- we had really pleasing liquidity come-through from a number of other lenders, all really keen to be involved and be part of the refinance. So I think what we've managed to now achieve is we've gone from what was a broad pool and a very large syndicated deal to a much smaller club deal. And it's a club deal with lenders that we have very strong relationships with, know very well. And we've managed to better the terms on a lot of some of the key structural things to make it a much simpler refinance, which gives us a lot of flexibility as we look to recycle assets and move the portfolio on. So yes. So the deal is not quite done yet. We're very well progressed. We are hoping to sign either end of June or very early July, but it's going while legals are drafted. And we're very, very pleased with the liquidity that we saw coming through. Yes. So in South Africa, slightly different. I think South Africa wasn't so much of a liquidity play. It was actually more opportunistic. Our bank refinance was all greater than 2 years, we really didn't need to refinance it. But what we have been seeing in the market was a lot of liquidity, and we certainly saw an opportunity to get some benefit from a margin saving. So we also ran a full syndication. And again, we've seen really supportive lenders, some of whom are here today. And we're looking to close that process in early -- well, yes, we were targeting in probably middle of June, expecting full credit this week. I think -- yes, so -- yes, the South African refinance has also just, again, given us a lot of flexibility in terms of what we're able to do, as we look to [ delever ] and sell assets. So the whole thing has been very -- has simplified the whole structure. So that is -- in terms of interest rate risk, interest rate risk is something that remains a challenge for everyone. I think Andrew mentioned it earlier, it's really something we can't hide away from, but we have been very proactive in managing all of our expiry curves. You'll see we have quite nice staggered kind of maturity and rolloff profiles. And there are a number of initiatives. We are acutely aware of the interest rate impact and the impact it will have on distribution. But across the business, we have a number of key initiatives that we are focused on in terms of managing that and creating an offset in terms of -- yes, to manage. So there in the cross-currency and [ Eurostop ] curve, that 44%, that's all back-ended. We have a plan. Some of it is with forward-starting cross-currency swaps and that -- the impact of that is already priced in to our guidance. And then the [ rolloff ] profile starts to improve as it normalizes over the next couple of years. We are now very well hedged and have always been well hedged across the portfolio. We're actually 99% hedged at a group level, 100% hedged on all our euro positions at group and 97% hedged on our ZAR book with a back-ended expiry profile. And in Europe, we are 93% hedged, and we will continue to reap the benefits of the swaps that we have in place on the vast majority of the data until October 2024. I think Andrew is going to go into some more detail around absorbing some of that interest rate impact in the next year.

Thanks, Jen. I think the key focus for us, not just in terms of leverage, but as you think about earnings; is how we absorb the cost of interest, given the shift in global rates. We know that in FY '25, that cost to us will be $70 million. We've known about that. That is effectively a sunk cost. And we've proactively implemented several initiatives during the course of last year as we built up to that. So just kind of moving from left to right, obviously, the planned reduction in LTV will support that. The strong growth certainly coming out of Europe at operational level continued cost savings across the business, South Africa and Europe. Some of the work that Jen alluded to earlier in terms of the refinancing activity, the margin savings as well as restructuring the swap book will have a positive impact the new revenue streams we've seen coming through the capital-light business streams in Europe and Australia. And in total, the impact on the business from a -- positively is around $50 million. And that goes a long way to absorbing those additional funding costs that we are having to take on much like any other REIT. I think we get on to the crux of where our focus is over the next 6 to 12 months. And that is the LTV flight path. We remain confident in our ability to achieve this, and we'll run through where we are. And again, happy to get the team up, and they can talk through some of these sales a little bit later on. But in South Africa, over the short term, we expect to close on roughly $800 million of sales in the near term. Approximately $400 million to $500 million of that is already under contract. And the rest remains being marketed. But we're seeing good traction, and we expect to be within a very small percentage of book value on all of those assets. In terms of Europe, we've earmarked EUR 160 million of assets that we are looking to conclude effectively within the next 6 months. We're under offer on EUR 90 million, as we stand here today. And we're very close on another EUR 70 million with the same party. And that would drive a significant amount of LTV reduction pretty quickly. So if we took a snapshot of that, effectively equates around 2.5%, and we'll be standing at just over 41% today. We do have some capital earmarked for transactions. So the Neighborhood Square, we will unpack that a little bit later on. That isn't in the number. That's in the 1.2% as well as 1 or 2 small co-invest to support Graeme's business in Australia and forecasting CapEx and FX out for the next 12 months. We've also got an earmarked pipeline of assets, further assets in South Africa, $600 million, and a further pipeline in Europe of $100 million that we're starting to take to market. And again, feel confident of our ability to close those deals at good valuations. And that will deliver the [ 37% to 40% ], as we highlighted in our results this morning. We are acutely aware of the look-through gearing, certainly was never planned to be a prolonged and long-term position for us. We did that on the back of a takeout in Europe and giving ourselves the runway to drive the strategy of that business going forward. We have, over the course of the last 12 months, had to navigate a very challenging equity environment in Europe, I guess, globally. And as we now shift to the de-gearing, we're also very focused on the earnings line. So I know there are questions as to whether we are able to de-gear as well as protect the earnings line, I think, given our track record in delivering sales at strong values close to book, the kind of selling yields. We're pretty confident of not damaging those earnings whilst de-gearing, but we're also very, very focused on making sure that we protect shareholder value in that deleveraging. And we'll unpack a little bit more later on. But certainly, the environment has shifted in the course of the last 3 to 4 months. And we'll give -- I'll ask Paul to maybe elaborate a little bit later on. In terms of asset sales in Europe or asset valuations in Europe, if we wind the clock back 4 or 5 months from today, the bid offer spread or the bid-ask spread was very, very wide. And some of the assets that we were talking to people about, the spreads were anywhere 20% to 30% apart. That has certainly narrowed. And I think that's off the back of much stronger credit markets. And again, if we roll back 12 months, when we started talking to banks about a refinancing, the ticket sizes were small, the syndication market was closed, the capital markets were closed. And so it wasn't a case of pricing in the debt market, it was a case of liquidity. That has completely changed. And I think testament to where we are today in the European refinancing with very, very strong appetite from incumbent lenders not having to go far and wide to fill that book, the pricing that we're seeing, and we've seen that come in dramatically, as well as the ticket sizes and the hold sizes of that process has underpinned the equity markets, moving forward. There are definitely signs of not just recovery, but certainly activity. And you're starting to see bigger and bigger portfolios come to market and some of the bigger players looking to participate. So we think the environment has shifted, and it's certainly becoming a little bit conducive to something bigger overseas. In terms of how we think about capital allocation, I mean, it is key for us. We don't think about just short-term impact. We obviously think about balancing that, but think about where we best put our capital over time, both locally and offshore, to support our broader longer-term strategic plan. We continue to think about -- or proactively work to generate internal capital through the asset disposals. And again, that's a key function of where we're going to get our LTV down to over the course of the next 12 months. And once we have achieved that, we'll consistently invest for the future. So that is an expectation that you should have. And certainly, we will not be putting more and more capital to work until we've achieved those numbers. Just a snapshot of the year and giving you a sense of the kinds of selling yields and then what we've done with the capital. In South Africa, that [ ZAR ] 1.3 billion has selling yields of between 7% and 9%, 1.5% premiums to book single asset in Europe that was we sold to a data center operator at a selling yield of 3.1%, so 61% premium to book. It doesn't -- I don't think that you can take the 61% and apply that across our whole portfolio. And then we've recycled that into Australia, the Smithfield acquisition targeting north of an 18% IRR on our side, capital investments, CapEx here in South Africa. And then obviously, the internalization with an $80 million annualized saving would generate us a yield of around 9.4%. So a bit of everything in terms of where it's gone into, but certainly thinking about how we build, going forward. Maybe just taking the Neighborhood Square as a case study, we just stepped back and think about the why, certainly wouldn't be what you'd call a cheap acquisition of 50%. But really, the rationale behind that, the best-in-class assets, convenience center, cost of occupation, I don't think we've seen this number be 4% to 4.5%. You got to check as Woolworths [ Dischem ]. I can't remember off the top of my head what the trading numbers were for December, but I think [ Wooly's ] here just opened. That was a record opening for them. And if we think about our returns over time as we think about beating our cost of capital, we believe, on a leverage basis that this will beat certainly more than 15%, and it's a really derisked asset as we put it into the portfolio. If we think about Smithfield, and this is kind of unpacking our broader capital lights and funds management strategy, but using a single asset to try and explain some of the rationale; industrial assets in Western Sydney, the vacancy rates, they are sub-1%. They've seen massive increases in rents over the course of the last 12 months or so. And we partnered up with Phoenix, they put in 80% of the equity. As Burstone, we spoke for 20% of the equity. And at an asset level, bear in mind that this was not an income play. This is a bit of income and total return. At an asset level, our partners will earn 2.5% in terms of average cash and cash over the 3- to 5-year period and generate an IRR of somewhere between 12% and 15%, depending on the leasing performance. When we overlay our fund management fees, performance fees, et cetera, that climbs in terms of cash on cash by 4% and adds a similar sort of number to our IRR. And that's on a single ticket deal in Australia. So it certainly enhances our return on equity, reduces our equity out the door and creates diversification, makes our dollar go further. The dividend payout ratio, as we think about lowering our LTV as well as being able to continue to invest in our assets, thinking also about how we continue to support the underpins to Graeme's business in Australia and kickstart the business in Europe in terms of capital light, we've had to think about that payout ratio certainly in the short term as we focus on that planned reduction in LTV. So that ratio will remain at 75%. The Board will continue to assess it. And we think about it, as I've mentioned before, in relation to our LTV position, CapEx requirements as well as the impact of any tax shortfalls, implications as we manage the various REIT ratio. So that is not a cast-in-stone number as we move through the cycles. Moving on to the growth initiatives, and this really is, as I mentioned earlier, medium term as we think about funds management, I think we are well positioned to deliver against this over time. The teams across the globe have been successful in aggregating portfolios and working with external capital. The guys, Paul and his team in Europe, Hansteen, the [ large ] industrial business with Ares that was sold to Blackstone and obviously, the IAPF Irongate guys as they exited that listing and into their funds management business today. As we've kind of gone through the reason that we think this works not just from an income perspective, but we release a significant amount of capital as we sell in some of our portfolios to see these platforms. So it also acts as a natural de-gearing mechanism for us. It diversifies our investment base. It reduces the need for our equity for everything, access this new capital that has a slightly lower capital -- cost of capital. We certainly might have a higher risk appetite than our capital and then obviously grows the revenue streams over time. In the current year, as I mentioned upfront, we had $61 million of contribution to the group earnings from these activities, and we'd expect that number to grow as we grow AUM across the markets over the next 3 to 5 years. In Australia, that number today sits at $490 million of equity under management. They're 8% up over the year, some incredibly strong partners in the Ivanhoe Cambridge and Phoenix Property metrics and several others that Graeme and the team are talking to in partnering and supporting the growth of that business as we move forward. In Europe, I mentioned the new mandate on EUR 170 million light industrial portfolio in Germany. That contributed around $10 million to earnings this year, so small and certainly is expected to increase in FY '25. There is the ability for us to co-invest alongside the existing owners, and that would enhance the overall returns to us and the contribution to the bottom line. As we think about the PEL strategic partner, I know that this is at the top of everybody's minds, but we do continue to assess this. As I mentioned, the environment has changed and certainly, is looking to be a little bit more conducive. We're always -- we're in the -- always looking for someone to come in, and we'll ultimately sell down to around the 50-50 mark or lower and hold us significant minority. Key for us is maximizing shareholder value over the longer term and not just using it as a way to delever the balance sheet in the short term. We believe that, that is detrimental to the business. And in South Africa, it is going to be slower. We've built a foundation for third-party capital into which institutions can invest. So there's been a long road. It is much slower, given the relative depth of the local capital markets, we know that. We will look to align the strategy here with that of Europe and Australia. And our focus certainly in the shorter term will be on our core sectors. So don't expect any new sectors from us over the course of the next 12 to 24 months. Last section before we get into the close, and that's on sustainability. So as we think about this -- think about this holistically, we think about it being financial -- or having an impact financially improving the livelihoods and lives of people [ access ] and enabler to our ESG and aims to achieve net zero. Unpacking some of the detail over the course of the last 12 months and on a static basis, certainly, some good numbers coming out. 15 megawatts of solar sitting here in South Africa, driving cost of occupation with backup water and power, Green Star ratings and leases across our South African portfolio with 82% of our offices now Green Star rated, industrial certifications on 18% of the portfolio. Green leases with our clients. We've run some pilot studies on borehole here in South Africa, 3 properties up and running, and we're running at another 4 as we speak. And on a social -- from a social perspective, we've maintained our Level 1 [ BEE ] rating as well as spent a significant amount of money and time on enterprise supplier in childhood development. In Europe, as I mentioned, we've got 4.5 megawatts of solar that we're looking to roll out over the next 12 to 18 months. We've committed and spent to spent over EUR 1 million on LED lighting. We've got all of our buildings on EPC ratings, smart meters rolled out across the portfolio and [ Breanne ] certificates across the entire portfolio, too. It's a critical step, as we think about thinking about introducing capital into that business, and obviously, the European market being a little bit ahead of where we are locally. So maybe as we come into the close and we reflect on the last 12 months, a significant amount of time spent on the internalization, and that has put us into a position to move forward, repositioning from a property investment business into an integrated international real estate business results for the year, underpinned by strong operational performances locally and offshore. We're continuing to invest for the future. We've delivered on the sales that we committed to. The balance sheet, although the leverage is slightly heightened, there's a fixed plan or a clear plan to deleverage that. We've got the best-in-class management teams, both in South Africa, Australia and Europe. And we think the benefits and synergies from the internalization and the integration will come over the next 24 to 36 months. Drilling down a little bit further as we look forward to the next 12 months, and really highlighting the 5 or 6 key areas. It's the conclusion of the refinancings that Jen has spoke about, both in South Africa and in Europe, that are both well progressed. The delivery of the flight path, 37% to 40%, as I mentioned earlier, with the assets under offer as we stand here today, significant progress already made in that regard. The impact on earnings from a rate perspective, we've done a huge amount of work in our ability to absorb that. So through the operational performance as well as new revenue streams, cost savings, et cetera, et cetera, that I touched on earlier, we will continue to see growth opportunities, but -- as long as we remain and within the targeted LTV range of 37% to 40%. I've covered the PEL strategic partner. As I mentioned, we think the environment is becoming a little bit more conducive to something like that. And then over the longer term, as we think about building our funds management strategy and getting their contribution to earnings up from the $61 million that we enjoyed this last year. Maybe unpacking guidance. I mean -- and doing it graphically and just moving through from left to right, and you'll see the impact of rates, the $70 million that I spoke to and how -- the impact that, that'll have on the bottom line. But what the rest of the business is able to achieve and absorb over the course of the year. The European business, we continue to expect a circa 3% to 4% growth at an NOI line. South Africa, low single digits. We're still expecting some cost savings to come through off of the initiatives that we started this year. The balance sheet optimization, the margin savings, some of the restriking of the swap book will continue to help us. And then the capital light, as we think about the strong pipeline that Graeme has, as well as the additional mandates and potential opportunities that we have in Europe, combined with inflation and the impact on our business, we're expecting to come in at somewhere between negative 2% and negative 4%. No one likes to see a negative number in front of the results. I still remember the first time there was a negative marking when I was at university. But where -- it is a function of where rates are, and we've got to think about how we build and take that into account down the line. So maybe if I wrap up, I think it has been an incredibly challenging year. We sought to establish ourselves outside of the Zebra, integrating the various teams across the world. I certainly don't think we could have asked for a stronger delivery from our local teams in relation to the underlying operations. The asset base continues to perform very, very strongly. We are acutely aware of the higher leverage in the business, and that does impact our earnings lines. We understand that. It doesn't always allow us or certainly doesn't give us the space to grow and invest in our platforms as much as we'd like to. But we're also very confident with the performance of the underlying businesses that will continue to support that leverage in the short term. As I mentioned earlier, we also knew that at the time of taking out our European partner, that we were going to be living with that higher look-through gearing in the short term. It certainly wasn't a plan for longer. And given the continued volatile interest rate environment over the last 12 months, we just haven't thought the equity markets were conducive to a transaction at that level. We see that shifting. We believe strongly that the business is well-placed through our international platforms, the people, the experience, the expertise, relationships. I think we're ready to shift gears as and when we deliver on the de-gearing. So a huge thank you to all our people that now sit in the Burstone's table, some of which came out of Europe, some of which came out of Investec. It's been a year to remember. Blood, sweat, tears, new friendships brought about through many late nights, a couple of trips on the plane and certainly excited to build. I think what we've got now and our ability and the opportunity is quite exciting and certainly look forward to the journey. To our Board, who've been through -- been at our side through this transition, your time and advice has been truly appreciated. And of course, all our partners who really go behind the scenes to help make it all [ happen ], agents across all the local markets that really make it happen and drive our revenue line. So a really, really big thank you. So that's it. We do have the whole team here -- or sorry, there was one more I see Nick here. So I'm going to say thank you to Nick and Gavin. I think Investec, it was nine months ago that we left, kind of exited stage, left. We crystallized years of amazing memories, stories and experiences together. Those will live forever in the construct and DNA of Burstone. But together with the incredible friendships that we built up over the years, that will never disappear. We're extremely grateful for all the opportunities that you gave us, and we hope to make you hope to make you proud of us as we move forward. So I think, as I mentioned upfront, we've got the team here. We've got Graeme from Aussie, Paul Rodger from Europe together with some of his team is Gary Varley, the Finance Director of Europe; Paul Esterhuizen, it's a very good European name for the Head of Commercial Finance; as well as Edward Burke, a very good German name for a Scottish guy or a Scottish name for a German guy, I can never remember. But they're all here as well as, obviously, Graham Hutchinson from an SA perspective and the rest of the team. So please feel free to pose any questions, either now or we're going have a coffee or a drink with them outside. Okay. So on to Q&A. I'm starting with the floor. Is that right? Yes.

[ Greg Saffi ] from CIC. So just to get this right, Andrew, if you hypothetically sell down to 50% of the PEL portfolio, that frees up, what, $3.2 billion of equity, which is 60% of your market cap. Any sort of sense of what'll happen with -- if that didn't materialize? What you -- ideas what you plan to do with the freed up capital?

So I've no idea if it's $3.2 billion, Greg, thank you. Yes, there's a lot of opportunity across each of the markets. It's something like that we had to -- well, first of all, it depends on being able to get a say and not [ cleared ] away to the partner that we would be bringing in and what that strategy would look like together with whatever that capital is. If you think about what Graeme and the guys have got happening in Australia, what we're seeing on the ground in Europe this potential co-invest in Germany, what Graeme is unearthing here in South Africa, there's a multitude of places to put capital, but it's not a race. So first and foremost, that goes into the coffers to create the firepower and then it's a fight for it, right? So we'll think about every single deal, every single potential place to put that capital in, depending on risk return as and when it arises. But we're a long way off on that still. It remains, obviously, a strategic priority for us. I'd love to be able to stand up here today and tell you that we were there, we're not. And we understand that is the single biggest lever that we have in our business in terms of the look-through gearing, the impact and, really, our ability to support the businesses that we've got. So it is certainly the #1, other than obviously delivering on the derisking as well as the leverage side, looking to do something there. But I can't give you exact numbers and exact deals that we'll be looking to reinvest in. Nothing from Gavin. It's the quietest you've ever been, Gav. Okay. So we go to the conference call, yes.

At this stage, there are no questions on the conference.

No questions. Okay. Right. I see Mweishö's being very active here. So he's normally first up, we have to hold them in the back. "I guess the first one is for you, Paul. So has Burstone had a change in solar PV strategy. It sounded like you were targeting cost savings via the CapEx. How are you planning to -- how much are you planning to spend over FY '25 and '26?"

Thanks, Andrew. Good afternoon, everyone. Yes, I mean, I think in the European portfolio, we've had a pretty good run at looking at the solar panel impact and how we can really convert some of our buildings into servicing our ESG strategy, but also our tenants position. So Edward and the team across Europe have identified 4 or 5 buildings where we see the ability to roll out 4.5 megawatts of solar panels, and we expect to do that within the course of the next sort of 9 to 12 months, and that would be running at a cost of about EUR 4 million in total. The issue that we're facing, at the moment, is there's quite a lot of infrastructure we need to think about in terms of waterproofing of the roof, because it has to last 10 to 15 to 20 years period when the solar panel is set on top of that. But also the structural integrity of that, of the weighting of those. Of course, there's static loads have to be considered, but that's all wrapped up in, essentially, that EUR 4 million deployment, which show up an early double-digit return to shareholders. I think it's been very well received by tenants. We push on an open door. Whenever we go to speak to our tenant base about ESG solar panels specifically. And Edward and the team across Europe have spent quite, a lot of time, looking at the efficiencies, the EPC, the environmental gradings of the buildings plus the [ Brigham ] in use. And we're constantly reviewing what the most optimum use of the CapEx spend is to deliver the most optimized rating, really. So yes, quite positive progress there.

Okay. Thanks, Paul. Jen, this one's for you. In terms of Europe, again, from Mweishö, so just 44% of offshore debt expiring in FY '25, which I don't think is right. But his question, really, is around the expected increase in the cost of debt. I guess that's at a pure margin level. And then from a variable rate perspective, where we're seeing rates relative to our hedge book.

Yes. So there are actually three facilities across Europe. But if you look at them on a combined basis and where we are in terms of the refinances across all 3, from a margin perspective, we are expecting to come in flat, so you won't see significant margin savings on the European refinance. In terms of rates, we do have the benefit of a cap, the cap which runs at 1.12% until October 2025. We don't need to restart that on refinement. We will continue to carry the benefit up until then. So rates will only reset on a -- back to the curve from October 2025, and we're obviously looking at ways in which we can structure to do whatever we can. But unfortunately, we are at the mercy of the market.

Okay. And then in terms of guidance, again, from Mweishö, just asking around what our expected contribution from the capital-light revenue streams are over the course of FY '25 and, I think, it's hard to give it an exact number, but we certainly expect to see a 10% to 20% uptick in that. Our focus is not, in the short term, driving that revenue through the P&L. We think the significant impact on our business, both AUM as well as fees or revenue comes in 2 to 3 years' time. And the large majority of that is probably going to come from offshore. But if things move quicker here, that can also accelerate. But yes, we have a marginal uptick in our numbers as we think about FY '25. I think maybe, Greg, coming back to us thinking, as other guys are taking questions, maybe to talk about some of the opportunities that we're seeing across the different markets. Not specifics, but more -- maybe where we're seeing value and where we could redeploy into almost thematics. And so maybe if I ask Paul, Graeme and Graham to give 30 seconds on where they're seeing it. That'll maybe just give a little bit of color as to what we're seeing playing out on the ground and the kinds of stock that is coming through the system that we would probably spend our time looking at. I mean, just added to that, we obviously think about a lot of -- in terms of capital allocation, there are also a lot of other places we can put it, not just into the underlying assets. So that remains another strategic opportunity set, but maybe just maybe start with Paul.