Dipula Properties Limited (DIB) Earnings Call Transcript & Summary

Good afternoon. Welcome to the Dipula Income Fund 31 August 2020 Year-end Results. We are presenting from our head office in Johannesburg. So typically be the case, I'm accompanied by our CFO, Ridwaan Asmal. He will do the first part of the presentation. And I'll then do the last 2 parts of the presentation. This is a bit of a departure from our normal presentation style. We welcome you all. Thank you.

Thank you, Izak. I'll take you through the financial section of the presentation. Just going through the first slide, key corporate information. I think it's for shareholders to note the key takeaways of the fund. And then moving on to the financial highlights section. We start at revenue. Revenue for the year was ZAR 1.2 billion, a decrease of 3.1% on the prior year of ZAR 1.3 billion. Distributable earnings for the year, ZAR 447 million, decreased by ZAR 64 million from the previous year's ZAR 511 million, which is a 12.4% decrease in distributable earnings. And we'll go to more detail, and I'll take you through the reasons for that decrease of ZAR 64 million. On the investment property side, we're quite pleased to note that we've managed to maintain valuations. There's a slight decrease in valuations, with total valuation is ZAR 9.1 billion. In the prior year, we reported ZAR 8.9 billion. Number of properties at the end of August was 190 properties in the portfolio. And then maybe just to talk about the valuation process, we basically appointed 4 independent valuers to conduct the valuations across the portfolio. In terms of our policy, all properties over ZAR 12 million are valued by independent valuers annually. And on the remaining -- and the properties below ZAR 12 million, 2/3 are valued internally in 1/3 of the portfolio is valued externally. Just to give you some idea of the quantum that was internally valued for the year, it amounts to ZAR 640 million of the ZAR 9.1 billion or 7%. So 93% of those properties were valued by external independent valuers. On the interest-bearing liability side for the year, we closed at ZAR 3.5 billion compared to ZAR 3.7 billion in the previous year, which is a decrease of 3.2%. Then just moving on to the distributable earnings per share. We obviously released our results yesterday, and we advised the market. We put out -- we released the distributable earnings per share figures, and we advised the market that the Board has effectively deferred the decision on the payment of the final dividend and interim dividend for the financial year 2020 to February 2021. So the figures that we reported now are the distributable earnings per share numbers. On a combined basis, the distributable earnings per share ZAR 1.6895, which is 12.4% decrease compared to the previous year. The A share receives -- The A share distributable earnings per share is ZAR 1.149, which is 3.8% growth on the prior years. And for those that are not familiar with the -- we have these 2 classes of share, the A and the B. The A has a preferential right to distributions in terms of the distribution policy and how the distribution is calculated, it works out on the lower of CPI or a lower 5% of CPI. So that's how the 3.8% increase was calculated. And then on the DIB share, we closed at ZAR 0.4446 on the DIB share, which is a decrease of 34.2%. And obviously, due to the leverage effect because the distribution increases, the B's, obviously, distribution is the average. That's the reason for the 34.2% decrease in the B share. Then just to note, the discounts to NAV, the NAV per share is ZAR 10 for A and for the B. And at the end of August, the combined share was trading at a 66% discount to NAV. The DIA, 44% discount to NAV and DIB, 88% discount to NAV. And moving on to the distribution statement. Of the rental revenue, rental and recoveries, excluding straight-line income. For the year, we effectively own ZAR 1.248 billion, which is a 1% decrease compared to ZAR 1.26 billion or that's the contractual revenue and recoveries. And it's just a quick calculation, the reason for that decrease of 1% is during the year, we passed rental discounts during the lockdown period of COVID-19, discounts of ZAR 43.6 million. If we exclude that -- if we add back those discounts to the current year's base, the revenue for the rental and recoveries for the year would have increased by 4%. So I think that is the main reason our now rental income basically declined. Then just on other income, we -- effectively, in the previous year, we had ZAR 27.8 million of nonrecurring income. In this current financial year, there's no nonrecurring income. So that's obviously why there's a 100% decrease in the other income. On net property income, we closed at ZAR 807 million. And I think the only I just highlight on the property expenses is we raised a bad debt provision of ZAR 11 million for this 12-month period compared to ZAR 4 million in the prior year, so there's an increase of, what, ZAR 7 million. That's the only main -- that's the main reason for that increase. On the administration and corporate costs, we increased from ZAR 33 million to ZAR 40 million. Main reasons being additional legal cost, obviously, with the COVID-19 lockdown, there were substantial discussions with attorneys. Finalizing our legal position, legal cost, there was additional consulting fees. We worked in previous transactions, and there were some costs there. And there's about ZAR 2 million of cost for share-related expenses related to IFRS 2, but those are not payments, it just amounts that we provided in terms of the IFRS 2 standard. So net operating profit of ZAR 766 million for the year. Net finance cost decreased from ZAR 380 million to ZAR 292 million. Main reason being the, obviously, increased rate -- interest rates declining during the year. And because we didn't pay out the interim dividend for -- in June, we added cash that we obviously have retained. So obviously, we managed to reduce our interest payments on due because we had that extra cash we retained. The distributable earnings effectively arriving at ZAR 447 million for the year. So I think just in summary on the distributable earnings figure, the decline from ZAR 510 million to ZAR 447 million, to add back the rental discounts, I mentioned the bad debt provision that I discussed in this one-off income we had in the previous year, the combination of those amounts equals ZAR 78 million for the year. So that 447, if we didn't have those 3 items, would have been -- distributable earnings would have been ZAR 525 million, which would have resulted in the 3% growth. So I think in summary, it's purely because of mainly because of those 3 items, we had this 12.4% decline. The distributable earnings, A share and B share, I mentioned earlier, so we're not going to go through that. Property cost-to-income ratio, 34.7% compared to 32.6%. Net property cost-to-income 19.7 compared to 17.1. Just the other item to touch on is on the utilities. Obviously, the utilities expenses and recoveries being a major component of our property rental business. I think we're pleased to note that we managed to maintain 3 business' efficiencies and recoveries, and we're happy with the recovery percentages on the utilities, but it remains a key focus area for management and the team. Then just moving on to the sectoral performance. I think we -- on the rental income, retail, 65% in offices, 20% and 15%, net property income, 62%, 20% and 18%. We're not going to go into too much detail. You can see from the graph, percentages are very, very similar to the prior year on rental income, property expenses and on the net property income lines. And maybe just turning to the statement of financial position. On the investment properties, we mentioned we have a ZAR 9.1 billion portfolio. The only amount to note on that ZAR 9.1 billion, there's ZAR 82 million that we have in this financial year, which we don't have in the previous year. That ZAR 82 million is because of the IFRS 16 right-of-use asset that we had to account for during this financial year. The loans receivable, we have ZAR 206 million at the end of the year. We've assessed those loans. We've just a note to the market. I mean, we're comfortable. There's no impairment on any of those loans. They were quite reputable organizations, and we have additional security in terms of properties and mortgages. So there's no impairment on the ZAR 206 million that's all in place. Intangible assets, ZAR 37.5 million. The ZAR 37.5 million comprises the amortization of that intangible asset where we acquired -- Dipula acquired the management company in on the first of September 2017. So annually, over a 4-year period, we amortized this ZAR 37.5 million. So there's basically 1 year left, which is next year, and then the intangible asset will basically go to 0. Total assets, including all the non -- the current assets, ZAR 9.5 billion, which is very similar to the prior year. Then on the interest-bearing liabilities, I mentioned ZAR 3.5 billion, but I'll go into more detail on the debt in the next slide. Lease liabilities, ZAR 110 million, we didn't have in the previous year. That's related to IFRS 16 again, which we accounted for this year. And I think this is the most material movement on the liability side being the derivative liabilities of the swaps increasing from ZAR 37 million to ZAR 145 million, due to the interest rates, obviously, declining the mark-to-market values on the swaps increased in favor of the bank. So we're carrying ZAR 110 million on our balance sheet as a liability. Loan-to-value. I think we're pleased to note with loan to values decrease on the prior year or from 40.4% to 38.9%. And our net asset value is ZAR 10 per share for each class of shares. I think that's under financial position. Then looking at cash flow for the year, I think the graph clearly illustrates the movements. I think the 2 material items to note is on the dividend paid. In the previous year, we had ZAR 571 million because we obviously had a 12-month dividend payment. In this year, we've paid ZAR 280 million. That would be the final dividend for the previous financial year. It was paid -- amounted to ZAR 80 million. On the acquisitions and CapEx, we have ZAR 128 million, split in that being ZAR 72 million we spent on the acquisition of our 40.1% share in the Palm Springs in Cosmo. And ZAR 46 million incurred on normal CapEx for the portfolio. Debt funding, we repaid ZAR 228 million into our revolving credit facility. So that's the main reason for that interest-bearing liabilities decreasing from ZAR 3.7 billion to ZAR 3.5 billion, and we're holding ZAR 49 million worth of cash at the end of the year. Just looking at the debt profile. I think the graph illustrates our debt profile facilities maturing in each financial year. In the hedging we have in place on the debt. On the -- focusing on the FY '21 financial year we're in, there's 24.8% of the facilities expiring or equating to ZAR 928 million. And I think we're pleased to note that of the ZAR 928 million, there's ZAR 792 million that matures in the short -- within the first 6-month period. And we currently finalize in terms with the banks. I think just to note that the banks obviously just refinance, they've performed a much tighter review of the valuations, looking at the business, understanding the business. So I think those -- that ZAR 792 million is close to being finalized. We're just negotiating final terms of them and they need final credit approval in certain instances, but we're looking to -- for that ZAR 792 million, we're looking at negotiating between 4- to 5-year terms with the banks, which would effectively take our profile -- extend that profile to the 2025, 2026 year, which would result in each about 20% to 25% of our debt maturity. So I think we advanced in those discussions. And I think just to note, our relations with the banks are quite good. And I think -- I don't think there's any concern from our side that those amounts won't be refinanced. Just a matter of securing the best possible terms for Dipula. I think on the debt hedge side, at the year-end, we're 68% hedged. Previous year, we're 87%. We continuously monitor the swap hedge market to see what rates are available. And we adopt a very flexible and dynamic approach to decide exactly what we need to hedge out. So I think at this point in time, we're comfortable with that roughly about 2/3 of our debt being hedged. And 1/3, we're obviously benefiting from the lower drive-up interest rates out in the market. Yes, I think that's all from me on the financial side. Thank you.

Thanks. I'll now take you through the sort of broader business aspects. Just to sort of start, I mean, we set a few objectives ourselves in 2019 for 2020. We normally sort of choose 4 or 5 key things that we'd like to achieve in a year and obviously, when we set these objectives, we were living in a different world. Things change very quickly. I mean, I think that when we all heard about this coronavirus late last year, sort of breaking out in China. We thought this was so far to move from us that we'll probably never see it. I remember my daughter's friend, left school, Chinese friend actually moved to China. My daughter's all worried about this thing. We didn't actually know what the lockdown actually means. She phoned her friend. And we thought some -- it was quite a straight phenomenon. So we hold it in like February and March, we're sitting in the same position as what our Chinese fans were in, and they were kind of almost getting out of it. But be that as it may, I think when you look at the set of results and you look at our business as it stands now, we believe that we've done very well with the things that we control. And all of the things outside of our control, obviously, outside of our control and they've affected our performance. But obviously, as far as I'm personally concerned, we're running a business here for the long run. And I think we'll always do things in this business that speak to that long-term sort of picture and objective. So COVID this year, hopefully not going to be here forever. But whilst COVID is happening, we're refining our business. We're getting better at the things we're doing. We're learning a few more new things, and we plugging the holes and the gaps where there might be issues in our business models. I think the 1 other thing that we've also learned about COVID is that it's actually brought forward some demises and failures of businesses that probably were a little bit sick to start off with. I think in sort of analyzing our business a bit, we're very confident that our focus areas and the strategy that we've chosen for the business is definitely the right one. And I think we'll continue to build on that. If you look at our objectives for 2020, we wanted to grow dividends. And I think as Ridwaan sort of stated earlier on, we could have grown dividends. Had it not been because of these, hopefully, one-off issues related to COVID. The other thing is that we were looking at improving the liquidity of our share. Very difficult one, also something that's a little bit outside of our control, in a way, it has to do with the spread. But I'm happy to report that our share register is looking very different this year than it did a few years ago. Obviously, the B is still very tightly out by very few investors, but there's quite a healthy spread in A shareholding now from a host of new investors. And obviously, we've retained many of our old investors in the register as well. But obviously, our share is not as liquid as we'd like it to be. And then you can see the discount embedded in where the shares are trading. I'm not for a second suggesting that we shouldn't be trading at a discount in there, but I think that discount to have is deepened by the lack of liquidity in the stock. We want to continuously improve our management. It's an ongoing work in progress thing. Everything is internal. We've got a few scenarios where properties are managed externally. We're probably going to take all of them back at some stage. But the key thing here is our team is improving. The team is very tied together. Most of the people are back at work. And we are maturing the team from both the point of view of sort of just the gelling asset team and from a training perspective. So we're providing quite a lot of in-house training. And that area is really going from strength to strength and it's stable. We haven't had a lot of resignations at all within our team. So we're quite pleased with that area of our business. I think you can't really run the real estate business without proper management. I mean, it will show fairly quickly if you don't have that. We were hoping for a SAP inclusion at some stage. I think that's a dream deferred for now, basically, gearing and looking after our balance sheet wanted to at least be at the same levels. I think there was a lot of concern around valuations last year, and we're pleased to report that there wasn't big shocks in our valuation. So our gearing instead of going up has actually dropped slightly at the year-end to 39%. So just looking at just the trading fundamentals that we're experiencing or as we experience at the moment, obviously, unprecedented tough times. And I think some of us that are approaching 50 now. have seen quite a few crises in the world. But this 1 is, by far, probably the worst 1 that I've seen, and it's 1 that affects the whole world. Normally, even if you have a world crisis, it sort of tends to be concentrated in certain parts of the world and affect other parts. This crisis here is across the globe. And it undertakes some serious navigation skills. And I think we're coping just fine under the circumstances. We have quite a robust response to this COVID-19. We were literally out of this office within 2 weeks. There wasn't much more planning than 2 weeks to actually get everybody up and going, working from home, working remotely, getting out there to the shopping centers, putting all protocols in place and I think that's sort of just proved what I was talking about around the management here. That I mean, we've had to adjust our disaster recovery plans to take COVID into account, which is something that we have never thought about previously. But I think our disaster recovery plan can be more robust and more tight than it is now after sort of taking into account things like COVID. And post COVID collections are now averaging about 95%. I will take you through that in a later slide, but that's pleasing. It's not 100%. So obviously, you're building up a little bit of a debtors book there, and it's not ideal. So it's something that we're working on fairly hard to sort of try and avoid that. We can't really do much without cash in our business. So I mean liquidity is a keyword when you look at these times. We're experiencing quite a big scarcity around certain construction materials, certainly steel and things like that. So that's delayed us quite a bit on a few projects. And I mean, as our projects get delayed, obviously, the income comes in a little bit later. So that's a bit of a worry. We don't quite know when that situation is going to be sorted out. I think the scarcity in materials is also leading to an increase in costs, and we sort of just hope that, that's not going to be a situation that's sustained for too long a time. Obviously, the capital scarcity and a difficult discussion with the banks and the knowledge that we can't actually really raise money in the marketplace is quite a big issue in our lives now at a moment, completely outside of our control. Only thing we can do, obviously, again, run a proper business. And hopefully, our sort of funding partners and our shareholder base sort of understands that. There isn't an immediate need for capital at the moment in the business, but there's always a need for capital in the business because if you're running a portfolio the way we're doing, continuous improvement. I mean, that needs CapEx. That needs to be funded. So we need to find ways of sort of dealing with that under the circumstances. We're hoping that the government relief packages that we have heard of at the start of COVID and throughout COVID would actually start showing and seeing a little bit -- something, evidence of that. But we're really not seeing any evidence of that. I think where there's pain in the SMEs. That's sort of, in some instances, actually fairly sustained. We don't see those SMEs getting out of that as a result of some of that relief. I mean even the UIF monies that were meant to be paid out, 1 doesn't really see the difference here and that sort of thing. So it is a bit of a concern that the South African stimulus package needs to come through for us. I mean we need that in a moment to just navigate through this difficult time. There's a reasonable amount of anxiety around our clients, sorry, our tenants and some of our other stakeholders and staff and so on around COVID lockdown, stricter lockdown levels returning and sort of just starting from what's happened in Europe and certain other parts of the world, 1 can't sort of discount that possibility out. So it's just something that we can only hope and pray would not return, and that we'll all sort of do our bit to actually stem the spread of this COVID-19. From a portfolio point of view, our residential acquisition strategy has kicked off. We were wishing that we could actually implement that a lot more aggressively. But obviously, there are limitations in us doing that. As I mentioned earlier on, our portfolio stayed stable at about ZAR 9 billion, which we're quite pleased with. We disposed of only about ZAR 63 million worth of properties. Negotiating on quite a bigger chunk of property now at a moment, and hopefully, that will come through. And we had spent about ZAR 43 million in refurbishments and upgrades on the portfolio at the end. A lot of that was slowed down. Obviously, the redevelopment was slowed down by COVID-19. We almost did no work in March, April, May, June, really started the year by July and that sort of thing. So that CapEx program was actually delayed quite significantly as a result of these COVID situations. And portfolio escalations were maintained at about 7% despite quite a big resistance from especially national tenants around escalations and that sort of thing. So we're pleased that we're still sitting at healthy 7% of escalation on the portfolio holistically. And average rentals went up about 5.4% to about 140 across the portfolio. Our vacancies had increased slightly from 6 -- roughly 6%, 5.8% in the prior year to about 6.9% this time around. Again, not too horrible and so on. So that vacancy is sort of just still sitting around that 7% level now at the moment as we speak. We're just hoping that there's not going to be too many shocks coming our way. We do have a few tenants that are battling in the portfolio at the moment that you need to watch quite carefully. Our retention rate, I think, for obvious reasons, sort of dropped from 85 in the prior year to about 78. And the WALE in the portfolio at the moment is just over 3 years, about 3.3 years. As I was saying earlier, if you look at those graphs on the right-hand side there, the top ones there, basically, those 2 lines on top, that's our market that basically our portfolio value and our GLA, those are the things we control here. And you can see that's been going out quite nicely over the years and that sort of things. I mean, we're pleased with that. The 1 thing we don't control is your view on the value of our share. So that's obviously quite disappointing because we've gone from almost ZAR 5 billion in market cap to about ZAR 1.8 billion in market cap. There are various reasons for that, which I'm not necessarily going to go into at a moment. Below that, we also show you what we've done with the portfolio in terms of just increasing the average size across the board there. If you look at the leasing, there are about ZAR 150 million worth of leasing -- leasing deals across the portfolio. That was 136 new deals, new leases, almost 40,000 square meters of space moved. That was about 1% below our asking rental. So we're still achieving our asking rentals, which is a great thing. And our weighted average escalation on those deals was about 7.5%, just under 3 years. So it's not a bad performance under the circumstances at all. And on the renewal side, we've renewed substantially most of the leases that were coming up in the period by almost ZAR 500 million worth of lease value. That was about 114,000 square meters. That was at a positive reversion rate of 0.1%, and it was above our budget by about 2.3%. So we thought that we would actually go negative on renewal, but we were slightly positive. We're actually flat on renewal, which is a great thing, again, under the circumstances. If you look at that 5-year vacancy trend there. We're not at the highest level of vacancy that we've ever historically been. But obviously, it's creeping up slightly, ever so slightly as a result of current trading conditions. Talk a bit about valuations. If you look at the -- just the main inputs into our valuations this year. The top table just shows you the inputs for 2020 and the bottom table is showing the input 2019. We obviously don't determine these discount rates. I mean, these are discount rates applied by the 4 independent valuers that Ridwaan was referring to earlier. On average, discount which was sitting at about 14.4%. I think the government wanted a moment that's at about just over 9% or thereabouts. So the guys have put about 3% to 4% premium over the government bond at the time. And basically, the exit cap rates were 10.4%, slightly up from the prior year at 10.2%. Discount rates, as you can see, those tables were more or less the same year-on-year. Basically from a specific sector point of view, retail was slightly down at 0.3% year-on-year. New office portfolio went down 0.8% year-on-year, wherein industrial that went down about 1.5% year-on-year. Main reason for that is obviously the rentals we're achieving on the mid unit side of things. They're moving sideways and sideways to down at the moment. So a little bit more pressure there than across the rest of the portfolio. It's not the same experience we're seeing on the warehousing side of that portfolio. But I mean, definitely, many units is where the pressure is at the moment. So just looking at the retail portfolio. When it comes to discretionary spend, spent up consumption there on the demand for goods and services in that area. Basic goods are still selling well. I mean, I think you'd have seen this part of our results this morning. Excellent. I mean, our sort of supermarket tenants are reporting very good numbers, but we don't necessarily see that across the board. I think when the market opened after the hard lockdown, there was a bit of an increase in trading. But wherever there's a bit of a credit extension story, things are really slow and not happening as well as they used to happen in the past. We are seeing growing unemployment. We -- some of our centers are obviously located in these spaces where there's been major retrenchments. And these retrenchments may happen in a mining town somewhere in the Northwest, but I mean, you can feel it all the way to the Eastern cape because I think there's a lot of migrant workers that are part of our catchment. We've seen quite a marked increase in business rescue and liquidation activity. I mean, the biggest 1 is obviously Edcon. We came off very lightly of the Edcon liquidation. They paid back 2 stores of the 12 that we had with them. And the 1 property they gave back is the subject of a sale now, and we're achieving close to our book there. The other properties, there's only about 200 square meters of that had given back. Other than that, I think Foschini has taken all of our other stores at rentals slightly better than what we're getting from Edcon. So quite pleased with that. We are seeing a declining pattern of CapEx commitment from tenants, especially where you've got franchise stores. Because I think the guys also -- there's -- there isn't much confidence in a market given how things are moving on locally in our country. So tenants are -- they try very hard to pass on their CapEx commitments on to the landlords. And I obviously think that everybody is fighting to retain their tenants. So that obviously means that probably going to become fairly expensive to either retain tenants or attract new tenants. So liquidity is key in this game. So as we think about our business and what we do, where we get that liquidity from, that's going to be very important. It's an important discussion that we need to be having and our Board is fully engaged on that one. We've seen tenants starting up on the working capital cycle, trying to pay a bit slower, stretch creditors and sort of try and bring in the cash a bit quicker from their side. So again, as an extend of credit in a way or a space provider that relies on getting your money on the first to the 7th of the month, we kind of need to watch this situation quite carefully. So our teams are fully briefed from that point of view. So we're making a nuisance of ourselves, but it's nonetheless a situation that's happening. We've seen an increase in online shopping and food deliveries, in particular. And we see tenants sort of retain turnovers at a certain level, but their profitability dropping as a result of these deliveries because, I mean, that obviously costs money to deliver. And your Uber Eats and Mr. Deliveries are taking up to 50% of the margin of the table year. And then we have the same tenants coming back to us. We got renegotiating or wanting to renegotiate rentals because although the turnover is sustained, profitability has gone down. So these are almost running at the loss. And I suppose here, if you've got the large sitdown restaurants, there's even more trouble there. But I think even on the takeaway side, although things are kind of returning to normality, we see that margins are dropping quite significantly in that area. So it's definitely something to worry about. COVID-19 is obviously changing the playing field. And it's not business as usual. And I think we are repositioning our business in response to that and trying to spot the opportunities wherever they might be. Our feeling is that there's a fair amount of kitchen sinking happening or kitchen sinking tactics from our retail partners. Sort of like really hitting us with all of the bad news and making some of the bad news our problems in negotiating, especially on the fashion side of things. So it's really something that we need to be quite careful about going forward. People could use this crisis to lock themselves into nice long lower leases and that sort of things. How do we find a balance between a tenant that generally needs assistance and a tenant is using the situation to their benefit. We need to balance those things. We've seen a shift in weekly and daily shopping. Sort of away from the largest shopping centers because people are not in the offices, into decentralized locations, and we've been a positive recipient of that because that's exactly the game we're playing in. And I think this remote work in the retail perspective has actually been positive for us. Opportunities we're seeing going forward in this retail portfolio is the latest compound situation. It's quite positive for us because there were tenancies we couldn't have any shopping centers previously that we now can have. So we're looking at our tenant mix quite carefully now to see where we can accommodate this. And as a fair amount of demand for smaller space pockets, which we have plenty of. And I think we realize that there is a chance there for us to put those tenants into those smaller space pockets, decrease our concentration risk. And we're really working on certain scenarios there. We're riding the wave of this online shopping by becoming a drop-off point. It's our game. We are convenience. We are community-based. So where there isn't reliable addresses and their safety and security issues in terms of delivery vans, our shopping centers become the ideal place for people who can't pick up their packages from their point of view. A high proportion of essential goods tenants in our portfolio has been really the savior here for us. I'll show you the latest slide how that all sort of carries up. And we see a fair amount of renewable energy opportunities that we can roll out in our portfolio going forward for -- to drive further efficiencies. So from a portfolio point of view, retail sort of remains static at about 8.6% vacancy. I mean, most of that is -- all of those old banking buildings and that sort of thing. Our shopping centers are below 3% from a vacancy point of view. This is all -- the very difficult buildings that we're working out. Strategy is around now at a moment. Weighted average rentals per square meter, that actually increased 5.5% in the retail portfolio. We were sitting at an average about ZAR 124.70 last year our average now is about almost ZAR 132 a square meter. So we're still achieving an increase in rentals in a portfolio, which is great. And our tenant retention rate, unfortunately, has gone down. It's always negative because it's expensive to put in new tenants, but it's also a very nice way of turning and getting better quality tenants in there. And I think under COVID -- under this COVID situation now, we are very careful. So we're not going to take a tenant into our retail center unless we think that they're viable and they're going to be strong. So I think if we sign up guys now, clearly, the worst of times, if they survive this, they can only be better on the other end. So it might be a blessing in disguise that we've had that sort of lower retention rate there. But if we had not replaced those tenants, obviously, your vacancy would have gone down a lot more than just 0.2%, which is what we've seen here. So we replaced most of those tenants in the portfolio. If you look at our trading density, there's a growth of roughly 3% in trading densities across the board. With basically -- sorry, there is a growth of about -- of more than 5.5% in our rural portfolio. And about a 10.8% growth in trading density in our urban portfolio for food anchors. Then speaking to this decentralized shopping that sort of thing. And in the townships, because I think, I mean, those centers have always sort of traded there or thereabout and sort of thing. And the shopping pattern has always been driven more by sort of very unique circumstances in the townships. There we saw a slight drop in trade and density by 2.9%. Your average turnover ratios on the food anchor side sitting at anywhere between 2.6% and 3.2%. And on the other sort of tenancy sites, this is our fashion and all of our food guys and that sort of thing. Again, there rural drop of 1.5% in trading density and an increase in the urban areas of about 7.1%. I think we might have been a recipient of that rush back to shopping post lockdown because our financial year was the 31st of August. And basically, our average turnover ratios are sitting at anywhere between 5.8% and 8.8%. We've got quite a bit of leasing to do in 2021, there's about 102,000 square meters of retail leases coming up next year. Most of that has been dealt with already. But we're still working quite out on that. The process is a bit slower because there's no face-to-face meetings and that sort of thing. So that slows down things quite a bit. But in terms of the leasing activity there, we did about 112 leases there at a value of about ZAR 112 million. And performance to asking rentals, we were about 4% below our asking rental. So you can see there, there's obviously a lot of maneuvering from a retail point of view, but guys are pushing back a bit. But that was at the half-year weighted average escalation of about 7.5%. If you look at renewals, our inversion rate in the retail portfolio was 0.7% and we were about 3% below what we thought we'd do in those rentals. I mean, this is where the biggest resistance is from a rental point of view, in this retail portfolio. Office portfolio perspective, big theme here is people demanding smaller space. And this is all driven by this remote working. I'm of the view that maybe for the next year or 2, we're going to see this phenomenon, but I think things will normalize again, maybe even sooner than the year 2. I just don't see how people could build a corporate culture and do all of these wonderful things working remotely. So it's -- in the short term, saving people a lot of money, which is a key thing in everybody's working capital cycle. And it is obviously -- employees are quite excited about the prospects of working from home at the moment. And I think that everybody is doing what everybody else is doing, but I don't know how sustainable that is. And obviously, we've got very little -- relatively speaking little office exposure, but we're nonetheless feeling that the standards are trying to give back space here. There's a demand for short term, more flexible leases. We're accommodating that within our portfolio. We do have a partner we're working with on a flexible leasing side of things. And I think we'll probably add a little bit of that to our portfolio going forward. We're certainly looking at a site in Cape Town, fire station here. We've got a partner in a flexible space environment. It's not going to be a huge amount of that within our portfolio, and we're not obviously going to do something that we don't fully understand. So hence, the partnership -- and the partnership is not 1 of us having a shareholding in a particular operator or anything like that, it s of more of a management contract-type situation. So that might be the outsourced bit to our portfolio might be this sort of flexible space side of things. Obviously, there's quite a big additional management burden in your multi-tenant office buildings because we now have to sanitize and do all these other things. I mean that net cost of management of those type of assets is actually ticking up quite a bit as a result of COVID-19. There's pressure on rentals, been there before, sort of just continuing. I think COVID has made it a bit worse now. And space is moving very slowly, as I was saying earlier. The opportunities, as I said, we need to tailor make solutions a little bit more for our tenants. We need to listen to them and sort of just respond to that in the short term. Long term might be a completely different picture. We still have a few conversion opportunities within our portfolio to different use and I think we'll be making use of that, but we obviously need the CapEx for that to sort of make these things happen. And we will continue to focus on our blue chip tenants -- our portfolio sort of looks in terms of the tenant profile there. Our collections in this office portfolio is very high, as I'll show in a later slide. So there's not -- there's no disaster there happening here. But as I said, I mean, our exposure is also not the biggest in office. I mean, relatively speaking, far less nightmares. Vacancies have gone up to 8.9% from about 7.8% in the prior year. And our rentals have actually increased year per square meter. They've gone up 4.3% from 132 to about 138 and our tenant retention ratio was not as bad as the retail retention. We are sitting at 93%, but we were much better than the prior year at about 97%.And basically, weighted average escalations are ticking down a bit there from about 7.5% to 7.2% with a fairly short WALE of back by 1.7. I mean those government leases are now about 2 years away from where we renewed them for about between 3 and 4 years, about 2 years ago. So that's something that we need to work on. So that was the leasing situation there. I think key here is that we didn't do too many deals. We did about 15 deals but we actually achieved much higher than what we anticipated. So we did about 16% higher than our asking rentals with escalations of 8%. So a trade-off, shorter lease, higher escalation, higher rental. I mean that's really the negotiation that we've been having on our tenants here. And from a renewal perspective, again, there are about 24 deals. It is a smaller component of our portfolio, as I said, reversion rate was minus 0.4%, and we had actually performed substantially better than what we thought we had performed when we budgeted as we outperformed our budget there by 8.6%. On the industrial side, we're still seeing healthy demand on the logistics and warehousing side of things. And almost no demand where you've got from sort of manufacturing-type tenants and very, very weak performance in the mini unit side. I think the small guy is really suffering. Small guys are normally dependent on big business actually thriving. We're not seeing a lot of big businesses thriving now at a moment in this environment. So there's a knock-on to the mini unit user. And I think, again, here, we're going to have to be more flexible. We're going to have to improve the offering. And there are strategies that we're rolling out here in terms of improving that offering in our mini parks. We've only got 2 large mini parks really in the portfolio. And I think it's not something very difficult to actually sort out. And to the extent possible, we will increase our warehousing and logistics exposure. And we're also starting to see storage opportunities unfold in this industrial portfolio. Our vacancy increased from 2.3 to 3.3 and weighted average rentals went up by 12.2%, and most of this had to do with our renting at NPE to DSV. So we did much better there, and we also did a lot better at Corporate Park and in terms of the leases that we've actually closed there. Tenant retention rate was at about 77% from 94% in the prior year. We lost Coke, and I think we lost RTT in one of our other properties and sort of other of major ones that we lost there. Basically, from a weighted average escalation point of view, still sitting at about 7.6% with a WALE of 4.4 years. Industrial portfolio. Industrial actually has the longest WALE of our 3 other sectors. But that just shows you the leasing there, new leases. Performance for asking was about 10% less than asking. Maybe we were a bit ambitious about the rentals that we thought we would achieve here. And basically, from a reversion point of view, minus 0.9%. And performance to budget was 5% better. So we took a conservative view. We did better than that conservative view here. Just to take you through the resi here quickly. We obviously took ownership of Cosmo City this year. Our current resi portfolio consists of basically studio -- one studio apartment, 89 1-bedders, 2 2-beds and 2 3-beds. All of the 3 beds are in Norwood. And basically, if you look at our average rentals there, the studio is renting at about 5,000 and the 1 beds are averaging about 6,000 the unit and the 2 beds are averaging 8,700 and 3 beds are averaging 9,000. It's excellent product, and I think we've had great uptake there. All of the vacancy in this portfolio is the subject of a head lease. And I think there was quite a -- I mean, we only take -- took ownership of this thing in July, but I mean, it was completed around May, I think. And I think with COVID, there was quite a slow take-up of the units. That's picking up quite nicely now. But for 2021, we won't feel the pain in because, I mean, we've obviously got to say at least, nothing is fully let. So from a more COVID point of view of this slide. You can read in your own time. I think we sort of just tried to show you some of the activities that we've undertaken in our portfolio, all in line with the guidelines, government guidelines and so on and a little bit more extra. It's all about the customer experience, and it's all about making sure that our people are taken care of. And that, obviously, during this period, our assets are also taken care of. And obviously, there's a whole lot of regulations that we need to think about as we think about what we do with dividends, what the tax impact of our decisions is going to be and we've had very difficult discussions of our banking partners, but I think we're sort of starting to find each other now. And I think it takes a little bit longer to do things that I was saying earlier on and the middle ground will be found here. So just further on COVID. I just want to show you why we survived this thing as well as we did. If you look at our retail portfolio, I mean, 50% of our exposure in the retail portfolio is to supermarkets and grocery stores and food. And fashion and footwear is about 13% and banking, financial services is 10% and the list kind of goes on and on. I mean, the only thing that's sort of major -- of a major discretionary nature here is probably health and beauty, which is only 1%, maybe sportswear, to some extent, which is about 2%. And furniture and decor, which is about 4%. Other than that, I think it's all sort of really defensive-type tenancies. Below that table I currently show you that, and I'll show you this beginning of the -- when we did our interim presentation. So essential service is about 44 would government about 3. And your medium and large nonessentials are another 50% between them, just not fair. And then basically, you're sitting at what SMEs is at about 21%. So very, very defensive, very solid of the portfolio, A Grade 26% by income and 23% by GLA and B grade about 19%, and 50% of that portfolio is led to government. So it's very, very safe stuff we're talking about here. Industrial, again, A grade is about 50% in -- by income, about 29% by income from that point of view. We've got about 13% exposure in the industrial portfolio to government. That's 1 particular property. It's actually ahead now that the government is renting from us. So just talking about the discounts that Ridwaan was alluding to earlier. We've just inserted these tables for your appreciation here. Only about ZAR 1.6 million of the ZAR 43 million went to the essential guys, and they had to do it -- obviously their bottle store component and those sort of parts. And then nonessential medium received about ZAR 8 million of the discounts and then nonessential large received about ZAR 9.7 million of our discounts. And SMMEs had received about ZAR 8.2 million of those discounts. Giving you a total in the retail portfolio of about 27.5%. And then of course, there was some discounts granted in the office sector of about 1.9, and then we had industrial discounts of about 14.2%. That was 1 specific scenario at a tenant really battling. But other than that, there wasn't much more than that in that portfolio. So that brings you to about 43.6%. We will have some more relieve sort of overlapping into 2021. And that number is not reflective of the end of the story, but it's not going to be as severe as it was in 2020. And then on the deferral side, we only sort of deferred about ZAR 5 million. So the lion's share of our systems was actually discounts as opposed to deferrals. From collections point of view, as I said, we're averaging about 95% at the moment. And basically, that resi that we took control of, that data down quite a bit. You can see in April, before we took ownership of this thing, I mean, we had about 45% in our region, about 78%. So it's coming back quite nicely. And hopefully, we'll get straight that to the 90s as well as we're doing with all other sectors. In conclusion, I think our focus for 2021, the short term, is we need to guard our balance sheet with all we have. We need to ensure that we collect as much cash as possible to bring into business. Liquidity is key here. Whatever decision we make, has to be informed by the fact that we've got money to run this business. We can't run back to you for liquidity. We need to try and create our own liquidity within the business in whatever manner possible. And obviously, we'd like to renew that ZAR 915 million or so of facilities coming up in 2021. We obviously have the big sort of -- elephant in the room here is this A and B structure issue. It's a very complicated one. We need to deal with it. We will be talking to you at some stage about it. And I think we need to manage in a manner that avoids further bad debts. I mean, we don't want to repeat another ZAR 11 million of provisions. And hopefully, we recover some of that ZAR 11 million, but it's certainly not a pattern that we'd like to repeat here. So there was quite a shock to us, that number. It's quite a big number. We need to focus on keeping this team motivated. They're doing brilliant work here for us. So the last thing we want is not to look after them. So I mean, it's really a focus area for us to create this great working environment for people. And for us to enjoy what we're doing here and to remain motivated and incentivized in whatever way. We're not providing any guidance at this stage because I think we have probably made fools of ourselves given the uncertainty in the market. Thank you, and there will be an opportunity for questions now.

Our first question is from [ Alvise ] from Salandia Capital. We've got a question on capital allocation. Obviously, congratulations on a great set of results. The elephant in the room as you alluded to is the discount to net asset value, but the B shares is trading at 90% discount to NAV. Surely, you must be solely focused on investing in your own shares before you can dream of making any new property investments. Coupled with this, what are your plans on disposals? And even if that slight discount to net asset value, when you can buy your other properties via your own shares at 90% discounts. Some of your peers seems to be having good success in similar strategies.

Okay? Yes. I think, Alvi, that's a good question. I mean, I think that 90% discount to NAV probably a little bit overdone, but we understand the concern that the market has around this A and B because I mean, we've got a reasonable set of numbers. But if you had to actually declare that there -- the B would, we would sort of get almost nothing of that. So that's probably the concern of the market here. We -- from a sale of property perspective, we do -- we're in sort of fairly advanced negotiations with a party that we might actually saw quite a big chunk of the portfolio if that deal goes through. So the sale of assets is not something that we are not working on, but we're not going to give away our assets. I mean, that's for sure. So from a discount point of view, obviously, we understand that. I mean there's a discount that we can tolerate to do what are we suggesting, and it's not something that we're not looking at the moment.

[Operator Instructions] The second question is from [ Copano Maku from Mazi. ] He's asking how much of the portfolio was valued independently over the period? In addition, what were the assumptions around vacancies and rental rates?

Okay. So as Ridwaan said earlier, only about ZAR 650 million of the ZAR 9.1 billion was valued internally, implying that the difference was externally. So that's about 7% internal. So 93% was valued externally by 4 different guys. I think just for Copano's sake, I just also just maybe remind him how we do it. The 7% that was valued in-house, we rotate that. So every 3 years, every single property gets valued externally because 1/3 of what we value in-house gets valued externally every year. So at the top digit are below ZAR 12 million. Those are the ones that we value in-house. So they're smaller properties generally. And 1/3 of those properties below ZAR 12 million gets valued externally every year. Sorry, what was the rest of his question? The inputs.

What were the assumptions around vacancies and rental rates?

Yes. So I mean, every single value makes their own assumptions around vacancies. We've got no influence on that. So obviously, they did make some assumptions. We probably would have made sort of less aggressive assumptions around vacancies, but they made more aggressive assumptions around vacancies. Because if you look at the valuations from September to the end of August, the following year, we're already sitting in November, and our vacancy's still at about a 7% level. So I mean, I don't think that there's any -- I don't think the guys got it wrong from my point. Let me just put it that way because as a will sort of come off already.

Thank you very much. Then another follow-up question from [ Alvise ] here, which is basically a 2-part question. The first part is, are your complaints about us investors legitimately not being confident about buying your shares? And hence, the low price, but when can we expect to read some announcements about investors buying meaningful amounts of shares with after-tax money instead of company grants? And then the second part of the question is, can you explain and give us more information on what the current situation is the BEE Trust shares in the pullout that is now under the control of Standard Bank, what does the future look like in this situation? Is Standard Bank a current seller of the shares, and is this creating an overhang in the market.

Yes. Okay. Let me start at the end. I think that Standard Bank hasn't actually taken control of the shares. We've got a bit of a structure there. I mean we still bought the new shares. I think all that's happened is they've stripped out quite a fair amount of the economics out of the structure. So those shares are still under management control. So management is like still fully aligned here. I mean, we need the B share to recover for us to make anything out of this. So that's the first point. The second point is we can't really buy shares in a close period here at that sort of thing. So I mean, that's probably that. But I think for, we started this company. So we've always had quite a big chunk of the company shares, even outside of the BEE Trust. So we're still fully aligned. I mean, we've got a lot of exposure to this company. So you might not see Izak Petersen name there, but I mean we have a shareholding outside of the BEE Trust Co. in the company.

[ Johan Solier ] here from Finbase Capital is asking if the dividend payout ratio would be reduced, would that affect the A and B share distributions equally?

The way the formula works is, obviously, we look at what is there, okay? So I'd like to say, if we're declaring 75%, then the formula would then kick out what the A should get and then whatever the A hasn't received, the B would receive. So it's not really equal. So the B gets all of the cut in our role, for lack of a better explanation.

Then Sheldon Kisten from Kagiso Asset Managers. Just asking, can you disclose any terms of debt close to refinancing? In other words, rates achieved, any covenant changes, et cetera.