Burstone Group Limited (BTN) Earnings Call Transcript & Summary

All right. Good afternoon. We'll get going. I know we've got a couple of late comers, but good to see you all and nice to be in one of our buildings and looking forward to welcoming you all to our office a little bit later for a drink. I know that [ Cheryl ] has basically taken the entire first half distribution and put it into liquor and food, so it should be fun. We're going to run through the interim results relatively quickly. We're not going to take up the full 2-hour session as in the invitation, but run through results, have a Q&A on results themselves. And then we're going to spend another kind of 20 to 30 minutes, just unpacking the broader funds management model that we're rolling out and transitioning into, and we'll take a second round of Q&A. So hopefully, we get through it. and touch on all the areas and questions that you may have. But if we look at Burstone, as we sit today after a first half that has been incredibly busy as we've been shifting into the world of third-party asset management and really growing that side of our business. Today, we're looking after ZAR 42 billion of gross asset value across 9 countries, 50 people sitting globally, closer to 60 if you include the Aussies, but it's hard to include half headcount in these numbers. And then our third-party assets under third-party mandates are currently sitting at around ZAR 10 billion. And as we unpack that over the course of the next 30 to 45 minutes, you'll see how that grows to ZAR 23 billion, ZAR 24 billion post the Blackstone deal that completed last week. And hopefully give you a sense of the trajectory of that side of the business. But ultimately, underpinning everything we do is still the real estate and managed by the people across the ground across those 9 countries. In terms of financial highlights, as I mentioned, it has been an incredibly busy first half. A lot of the activity from the first half, you'll only start seeing coming through in the numbers towards the back end of FY '25 and then into '26 and '27. But unpacking them, and Jen will take us through the detail shortly, but first half dips down 3%. That was in line pretty much the middle of the road of our guidance that we provided at the start of the year. Operating performance in South Africa, our like-for-like NOI was down 1.2%. We'll unpack that, largely driven by office. And in Europe, our like-for-like NOI was up 1.1%. -- some strong operating results coming through from a revenue perspective, marginal uptick in vacancy that would have driven the result there. In terms of our fund and asset management business, really starting to take shape. Our fee revenue for the first half was ZAR 34 million. It contributes around 8.5% to the first half's earnings. That's up from 5.4% for the same period last year. And again, we'll unpack what that looks like on a normalized basis on a look-forward basis post all the activity from the first half. Cost savings, we continue to be very, very focused on cost initiatives. So we've dropped a further ZAR 7 million of costs out -- or taken ZAR 7 million out of the business and dropped that to the bottom line that equates to around 5%. There's further cost initiatives that come through the PEL platform of around EUR 500,000. We'll go through that a little bit later, too. In the first half, we've also absorbed the increased funding costs across the business. That amounts to around ZAR 40 million for the group and it's as we roll off into the new world of higher rates. NAV were down 9.7% largely due to the impairment on the PEL portfolio as we look to sell that into the Blackstone table. Capital recycling, sitting in South Africa, very active. We've sold the transferred close to ZAR 600 million in this first half, and we're active on around ZAR 1 billion to ZAR 1.2 billion of disposal pipeline as we sit here today. We expect that to come through over the next 12 or so months. I guess the big story for the first half is LTV coming down from 44% post closing last week, Wednesday with Blackstone, that is sitting now at around 33.5% and provides some real headroom for us as we look to grow our business. And then from a dividend perspective, our payout ratio of 90%, so a total dividend for the first half of $0.4458 per share, and we'll look to maintain that payout ratio over the course of -- or certainly into the future. So with that, if I hand over to Jen to unpack the numbers in a little bit more detail, and then we'll run through operational performance and strategy thereafter.

Hello, everyone. Always good to be here, and especially good to be here. I think the first 6 months of the year have been exceptionally transformative for the business and very exciting as Andrew said, you won't see a lot of it, but I was reflecting back, and I do think it's amazing when we stood here in May, we knew nothing of the Blackstone transaction. And in the last 6 months, we've managed to negotiate, execute and complete the transaction. And I'm very glad that, that happened last week, so we could confirm that standing that's there. So just in terms of the overview of results, and I will try to keep this short and not repeat what Andrew has said. But as mentioned, none of the transactional activity has come through. So we are, for the first half, landing bang on the nose really in terms of our guidance of negative 4% to negative -- sorry, negative 2% to negative 4%. And that is driven by operational performance. South Africa itself marginally down 1.2%. However, it has had the impact of projects and CapEx spend largely at the back end of the year, the interest funding linked to that. The disposals that we sold in the period have actually been relatively neutral. So there's not a lot of impact on disposals. We're not selling them at a significant discount to book. The European operational income at a European level, 1.1% up. However, on the bottom line, when you overlay the interest within that structure and within the platform, you're also seeing an impact there. We are managing to offset a lot of that with cost savings. And in ZAR, we are still managing to achieve a 6.9% growth year-on-year on our European income, which is as a result of FEC profiles and hedging strategies that we've been put in place for many years where we were still managed to convert the cash that we received as a distribution at a rate of [ ZAR 22.60 ], which is obviously significantly above where you're seeing spot today. The ZAR 12 million that sits in the middle, ZAR 12 million or 8.5% of income, which is fee income. This is a number that we're going to highlight on a continual basis. It is a core part of our strategy so the percentage and what it comprises as earnings is important to us. And you mentioned it was up on the first half of last year, but we're also up on March where we showed that number being 7%. So that is ticking up nicely. And by the end of the year, that number becomes significantly higher. Operational cost savings that is still the result of the internalization and a lot of the integration strategies that we've put in place post the internalization out of Investec, it is still bearing fruit. So we are very comfortable and happy that we haven't seen other costs spiral out of control, and we have managed to retain what we set out to deliver. Then in terms of the increased interest costs, that is exactly as expected. We did tell the market that we expected an increased interest cost linked to the roll off of the hedge profile and the increase of global interest rates across the board, both in euros and in ZAR, and that is unfortunately a result of that. But given the significant de-gearing that we've now implemented following the proceeds from Blackstone that impact of that in the second half and going forward is significantly reduced. We've put the distribution statement recon back into the investor presentation. It's just -- it's always been in the annexures, but it's just something that we don't think we've highlighted of late. So we just wanted to take the opportunity to maybe explain some of the adjustments and make sure that everyone was aware. Most of the adjustments are true accounting noncash adjustments that you do see in everyone's distribution recon or in terms of the REIT best practice referred to as the FFO. Those are the straight lining fair value, FX and some of the capital gains or losses on disposals that we typically don't distribute as there are capital in nature. The last 3 items are the one I'll highlight, the unwinding of the interest on the deferred consideration is linked to how we negotiated that we would pay Investec in tranches over 2 years. The interest capitalized and development is linked to ITAP development in Australia. It is a development. It is a fund that's under development which is really the play there is really to sell it at the end when it has reached its value -- we do look at that very carefully when we go through our investment cycle and make sure that the valuation can hold any interest that we capitalize. If it can't, we won't add it back. But we are very comfortable that, that is a safe level of interest that can be held by the valuation. And then just the amortization and depreciation is on our intangible asset that we acquired as part of the internalization. So that has a finite period and will ultimately roll off. The net asset value bridge, Andrew has mentioned it, but I will start a little bit on the right as opposed to the left, just given the big purple block. That is -- we mentioned in the circular, we have been very open about it. There was an impairment and a fair value adjustment in PEL given the transaction that was further that impairment was around ZAR 500 million. That was further emphasized unfortunately, by the strengthening of the rand because when you've got a euro investment, you actually want the rand to weaken. So the impact of the 2 of that combined, the rand moving from ZAR 20.48 to ZAR 19.36 has resulted in ZAR 1 billion transaction. The vast majority of that impairment is now through the book, so we don't expect that to increase too much more as we get to year-end as we've taken the balance of the pain in our numbers now. If you look at the left-hand side of the graph, you'll see that on the whole, vastly, our new investments have been funded through appropriate capital recycling. There is a small portion of debt, which we used to fund it, which is really just a timing issue as some of those properties that are just sitting in the deeds office waiting to transfer. So on the whole, from a capital recycling and reinvestment scenario, we're actually pretty close to neutral. The group's balance sheet. This is definitely the one that I would -- I'm very pleased to be reporting on. As mentioned, we completed the Blackstone transaction last week. We can confirm that we got just under EUR 250 million reflected in our bank account last week, which is a great result, and we have used that to settle debt. We've also -- we will also use that to settle all of our European cross-currency swaps. So although we will still have a euro-ZAR exposure, it's all going to be in hard currency debt and all of the cross-currency swaps will be settled. That is obviously significantly improved our liquidity risk. We -- our liquidity risk post the Blackstone transaction is that we actually have no near-term debt requirements in the next 12 months. All of our debt facilities have been shifted out. We also -- as part of the Blackstone transaction and worth highlighting, they did decide -- Blackstone did decide they were going to close a deal on a debt-free cash-free basis, but they decided to pull the trigger and actually closed it with a refinance. So they've put new debt into the structure for the next 5 years, again, significantly reducing any liquidity risk that we have, even our exposure to it is far less, and there is a little bit of cash out that we will see as a result of that refinance. They also managed to achieved terms, which are pretty much in line with where we are. Their margin was [ 240 ]. We were at to [ 235 ], so quite neutral from that perspective. Again, further improving our liquidity risk, we weren't sitting on our hands. And while we were running execution risk on the Blackstone transaction, we still went ahead and completed the group balance sheet refinanced. That was ZAR 6.6 billion of debt, which we extended out the profile to 3.5 years. A lot of that we were opportunistic on the play there was really to get the margin benefit, which we did achieve. We achieved a reduction in our overall debt book of 23 basis points on our margin and negotiated that a lot of those facilities could be settled without exit fees. So a very good result when we did receive the cash last week. And we didn't stop there. So as ZAR swap book has also been restructured, we blended and extended that out from 2 years to 3 years, and we managed to just save a little bit more 5 bps on ZAR 3.5 billion there, reducing our overall swap book average rate of funding down to 7.29%. Just in terms of our covenant headroom, we are now sitting as of today at 33.5% post-Blackstone transaction against a covenant of 50%. Our ICR, which I don't think has been highlighted enough or highlighted at all as at the 30th of September is 2.8x, but on a 12-month kind of normalized basis when we are sitting at a 20% holding PEL, we're going to be closer to 4.5 to 5x, which I think is an exceptional result from an ICR perspective. Yes, our investment-grade credit rating has is sitting at an A+. So just in terms of the next slide, I think this is really just to further highlight the limited risk that we have in the group funding profile. The dark blue lines are just other bond expiries, but we have more than enough facilities to cover them in the medium term in terms of committed undrawn debt. We pushed all the bank debt out, you can see in the purple graph and we are only sitting with euro debt following the transaction. In terms of the group ZAR and euro-swap profile have also gone through, but the -- dark blues are before, the light blues are after. So you'll see the material exposure that we had across currency swaps has reduced significantly, and those light blue bars are only euro-denominated debt. On the right inside on the ZAR swap expiry, again, the dark blue, the bars were there before and what we presented in March, the light blue bars are what we have managed to restructure. So no material risk in any period and a nice result just in terms of margin saving. Capital allocation. I think we have demonstrated an effective capital allocation framework over time. And we just want to emphasize that we remain committed to reducing the reliance on our balance sheet through not only funds management, but potentially introducing LP capital behind us as well as sitting, and we will continue to assess strategic asset recycling as and when we believe those assets are ready to be moved out. We have a very clear capital allocation framework, which I think Andrew will spend a little bit more time on in his education session or the -- yes, the kind of unpacking of the funds management session. And we target a longer-term LTV of below 35%, although we do note in the near term, we expect to be somewhere between 34% and 36%. Our LTV and hoping that this is the last time, although I have never had an issue with the word LTV flight path, but we do sometimes have some of our Board members say now very tired of seeing it. But we are going to show this LTV flight path once again and emphasize that as we did before, we have delivered on what we committed to in terms of our LTV flight path. We are now sitting at 33.5% from the 44% that we presented in March. And those items, the 2%, the 1% and the 11.5%, that cash has flowed and we -- and that is -- those deals are done. So although there were subsequent to 30 September, factually, as we stand here today, that has all being achieved. Blocks 2, 3 and 4 are really our assumed capital requirements. There are soft commitments, but it is our best estimate of what we believe will be the requirements from our capital partners in the near term and what we've got lined up to do. And then those potential asset sales are just the sales that we had flagged and highlighted previously, they are well progressed, and we are not concerned that they will not be executed on. Thank you.

All right. Thanks, Jen. So a huge amount of activity on the balance sheet side. And I mean I saw a 2031 there which really starts to make you worry about your age. Starting to get Sam Leon's era. But as we roll forward and look at the business strategically, and we set out our 5 pillars and a core focus for us over the last 6 months has been in each of these different areas. So if I just highlight them and we'll unpack some of it over the next few slides. But from an integration perspective, a huge amount of focus around our cross-border skills knowledge integration, and that really shows up in the acquisition and transaction activity. A lot of learnings and a lot of process in being able to navigate that, and that doesn't happen overnight and doesn't happen with a few people sitting around the table. It happens when you've got people sitting globally operating day to day together on an integrated basis. From a portfolio perspective, Jen highlighted the amount of sales that we've undertaken. I've spoken through some of the cost synergies, and we still think there's further room for that. Certainly through the operational leverage that we think we'll get in the funds management business as we roll that out. From a balance sheet perspective, Jen has complete -- has unpacked that. And again, there's been a huge amount of activity there, not just from a transaction perspective. But what we've done on a day-to-day basis to continue to enhance the position of the various debt exposures, interest rate swaps, cross currency swaps, et cetera, et cetera. And I guess a lot of this gets lost -- in all the activity that's happened from a funds management perspective, which has been exciting. Hard work, but certainly has put the business on to a clear path for growth. So over the course of the last 6 months, effectively delivering the Blackstone transaction in Australia, the team bringing onboard TPG Angelo Gordon and a strong pipeline of activity that will unpack in a short while around Germany, South African core plus institutional platform and many more to come, not just from an asset perspective, but also a very strong pipeline in terms of potential partnerships across all the regions in which we operate. So really exciting to be able to stand here today and look forward over the course of the next kind of 18 to 24 months. Strategic highlights I think I've unpacked a lot of this already, but certainly an acceleration of our fund and asset management strategy. The stability of our underlying portfolios will unpack why that is important to us as we transition and why we need to keep that as part of our business moving forward. The balance sheet focus, not just in terms of debt, but really thinking around recycling of capital. And as we think about our hybrid model, and building that out integration and ultimately looking to drive enhanced returns for shareholders and investors over time. We've spoken or I've highlighted a lot of what's happened in the first quarter, so -- or first half, sorry, the Blackstone deal, the potential transaction that we're working on at the moment in Germany, the industrial platform in Australia, and we continue to work towards the core plus platform here in South Africa. But I think what's key to this is right at the top where we highlight management or we include management in the tagline. And this has been key to unlocking the potential. It's a -- we're in a world of much higher rates -- there's no more financial leverage that can generate your returns. And certainly, every capital partner that we have worked with and concluded with and continue to speak to is interested in the management capabilities and skill sets on the ground in the regions in which we operate and that for us is a secret sauce and always has been. I think also importantly for us, none of these deals, as Brian [ Levos ] would say are one and dones, so these are certainly growth vehicles that we have either executed on or are going to come to market. And as I mentioned a little bit earlier, we're already receiving significant and positive interest from multiple capital partners across all markets to explore and build new strategies with us over the next few years. So a big deliverable for us in the second half will be on that SA Core plus fund. We'll unpack that in a few slides' time, but really, the team is focused on getting that done. So where we are today, and we'll come back to this slide a little bit later on in the strategy unpack. But really, as I mentioned upfront, a total portfolio of ZAR 42 billion. 24% of that is managed on a third-party basis or on behalf of third-party capital. And post Blackstone, that number will grow to 56% as we unpack some of that pipeline or deliver some of their pipeline from the previous page, South Africa, Germany, that number will only increase as well the size of the overall portfolio that we look after. And if you look at the fee earnings, and that's raised out on the first slide, ZAR 34 million for the first half coming out of that side of the business, 8.5% of earnings on an annualized basis that will grow to north of ZAR 120 million within the next 12 months. So significant shifts as we grow the business. I feel like we've spoken about Blackstone a lot. So I don't want to spend a lot of time on it. Safe to say that from a growth perspective and following last week's closing that is where the focus is. So really looking to aggregate further industrial and logistics properties across Europe. We've got a strong -- very, very strong pipeline, and we're looking to execute that or deliver that over time on a value-enhancing value-accretive basis to the business. In Germany, we have highlighted this. We continue to work on the opportunity. We're currently managing the portfolio as it stands today, about ZAR 170 million. It contributed about ZAR 11 million of earnings as from a management fee perspective for the first half of this year, and we continue to work towards closing on that transaction. It really is in line with our historical Pan-European line industrial portfolio that we owned a few years ago and traded into the Blackstone stable. Paul and his team coming out of the Hansteen world. This is very much within their wheelhouse. So we're certainly seeing significant momentum in that European fund and asset management strategy. In terms of Australia, I think we've also highlighted this, but it's been a really great story for us. We've recently concluded a series of transactions with a top 3 global player. I may have mentioned their name earlier, I probably shouldn't have. But our equity investment will be around about 15% of that $200 million. We've got the first portfolio under -- or exchange and due to complete at the beginning of December. That will see 40% of that overall equity commitment out the door. The second portfolio, which is 2 assets will complete in early Jan or late Jan 2025. And that's a further 40%. So by the time we get to end of January '25, almost 80% of that equity would have been deployed into value-enhancing opportunities. So this is, for us, a great story business that we bought into just over 18 months ago for effectively $5 million, was managing $450 million of equity today is managing closer to $650 million of equity, up 40% or 50%. Managing an asset base of $1.2 billion. So when you talk about optionality and buying that optionality, it's then around how we capitalize and build on that. So a really great story for us and great to partner with Graham and in Australia. In South Africa, I have mentioned we are progressing well here, certainly faster than we had hoped to around 6 months ago. and ultimately looking to launch this Core plus platform in South Africa alongside a handle of institutional capital partners or local institutional capital partners, we'll be utilizing a significant portion of our South African asset base to see that. And we're expecting -- hoping to execute and conclude on that within the next 6 to 12 months. So I'd hope we just watch the space. But it's certainly exciting to see that happening in South Africa, which would really be the last piece of the puzzle for us. Switching to operational performance in South Africa. We -- our portfolio here is mature. It supports a very sustainable level of earnings. For us, it's key, and this portfolio has a key role to play in Burstone in terms of supporting our future fund management strategy, one in terms of the ability to see portfolios like the Core plus platform. Secondly, in terms of providing relatively easy access to capital. A lot of those assets are fairly liquid, and we've seen the ability we've been able to trade those fairly easily over the course of the last few years. So it's further capital for us. But equally, it's a very strong backbone to the earnings base of the business. We'll look to recycle the capital that we earn out of what is today a mature portfolio into newer and higher growth areas, whether it's locally or offshore. It's certainly a big capital base for us to work with and to move the transition and support the growth of the business going forward. From an overall performance perspective, like-for-like NOI, as I set up front is off 1.2% from the prior year. We unpacked that further, but ultimately driven by the continued reversions in office. Very strong leasing activity across the entire portfolio, almost 100%. I mean, in my day, we would have been marked up to 100% at 99.7%. But I think equally important and really great to see as a tenant retention number, just over 86%. So that is, in our view, a result of the continued focus on client experience, how we partner with our tenant base, how we've looked at working with them in terms of cost initiatives and cost of occupation. Good to see from a reversion perspective, that is ticking down 8.4% for this half. It is lower than this time last year and certainly lower than full year of FY '24. Incentives also remain incredibly low at just over -- or just under 2%. From an overall operational performance vacancy sitting at 4.6%, so flat on the year-end. Our WALE is also flat to around 3.5 years and decent in-force escalations at around 6.4. I think the last point to note just from a valuation perspective, we're sitting at around a yield for the entire portfolio of about 8.5%. So pretty stable again from the year-end. Focus for the next kind of 6 to 12 months, continued focus on the disposal platform. I mentioned the funds management strategy and cost of occupation and ESG initiatives to drive that and support that are going to be critical. We're also looking at operational real estate and looking at how we incorporate that into our SA Core plus fund offering. We've brought in some new expertise and skill sets. And yes, again, optionality that we're looking to capitalize on over the course of the next few years. The SA office portfolio, we're definitely seeing an improving sentiment in the market, better activity. But we're still nothing underlying market growth. And so you will continue to see negative reversions. You look at the reversion table on the right-hand side, you'll see on the longer-dated leases that have come off by 31%. It's just a function of having 5, 8 to 10 years, growing at 7% or 8% in the market hasn't grown at all and compare that to the shorter-dated leases that have reverted by around 8%. So you're starting to see the shorter dated reversion come back to -- come closer down to 0. But if you look also across our operational metrics, all of them are positive in the first half relative to the prior year. So better gross income growth, like-for-like growth and cost income ratio. So good to see the performance of that portfolio, albeit still not where we'd like it to be from an overall positive perspective, but improving metrics all around. The industrial portfolio, the smallest of the 3 in South Africa at ZAR 3 billion. So 1 or 2 fairly small things can drive those numbers. In terms of like-for-like income, that is disappointingly, I guess, up only 1.5%. It's really impacted by the reversions. And you'll see the long dated -- on the longer dated leases at 15.8%, that really does hurt a smaller portfolio. The fundamentals remain strong. It's a space that we like. From a leasing activity perspective, if you look at the extension of WALE, we've moved that from 2.8 years to just over 4.7, so it's up 70%. It's a space we like, and we're seeing a lot of opportunities, and that is probably where we will see capital going as and when we get the SA platforms ready. Retail, again, headline number in terms of like-for-like only up 1.8%. That is impacted by the Zevenwacht Mall down in the Cape where we undertook a redevelopment to bring in checkers. So we had some downtime there. We had obviously a little bit of lower income coming through as well as some cost leakers due to the void. If you strip up Zevenwacht from portfolio, that like-for-like NOI number would be closer to 5% for the period. And again, we look at the trading stats, very strong turnover growth, trading densities and a very low cost of occupation. So a portfolio that continues to deliver even against a fairly muted kind of consumer backdrop. ESG, as I mentioned earlier, our focus here is not just on the rollout and ticking the box, but it's how we really work to reduce the cost of occupation for our tenant base. And Graham later on, will probably pick up questions around diesel spend. It doesn't always drop through to the bottom line immediately because ultimately, you pick it up in your revenue line over time as you reduce cost of occupation. But a huge amount of activity that has been undertaken in the previous years, and we continue to roll out a significant amount right across the broader spectrum of ESG and not just from an electricity or an order perspective, but also in a lot of the social initiatives that we roll out across South Africa. To close out on SA and the outlook, as I mentioned upfront to mature portfolio that has a big role to play in the business going forward. Growth expectations do remain relatively low. I think that's against a backdrop that is fairly uncertain even though there is better sentiment in the SA market. So we're expecting at a like or an NOI level for the full year to come out pretty flat on FY '24. And -- but we'd expect to deliver a significant amount of capital out of that business over the course of the next 12 to 18 months. Turning to Europe. Obviously, the -- our hold in that European portfolio is significantly lower post last week. But from a market overview perspective, the landscape is certainly evolving both from an occupier perspective as well as from a supply perspective and then, obviously, interest rates and equity markets, we have definitely seen a softening in the occupier market, there is a slowing of rental growth, albeit there is still strong rental growth, so it's not going to 0, but it's definitely slowing. And I think from where we are today, management teams on the ground, this is when they come into their own. So in a world of transition and a world of a bit of uncertainty, really good to have guys like Paul and Eddie running that business for us. So obviously, a big change and a big shift and obviously, how we report PL going forward will also change, but certainly still excited about the opportunities that the market presents. In terms of the underlying portfolio and performance for the first half, at the top line, we achieved rental reversions of just north of 10%. That didn't drop all the way through to our like-for-like NOI numbers because of the marginal uptick in vacancy. We came off a very high base in terms of 0.9%. We've closed at just over 3% for the half. Huge amount of leasing activity, 95% of the space expiring. As I mentioned, strong reversions and relatively low incentives, a lot of those incentives take place in the Polish market. I mentioned right upfront that we pulled out another EUR 500,000 of cost out of this platform. And that really helped us set the majority of the high interest cost that we're rolling through on the unhedged portion of the debt. Focus for us in Europe over the course of the next 6 to 12 months, is acquisition pipeline, delivering that with Blackstone, the disposal plans for the first loss assets that are well progressed and then the rollout of our ESG strategies alongside Blackstone over the course of time. I'm not going to spend time on the details. I think we've covered pretty much all of it. And if there are any questions, we can take it at the end. And as I mentioned, from an ESG perspective, a lot of that was put on hold due to the transaction, but we're reopening it up 4.5 megawatts that we're planning in terms of solar rollout over the course of the next 6 to 12 months. LED lighting, a major focus for us in Europe. A lot of work done on the base in terms of EPC, smart-metering and BREEAM certification. So the portfolio is well placed to capitalize and look to move forward from an ESG perspective. In terms of outlook, we still expect stable operating metrics to come through the business over the course of the next half. Obviously, our strategic priority is to maximize stakeholder value through our partnership with Blackstone and to aggregate and grow that business across the core markets in Europe. So looking ahead, but starting with reflecting on the past 6 months, I mean it has been an incredibly busy time in the business. But certainly excited about where we sit today, which is a clear path to growth. Balance sheet is certainly strong, and we have firepower to support both value and earnings accretive capital deployment across all markets in which we operate, a near-term pipeline of fund management opportunities that are exciting, South African Core plus, what we're doing in Germany, as I mentioned, a significant pipeline, not just of asset opportunities, but also potential partnership opportunities that we are exploring on a day-to-day basis. As we look forward to the close of FY '25 and effectively updating our guidance, as I mentioned, South Africa, we expect to be relatively flat further operational efficiencies coming through the business, growth in our fee revenue line from the funds management strategy, and that should absorb a lot of the higher rates that have been coming through the system over the course of the last at 12 or 18 months. So we are still reaffirming or upping the guidance, I guess, to the upper end of our market guidance given in May. So we believe it will come in at the upper end of the 2% to 4%. And yes, I think a lot of the work that we've done, as I mentioned right up front, a lot of the work that we've done this half will really only start to come through towards the back end of FY '25 and into FY '26. So I'm going to pause there and take questions. Obviously, if there's -- what we'd like to do is if there are questions on the funds management strategy, if we can just keep those on hold. We'll go through a broader kind of strategy unpack shortly. But if -- yes, if we can focus the questions on results, the team is say we've got Paul online in Europe. Unfortunately, GK has passed his bedtime in Aussie. We gave him a pass. So let's open it up. We'll start on the floor, and then we'll move to chorus call and the webcast.

Just the one question maybe outside of the transaction. Can you just explain how much of a benefit you guys received from the suspension of load shedding over the past 6 months?

Yes, sure. So if you look year-on-year, H1 last year, we spent ZAR 37 million on diesel. H1 this year, we've spent ZAR 450,000. You'll recall that we had a recovery ratio between 90% and 95%. So that would have dropped through. I mean you can do the math, but probably ZAR 3 million to ZAR 3.5 million on that basis.

Anyone else on the floor, we can always come back. Should we go to Chorus Call. Is there anything on the conference line?

We have no questions on the conference call.

Okay. And then lastly, on the webcast. So Naseem, your question was around Slide 9. Debt was introduced into the Blackstone transaction, resulting in cash out for Burstone. And how much was this? I mean, ultimately, if I picked that up, it was a deal that we may introduce the debt effectively repaid the debt that was in the structure. So it was effectively a refinancing. I think the net increase in debt was around EUR 20 million. And we get a portion of that back, but it wasn't material. And that would be over and above the EUR 250 million of cash that came out on the deal. So that was all taken account to the numbers that we provide to the market. Graham, I think this one is going to be for you. Are there any assets within the office or industrial portfolios that present material reversionary risk -- or has most of the major reversionary risk gone behind us, and it's also from Naseem.

Sure. So we are predominantly through the end of the development leases. I think as we've unfortunately beat the drum on Andrew touched on earlier in the office space, even your relatively shorter dated leases growing at 7% versus an ex growth environment, you are still going to be in a negative revision environment. But the majority of the really long-dated stuff is now out of the system. So you're more in the short-dated leasing cycle. And that is why in the presentation, we did try to split that out to show the differential where you really can see the narrowing of the reversionary gap. So look, there's still 1 or 2 coming, but the vast majority of all of it is out of the system.

Okay. Jen, this is from Nick at News24. Blackstone transaction, which will leave Burstone with a 20% interest in PEL has effectively slashed gearing to 33% from 44%. Correct?

Correct. But I'm very happy to beat the drum on that 33.5% gearing level.

I think the other headline number there is around look-through gearing. So that came...

Yes. That actually wasn't in the presentation, which so just to highlight that, we had put it in the presentation following the Blackstone transaction, but our look-through gearing is 41% now.

Yes. So that comes off of 58% at [ mark ]. So a significant reduction. And that's providing headroom, we look at both metrics, and that's a key number for us.

I think what is key on that look-through gearing piece to just mention is, although we never had any guarantees or look-through across the different businesses. They had no recourse to the group balance sheet. Obviously, the reliance on the group balance sheet is materially less given our percentage holding in the structure. So while the look-through is still important, the level of reliance that is implied has also reduced significantly.

Okay. There are a couple of questions that are on the webcast, Loui and Naseem are not ignoring them. The -- probably will pick them up as part of the next session. But before we go there, just to check if there are any other questions, anything on chorus call, any -- okay [indiscernible]

I'm [indiscernible] Andre, just one question. If you look locally, Apparently, the economy is going to pick up next year, everyone's happy positive journey is the best thing ever. So does this mean that you now look towards local acquisitions. I mean, is there anything of this kind of scale and quality that's kind of shining up right now for a fund like yours.

Graham, do you want to pick that up? I mean, at a high level, we've never been off SA. We actually see and always have seen good opportunities here. Very strong. I mean it's our local market, right? So strong relationships, networks, and there's definitely value. It has been around where we put capital because we have been constrained. Maybe Graham, do you want to pick it up in terms of where you're seeing the opportunities?

Yes, sure. And look, as Andrew said, we analyze everything on a global scale in terms of the risk-adjusted returns. I mean in South African context and Andrew did touch on it, we see real value in the let's call it, the unloved industrial space. It's where we've achieved good results to date, and I think where we certainly see opportunity. It is really underpinned by, again, management skill, which we believe we have in-house to unlock that opportunity and then obviously just needs to be coupled with the right entry pricing to get the required returns to justify the risk. But that is a space we like. But I think there's -- yes, it's hard to paint a broad brush in an SA context. I think, the scale of the SA market, one needs to be careful on just looking at big macro strategies and a lot of it is at a more granular level. And in various pockets, we do see opportunities. So yes, to answer your question, there is definitely money to be made, but it is going to be underpinned by management skill as opposed to just relying on macro factors to drive your returns.

Okay. So maybe we'll leave it there. Obviously, if there are any further questions, we can fill them or the guys will be outside a little bit later on. But maybe we just turn to unpacking the strategic transformation or transitioning towards this funds management business and really what it means for Burstone. We've obviously spent some time on the road as part of getting shareholder support, but there's been acceleration. There's a lot of activity around this. It's not peripheral to us, and that is key. So we see this as a core and key driver for the business going forward, and it has a significant impact almost immediately as well as we look at the business and unpack it over the course of the next or certainly the trajectory over the course of the next 24 to 36 months. So we're going to spend a little bit of time just unpacking that. Apologies if we are teaching our grandmothers to [indiscernible] But hopefully, we get a little bit more clarity running through the system. As we look at it, we talk about a hardware business model fully integrated across all of our global markets, but ultimately, we run and operate 2 distinct business. They operate in tandem and they will drive and do drive significant increased value. Effectively, if you back them into the 2 boxes. We have the investment side of our business, on balance sheet real estate investments, either direct as they stand today or indirect ultimately through our co-investments in the partnerships. On balance sheet, we have ZAR 16 billion of investments. You should expect to see that number reduce over time from a direct perspective and shift into more of the co-invest and partnership piece will unpack that a little bit the NAV of that investment base is ZAR 11 billion. And it generates at the moment on an annualized basis, really, there's no forward guidance given other than we've taken H1 and multiplied by 2, with maybe a little bit of rounding. But ultimately, that ZAR 730 million of earnings is absorbing the full cost base or overhead base of the entire global business. On the right-hand side, we have the funds and asset management strategy, off-balance sheet. So nothing sitting there. All the co-invests sit on the left-hand side. The NAV, 0, so we don't put anything on the balance sheet for before that. And based on our existing and effectively from last week, closing of the deal with Blackstone, our expected annualized gross fees are around about ZAR 120 million. So that is not a forward guidance that is based on what we put out to the market. And effectively, you've got the 2 businesses, the cost base fully absorbed on the left-hand side. Management teams sitting across all markets track records, both from a Burstone perspective and the past in Hansteen, in [ IAPF ] and IPF scalable international businesses, which is key. So that is, as we think about the funds management side of our business and that fee line, our ability to scale that without having to significantly increase head count and infrastructure costs is a key driver for us. Another key [indiscernible] and ultimately, why we've been able to work and get into position alongside the partners that we've got in place is our ability and willingness to invest significant capital alongside our partners. And ultimately, this strategy, we think and believe will deliver enhanced returns on the capital that we deploy across the globe. Breaking it out further, we talk about global reach with a local presence that is critically important to us to everybody that we operate with carries the Burstone business card, other than in Australia, where they still call themselves in Irongate, we're trying to work out if we call ourselves [ Ironstone ] over time. But in Europe, the gross asset value of what we look after is around the ZAR 1.2 billion, that's split between the PEL portfolio and then the management contract that we have in Germany, hopefully, looking to convert that into an equity position in the near term third-party AUM of EUR 800 million in the on-balance sheet investment of only EUR 80 million. So you can see the power of where the capital and what it can do. Australia, the gross asset value, we look after $1.2 billion significant amount of that is third party, so $1.1 billion. And our investment into Australia as it sits today on our balance sheet $60 million, you'll see the different platforms that we run there, different partners, Ivanhoe Cambridge, Phoenix Property Investors, Metrics, all out of Hong Kong, Frasers. I think they're probably Asia Pac's largest residential developer. We look after the ITAP fund, which, as Jen mentioned earlier, is a very opportunistic long-dated kind of development play. And then the most recent transaction with that large alternative asset manager that I didn't mention the name earlier. I hope they're not listening. In South Africa, Burstone direct investments ZAR 13.8 billion. As I mentioned, you will see that shift and hopefully shift quickly over the course of the next 6 to 12 months. And so that direct investment will reduce the capital release will go into co-investment positions, either in South Africa, Europe or Australia. So again, the capital base of the business is likely to stay the same, but the picture here will dramatically shift in terms of AUM. The snapshot. So I mentioned earlier, the ZAR 42 billion, the ZAR 10 billion of AUM on a third-party basis post Blackstone, they'll go to almost ZAR 24 billion, close to 60% of the assets that we look after globally. We'd expect the bottom pie chart to change significantly over the course of the next 12 months with South Africa, potentially Germany expansion into Australia alongside our partners and hopefully, the aggregation, further deployment of capital into Europe alongside Blackstone. So big changes happening. From a capital allocation perspective, Jen mentioned it earlier, we'll unpack a little, I think, on the next slide. But a key focus for us is where we put our capital and that kind of returns that we earn for the risk that we're taking, depending on the markets in which we operate at the moment. Almost 90% of that sits across the core and core plus space and around 10% to 14% is an opportunistic, opportunistic really is at the moment. just the ITAP fund given its long-dated nature and back-ended return. Unpacking that a little bit further. As we think about where we put our capital and discipline around it, [ Hachi ] mentioned it in terms of South African acquisitions, but really thinking about everything on a risk-adjusted basis. So not just thinking return, we also think about how we align with our capital partners. And I think the benefit that we bring to the table and what we look to do is invest across all risk spectrums and asset spectrum, so we'll unpack a little bit but across the full life cycle of real estate. The integrated approach, if we think about overlaying our fee structures also allows us to bolster or almost reduce our cost of capital. So normally in a market like Germany, if you're buying core industrial stock, we would be priced out -- but with the overlay of our fee structure, management fees, et cetera, et cetera, it almost enables us or gives us access to those opportunities by reducing our entry costs or increasing the return that we'd earn from those strategies. So that allows us to partner up and match opportunities with capital. We're not just beholden to our cost of capital on the day, and we can participate across the full spectrum of risk and return. I know for some of the listeners and some of the people on the call on the floor, core, core plus, value-add is well understood. I think, fairly new in the South African market and certainly not spoken about that often, but we think about it in terms of risk and time or risk return in time. Obviously, to the far left, opportunistic is the stuff that takes not specifically the shortest time, but has the most amount of risk attached to it, rezoning, planning, long-dated return. And as we think about core on the complete [indiscernible]. So the other side is when we're buying long-dated leases, very little management activity required really just collecting rent. It's basically what Graeme Katz and the team used to do in IPF when they had a 9-year well. Core plus and that really is between core plus and value add is where we like to play. That's where we use our management expertise. We take on a little bit of risk obviously, a difference between core plus and value add there. Value add is higher up that risk curve, probably more CapEx that needs to be spent, development type of opportunities. Sometimes no initial yield. We're looking at a lot of that stuff in Australia at the moment. But significant potential reversionary yield once you've got a tenant in place and you've repositioned an asset from the South African context, we would -- if we were putting capital there, we'd be looking for a 20% plus IRR. If you look at core plus, we're probably looking at a 15% plus IRR. So there's definitely more yield coming through it, less work to be done, but certainly an active management position that we need to take. I think this is also important as we think about how we use our balance sheet going forward. Historically, it would have been direct investment, 100% capital put to work in 100% ownership, the odd JV or undivided share. But we really are thinking much more on how we make this more efficient, how we make the dollars go further. And if we think about on the left-hand side, supporting which really supports the fund and asset management strategy is how we invest and support growth in those platforms, our co-invest positions, either existing or new -- we look to hold 15% to 25%. We've got a series of those as we speak today. And then it really is looking to take risk. So development risk, plan conversion, distressed assets we convert that risk while we hold the asset on balance sheet and look to -- they either trade into the open market or to put it or trade it into one of the platforms that we manage to operate. And then lastly, as we think about seeding new platforms, it's very difficult to get equity, the deal, the bank financing all in place, all at the same time alongside third-party equity. So certainly look to seed new platforms, warehouse, potential assets, for platforms or greater percentage of the equity, day 1 ahead of effectively introducing third-party capital over time. And if we think about the asset management side, which really won't require any of its own capital other than what you see on the left. Really the focus for us is building track record and looking to introduce LP capital. to support the growth of the platform. I think the first one we're likely to see is in Australia, where we look to bring in a very passive fund that supports the growth sitting alongside Burstone balance sheet as well as other capital partners. In terms of funding that strategy, obviously, we have elected that we have seen reliance on either our balance sheet or capital markets can constrain you. So certainly, if you look at the access or options that we now have and certainly are creating that ability to expand and support that growth strategy is quite significant. Obviously, from a JSE perspective, we'll continue to assess market conditions. JV capital we've named all the partners there, but significant amount of experience, track record and deep pockets. And really exciting to see the doors that are opening up both locally and offshore at the back of some of the transactions that we've announced recently. LP capital, this will be a key focus for us. It's obviously new. We understand it well, but we haven't played in there in that space yet other than some of the local wealth houses. Certainly, we are actively engaging and working with capital across the globe and spending time on the ground in the U.S., Australia, the Middle East, Canada et cetera, et cetera. And that's not just one guy getting onto the plane and flying around the world. That's the benefit of having a global infrastructure and effectively the ability to distribute across the various channels that we have. And then there's recycling of investments. We've been very active in terms of selling and recycling individual assets. We'll continue to do that, actively manage that base. As I mentioned earlier, the South African asset -- South African portfolio has a big role to play there, but also as we think about platform exits over time. So not every platform that we invest in, build and manage will be a permanent capital vehicle with an indefinite expiry date, we'll certainly look to be more active in certain markets at certain times. And then there's obviously with underlying performance and upward valuations of portfolios and assets it creates further capacity on the balance sheet for us to leverage against. The fund and asset management model really unpacking the economics of this. And we've got to be a little bit sensitive here around some of our pricing information, something that really is fairly sensitive, not just with existing partners but also with potential partners and potential platforms. But we'll try and give you as much information as we can and ultimately try and show you how this drops down either to the bottom line in the very short term, but also how it impacts the broader valuation of the business. From an overall model, the benefits to us releasing significant capital out of the existing base. That's effectively Phase 1. That won't happen forever. It diversifies our investment base, whether it's locally offshore. So we've got a far greater breadth of investments and exposure to underlying real estate across different markets or for effectively the same capital base, creates and generates operational leverage for us, as I mentioned earlier, access to global capital that will facilitate the growth and obviously creates new revenue streams through fund management, investment management, asset management and potential performance fees over time. And we're hoping to see that come through with delivery over the next few years. In terms of then just comparing -- and this is how we think about it, a traditional REIT return in purple vis-a-vis what we would expect to generate as an integrated fund and asset manager. Obviously, as a REIT investor or traditional real estate investor, you pick up your asset yield, you get a bit of leverage effect. That's obviously on a European market or historically in South Africa, we haven't seen that positive carry. And then there's obviously the platform costs that get absorbed that generate the overall equity or platform return. When you overlay that with the various fees that we can earn and generate. And again, this isn't just about fees, we're very conscious about alignment with our partners. But ultimately, we can pick up in terms of overall return, cash on cash, somewhere around the 250 basis point pickup. And that equates to around 35%. So it's not to be sniffed at. And if you look at that in conjunction with capital and how much further the capital can go, there's a significant upside for the business as we move forward. If you put that into an example, we just said if we go and buy together with partners, EUR 100 million of assets, ZAR 2 billion of GAV. In terms of the investment side, our 20% stake, we'll be putting out ZAR 160 million. You can see the marginal impact that has on LTV. Obviously, in our old model, [ ZAR 2 billion ] on to balance sheet would have had a significantly higher impact on LTV. And our overall equity return post cost inside that platform would have been close to ZAR 11 million. We're working off a hypothetical example of buying a European asset generating around about [ 6% ] asset yield, we've put some costs, some tax through that to generate that ZAR 10.8 million. That translates into a 6.8% equity return. Look on the right-hand side, our fund management model effectively would be looking after ZAR 1.6 billion of third-party AUM would be generating fees, and we've just used a 50 basis point number, which is historical and based off of the old IPF Manco construct, and we believe our operating margin is going to be somewhere around that 50% going forward. And then obviously, potential performance fees that we would earn on that [ ZAR 640 million ] if we deliver according to the target return. So off of that, we're picking up from a 6.8% return to 9.3% return. So significant uptick. That's the 250 basis points, a 35% uplift in overall cash and cash return. We're targeting IRRs of 15% in euros. That's very hard to do when you're buying assets at 5% or 6% without this kind of management overlay. If you look at the 2 businesses, effectively, what we've done is we've bought an asset for ZAR 160 million. We've overlaid that with a management platform that should grow to scale and create value of its own, put them on different multiples. Back of the packet, we get to around 25% uplift in our overall valuation of that opportunity. So it's a significant uptick both from a balance sheet perspective, value perspective as well as running yields. The income drivers, and this is relatively straightforward. There's no rocket science. Here on balance sheet is NPI. It's investment income coming out of the platforms and relatively stable returns. As I mentioned up front, that's a business that today is generating ZAR 730 million of earnings. It absorbs the full cost base of the entire group. And on the right-hand side, annual asset management fees, investment management fees for acquisitions, disposals, refinancing, et cetera, et cetera. Fund management fees as we look to manage the equity and then upside through performance fees. And that business on a look-forward basis is generating around about ZAR 120 million on the back of the recent transaction. So relatively simple and straightforward, but a lot of opportunity and upside as we look forward. In terms of what that means today, we've relooked at how we report these numbers and certainly how we've included Australia, try and get it on a like-for-like basis. So in FY '24, we were looking off to ZAR 8.9 billion post the series of transactions, ZAR 23.4. And if we land SA Core plus, if we land Germany, you can expect that number to increase significantly from an overall AUM perspective. Management fees, ZAR 61 million last year, 7% of earnings. We expect that to more than double over the course of the next 12 months. And certainly, we see that as a growth vector for the business going forward. So that really brings it to a close. I mean that pulls it all together -- from an investment perspective, as I mentioned earlier, ZAR 16 billion investment, ZAR 23 billion that we look after on behalf of third-party capital and bringing it all together with scalable infrastructure. Putting significant capital and skin in the game alongside our partners and ultimately looking to drive enhanced returns on the capital that we deploy. So I realize I've probably run through that pretty quickly, but probably better to unpack it with questions. So let's open it up. Anyone on the floor? [indiscernible]

Yes. Just a few questions around sort of the fee outlook, right? So do you guys have any protections to prevent the owners of the assets may be choosing a different third party? I'm thinking particularly with [ power ] right now. Is there a certain length of lease where you guys are contracted to be the third-party manager there.

Yes. So I think we've made it clear in the Blackstone deal, there's a management contract in place for 4.5 years. And there's various lockups early termination, effectively poison pools that would prevent that. It ultimately comes back down to performance. So lack of performance from a management perspective would see you out the door, and I think that's pretty standard. So yes, there's no -- I mean Europe, in Australia, very similar constructs. Remember, we've also got a lot of capital tied up. So it's not just a case of, okay, thanks, guys. You haven't done a great job or we're moving you off. We are partners. So this isn't just -- we're not sitting here with passive capital and a separate management team. It's fully integrated. So yes, long -- fairly long-dated kind of contractual obligations.

And there's planned sales right, within the PEL platform. So who is in charge or responsible for those disposals because obviously might seem [indiscernible] of conflict of interest, right, maybe helping out your competitors, almost outperformed you guys on uncertain areas or things like that.

Just unpack that a little bit?

So if you are not -- if our minority shareholder on particular assets and you've got another asset that you own everything off that's close by to it. You may have a conflict of interest when it comes to how you manage those assets. So I think it's probably easy offshore right?

No, I think -- so as we build this out, conflict management is going to be a critical part of the governance structures, whether it's Europe, South Africa, Australia. And whether that's around a tenant, whether it's around acquisition opportunities, where does that go? Who gets offered at first exclusively, nonexclusivity, dedicated teams, nondedicated teams. Those are all things that we run up against day one. And so as we build this out, we've got proper infrastructure and precedent in our Australian transactions. When you think about it back end of last year, we bought the Smithfield asset in Sydney alongside Phoenix. And then we've just launched with a new JV partner buying identical kit in very similar markets, similar theme. And again, you've got to cross that bridge. So you've got -- it's a well-trodden path. We've worked with private equity firms before. We were on the other side, if you recall with Ares. So we were asking for exactly the same protections as that capital partner. So -- and we've also had experience coming out of an institution that was well versed in contract management. So well understood -- and certainly, it's not saying that we [ hire ] away from. So it's a conversation that we have very openly with the partners that we work with.

On paper, it looks super exciting. And you can look at those numbers and apply your multiple and get to a quicker -- higher valuation process. I think my question is more this is quite a sort of new path for your company. The markets -- the offshore markets that you're operating in are full of very competent real estate managers. What is going to be sort of your edge, obviously, apart from the people you hire, your edge in terms of bringing in more favorable terms for your [ clients ]?

Yes. So I don't know if Paul is there. Paul Rodger, if you can hear us? Maybe you pick that one up because I think it's saying that you and I have discussed -- we discussed a lot capital partners. It's not often that you get to sort of cross the table, I mean, obviously, with Blackstone on this one. But if you think about the -- obviously, you haven't spoken about the others that we're interested or the guys that we're talking to around other opportunities. But it's interesting to see and hear the themes that are coming through as to why they would look to partner with us. I'm sure Graeme Katz will give you the same answer that Paul does. So maybe better hearing it from him.

Thanks, Andrew. Can you hear me? Okay.

Yes.

Okay. Good afternoon, everyone. Yes, look, I think the important point here is that this is not a new venture in terms of a European strategy, pan-European strategy for me or the team. The Hansteen Holdings stable that we come out of, which essentially set up in 2005, and then we sold it to Blackstone 2017. We've had a lot of experience over the years in working through all types of cycles and points in the market across each of the geographies in which we operate within. The important point here is that we've retained and held not only the staff and the employees that we have across each of the jurisdictions that service our assets, but the relationships that they hold and build with tenants, capital partners, landowners, consultants, brokers, municipalities, et cetera. So it's really important that, that longevity of experience and relationship that we maintain that as we go through this next chapter of the business. I mean really a testament to that is the fact that we do have multiple capital partners coming to us in certain regions asking for opportunities, how do we work together, how do we expand and develop on based on our knowledge and experience of those markets. The fact that we've got the Blackstone there, a team that we've known very, very well for a very long period of time selling the Hansteen portfolio in Europe to them in 2017 plus our European light industrial portfolio which you may recall, we traded in April 2021. Now that very same team are looking to do a joint venture with us, which I think is a real credit to the team on the ground and the opportunities that we've been able to put into the PEL portfolio. So yes, look, it's always a changing cycle. It's a changing market, and we've been well placed and well positioned to take advantage of that so far, and we hope to continue to do so. And yes, let's watch this space, but I'm fairly confident and optimistic about the future in terms of bringing in new opportunities and new capital to service the strategies in which we manage.

I mean, I'd add to that, if you would just summarize really in the 2 assets that I think about absolutely people. And the other piece is capital. So typically, your smaller players in the space are really capital constrained. And so they take a very capital-light approach alongside their partners. In all the conversations we've had when we've spoken about putting capital in, and we've spoken about how much capital we'll invest alongside them. It's a game changer in the conversation. So mix of experience together with the amount of capital that we're willing to put in. And ultimately, for us, we're not trying to drive a fee business here. At the heart of this business is still underlying real estate, and we like the returns that come out of it. It will always form the backbone of our P&L and our balance sheet. And ultimately, there are a couple of questions that are coming through on kind of REIT status. Will fee income overtake net rental income or distribution income coming out of your platforms. Certainly the way that we -- even with real growth, we don't think so because when you're putting that amount of capital to work 15% to 25%, that's still a big number, earning you whatever that equity yield is depending on where it is in the world, is likely to dwarf your overall fee income unless you start to earn carry performance fees, et cetera, et cetera. But certainly, for the time being, the medium term, we don't see that shifting. And at the heart of the business is that real estate. And in the world where rates are where they are, they're no longer 0, the ability to just to generate alpha through financial engineering this doesn't exist. So it does come down to skill set, having been through cycles across each of the teams in each region. Everyone's been through at least 1 -- I mean, I think Katz has been through 15 cycles. But I feel like I've been through 14 just behind Sam Leon. But that's really what drives and has driven a lot of that -- the willingness to participate or work with us.

And if your South African portfolio is going to be used as your main funding source, I mean, that's not going to go very far in Europe and Australia. So I mean, if you were to project forward without having to be firm on it, but -- could you visit your SA portfolio sort of going down to ZAR 1 billion or ZAR 2 billion pretty quickly in like 2 years.

So I think the strategy is ultimately to someone, I think it might have been Paul kind of coining the phrase of fundifying the SA portfolio. No, that doesn't happen overnight. You're still moving through a cycle here. We've probably come through the back end of that office cycle, maybe starting to see some green shoots. So I think there's is an easier path to some of that in, say, retail and industrial office may be a little bit more challenging, but it will have its day in the sun again. I don't think we're going to look at it as purely a source of capital, i.e., almost liquidated share and shift it offshore. Graham spoke earlier, there are a lot of opportunities there. We think some of the pricing has been a bit rich. And on a risk return -- risk-adjusted basis, when you consider what's happening in Europe, Australia, et cetera, et cetera, we've got to think very carefully about where we put that capital. But there's definitely a pathway to the fund side of the business here in South Africa in a relatively short period of time. Let's see if there's anything on chorus call.

We have no questions on the conference call.

Okay. On the webcast, I think in terms of the REIT status, I think we've picked it up. But Jen, maybe you want to just pick up, obviously, in the near -- very near term, the impact of all this activity from a REIT status perspective, but also as we look forward, some of the questions here looks like it's in the short term, supplementary, i.e., the income or supplementary, but does it go to a level where REIT status may be at risk?

So yes, just in terms of the short-term response to the REIT status question. So that's not something we need to. The income coming out of the power platform at the moment, it is a loan structure within the Luxembourg entities. So at the bottom of the pyramid of direct properties that earn rental income, but coming up through the structure and what gets recognized in South Africa is actually deemed interest. We did challenge [ SARS ] on it at the time of investing but were unsuccessful. So that has always been recognized as interest income and put pressure on our REIT ratio. So this is not something we are new to or haven't navigated before and it can be managed. So the sell-down of PEL to 20% actually improves our REIT ratio in the short term. And then going forward, I think Andrew alluded to it, you are investing a significant amount of capital, which is generating rental income to support the REIT ratio and support the business being a REIT. I think if you get to the point where that comes into question, there are broader conversations and considerations that need to be had in terms of REIT ratio. I don't think we want to structure to remain a REIT if that's...

Okay. I think that's everything on webcast. Any more questions here? I mean we're happy to go back to your results and any questions there. Otherwise, we can wrap up and go and eat and drink some Cheryl's cuisine. Well, good. Okay. So thanks for coming. I think also just a massive thank you to the team. It's been an unbelievably challenging but exciting 6 or 7 months. So nice to come out at the end of it and nice to look forward to a good break on the beach. Our servers will be down, don't try and phone us, but it's been good to get through it and good to see you all. I hope you all have a good break too. Thanks.