Burstone Group Limited (BTN) Earnings Call Transcript & Summary

Welcome, everyone, and thank you for joining us today for the year-end results for the Burstone Group. Little bit warmer outside today than it was a week ago. So good to have that on our side. I think just we've got the whole team here today. Unfortunately, Graeme Katz couldn't travel to be with us, but we've got Paul Rodger from Europe and obviously, Graham picking up from a South African perspective and obviously, Jen, who will take us through the detailed financial results in a little bit. But I think if we take a glance at Burstone as we sit here today or effectively at 31 March, a business with ZAR 42 billion of investments that we either invest directly into and/or manage. ZAR 23 billion of that ZAR 42 billion sits in third-party assets under management, and we have roughly 50 to 60 people sitting across the globe, depending on whether you include the JV business in Australia operating across 9 countries. It has been 2 years of significant strategic transformation for us. And if we roll back the clock to March 2023, the JV with the Irongate Group, which really gave us a launch pad back into Australia and also launched our fund and asset management strategy and capability. Roll forward to June '23 and the internalization of both the South African and European management platforms, which gave us a fully aligned internal management team that's set across the different regions. The establishment of an industrial JV with Phoenix Property Partners out of Hong Kong. And so that enabled us to build AUM scale on the ground in Australia and continue to leverage our capital partner relationships internationally. Last year, obviously, a big year for the business in the transaction. Strategic partnership with Blackstone on the pan-European logistics platform, which launched our funds and asset management capability in Europe, followed by the establishment of the industrial joint venture with TPG Angelo Gordon in Australia, further building scale and leveraging partnerships there. And as we stand here now, we're getting closer to seeding and creating the South African Core plus platform with South African institutional capital. And so we'll continue to expand that fund and asset management capability, which would really link all 3 regions under that strategy. If we look at the total combined value of the capital that our capital partners internationally manage, it's $1.5 trillion. And that's who we've partnered up with across Europe and Australia and hoping to add a few names to that or certainly under the SA Core plus platform in the coming few months. So the building blocks are certainly in place with a sound balance sheet and a solid foundation from which we can grow. It's been a year in which we've accelerated our fund and asset management strategy. So on the right-hand side, you'll see the growth up 2.6x. Obviously, significant shift from a European perspective. But Australia, and we'll get on to that in a little bit, but Australia up almost 30% in terms of their equity under management. So a significant year in accelerating that. If we step back and just look at the highlights from a financial perspective, again, strategic transformation, coupled with stable operational performance. So full year earnings were in line with guidance. Our cash dividend payout ratio of 90% will lead to the cash dividend for the full year being up just over 3%. Our funds and asset management business, as I mentioned, fee revenue is now ZAR 88 million -- or was ZAR 88 million for the year. So contributing almost 11% to bottom line earnings, up from 7.3% in FY '24. Our operational base in both South Africa and Europe is strong and stable, and we'll unpack that in a little bit more detail later on. But certainly, the South African business holding up well with some green shoots coming through. And in Europe, strong contractual revenue growth offset by some uptick in vacancy. Marginal increase in our expense or overhead base of only 2.3%. So costs remain very well controlled across the group. And from a funding cost perspective, we've got obviously significant benefit from the transaction overseas or in Europe, which has led to a significant decline in that finance cost line. Huge amount of capital recycled or generated here in South Africa. We sold ZAR 1 billion of South African assets at a 2.5% discount to book. I think it's relatively close to what we have sold over the last 2 to 3 years to fund our offshore expansion. NAV, down 23.8%. We split that in 2 components, the tangible side of the impairment, which is 13%, pretty much all linked to the PEL transaction and is what we've taken the market through when we announced that transaction and 10% really linked to the intangible side of the business, derivative swap contracts, et cetera, et cetera, and Jenna will take you through that a little bit later. Where we land from a balance sheet perspective is obviously a lot stronger than where we were this time last year. Pro forma LTV of 36%, Jen will also unpack that in a little bit, but a significant decrease from the 44% that we had at March last year. And the look-through gearing also significantly improved. We haven't got on that slide, but we're down from around the 58% mark in March '24 to around 45% as we sit here today. So that is the snapshot. I'll hand over to Jen to walk us through the results in a little bit more detail, and then we'll unpack operations and outlook from there.

Hi, everyone. Thank you for making the time to be here today. It's good to see everyone. It has been a period of change and continued focus. So I'm very pleased to present the results today. I'll walk through performance, highlight where we've seen some resilience and progress, and share how we're positioning the business for future growth. As always, we do remain committed to long-term value and maintaining transparency with our shareholders. So distributable earnings are in line with guidance, 3% down year-on-year, albeit that is in line with guidance. From a payout ratio perspective, we have Board approval to distribute a 90% payout ratio, making our paid dividend increase year-on-year by 3%. From an operational perspective, all regions are performing well, and Andrew will provide a bit more granular detail a little bit later as he goes into the sectors. But at a high level, South Africa base like-for-like growth is flat year-on-year. However, this is offset by the strategic funding of capital projects. The disposals that were sold during the current year had a marginal impact on earnings as they were sold very close to -- similar to the debt yield. And those capital projects are obviously done in order to maintain the quality of the underlying real estate. From a PEL perspective, at an operational level, the performance was also flat year-on-year in euros. However, we did get a little bit of uptick just from our FX hedges. What you're probably looking to see on the slide, which is quite hard to unpack, is the benefit of the deal. And from a deal perspective, the deal was marginally accretive as we had predicted. To summarize it very simply, we saw marginal NOI growth and received a higher management fee coming out of that portfolio given that we were now receiving 80% of that fee versus the 17% received previously. This was offset by the NOI that was lost at a fund level and then the net interest, which was all saved at a group level resulted in a marginal accretion across that portfolio. Still set to do fairly well. The portfolio has seen the benefit -- continues to see the benefit of positive reversions at an operating line, but the increased vacancy unfortunately did offset those gains to result in flat. Australia, which is still small relatively, but is really starting to get some traction. We've seen growth both in the fee revenue line, and we're starting to see some investment income creep through, although a lot of our investments were only really made in the back end of the year in the last quarter. Overall, I do think we have delivered very solid performance across the region as we continue to execute against our strategy. Moving on to LTV, which is now no longer a flat path because we have actually achieved our set target range. As Andrew mentioned earlier, we have maintained very strong discipline in terms of capital allocation, not only selling down in PEL and getting out just over ZAR 5 billion of cash, but also the ZAR 1 billion of SA asset sales that we sold. We will continue to exercise these initiatives as we continue to look to preserve headroom as we move into the growth phase. This will also provide us the ability to move swiftly as we see opportunities arise. Just unpacking the LTV flat path, which was in line with guidance. We started off at 44%. We had some structural items, which included our deferred payment to Investec, et cetera. We sold 63% in the PEL portfolio and got out just over ZAR 5 billion worth of cash. We sold ZAR 1 billion of SA asset sales. And then the reason I think we've shown when we did the transaction that we're going to be down to 33.5%, we are slightly higher, but that's driven by the investment activity that happened a little bit sooner, predominantly in Australia, where we made significant headroom at the beginning of this calendar year, last quarter of the last financial year. From a GAV perspective, we just wanted to highlight this slide as a key slide to illustrate the gross asset value -- the gross asset that we manage and the type and the scale of these assets under each portfolio. So from a location perspective, from a group as a whole, you can see from a location, we are well diversified across South Africa and offshore with offshore actually contributing more on a total portfolio basis, so total GAV. Well diversified across the various capital allocations, so well diversified in both risk and return buckets across opportunistic, value-add, core and core plus. And then again, equally well diversified across sectors being logistics, retail, office and residential/commercial. The right-hand side of the slide really shows our direct investments versus our off-balance sheet. So South Africa, you can see is very asset heavy. So ZAR 13.5 billion of assets, and all of that is directly invested into real estate, well diversified across the sector, but you would expect to see that go down as we shift the business into funds management. Europe, sector-specific with all of its assets sitting in the logistics space, but we have shifted that business into funds management. And our investment in a just over EUR 1 billion GAV business is now sitting at ZAR 1.7 billion or EUR 88 million. Australia is a diversified funds management business, well established now and really starting to grow, well diversified from a sector perspective and the graph at the bottom left is the allocation across the risk buckets. So from a group balance sheet -- I'll try not to spend too much time here because I think we did speak to a lot of this at half year. But the group balance sheet remains strategically well placed, limited refinance risk and a very well-managed interest rate exposure. We managed successful refinances at both the group level as well as within the PEL platform following the transaction and then managed to settle basically half of our debt at a group level following the BX transaction, which has set us up to have a significant amount of flexibility and options if we want to be agile and opportunities approach. The next 2 slides are just showing the weighting across the different risk buckets. Nothing to specifically point out, but just to show that we are very well positioned across those graphs. So just before I hand over, it has been one hell of a year. So I would like to thank the broader team for their continued hard work and commitment, as well as to the Board for their advice and guidance throughout this period. And a big thank you to Andrew for leading the business through all of it as I hand over to him to lead you through the rest of the presentation.

Maybe we just end there. Okay. So running through performance and starting with South Africa. I think we've said it for a while, we have a fairly mature portfolio here that has really performed and operated through the cycle really well. So as we see our like-for-like growth, we've had a low vacancy rate for a while now. And so we haven't been able to benefit from that, but certainly seeing some positive momentum coming across some of the sectors like office. So strong leasing achieved across the business. Almost 90% of space that came up was relet during the year. You've seen a slowing of reversions or negative reversions. So we're reporting 4.6% for that entire portfolio. That compares to almost 9%, 10% in the prior year and a very high tenant retention ratio of almost 84%, 85%. So operationally, very, very happy with where that portfolio sits. If we look at the key focus for the next 12 months, obviously, it's launching our funds management strategy. We'll unpack that a little bit later. On the disposal program, we continue to roll out and we'll actively be seeking to continue generating capital from South Africa to fund both local and offshore opportunities. And I think continuously focusing on both client experience and the cost of occupation from a South African tenant perspective. The office portfolio, which makes up 35% of the South African investment base, again, I think really nice to see some positive reversions coming through on some of the shorter-dated leases. We split those out. So you'll see total reversions on the portfolio of 21%. But anything that was effectively re-leased 5 years and shorter and has come back up in the last 12 months, you're starting to see a positive number there of just north of 1%. So nothing huge, but we've been in negative territory for a long time in that sector. And so we still expect longer-dated leases to show negative reversions just given contractual escalation outpacing or not being -- or market movements not as keeping pace with escalation, apologies. So we remain fairly optimistic or cautiously optimistic, as Graeme would say. Vacancy rates across the sector are trending down and improving. And like-for-like NOI for the last 12 months reflects some of that activity in terms of being negative 2% as opposed to negative 7.5% in the previous 12 months. We'll unpack a little bit as to where we see that sector going over the next 12, 24 months from our perspective. The industrial portfolio is the smallest of our SA exposure, 22% of that portfolio. So there is a lot of volatility that can play out in the year-end numbers just based on scale. If you look at vacancy, that has popped at year-end to just under 8%. That's linked to one tenant where the lease expired on, I think, 31 March or 28th of February. And I think we've already relet that space or about to relet that space. So there's not a lot to read into from a pure stabilized performance just given the scale. But we do see some positive momentum in that sector. There are positive reversions playing through. There's been some really good leasing activity. We've extended the WALE of that portfolio to just around 3.5 years. And again, if you just look at reversions on the shorter dated, the same as office, anything less than 5 years has come back up in the last 12 months. We've captured around 5% positive rental growth on that. So that's a positive sign coming through that portfolio. Retail continues to be the strongest of the performers. Really good operational metrics coming through that NOI. Like-for-like NOI growth of 3% was dampened slightly by the redevelopment in Zevenwacht that took out some space. And on a normalized basis, they would have probably been 150 basis points higher. And that's kind of where we expect that business to track over the next 12 months. Cost of occupation, the trading stats, cost of occupation, average turnover growth, really looking strong for a portfolio of that quality, still capturing positive reversions on new leases at around 4% and seeing some nice results in the recent acquisition of the Neighborhood Square, where I think we're up valuation-wise by 20% and captured north of 20% reversions on the leases that came back up over the course of the last 12 months. Trading densities in that center are trading around ZAR 7,500 a meter, which we haven't seen before. So it's really good to see. Thanks, Nick, for the deal. From a portfolio and outlook for South Africa, we obviously know the environment that we operate within certainly remains challenging. You open the newspaper every day, there seems to be a new own goal, but we continue to operate and the team continues to operate really well, notwithstanding the environment in which we have to play. So continued political uncertainty, relatively low to anemic economic growth. And notwithstanding that, if we project out over the course of the next 12 months, we do still see modest like-for-like NOI recovery coming through in FY '26. A big lever for us and strategic lever is the execution of the SA Core plus platform. The due diligence on that with institutional capital is complete. We're awaiting final approvals. We have a pipeline of assets to feed into that. We will see the initial portfolio with circa ZAR 5 billion of our existing on-balance sheet assets, retail and industrial, and we'll retain a significant equity interest in the platform, which will probably be north of 50% day 1 and will be diluted over time as we grow that platform and bring in other institutional capital over the coming years. Target LTV of that platform will be around 40% and our role in there will be as both fund and asset managers. So really ramping up our activity level from what we provide to the platforms in which we invest. I think also interestingly, the pipeline of assets is not just linked to the retail and industrial, but certainly, as we think about other platform opportunities alongside both that institutional capital partner and others, it certainly does look it could be an exciting next 2 to 3 years as we build that out. I mentioned earlier the disposal pipeline. We've earmarked around ZAR 600 million to ZAR 800 million of South African assets to dispose of in the coming 12 months. And again, that will be used to either continue to invest offshore and support the growth of those platforms or to seed and/or continue to invest alongside the SA Core plus platform back home. Moving to Europe. I think we've spoken at length about the broader Blackstone transaction, but just unpacking the underlying performance of the investment, which is PEL. Strong contractual rental growth, and we captured almost 15% positive reversions across the portfolio, 3% indexations. So you would expect a much higher kind of growth rate from a like-for-like NOI perspective. As Jen mentioned earlier, some higher vacancy that came through during the year. So closing vacancy at 6%. Average vacancy was 4%, and that is relative to an average vacancy in the prior year of 1%. So you can see where the delta arises. We certainly -- and Paul has been saying it for a while, the last 12 to 18 months, the occupier market in Europe is certainly softening, and there are challenges. The overall office, I don't think, helps with the tariffs, and you're certainly starting to see uncertainty, not just creep in, but it is a part of daily life in Europe. So a big year in terms of dealmaking and strategically shifting that business. But as we think about the performance going forward of that portfolio, still defensive, still believe that we'll continue to capture strong rental growth, albeit market rental will probably start to -- or market rental growth may slow down over the next 6 to 12 months. If we look forward in Europe and what we'd expect, as I mentioned, relatively subdued growth environment all off the back of what's happening or coming out of the states with tariffs. Volatility and uncertainty in that market isn't exactly the norm, something that we know how to deal with as South Africans, but certainly hard to navigate over there, and margins are very, very tight. There's a very cautious capital environment right now, both from a capital raising perspective as well as from a deployment perspective. But there is potential uplifts coming through, specifically in Germany in terms of defense and infrastructure spend. And we should be, from a PEL and broader industrial warehousing perspective, a net benefactor of that, as that spend rolls out across the continent. Our strategic focus remains alongside Blackstone and building out that partnership and that platform. Again, I think we are both cautious in terms of the market in which we are operating and the types of returns that we're going to be seeking. The growth strategy for us is obviously alongside them, but also how we create new platforms with additional and new capital partners, much like we have in Australia as we think about what we've done with Paul and the team historically with light industrial and others in that industrial sector. So certainly a lot happening in the background as we look to build that business and bring in both additional capital partners as well as thinking about different strategies to capture the underlying fundamentals in Europe. Switching to Australia, and for a lot of reasons, this is almost the test case that is really proving its way through the system. And nice to really be able to start from scratch with a team that we've known for a long time, but you see the benefits of the model and really becomes almost a blueprint for what we're going to be rolling out across Europe and South Africa over the coming few years. So significant growth in that business, both from an investment perspective and from a management platform perspective. If we just unpack the management company, the AUM is up 27%. So the Irongate team now manage circa $620 million of third-party equity. Fee income was up 17% and operating margins have improved slightly. We didn't get the full benefit of the recent transactions with TPG Angelo Gordon because that was back-ended. So we'd expect that operating margin to improve further into FY '26. Alongside TPG Angelo Gordon, we were one of the biggest buyers in the Australian industrial market last year with $280 million of acquisitions. And it seems like that positive momentum is going to continue. There's a further round of soft commitment coming through from the capital as we stand here today. So a really good result from the team in terms of building that management platform. Obviously, we put significant equity up alongside each of our capital partners. We've got just over AUD 50 (sic) [ AUD 50 million ] deployed into Australia at the moment. Most of that, like James said, was deployed at the back end of our financial year. So you won't see a lot of the return coming through. The initial returns are low, just given the type of strategy that we're rolling out as we think about total return. So lower initial yields. You see the benefit. Smithfield, we've owned for almost 18 months now alongside Phoenix Real Estate Partners. That first revaluation is up 11% at an asset level. And in terms of that impact on our equity invested there, that's closer to a 15%, 16% uplift in our equity over the course of 18 months. So not a bad result as we roll out the asset management initiatives on the assets that we acquire. Looking forward, over the next 12 months, we expect the momentum to accelerate in Australia. It's a much more stable market relative to, say, South Africa and Europe right now, and certainly an easier place for both us and other capital to put investments to work. So, far more stable, GDP continues to grow, net positive migration. I can't deliver the message as well as Graeme Katz can. But I'm sure if you took his recording from 8 or 9 years ago, it would be the same message. The investment performance. We'd expect a continued increase in the investment return as our asset management initiatives take effect. I mentioned the Smithfield asset in terms of an increase in that valuation. We're going to benefit within the next quarter in terms of a refinancing of that asset and get back 20% of our capital. So that's a nice return of capital to South Africa, albeit relatively small and a strong pipeline. The guys were talking through $400 million of pipeline the other day with 3 or 4 capital partners as we were looking to build both the Phoenix and TPG industrial platforms as well as a couple of other new ideas and plans that the team has on the ground. So from an investment perspective, we're not expecting significant rands and cents coming through in the next 12 months. But as you can see, the capital returns are expected to be significant, and we're starting to see that. Smithfield is a good example. From a management platform perspective, we continue to see upside. I think the flywheel there is turning. Accelerated AUM growth, which will lead to an increased operating profit and contribution to the group. And so for FY '26, we expect the contribution from the Irongate management platform to double over the course of the next 12 months. So a significant increase, albeit still relatively small in the broader Burstone P&L. Bring it towards the outlook and guidance for FY '26. It has been a year of significant transformation, but that strategic shift is gaining momentum. In South Africa, we do expect a modest like-for-like NOI recovery. In retail, as I mentioned earlier, we continue to see strong operating metrics, even though the consumer on the ground is certainly under pressure. But we'd expect similar sort of performance as we track into FY '26. Nice to see some positive numbers coming out of office, and so we'd expect to see some marginal improvement in those numbers over the next 12 months. As I mentioned, in industrial, the volatility given the scale, it's not easy to predict exactly what the net result is going to be, but we do still have some long-dated leases coming through that should -- or will still have some relatively large negative reversions. But active portfolio management, asset recycling, cost efficiency and a focus on CapEx and really asset quality is going to be key to that portfolio going forward. We will link to that, obviously, the SA Core plus platform is key as we look to lighten up the balance sheet here. European expansion. As I mentioned, PEL should continue to benefit from the continued positive rental growth across that market, albeit on a slightly slower or lower scale. The strategic partnership with Blackstone, we hope to accelerate over the course of the next 12 months. And the team is working hard at looking to create new opportunities across the region with new capital partners, much like we have in Australia. I think I've touched on Aussie and the outlook, but certainly a good blueprint in terms of what we're trying to roll out and some significant earnings contributions coming through over the next 12 months. Balance sheet-wise, we continue to target an LTV range of somewhere between 34% and 36%. That will fluctuate depending on deal activity and may not be perfect over a reporting period, but that is certainly where we'd like the balance sheet to sit. The more capacity we have, especially in markets like today with volatility and uncertainty, the better both from a risk perspective, but also from an opportunity perspective. And as we look at the global kind of operating context and as we think about our business from a funds management perspective, we're not only reliant on our balance sheet, but other capital. It's certainly not an easy market to operate in right across the world. That's the benefit of having the different markets in which we operate. So Australia, we expect to see a much stronger momentum, probably a little bit slower in Europe just given the level of volatility and uncertainty. So we've got a fairly cautious outlook as we think about our growth expectations on that business over the next 12 months. So where does it leave us in terms of guiding the market for FY '26? We're guiding distributable earnings growth of between 2% and 4% and our payout ratio effectively remaining in line with the broader guidance that we've given historically in terms of where that range would be. Coming to the end and just trying to give a little bit more color and flavor as to how we see things playing out over a longer period of time. The fully integrated business model, 2 distinct businesses operating in tandem to drive significantly increased value and returns to the business and ultimately to shareholders. On the investment side, a balance sheet that has ZAR 16 billion of capital deployed and generates off the back of FY '25, ZAR 740 million of earnings, and a third-party funds management business that currently looks after ZAR 23 billion, ZAR 24 billion of third-party capital. And in FY '25, generated ZAR 88 million of fees that needs to be annualized. And if you go back to the November presentation, you would have seen that was closer to ZAR 140 million, ZAR 150 million on an annualized basis. So scalable integrated business internationally, best-in-class management teams. We do think we've got operational leverage across each of the regions in which we operate. And we really are looking to create value alongside the capital partners in which we invest and both manage their capital. As we look at the different businesses, South Africa, very mature, positive earnings trajectory over the short and medium term and continued asset recycling. Jenna mentioned it earlier, looking to lighten up there and seed other portfolios and platforms; in Europe, that PEL platform continuing to benefit from the reversions and investment; and in Australia, a similar story. From a fund and asset management perspective, we've mentioned the Core plus platform in South Africa, which really is the kickstart to the strategy locally and several pipeline opportunities identified that we can quickly execute and move on. In Europe, the team obviously actively engaged with Blackstone as a partner as we look to grow that business and to create new platforms over the next 12, 24, 36 months, and to continue the momentum in Australia as we build on that team's success and the multiple capital partners that we've changed the guys earlier. When we started that or bought into that business 12 months ago, we had ITAP. And today, we have Phoenix Real Estate Partners, we have TPG Angelo Gordon and Ivanhoé Cambridge. So this is a significant shift, and that is the model that we're looking to recreate. So we're never dependent on one capital source for either one of our businesses no matter where we operate. So I think maybe as I wrap up, I think first and foremost, I would like to thank you for your continued support and belief in the business, in the strategy and the vision, to the Board, as Jen mentioned, a big year of huge decisions that were taken. Over the last 2 years, we've undergone a profound transformation from a pure real estate investment company to one that is fully integrated that spans real estate investment, fund management and asset management. The foundational building blocks are now in place. But as with any meaningful transformation, the full impact on our results will take time to materialize. We're operating in 3 distinct international markets. They run at their own pace and to their own rhythm. They're shaped by differing macroeconomic and political dynamics. And you overlay this with a global environment marked by volatility and uncertainty in such conditions, prudent and selective capital deployment isn't just wise, it is essential. We're custodians of capital. We're focused on building the business in the right way with the long-term value creation for shareholders at the core of everything that we do, and it means managing for sustainable growth and not just chasing short-term gains. We've got the people, we've got the talent, we have the platform. We've got the strategic clarity to deliver this. And it will not happen overnight. But with patience and a shared commitment to our long-term values and goals, we are confident in the direction that we're heading. So I'd like to thank you for your support, open up for questions. And after that, go and have a drink. Thank you.

So we're going to open up to the floor first. No, you can't go first this time. It's Oval office now.

That was quite interesting to watch actually.

So I get your question. So you can ask your second question.

Okay. So that's the 2 main questions. I think the first one you might have gotten from the note this morning. But just with regards to the Core plus portfolio, you guys are speaking about the equity being quite high. So the 2 questions on that are, is that likely to stay on balance sheet? And secondly, what is the time line on that? Are you expecting this to be completed by sort of first half of FY '26?

Do you want to pick that up, Graham?

It's a bit of crystal balling. But yes, we move as quickly as we can. Yes. And as soon as we have any further clarity, we'll update.

Okay.

With respect to the on-balance sheet question, so it will be similar to a funds platform that's created. We probably will, as Andrew mentioned earlier, earn a little bit more than 50%. So it will still be consolidated onto our balance sheet initially.

Okay. And then with regards to the LTV decrease, obviously, I think currency wouldn't have played a huge part in that. Can you just sort of break down that 23.8% decrease in NAV per share?

Yes. So do you want to take it?

I think we've got that slide in the annexure. Yes, you want to run through, Jen?

Yes. So I suppose there are 2 really key elements when you look at the NAV decline. One is the tangible element, which is probably the first half of the graph, if you look at it across there. Those are really the fair value adjustments on the portfolio. The PEL adjustments are really in line with what we expected in terms of what we put through in the circular. The FX, there was a small element of FX, but most of it was offset because we were hedged. We were 75% hedged on the vast majority of that portfolio. So the leakage was small despite the strength of the rand, and the difference was just the write-down to the lower book value on the 63%. On the 20%, we did hold the GAV value, but we lost the portfolio premium. In terms of the other half of the graph -- so this kind of makes up 13% of the 23% decline. The other 10% is really made up of nontangible items. There were derivatives that were created as part of this, which are highly, yes, the technical IFRS adjustments and noncash. So that was a large proportion of it. There's a small element of mark-to-market on your typical derivatives, but the vast majority of the $960 million is noncash and should reverse over time, hopefully.

So then what are the cap rates now on the PEL portfolio? Have those changed at all?

No.

No. I mean, relative to what we sold at, no. I mean, Paul can give a bit of color as to what he's seeing in Europe from a broader cap rate and yield perspective. Pauly?

Yes, I mean I think it's an interesting question. Certainly from the mid-box logistics market, I mean volumes have held up quite stably. So we're not seeing too much compression or widening on the yields in that space. Interesting to note that we are actually seeing in the light industrial sector, some widening and some reductions on the pricing there. So there seems to be a 2-tier market running between mid-box logistics, which is really what we've got in PEL and the more sort of, let's say, granular asset management intensive light industrial stock. So I think watch the space in terms of us looking at potentially more opportunities in that sector.

Any other questions from the floor? Otherwise, we'll go to the -- I think there's a call in. Okay. We can always come back. Are there any questions from the conference call?

No, sir. We have no questions from the lines. Thank you.

Okay. And then there are a couple here from Nazeem. So I mean, I think the first one here is for you, Graham, from an SA context perspective. Question is, you mentioned that expiring office leases with 5 years or less are showing minimal reversion. Can larger leases that still pose a risk within the office portfolio? And when do these leases expire and the potential impact on earnings? So I guess it's, are there still bigger longer-dated leases still coming back?

Yes. So look, we have got through the vast majority of the very long-dated leases. We do still have a few unexpired 10-year leases coming through over the next 2 to 3 years. But I think it's a story we've told many times. So even leases we've concluded on longer than 5 years in the last few years will come back into a cycle over the next 3, 4 years. And by no means has underlying market rental growth kept pace with that. So we've definitely seen a dampening of it. As you can see, not only just in the shorter-dated stuff, but even in the longer-dated stuff, it's approximately half of what it was over the last few years. So in specific nodes, there is definite rental growth coming through. Is it going to keep pace in the short term? No. Some of those big leases will have decent expiries, probably not dissimilar to what you're seeing today. But we have got through the vast majority of the cycle. And as Andrew alluded to when going through the presentation, we are cautiously optimistic about the general market dynamics. So we think that vacancy will remain stable. Again, I think an important point that is often overlooked in this space is the incentive level that we give. I think we probably are one of the only ones to report it, and that has remained very low. So we haven't tried to buy high rent levels. We show clear face rentals and then we give incentives to invest in the property. And I think if you look at our office portfolio, we've seen very strong reversions in that space. And obviously, you do get some better negotiating leverage on a renewal vis-a-vis an open market new let. So I think that will remain our focus.

I think, Paul, this one is for you, just in relation to the broader Blackstone relationship, PEL, obviously, circa 2 months ago, the launch of Proxity. A question from Nazeem, what are the risks in relation to that relationship given the recent launch of that Proxity platform?

Yes. So I mean, look, I think the Proxity situation is obviously a new strategy that's been launched by Blackstone, very much in line with their continued supporting of the sector. I mean Blackstone, as a whole, have got somewhere between EUR 65 billion and EUR 70 billion of investment AUM in logistics across the European market. So they're by far and away the largest holder of logistics and warehousing assets in the continent. And I think the Proxity position is really just another limb to that holding. I mean there's existing competition from the likes of Logicor, My Way, Indurent in the U.K. and Proxity will be no different. I mean from our perspective, they've very much committed to our strategy of growing the AUM on our platform in PEL, and that's what we're looking to do over the course of the next months and years ahead. So it's really much business as usual. Yes, we have got additional competition to manage and navigate, but that's certainly no different to what it was 3 weeks ago with the other strategies.

I think one key point, I mean, they have recently raised EUR 9.8 billion of capital to go into the logistics -- or not into logistics, into the European real estate space, of which roughly 50% of it is likely to be earmarked for industrial logistics. There was a gear in their funds up and the is gearing in the underlying platform. So it's a significant amount of capital that needs to be deployed. And as Paul said, it's business as usual and the competition was there before. It does also create liquidity in terms of some of the existing funds rolling in and not a bad potential exit for our equity and platform in time to come. So yes, I think as you mentioned also, as we think about building that business, it is important, and we continue to focus on bringing in other partners and other capital. And that was always the intention and will continue to be as we roll both all the strategy out in Europe and right across the globe. I think that's all the questions from external. Any more on the floor? I know that Cheryl has done her best to feed us and there are some cold drinks across the road. So yes, if that's it, thank you all for coming, and thanks to the team. I know getting through results season is quite something. I'm quite glad to have left that behind in my previous life. But a massive performance from the business, from the team right across both South Africa and the globe over the last 12 months and a big thank you from my side. But thanks to everyone for coming, and let's go and have a chat. Thank you.