Delta Property Fund Limited (DLT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Delta Property Fund's Results Presentation for the Financial Year Ended 28 February 2023. I will hand you over to the speakers today, which is Ms. Bongi Masinga, the Interim CEO; as well as Marelise de Lange, the Chief Financial Officer. Before we kick off with proceedings, please note there will be a Q&A at the end of the presentation. Please feel free to lodge your questions as we continue doing the presentation because sometimes there's a lag for us to get them. You can do so by clicking on the questions tab under the logo in the top left-hand side of your screen. I would now like to hand you over to Ms. Masinga.

Good morning. Welcome, everyone, and thank you very much for attending this morning. I am accompanied by Marelise de Lange, the CFO. We present to you today the results. And you know -- and for us, these are results that we have been expecting. They are in line with our expectations, even though it is not the best results that we are presenting to yourselves as shareholders as a result of our continuing vacancies and as a result of the reversions that we had to endure this year unfortunately. The key metrics, our investment property dropped from ZAR 7.9 million to ZAR 6.9 million (sic) [ ZAR 7.9 billion to ZAR 6.9 billion ] as a result of valuation [ write ] markdowns. Marelise will go into detail in terms of that in her report. Our funds from operations equally down to ZAR 0.111 per share. Our sovereign underpin will continue, though we are down from 84.6% will continue to actually go down as we proceed with our disposal program. SA REIT's loan-to-value is 61.4%. SA REIT's net asset value per share also down from ZAR 4.7 to ZAR 3.6 (sic) [ ZAR 4.76 to ZAR 3.64 ]. Though our average collections are down, they were from -- they did come through on a lower base -- sorry, though our average collections are slightly down, but the reversions did hurt us as well in terms of the amount that we actually collected. Our BEE level is a given now, and we hope to continue to be a Level 1, and our interest cover ratio is 1.4x. We do have quite a few properties that are a cash drag in our portfolio. Just as an introduction, just to paint the landscape, we present today our results on a backdrop of reorganizing and repositioning the business. The office market remains very challenging with significant oversupply in the commercial office space. The South African economy and social challenges are mounting, including the prolonged load shedding reality. Our strategy is being implemented with a key objective of ensuring compliance with key debt covenants, specifically our ICR and LTV. Disposals will be done on key strategic focus areas. We had presented in the past that there are some nodes that we'd like to exit out of. We are still continuing with those disposals. Engagement with funders remain a key focus and is continuous. The 2023 results are highly impacted by portfolio valuations, impairments and persistent vacancies at [indiscernible]. The South African National commercial office vacancy remains at over 3 million square GLA at the end of financial year 2023. The improvement in vacancy performance is biased towards your better grades, your P-grade and your A-grade office space. And for us as Delta, we're feeling that competition has a large -- a large part of our portfolio is B-grade building, which is attractive to our sovereign tenants. Our business -- our operational overview. We have seen a reduction in the number of properties from 92 -- I mean, 292 from 99. Post-financial year-end, we further disposed 14,000 square meters, a building in Durban, Greyville, Standard Bank Greyville. Majority of our DPWI leases expired, representing 123,000 square meters at the -- just after the end of the financial year. Leasing and filling vacancies will continue to be a key focus going forward. I'm sorry for my pause. So, [ debtors ] are still aggressively driving collections, a number that I've counted before. We'll get more into capital expenditure and how we are prioritizing specific projects, but a lot of our CapEx is intentionally directed to tenant retention, TI, Schedule C, as well as safety compliance. There is a focused increase in terms of [ diesel ] recovery. Delta's portfolio vacancy increased to 32.9%, and the major contributors to that is we lost Johannesburg Water, which vacated last year December in CBD Joburg, 17 Harrison Street. Harlequins Office Park had 2 tenants and the one tenant, Department of Social Development vacated, which left that building 50% vacant. It is a very good property in a very good note. We have absolutely no doubt that we will fill that, we consider it soon. LexisNexis also excellent building in Durban, the tenant has moved north and our -- and we couldn't offer an alternate building as a lot of our buildings are in the CBD, and Anchor House Department of Education moved out as well in the first stage. Lease renewals for the year amounted to 194,000 square meters. Post year-end, 87,000 of expired month-to-month leases were renewed, which were made up of 17 leases, 6 of which were DPWI. So out of that 87,000, 82,000 were renewed leases with DPW. One is Department of Home Affairs in Cape Town, who have given us a 5-year lease, and why we put the initial 1-year addendum is because when the lease was signed and presented to us, they then ask for additional parking and we thought prudent that we'd rather change the lease and rather than sign and find ourselves them taking more parking, which is not in the lease which we know collection for that would have been a problem. Department of Home Affairs renewed in Pretoria as well for 3 years. Department of Correctional Services in Poyntons renewed in Pretoria for 3 years. NPA in Cape Town renewed for 3 years. Service in Potchefstroom for 1 year. And you will see that in our portfolio, the police as they are supposed to relocate to Telkom Towers in Pretoria quite a few of them, and they are trying to consolidate police into one building in all the regions, we are not likely to get anything more than 1 year. So this 1 year renewal has been going now for the last 3 years. And Department of Public Enterprises is moving to [indiscernible], and hence, they've extended for 8 months or 12 months, sorry, for a year. So -- and there was an additional 13,312 square meters of new leases that were concluded. And the reason why we put that separately is because a lot of those were state-owned enterprises, for example, Transnet, Department of National Development, DTI, et cetera. Just recently, just 2 days ago, we were offered 40,000, an additional 40,000 renewal with DPWI. Just in terms of GLA and vacancy reconciliation taking into account disposals, as I've said, we started in February [ 2002 ] with 99 properties, disposed of 7. We are now left with 92 properties, but of significance is the GLA that is reduced. We were sitting with [ 904,000 ] in terms of GLA. We're now sitting with 804,000 square meters. And the vacancy in GLA at the end of the year was 282,000. So there wasn't much movement because as we disposed, we then received a lot more buildings going vacant as a result of termination of lease. In terms -- just to give a better clarity and overview in terms of operational geographic split, we are still very dominant in Gauteng. It is a node that we intend to also dispose some properties in. KwaZulu-Natal is a very good area for us, even though their vacancies are very high, we are finding now that we are getting a lot more traction in terms of filling some of our buildings. Liberty Towers has become very popular. Embassy Building also become very popular, and we realize that as we did our safety compliance certificates, we put in generators, tenants have been very keen in relocating to those. So we are going to see quite a bit of traction. But Durban for us is a very important node. We know that there are a lot of developments in terms of the waterfront that will be built in Durban. And for us, a lot of our properties are right there along the strip or a street away from the prospective development. Free State, we're definitely disposing and getting out of. But as we are presented with leases, we do sign and we will sell a building under a lease. Limpopo is, at the moment, though very small in terms of GLA, it is actually a very good income generation portfolio for us. So if we can keep and hold on to that one for a very long time, we will. Western Cape, we have about 4 properties, all of them 100% let. Leases have been renewed. Though with SARS in Bellville, we know that they are looking for smaller premises. We are negotiating with them to see how we can better accommodate them exactly where they are instead of relocating them. Mpumalanga is a region we may also get out of. Northern Cape most definitely, Eastern Cape 100% to vacate, and North West, we've got 1 or 2 buildings, and they are on the disposal list. Geographic vacancy, I've already said. Joburg, which is our largest, and Joburg Pretoria or Gauteng, Joburg and Pretoria and KZN, but I'm very confident about KZN in terms of filling those vacancies. In terms of CapEx update, it does remain our main focal point as we try to manage our liquidity and cash flow. ZAR 79 million was spent last year in terms of CapEx project -- another CapEx project in terms of CapEx, merely it was towards TI. We prioritized TI, lease obligations, share certification and most importantly, certification, which is mandatory for transfer in our disposal process. Our CapEx at the moment is funded out of operational cash. Major projects that were above ZAR 0.5 million that were undertaken last year is Poyntons. In Poyntons in the West Building, we have 100% completed the lift upgrade. We are now in the East Building, where we've completed Phase 1, 8 lifts -- sorry, did I say 8 buildings? Sorry. Okay, lifts. So the West Building -- sorry, the West Building, we completed the lift upgrade. We are now in the East Building, where we completed Phase 1, which are 8 lifts. And we now started Phase 2, which is going to be an additional 8 lifts. Ladies and gentlemen, let's also please bear in mind that this project will be ongoing for a while. Poyntons in the West Building -- in the East Building, they do have 21 lifts that we still have to do and complete. But the lift upgrade project is funded by a separate fund that has been forwarded and made available by Nedbank. We've also replaced -- done a replacement in terms of the earth cable for the lifts. Delta Heights, we've spent also quite a bit of money, and all these projects are over ZAR 0.5 million in terms of installation of a heating system as part of their air-con systems. Hallmark, we've completed the replacements of their carpets from ground floor all the way to the top floor. Parkmore, which used to live vacant is now 50% tenanted. And there we've done in the one building, where we have put in tenants, we've put in -- we've upgraded the air-cons and the fresh air as part of that air-cons. Azmo Building in Polokwane, we have done also ablutions upgrade, [ 884 ] Street in Pretoria -- I'm sorry, [ 884 ] Street in Durban. We had to replace a whole Chile unit, which broke down during these heavy load shedding, which in Durban, we are experiencing a lot more than in any other province. The Marine Building we have, which is receiving a lot of attention in terms of filling of vacancies. The Marine for us does house the premier and all our buildings are just around the Marine Building. We've done the upgrade in terms of the 4th floor and the 10th floor where the premier sits, and there have been some civil works that will be supported by proper certification in that building. Fairweather, we've done a replacement, the whole roof needed to replace their trusses and the sheeting on top. [indiscernible], we've had to put in -- there was an oversight, I think in the past, the lease actually did require a standby generator and we only had one generator. There we had to put in an additional standby generator. SA Eagle, we replaced flooring, which that project is completed, and Commission House, we completed lift upgrades and yes, lifts upgrade. Thank you. So our geographical split, what I've just told you in terms of the CapEx upgrade, you will see them, but a lot of effort has been put in Limpopo 7.9% and especially, KZN. Limpopo for us is a cash spinner. KZN is a region that's showing a lot of growth. Now probably, ladies and gentlemen, this is the most important part of the presentation because it looks to going forward, what is going to be our strategic intent. And that is asset disposal to accelerate the rate of disposals, disposing of assets that are cash drag part of our vacant properties, the line the vacant, and there are a huge cost in terms of our cash flow. Reduction of debt to reduce the amounts that we paid towards interest. Marelise will touch on those numbers, but just last year alone, I know we paid close to ZAR 0.5 billion in terms of interest alone in service and debt. Improvement of our weighted average lease expiry, we're looking at a targeted focus in terms of renewal of leases, but not renewal of leases in terms of government, but also filling vacancies, and SOEs have become a very strong target for us. We are getting traction in terms of getting them into our portfolio. And we do find -- and I'm not criticizing DPWI at this point, but we do find that SOEs, their processes are quicker, their processes don't -- negotiations don't last too long and most importantly, they allow us to generate a lease. For example, we are putting in 4,000 square meters of the Competition Committee in one of our buildings in Pretoria [ Block G ]. Our other main focus is ICR and LTV, which must be brought in line with covenant requirements. Our vacant properties, as I've said, are costly, and our vacant properties are also impacting negatively in terms of our valuation. We are looking in terms of retention of our ICR in our accretive properties. So just to maybe say a bit about ICR. So the assets that we've identified and that I've stated as having a cash drag on us are all the assets that have an ICR of 1.3x and below to negative. And any property that has an ICR of 1.4x and above, we will not be disposing, we're hoping to keep as a part of our core portfolio, but then again, negotiations sometimes will go. So we say that, which is our intent, but negotiations in terms of our disposal may guide particularly that outcome. And to continue with disposals, which is our key focus area. So we've intensified the disposal program. So just to give highlights. So relative to [ 2002 ], we just sold 1 asset. In this financial year, we sold 7 assets. Going forward, we have identified 43 assets that we would like to dispose within financial year 2024. And we continue to dispose those properties that are nonstrategic in regions that we find we would like to exit out of. And I know the question that you will ask is, so where are we finding these buyers? Part of it is we are not looking for because of the state of our portfolio and because we do hold a lot of big great buildings, some of them have laid -- were acquired vacant. So you can imagine the state of those properties today. We are strategically and purposefully targeting those partners who want to do conversion, not those who think they can buy our properties to continue in terms of commercial office-based rental because we would have to then have to give those up for a huge discount, and we are very cognizant in terms of value to shareholders and in terms of release values in terms of debt for our funders. And just as a number, properties with a market value of ZAR 2.04 billion are identified for disposal in this financial year. We have one property, as I've stated previously, already transferred. And there are a few number of other properties that we are looking to dispose, which are in the almost near logic and almost transfer state -- transfer stage. Some of them we've already announced with an aggregate book value of ZAR 245.9 million. That's just to give color in terms of what I've been saying, and you'll see that we are really focused, and we are showing these numbers because we do want to be tracked. The Board is very clear. They will track this. And so we do have our KPIs all lined up -- or anyway, my KPIs are now all lined up. And in order to achieve our targets in terms of the disposal program, we have expanded the number of our sales channels, looking particularly as well in terms of digital sales platform. We have a formulation of a super broker network, which is highly incentivized, but also allows some competition amongst each other. Internal resource capacity has been enhanced. And we are evolving more into efficient transaction review approval processes, and we do meet frequently twice a week just to look at disposals. And having said that, we're not also forgetting the fact that we do have vacancies that we need to attention. The redirection of CapEx is towards also the enablement of sales. And I think I did say it, achieving compliance certification such as ECOCs to ensure that we complete the transfer of properties. And I think this you'll probably spend time looking at. That just gives an update in terms of geographic split and where our disposals are likely to come from. Thank you very much. I complete my part of the presentation. Marelise?

Thank you, Bongi. Good morning, ladies and gentlemen, and welcome to our presentation. In terms of our financial numbers, you will see that our rental income, including our recoveries have decreased from ZAR 1.38 billion for the year in 2022 to ZAR 1.229 billion in the current financial year. That's a 11.5% downward trajectory for our revenue. And that is mainly as a result of reversions that we have experienced in our portfolio. And it still goes hand-in-hand, as Bongi said previously, with some of our vacancies that we do experience in the property as well. Our net property income similarly decreased from ZAR 910 million for the year to ZAR 746 million for the year. And again, I think when you look at that and you also look at our next one which talks about our finance costs, which increased from [ ZAR 288 million ] to ZAR 452 million. That's the main drivers for, firstly, having a look at our funds from operation decreasing from ZAR 0.3691 to ZAR 0.111. It's mainly, as we said previously, it's the drivers around that is as a result of the revenue decreasing as well as our interest cost increasing substantially. You'll also see that our finance cost driver similarly follows what we saw in our prime rate increase, and the prime rate since Jan last year increased to 4.25% for the year. Our SA REIT cost-to-income ratio is 54.3% versus 48% in the prior year. And a big driver of the increase there is slight increases that we have experienced in the operating expense side of things, but the main driver is the fact that we have vacant -- a rather large portion of vacant properties of 30-odd percent for the period, and that increased our cost-to-income ratio as well to the same degree. SA REIT administrative cost-to-income ratio, something we have not done before, and we're showing, it's 7%, which you take the administration cost as a total of the revenue and an increase from 7% to 8.9%. Main drivers there is the administration increase that we have seen in salaries as well as in some of our other aspects such as legal expenses and professional fees. Our investment properties increased from -- or decreased from ZAR 7.8 billion to ZAR 6.9 billion. The main decrease there as a result of revaluation that we find. Now we have decreased already valuations in August by around about ZAR 350 million, and we've now taken it further. So in totality, we got to a revaluation of ZAR 833 million for the year. And I think our main drivers around the revaluation is it's definitely the vacancy factors that have increased. So in some of our properties, we have increased our vacancy factor as well as the reduction in rental that we have seen come through from the market. Then our investment in listed securities, that is our investment in GRIT that we found. And then that came down from ZAR 110 million last year to ZAR 91 million will be on now. And the main driver for that is there's firstly, a decrease in the share price for GRIT from ZAR 0.48 to ZAR 0.34. And then that was counted, however, by the exchange rate that came from ZAR 15.55 to ZAR 18.60 for USD 1. Then our interest-bearing borrowings that came down from ZAR 4.5 billion to ZAR 4.1 billion. And the drivers around that is we have disposed approximately just over ZAR 210 million or ZAR 210.9 million for the year in terms of disposals, and those cash were directed directly to our investment -- to our funding and a further ZAR 147 million for the year was then spent in -- from operational cash towards amortizations. During the year, you'll find that we have decreased amortization from approximately ZAR 18.6 million on a monthly basis to approximately ZAR 7.1 million. Our SA REIT loan to value went up from 57% to 61.4%. And again, the driver is mainly our ECL provisions that we have, as well as our fair value adjustments that actually had an impact on our portfolio, and as a result, had an impact on our loan to value. Our weighted average cost of debt, that is a direct result of the increase in interest rate went from 7.4% to 8.8%. We did not increase any of the hedges that we currently have in the portfolio. We have ZAR 1.86 billion as a notional in terms of hedges that we have. And as a result, we found the direct translation then of the increase in interest rates in our finance cost and the weighted average cost of our debt. So, you'll also see that our weighted average expiry period that we have left on our facility is 0.5 years. And I think we'll unpack that a bit later when we get to the debt slide. But yes, we have 0.5 of a year, so half a year in terms of what we've got left in facility period. Our average debt expiry period -- sorry, our debt fix expiry period in terms of our hedges at 0.8. So, we do have some of our fixes that actually do fall away, run about August this year, and then some of them will continue for another year. Our fixed versus floating increased from 40% to 44%, but that is as a result of the decrease in our underlying portfolio of debt that we have from ZAR 4.5 billion to ZAR 4.1 billion. Our SA REIT net asset value per share, that came down from ZAR 4.77 to ZAR 3.64. And the main drivers, obviously, for the NAV is the valuation that we have seen in the portfolio. So some of our performance numbers. We just spoke about that, that our SA REIT loan to value, 61.4%, went up from 57%. That is something that we certainly are targeting to bring down and especially with the disposal program that has been earmarked that will definitely -- it's targeted to bring that number down as well as bring the ICR, which is a 1.4x at the moment, back in line to 2x in terms of our covenant ratios. Our average cost of debt we just spoke about, that is the 8.8% compared to 7.4% for the prior period. And then our net SA REIT funds from operations, the number, the net number that gives us ZAR 79.4 million compared to ZAR 263 million of the prior year. And this is now quite evident where you can see the drop in terms of rental income as well as the increase in interest expense that we've experienced. In our statement of profit and loss and other comprehensive income, I think we touch on it again, just shows again from here that we see the rental income going down from ZAR 1.38 billion to ZAR 1.22 billion. Property expenses similarly, ZAR 571 million in the previous period, include our doubtful debt allowances as well as our write-offs, whereas in the current year, we moved that to our ECL allowance line so that we can actually have all of those provisions on the same line. You'll see from our other income, it was ZAR 6.7 million. It was higher than our prior period of ZAR 1.2 million. Our dividend side of that came down, came down from ZAR 9 million to ZAR 5.1 million. We did receive a dividend post year-end, and that dividend pays directly into our facilities with Investec. Then gain on our foreign exchange movement, ZAR 15.7 million, and that's as a result of our investment in Grit. We have spoken about the admin expenses increasing from ZAR 97 million to ZAR 109 million. And then, I think the big driver in most of what we see in our LTV and our decreases in our portfolio is as a result of our fair value adjustments. We have seen the ZAR 812 million, that's a makeup of both our investment property, our derivatives, as well as our investment in Grit. That takes us to a loss from operations of ZAR 226 million compared to ZAR 321 million of the prior period. Our finance costs, as you can see, an increase from ZAR 411 million for the year to ZAR 457 million for the current year, and interest income came down from ZAR 23 million to ZAR 5.5 million. The main driver for that interest income coming down is that our government portfolio that we run in terms of tenants did not pay interest on late payments, so -- that we've cleaned out our book at this point in time. And then we only see mainly interest income from other tenants in our portfolio. We also have had -- with a focus of collecting arrears, we've seen a lot of that come down as well. Tax decreased from 81% to 71% for the year, bringing our loss for the year from ZAR 149 million in the prior year to ZAR 749 million in the current financial year. Our funds from operations. This is a good way to show exactly what is our cash balances that we -- our cash that we actually generate in the fund before we -- when we start taking out all our fair value adjustments so that we can get to our funds from operations, which is normally the distributable income. So, we start with our loss for the year of ZAR 728 million, which was ZAR 144 million in the prior financial year. When we start stripping out our investment property fair values, you'll see that, that was ZAR 833 million for the current year and in the prior year ZAR 428 million. That also takes then our derivatives into consideration of ZAR 35 million, as well as that of the Grit shares that we have. We then also further remove our depreciation that we have, as well as our ECL provisions on the financial guarantee. So, we do have a guarantee that we have provided to Grit. So, we take that into consideration as well. And then for the first time in this year, we have created deferred tax, which we did not have in the prior year. And that number is ZAR 8.6 million. That takes our loss of IFRS accounting specific adjustments into consideration, taking us to ZAR 880 million for the year. Then we start taking out our investment property or our property, plant and equipment, which we don't have in that period, and then our foreign exchange and hedging activities taking into account and that is on our derivatives as well as on our foreign exchange that we had in our Grit investment. So that takes us down to our funds from operations for the current year of ZAR 79.4 million compared to the ZAR 263 million. So when you actually work it back the other way around as well, you'll see that the main driver for this is your reduction in revenue as well as your increase in the interest income. That takes us then to our SA REIT funds from operations per share from ZAR 0.369 to ZAR 0.111. This is our graphical representation from our funds from operations. So it will actually show that we start with the ZAR 263 million for the year, ending with the ZAR 79 million for the year. And the main driver is definitely our reduction in our bad debt write-offs that we had as well as, again, the reduction in the doubtful debt provision that we had from the prior year to the current year. Our rental reversion is the main component of [ ZAR 114 million ], bringing it down. And that also you need to take into consideration the additional interest that we had, as well as the reduction in recoveries as a result of increased vacancies that we have. When we go to our statement of financial position, you will see on our statement of financial position that our investment property came down from ZAR 7.16 billion for the year. And that is the core portfolio that we have on that side. And then we indicated separately to that, the non-current assets held for sale at ZAR 838 million compared to ZAR 787 million for the year. In that number already are 7 properties that we have disposed during the year. So therefore, it's slightly increased from the previous year to where we are now. Our investment, we spoke about the investment in Grit from ZAR 110 million to ZAR 91 million, and then the rest of our current assets remaining is ZAR 192 million compared to ZAR 354 million. And the main driver in that number coming down is the trade and other receivables that we have in our book. So that came down quite a bit. We've managed that to come down in the current financial year. When we look at our non-current liabilities, our short-term portion of our non-current liabilities decreased, and that's the number that we would love to see increase with extending our term of our facilities. And you'll see that the short-term portion, which is the current liabilities of interest-bearing borrowings increased significantly from ZAR 3.1 billion to ZAR 3.2 billion. And that, again, is the portion that we would like to see decrease in the future moving back into our interest-bearing borrowings as a long-term portion. And that takes us to our total assets as well as total liabilities of ZAR 7.2 billion for the year. When we go into our valuations specific -- and I think there's going to be a lot of questions as to why did our valuations come down to the extent that they have with ZAR 833 million for the year. And the main driver is, again, it's the vacancy factor that we have experienced in the fund. Our vacancies, especially in some of our properties have been persisting for quite some time. And as a result, our vacancy factors in those properties, in particular, have increased, and that led to some of our properties having a larger devaluation is what we have experienced in the previous financial year, as well as some of the lower rental that we have seen come through, especially in terms of reversions that we've seen. Our independent valuer panel remain as CBRE Excellerate, Real Insight, Real Worx and DNA. We previously had 2 additional values being HD as well as JLL. JLL does not take on any further valuation assignments and therefore, they will not continue on our portfolio going forward. And HD and DNA have merged as one company, so we will retain DNA on our portfolio. Our valuations do rotate on a 3-year cycle with our valuations as well. So, we'll also do that similarly with our independent valuers to rotate the properties that are allocated to them. And then just as a closing remark, we still continue to utilize the discounted cash flow method, as well as the capitalization rate method in terms of valuing our properties. Coming on to our debt funding. So as we said, we've decreased our interest-bearing borrowings to 7.7% from ZAR 4.5 billion to ZAR 4.2 billion. We have repaid debt to the extent of ZAR 352.8 million for the year, and that was made up of ZAR 208.9 million that was paid from disposals of properties and then ZAR 143.9 million came from operational cash. We have spoken about the reduction that we've seen in our monthly amortization that we paid to our funders from approximately ZAR 18 million down to ZAR 7.1 million. Our Standard Bank facility still has 21 months remaining on that facility until 30 November, 2024. We are currently in our negotiations with Investec to finalize on the extended facilities. Our facilities, they are split into 3 facilities. One of them will be extended for 18 months, and 2 of them will be extended for 24 months. That will mean that our interest-bearing borrowings in the next period will move into the non-current portion for Investec. Our Nedbank facilities, we currently engage in for further extension. We currently are extended until the 21st of June. And then after that, we expect to have a longer period in terms of our Nedbank facilities. So, we're quite focused on trying to get that facility moved from our current to our non-current portion. Our margin did decrease in the current financial year from 3.5% to 3% as well. Our Bank of China facility, it's a bilateral facility and that has been extended. Still has 46 months left on its facility on 31 December, 2026, and our syndicated facility was extended until 31 December, 2023. Our State Bank of India facility is a syndicated facility with Nedbank, and that still has a remaining period of 15 months left until June 2024. As we indicated, our SA REIT LTV is 61.4% from 57%, and it's due to the further devaluation that we have seen in our portfolio, and it's slightly offset by our debt reduction that we have seen up to ZAR 352 million for the period. Our debt summary. So, we just indicate here where you can see that our debt have decreased from the various funders from Nedbank from ZAR 2.9 billion to ZAR 2.7 billion, our Standard Bank from ZAR 807 million to ZAR 700 million for the year, Investec from ZAR 737 million for the year to ZAR 622 million, Bank of China from ZAR 149 million to ZAR 123 million. So, that's indicative of how we actually had amortizations in those facilities, as well as how the disposals have been decreasing those facilities that we have, taking us to ZAR 4.5 billion for the current year to ZAR 4.96 billion. Then we take our accrued interest and structuring fees into consideration, bringing us to a balance of ZAR 4.193 billion. Against that, we hold swaps of ZAR 1.86 billion as notional, and that takes us then as a percentage of fixed versus floating of 44.3% versus 40.9%. In this slide, you'll also see that our average debt went from 7.4% to 8.8%. Thank you, Bongi.

And to conclude, since late 2020, the fund has been continuously refining its short-term and medium-term strategy. We believe we can execute on the disposals for the next, let me say, 24 months being the extreme, but we are targeting 12 months. We want to ensure that we are within our debt covenants. We will focus on ensuring efficiencies, improving profitability and most importantly, paying a distribution back to our shareholders. To recap our priorities, it's asset disposal, reduction of debt, improvement of our weighted average lease expiry, our ICR and LTV to be brought within covenant agreements and retention of our ICR accretive properties. Ladies and gentlemen, that does conclude our presentation. It is now time for Q&A. And thank you very much.

Thank you very much, Bongi. I've received quite a number of questions from [ Kevin Dodd ] and [ Terence Hill ] as well as from Afrifocus Securities. I'll read them out all of them together. Kevin and Terence both asked the same question to start off with. Kevin is saying, when do management expect to resume dividends? What year? And Terence is saying, is there a view on when distributions to shareholders may begin again? Or is this not on the cards in the foreseeable future?

So -- and hence, we've given ourselves a target of 12 months to 24 months. We're not quite articulating it like that. But for us, what's most important is what I have articulated in terms of what we need to get right. At the moment, banks have a sweep. So any cash that comes in goes directly to banks. And if you -- I suppose if you heard some of the numbers that the CFO actually articulated, we are paying a lot -- or we have been paying a lot in terms of amount. We have been paying a lot in terms of interest payments. And once we get our LTV, our debt into properly acceptable levels, then we do have excess cash flow and that excess liquidity we are hoping to start and give back to our shareholders. I hope that answers your question.

Then Terence also asks, is residential conversions of some buildings being looked at, and is that a potential value unlock? If you could respond to that one, please?

So as a fund, we don't have the expertise in-house to do residential conversions. So when I speak to non-traditional buyers, we are actually looking to sell to those buyers. We're willing to entertain, I suppose, a structure where if they would like to get into some sort of SPV with us, we do conversion, we stay on straight after that, then we exit for better value. Those we will consider. But in-house, we are not looking to turn some of our portfolio into residential going forward.

Then Terence is also asking, is there a renewable strategy for electricity generation?

I suppose -- I suppose for us, the biggest challenge that we have is our buildings. They may be large in terms of GLA, but they're also very, very tall structures. So to look at example, solar, the floor plates at the top of our buildings is small. It really cannot be 100% supply in alternative energy to the building. And that is why a lot of our buildings we've got generators. Some tenants are asking for standby generators. Some buildings we've got more than one generator for multiple tenants. We've got more than one generator in a building to service varied tenants in that building. So renewable for us in the short term not really -- we may have 1 or 2 buildings where that will work, that are a bit flat in structure, for example, CCMA in Polokwane, very flat structure. But other than that, a lot of our buildings are going to lend themselves to solar.

Kevin Dodd is asking on completion of the disposal of 43 properties in FY 2024, how much debt will Delta have?

Marelise?

So, I think -- so to be honest with you, that will depend on achieving our set out values that we have for those properties. When we look at that, initially, we will probably be definitely at the levels that we intend to be in sort of 50% loan-to-value. So that will give you an indication. But at the same time, I mean, the absolute number, that I can't, at the moment, venture into what that number would be. But definitely, our intention is to be at the 50% or lower level in terms of LTV at that point in time after the disposal of 43 properties.

And he's also asking disposal of those 43 properties. What do you expect the income from those -- from operations to be, once those have been disposed of?

So, I think we have quite a cash drag in terms of our vacant properties, and it will definitely start taking some of that away. What is important for us is that once you start looking at our interest that we pay at this moment at an 8.8% average rate, disposing of that assets and again, it will depend on what we're going to get for those assets and at what value. And we're targeting getting it at least at valuation or higher. We will have quite a significant saving in getting down to an LTV of 50%. There will be a significant saving on the interest side of it, as well as on the cash drag on the net property income side. Again, we're not giving forecast at the moment in terms of what those numbers are. But I can tell you that it will be definitely be positive for the fund and accretive in terms of getting us to the levels where we want to be.

Then Zinhle Simelane from Afrifocus Securities asks, in terms of the disposals concluded in FY '23, were these concluded above or below book value?

So, we had some of them slightly below book value. Majority of them have actually been in line with book value. So, I think we've done quite well in terms of where we are or what we have from those assets that we have disposed, pretty much in line with where we are in value.

Then Zinhle is also asking, have you concluded any refinancing in FY '23? How much of debt is expiring in FY '24? And what is the strategy around refinancing or repayment of this?

So especially when you look at our slide on the debt funding, Standard Bank is still at November '24. Investec have renewed then for 18 and 24 months after that. And then we have our largest funder being Nedbank that is on short term at the moment, and that is the one that we are looking at renewing for a longer period. There's -- we have been on short term with Nedbank for quite some time. But that is -- and I want to categorically state that Nedbank is a very good supporter of Delta and have been supporting us for quite a long time and have also been renewing our facility for a continuous period. And we are looking forward to seeing whether we can actually extend that facility for a longer period.

Then Terence Hill is asking what interest rate is currently on the table with the banks for expiring debt?

So, we remain on similar terms at the moment on -- our Standard Bank and Investec have already been concluded. Standard Bank, we have -- if you look at our financial statements that we published, that is pretty much on the JIBAR plus. So, I think it's 2.65% and on Investec, we are on Prime. And then on our Nedbank facilities at the moment, we've indicated a 3-month JIBAR plus 3%. So that is where we are with those facilities, and we expect to be on a similar level going forward.

He's also asking, please confirm the total asset tax loss available to offset future tax profits.

There is no tax loss asset of future tax profits.

Then maybe more of a technical question. Terence is asking in terms of load shedding damage, have surge arresters been put in main -- sorry, in terms of load shedding damage, have surge arresters been put in on the main electrical income? It's not a large cost, but it should reduce electrical surge damage.

I'll reply if there is hope so. I don't know.

We need to -- we will come back to answer that.

And then a final question from Terence is, if the sovereign underpinned reduces, what is the expected rate of reduction per annum and which tenants are being targeted as alternatives?

Yes. Okay. So tenants as alternatives, we are looking, as I've stated in my presentation, state-owned entities who are coming forward. The processes are simpler. They are allowing us to draft our own lease. So definitely, alternatives we are looking at state-owned entities. We are looking to reduce sovereign. But I must also state that sovereign has been good to us. Even during COVID, they paid. Even currently, they are paying. We may have issues in terms of renewing leases. But once a lease has been renewed, they are paying. So, we will find the lending in terms of that. And I think once we are also doing disposals, there are lot of moving parts there because it depends on how negotiations are going, what do we ultimately agree on, are we talking a portfolio sale? And at the moment, some people are looking for 4 properties at a time. And so -- but I mean, I don't think we'll continue to be such a hugely weighted sovereign fund.

Then a follow-up question from Zinhle is what is the total reversion as a percentage?

I would need to come back to Zinhle on that. When we just look at the revenue in itself, the conversion was -- it was 11.5% in terms of revenue. On a like-for-like basis, we would need to unpack that number. I do apologize, I don't have it right with me at the moment.

Thanks. Thank you very much, Marelise. There are no further questions. I think that concludes our presentation for today. Ladies and gentlemen, a copy of the presentation will be available on the website later on today. And please feel free to reach out to us if there are any further questions. Thank you very much.

Thank you. Thank you, Morne.

Thanks so much.

Thank you.