Dipula Properties Limited (DIB) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, for our August 2021 financial year-end results. With me is Ridwaan Asmal, our CFO. In typical Dipula style, we've got a 3-part presentation. So I'll take you through the business update, and Ridwaan will take you through the financial overview, and then I'll then come back and speak a bit about the immediate future. I'm sure you will agree with me that the past 2 years or so have been very challenging. There has been very -- there have been massive changes in our market, massive changes in South Africa and in fact, massive changes globally. And we've had to adapt fairly quickly to get our business going. And we're very pleased to announce these 2021 results because I think in spite of all of those challenges, we've reported very decent numbers, as you would have seen in our announcement yesterday. But perhaps just to take you back to what our strategic objectives, short-term objectives, were for 2021 in terms of immediate objectives that we've actually set for ourselves, we wanted to maintain our gearing below 45%. I think at the time of setting this goal, the world was upside down. There were concerns around valuations, concerns around refinancing risk, concerns about the impact of COVID-19 at the time, and all that in a backdrop of very slow economic growth in South Africa relative to the world. I'm pleased to advise that our gearing, instead of being maintained -- of being at 45% or 40%, whatever the case may be, was actually dropped substantially to about 36.5%. We'll give you a bit of insight into that number when we get to Ridwaan's section. So we have achieved that goal and, yes, substantially so. The other objective that we set for ourselves is to maintain our ICR ratio to not less than 2x, which is our banking covenant. Very pleased to announce that, that ICR ratio at the end of the year was at 3.15x, so we achieved that goal. We wanted to dispose of some non-core assets obviously in a very difficult market. It's the kind of market that, I think especially if we're selling individual assets, it's not all that easy. Portfolios are also not easy to move at the moment because of all kinds of liquidity restrictions with buyers coming in and buyers obviously know that there's a big drive in the sector to sell assets. So I mean they're kind of waiting and they're driving the pricing lower at the moment. And -- but besides that, we managed to sell about ZAR 100 million worth of property. So that goal was partly achieved because we wanted to do about ZAR 300 million last year. We wanted to address risks related to the A and B capital structure. That's work in progress, and we will discuss that extensively in later slides. And we wanted to manage the impact of COVID-19 to ensure that our profits or distributable income doesn't drop lower than 15%. As I said at the time of setting this, we all thought the world was coming to an end or at least some of us. But our distributable earnings are up a pleasing 23.5%. It's a great achievement. We're certainly quite pleased with that performance. So that is a big tick on our side. And we wanted to ensure that we keep all of our people lastly, staff retention ratio. I mean these things are not necessarily in all of importance because I think we truly do believe that our business is all about our people. I'm pleased to announce that we achieved a 99% staff retention ratio. And most of the people that left, obviously just moved town or something like that. It wasn't really because they were not happy working at Dipula anymore. So very pleased about these outcomes. Looking at our performance for 2021, just highlights, again we'll drill into these figures as we go. Our contractual income was up 8.4%. That resulted in distributable earnings being up 23.5%. I think key to this number is that it was -- there was no non-recurring income in it, so sort of quality of income in this financial period is superb. It's all clean property income. As you know, we're a very simple company, no cross-currency swaps, no funny business, nothing like that. So I suppose one of the key reasons why Dipula's performance is as consistent as it is, is because we don't have the volatility of some of the sort of more balance sheet related tricks that often get applied. And 23.5% up in distributable earnings then led to a distributable earnings per A share of 3.9%, in turn -- in line with what the formula spit out. Distributable earnings per B share was up a whopping 64.7%. Loan-to-value, as I said, down to 36.5%, down 6 percentage points. And combined NAV per share was up 3% and that partly had to do with the cash that we have retained, but also valuations held up quite nicely. Collections so far are averaging about 97%. We don't provide more color any section about that. Basically, our discounts, corporate discounts, went down from almost ZAR 15 million last to about ZAR 14 million this time around. I think what's interesting is when you look at the 9 years since our listing, it's just what our average incomes par in terms of DIAs and DIBs. On a combined basis, we have done about 4.9% over 9 years. And that number is before normalizing for COVID-19, which means that the DIB over the period, on average, received 7.2% and the DIA over the period received about 4.6%. If you normalize that number for COVID-19, DIB dropped about 5.9% and DIA is at about 5%. And on a combined basis -- combined, we're sitting at 5% and DIA stays exactly the same at 4.6%, but the DIB at 5.9% over the years. If we bring that number back to the past 5 years, then we're basically sitting at on a normalized basis combined -- normalized for COVID 3.7% and 3% on an un-normalized basis. That indicates how difficult this market has been in the past 5 years. So we had a great start and then things just started going downward in the trading environment for some time now. Just zooming into the business a little bit, just like everybody else we navigated through weak economic fundamentals, weak property fundamentals. We were particularly hurt by the civil unrest, talk about it a bit later on. And the ongoing load shedding is having an impact on our business as well. But the positive news is that the sector definitely seems to be recovering from the lows of 2020. We've mainly all started resuming the payment of dividends, and I think that's boosted share prices. And from a Dipula perspective, we believe that we own a defensive portfolio and that's been an advantage for us because our relative performance in the past 12 months is definitely in the top quartile. And I think the last lockdowns between 2021 and 2020 has also been an advantage. I mean we've had a few lockdowns, but they affected specific tenants. It wasn't as severe as last year. And we'll talk a bit about how tenants have been affected in this market when we get to the respective sectors. From a portfolio perspective, portfolio has maintained at about ZAR 9 billion. And I suppose the big thing that's happened here is that we didn't buy much. We brought in Bruma Midrand and bought in another 49% of Marikana. And we bought in another 30% of Cosmo that increased our residential component from 1%, both in terms of GLA and in terms of income, to 3% in terms of GLA and 6% in terms of income. We had disposed of 102, as I said earlier, at an average yield of 9.3%, so not bad pricing. And our acquisitions of ZAR 294 million were done at about a 9% yield. We spent ZAR 52 billion in refurbs. A lot of our refurbs have been delayed as we were trying to sort of figure out where we were at and trying to maintain a buffer. I think the one thing about Dipula is that we don't really have facilities for the banks at the moment that we can tap into. So we need to be quite skillful in still spending on refurbs and CapEx, and it's a priority area as we'll sort of discuss with you as we go on. Gearing is low, but there's no facilities really on the back of like low gearing as obviously the banks have gone a little bit conservative. And So vacancies on the portfolio increased to about 8%, we were at about 7% in the prior year, all due to the office portfolio, and I'll provide some color there. And tenant retention ratio is sitting at about 72%, so that's lower. Obviously, lower because we lost some office tenants and so on. And our WALE was sitting at about 2.2%, with portfolio escalations at 7%. So we've maintained our portfolio escalations of 7%. That's something to celebrate. By looking at our leasing activity in the [indiscernible] portfolio, lots of leasing done this year. We did about 52,000 square meters of new leases on the portfolio. And that's roughly about in lease value ZAR 238 million worth of lease value. I suppose the key thing is that -- how does that look to what we're trying to achieve in terms of rentals. That was a minus 3.5%. So I mean asking -- 3.5% below are our asking rentals, again indicative of a very tough market. We may have set our rentals wrong or whatever the case may have been. But I mean, we've normally quite good in setting our rentals. So there is a bit of pushback from a rental perspective that we're experiencing at the moment. But again, we've locked in fairly decent escalations at 7.3%. We always do the quid pro quo tenants here in terms of maybe a lower rental in lieu of higher escalation and the WALE achieved there was about 2.9 years. If you look at our renewals across the portfolio, again great performance, 95,000 square meters roughly of renewals and performance to budget. We were 3% above our budget in terms of where we thought we'd renew. And basically, our reversion rate across the portfolio is 2.6%. So tenants are still pushing back and the majority of the pushback we experienced in our office portfolio, as I'll demonstrate to the latest slide -- next slide. Just briefly looking at valuations, year-on-year, we've got -- we're just showing what -- sort of all the inputs into it, so basically just looking at all of our sectors. On average, discount rates year-on-year, last year valuers applied a discount rate on average of 14.4%. That dropped to about 14% this year, so a slight sort of -- I suppose difficult to look at a portfolio in terms of the risk assigned to it. And the average cap rates were consistent year-on-year although there was an improvement -- a slight improvement in the retail average cap rate and as well as residential. But there was -- in terms of offices, those had remained at the same level and the industrial was actually marked up slightly on the discount rate side of things -- on the cap rate side of things. And what does that really mean? It just meant that our retail went up by a modest 1.6%. Offices went backward about 3.6%. There's still a risk there that the offices might actually go back more in future depending on trading conditions. And overall, we achieved a 0.2% uptick in the portfolio, which again we'd love to have a far better performance there. But I mean, we don't live in a bubble here. We're in a marketplace where there's still a huge amount of risk. Just looking at our retail portfolio, this is our star performer. Our centers are generally trading well at the moment. There's reasonable demand for space. And as I previously indicated, leasing the space and retenanting these spaces is not cheap. So that's part of the reason why we've got ongoing demand for CapEx on the portfolio. We're still seeing some of the restaurant tenants battling a bit through the lockdowns. I mean every time they lock down, every time there's an alcohol ban, there's a fairly rapid movement -- fairly steep movements in the portfolio downward. Got problems at the post office, fortunately it's not huge exposure to us and fortunately those spaces are actually great spaces that they're sitting in. So I mean lettability is quite high. Our issues getting them out. I mean it's just virtually impossible. They're not paying, but they don't want to get out. So we quite -- we advance legally to try and evict them from our spaces. We [indiscernible] because we've got tenants waiting for these spaces. Owning these decentralized locations in the context of people working from home has been amazing for us. As I said, some SMMEs are still finding it difficult to trade out there, furniture and decor, optometrist and to appear that the reason for some of these optometrists are suffering now is the sort of pullback in terms of medical aid benefits. We've seen barbers and hair salons -- the formalized barbers and hair salons, it looks like that business is going more informal. Some of those operators or workers in those institutions are now working from home and forming their own things. So they're going to have to just rethink their business models and try and attract new talent or train more people to put on those chairs. We've also seen tire fitment centers suffer within our portfolio, less traveling on the roads by people or people covering less distances has actually affected those businesses. And as I said, fast food outlets in especially low-income areas have also -- are not showing great performance now at the moment. Again, our exposure to most of that is fairly limited as we're sitting in mainly in the essential retail side of things. Following the unrest, we find that we have to secure a bit more. So that's going to put pressure on the cost side of this. So we need more security at our centers. And the one big issue is obviously backup power that we need to actually install. I mean, as you know, generators don't really add anything. They just keep your property going and they keep your tenants in there and ensure continuity, but we don't earn extra income by putting generators unlike solar and which generally yields quite well. I think what we found is that our focus on having the right tenant mix in our centers has been a competitive advantage for us, and we'll keep doing more and more of that. Opportunities going forward, process are expanding and all kinds of other retail also. So obviously, lower development activity in country. We've got spaces that we can re-tenant and sort of move tenants around and/or just not renew certain tenants. So lots of asset management opportunities in our portfolio. And customers are still shopping closer to home, which as I said, is an advantage for us. And our aim going forward is that you might see our rentals dropping somewhat, but the quality of tenant improving in the portfolio as a focus area and we now realize that our centers are obviously strategic. They're based in the community. So we're going to make them safe community hubs for families to gather safely and dwell longer. From a portfolio perspective here, our vacancy stayed more or less the same year-on-year, 9%. It was about 8.6% last year. From a weighted average rental perspective, those rentals increased by about 2%. So we sustained our rentals. Our tenant retention ratio was more or less the same as last year at about 74%, but our weighted average escalation is coming down from about 7% to 6.8%. Again, it's this flight to quality where your national guys pay lower escalations when your smaller guys pay higher escalations. I think that's really in line with the industry norms at the moment where we'd seen pushback on the back of lower inflation previously, but we see that inflation increase in our latest numbers sitting above 5%. So we probably will be in a position again to lock in better escalations because the low inflation environment seems to be behind us now. If you look at our turnovers, we've opted to just show you the top 10 properties here from a turnover perspective, but they're reflective of what's going on in the portfolio generally. We've had great growth in turnover, ranging anywhere from about 2% to 28%, almost 30% growth in turnover. So very pleased with that, which means that -- I mean, obviously, when those leases come up we've got a good basis of negotiation in increasing those rentals. Again, looking at just leasing here specific to retail performance to asking rentals on new leases, we were almost 2% below our asking rentals, but nonetheless took great rentals, north of ZAR 100 from a growth perspective. And again, bearing in mind, as I said to you, that we are leasing to more nationals. So obviously, those -- they pay lower rentals, but they're more secure. If you look at our renewals here, performance to budget, we were 3% better than our budget on renewing. And our weighted average reversion rate here was only about 0.5%. So. it's not -- it's nothing to really worry about. If you look at our escalations again, they are locked in 7.7% in escalations. So you've got to just always try and find that balance and negotiate art around these things. Look at our offices, lots of requests from smaller guys to reduce space or consolidate space or sign shorter leases. So really people are not sure whether they're going to be working more from home or coming back, those that have space in locations that they like want to retain the space there and people just generally asking for flexibility. And we see that as an opportunity, and we will certainly do more work in introducing flexible models in our -- in the way we do business in this area. Our government assets are very well maintained. We spent ZAR 13 million on SAPS VIP and another ZAR 8 million on SAPS IJS this year. Just ripping out old carpets, renewing mechanical equipment and doing everything -- and painting and doing all these wonderful things. So we think that those levels for those rentals and the state of repair of those properties, we should be able to actually renew government. And we've got quite a bit coming up in years to come as I'll demonstrate to you. And -- yes, upgrading these assets and at least competing with a decent product is key in these times. And the deduction in tenant concentration risk is also top of mind here. Client signs smaller spaces, get a bit of tenant diversification across the portfolio. And disposals is something that we'll look at in this area and potential convergence, I mean we just saw that with Bruma and Midrand, and I'll show you in a later slide, I mean our rentals there have picked up quite nicely from what the commercial rents were and what we're achieving on the resi side. So obviously, subject to feasibility, there may be room to do a bit more of that. The portfolio vacancy unfortunately increased from 9% to about 16.5% -- 16.3%. And it's in specific nodes where large tenants moved out. It's about 5 properties where we've had that and we're hoping to claw that back obviously going forward. The space is highly lettable, but it is a competitive market at the moment. And our weighted average rentals were flat year-on-year, and our tenant retention ratio decreased, which is reflected in the increase in vacancy there. And our escalations achieved about 7% at the moment across the office portfolio. Very short WALEs, as I said to you, we're sitting at about 1.6%. Main reason for that WALE being that short now at the moment is because government is coming up next year or in this financial year 2022. If you look at our expiry profile, 63,000 square meters coming up in this portfolio in 2022, predominantly government, about 50,000 square meters of that is government. We are positive that the government will renew. We're also positive that the reversion won't be that horrible on us. We think we took the pain in the first round of renewals about 3, 4 years ago. And obviously, we're going to have to work hard at that to ensure that we don't take a big knock there. If you look at our performance on new leases, obviously, there's far less activity than in our retail. Our performance to asking rentals was minus 10%, pressure, pressure, pressure on our office side. We still achieved 7.4% in escalation and decent WALE of about 2.5% on those new leases. And on renewals, this is where guys are still rethinking what they want to do. We only did about 1.5 years in WALE on the renewals and our reversion rate was about 11%. So we've got a lot of work to do in our office portfolio. Industrial, still good demand for warehouse in the right locations. Tenants are still cautious and not committing speculatively. So you're not going find someone saying owe me or rent me 10,000 with expansion, it'll take 5 and sort of field I think going forward and perhaps also commit for the charter unless, obviously, you're dealing with sort of large guys, like DSVs, I mean they commit much longer. They've got their business model sorted out. But in the mid-unit space, I mean those are short leases that we're running there. And we understand that. I mean there's lots of uncertainty, but it's also great for us because should the market bounce back, we'll be able to move those spaces. We'll have a line -- a queue of people -- queuing up again for those spaces. And the one opportunity that we saw in the market is when we rented space about 10,000 square meters to an agri supply business. I mean agri is actually doing very well in the country at the moment with all kinds of new agricultural practices being introduced. I mean people are planting [indiscernible], for example, in the western Cape nowadays, which was unheard of many years ago. As all of that happens, I mean, there's all these agri support businesses that sort of emerge from that. So we rent about 10,000 square meters to one of them in Cape Town. And it's a strong business and it's got very good parent companies on top of it. And part of the reason why we did that was the electricity supply to that particular property was sufficient for their requirement. And we find that there's a need for space for smaller regional hubs for the online delivery guys. So we've moved space there, places like Polokwane, Takealot, et cetera. And we believe that there's room for us to actually expand with our existing tenants. So if we put you in one space, we then offer your space in 5 other regions where we may have space. And that's basically the game we play now at the moment. From a portfolio perspective, vacancies increased slightly from 3.3% to 3.6%, but some of that was spoken for by -- has been spoken for by now. That vacancy has dropped subsequently. Weighted average rentals increased from 55 in -- to about 56. That's just a slight increase really, but at least the rentals are maintained. And our tenant retention ratio was about 70% with escalations on those portfolio currently sitting at a flat 7.6% year-on-year. Again, about 71,000 square meters coming up in 2022. Most of that has been spoken for. So we should renew almost all our leases here or most of them. And if not renewed, we're fairly confident that we'll lease. We did see quite a big pushback on some of the rentals here. It was mainly in the money unit side of things where we took a knock of about 8.4% backward to what we thought we'd do. So relative to our budget, our asking rentals, it was minus 8.4%. And if you look at our renewals, there our reversion rate, our performance, the budget was 12% higher, but we achieved a reversion of 3.3% negative. Looking at residential, fixing that happened here, the 30% additional that we bought at Palm Springs, and we took back Midrand and Bruma, just to remind you. We developed these or redeveloped these into residential from office and then to just mature assets from a leasing perspective, we just sold them on -- with a buyback option. That option was exercised and we brought them in. And I think it's absolutely the right decision, as I'll show you how these assets are now performing. Basically, looking at Norwood, total average rental there's about 8,000 a square meter and on a per square meter basis, what we're achieving for a studio apartment, a studio apartment there fetches about 224 square meter and a one bed about 180 a square meter and about a 100. So I mean, I suppose the smaller units, the better the rentals that we achieve out of those. And at Palm Springs, we're averaging about ZAR 142 for one bed and ZAR 130 for 2 beds a square meter. At Midrand, we're making about 157 a square meter ZAR 112 for 2 beds -- for one bed and a studio at ZAR 160. On average, Midrand about 151 a square meter and at Urban Villages Bruma, there we achieved ZAR 145. Just a reminder, these were conversions, Midrand and Bruma. And at the time of converting these assets, not only do they have a very high vacancy factor but we were achieving about ZAR 70 a square meter for commercial rentals there. So that was absolutely the right thing to do because some of these rentals have actually ticked up quite nicely. Looking at vacancies, my sense for these vacancies is this vacancy actually speaks to affordability because you can see that the studios and the one beds are moving, but there's a bias towards 2 beds in terms of vacancies. Palm Spring 35% of the 2-bed units are empty. And Midrand, vacancy is -- 73% of our 2-beds are empty there. But given your overall sort of vacancy in the 2 beds of about 33% but mainly driven by Palm Springs. So when in previous years, the 2 bed was popular, it seems like the 2 bed is no longer as popular as it was previously. I just remind you that, obviously, our occupancy in Midrand and Bruma and Norwood is 92%, 94% and 100%, respectively. So most of the vacancy is sitting in Palm Springs. And we think that it has to do with obviously slowing economic activity in that area. And we've also learned a few lessons from this particular one, that the units are exceptional. I mean, that's the same unit you'll find in Rosebank on the affordable side, it's the same at you find in [indiscernible], but it's located in Cosmo, it would appear that someone living in Cosmo would much rather move closer to where the work opportunities are and overtake the status of a suburb before they move in there. However, that's obviously countered by if you're like serious operating to the max and everything else and that it is appropriate into the max, no one's going to track to the other side of town just to travel back to that side. So we're adjusting our pricing there, and we think we'll get it right. We've already seen a bit of an uptick in the leasing there. And I think next year, when we report here, maybe on the back of slightly lower rentals there, that Cosmo will be sorted. Just touching on the most important part of our business, which is our people, our team expanded from 81 to 90 employees. We added another 9 heads to the team. We invested in an online trading platform with all kinds of causes on it, some that we've made voluntary and some that we've actually made compulsory for the guys. So we're always up-skilling the guys. They actually have to write exams and pass these exams before they move on to the next thing. We -- obviously, the more we train or it actually can be about people doing the right things on the job and making less mistakes. So big, big emphasis point. And with COVID, these people don't have to sit in a classroom environment. They can do all of this online. And we've got a great way of tracking that they're actually achieving at least the minimum mark that we set for them. We started the internship program way back in 2018, was affected by COVID-19, lots of problems with it. We picked up where we were going wrong and we've made some great improvements. We've got 2 great interns -- sorry, 4 great in terms here. As you know, when we put out advertisements for people to apply for these internships, I mean we received so many applications, but said that we can only accommodate for. We'll try and obviously accommodate more going forward once we've sorted out the bugs in the system. But I mean, this is just a fair reminder of the amount of people standing in the streets and looking for jobs to decrease when you put this out there. And these candidates are brilliant. I mean they come with masters and have faster distinctions. But there's just nothing for them in the country at the moment. And we see this as an opportunity. I think, going forward, we probably have -- as we employ more, grow and as people fall out the system, I think we will have wonderful people to pick from. And it's great for us to actually contribute towards that skill base. If we can't keep the people, at least someone will actually end up with a great candidate afterwards that's got practical experience on the job. Obviously, on the back of COVID stressing people quite badly, people have lost family members and this -- sort of introduced some wellness programs for people to cope with this, improving on those as we go about and sort of learn more in terms of what people's need should be. But I mean, yes, we've made some strides there. Our staff retention ratio is probably reflective of the fact that we've got happy workers here. We're not losing many people, to be honest with you. And we believe that the diversity of our team is our strength. It's a very diverse team in terms of every single thing, race gender, skills, qualifications. And I think we'll build on that diversity going forward. It just brings a different mindset to the boardroom into a discussion and it worked well for us. I think having property management in-house is part of the reason why we've got such competitive cost-to-income ratio. And as we grow our portfolio with the economies of scale, sort of benefits coming in, that benefit to reflect even more going forward. So we've got enough capacity now in-house to take on more, and that can only be great for us going forward. Just going back to the civil unrest, we suffered damage of roughly ZAR 100 million. And SASRIA has made a part payment by ZAR 30 million to us. Ten out of the top properties were damaged by -- either partly or fully trading. So the ones that are trading, in terms of capacity or number of tenants back or GLA, anywhere between 70% and 100%. And then we've got 2 properties that aren't trading at all that we had to rebuild because they were completely destroyed. Having a large portfolio is obviously assisted here because the impact of this, although insured, given just on operations, not that huge. So on -- so we're quite comfortable that we'll -- by about anything between 7 and 12 months to rebuild those 2. But I think the others -- the other 10 should be fully trading by no later than sort of Feb next year, but with builders holiday coming up, all tenants are still fully committed, so we should have them back. And obviously, this is going to impact on our insurance premiums and it's definitely placed a higher risk premium on SA and how people look at it. Do we think we'll navigate this outside of the normal, securing more, doing this? I think the key thing here is for us to realize that it's a team effort here, that it's going to take an integrated approach between all stakeholders to limit this, the re-occurrence of this or even avoid the total. So as owners, as community, as government, as SAPS, we're just going to have to pull together and try and be a little bit closer to them and just walking through the streets and talking to the people. I mean, some people are fully regretting this. They've lost jobs. They've lost the convenience of shopping closer to home. So yes, it may reoccur but I think maybe not to the extent that it has. Just briefly touching on the corporate action, we -- obviously, we've been engaging our market at large. There's quite a lot in the public domain here that we've published about what we're trying to do. But our Board firmly believes that our current capital structure is limiting our prospects. The -- for the deal to work, we're going to need A and B shareholders to reach mutual agreement for benefit of the company. I think if you look at how we as a board relate to the Company, we've got a fiduciary duty towards the Company. So we serve all stakeholders. And I think we always -- we sometimes get the sense that people think that the thing might be skewed a bit towards a B or skewed a bit towards A, that's certainly not the case. That's not how the Board looks at it. The Board looks at the Dipula and things, how do we make Dipula Incorporated sustainable? How is the Company going to grow? How do we get the Company's cost of capital right, so the Company actually take advantage of opportunities in the market because there is plenty of opportunities in the market, but Dipula has been sitting on the sideline and just watching others play. We've also been sitting and watching Dipula trade way away from its intrinsic value. How do we fix that? And we believe that this is the best option that we speak to the market. Obviously, we'd like to discuss with you and we like to actually vote in favor of this thing. There's a lot of technicalities in the transaction itself. And we are more and willing to answer some of the questions. But I think the point I'm trying to drive on is, as a Board, we've got a fiduciary duty towards the Company and we're looking after all of your interest, not a particular group. We believe this solution will put us back on a growth part, and for us to actually start participating in these opportunities, as I said early on, that we see daily but basically we cannot do anything about.

Thank you, Izak. I'll take you through the financial overview for the year. Just on the highlights, revenue, we were ZAR 1.4 billion for the year, increased by 8.4%. Distributable earnings increased from ZAR 447 million to ZAR 552 million, 23.5% growth. Investment property values, as Izak mentioned, we maintained values at ZAR 9.1 billion. And on our interest-bearing borrowings, we effectively reduced our debt from ZAR 3.5 billion to ZAR 3.4 billion, so it's about ZAR 100 million-odd reduction in the debt. Distributable earnings per share on a combined basis to 208.65 cents, on the A 118.95 cents and on the B 89.7 cents. Izak has given you the details on the numbers. I think obviously just highlighting on the B, a 4.7% growth in the B distribution, which is normal in the current market. Then just touching briefly on the discount to NAV, so on a combined basis based on the 31st August 2021 market prices, our combined NAV is effectively -- our market price is trading at 38% discount to our NAV. So we obviously believe that there's a significant discount priced into our share price. And the main reason we attribute that is because of the capital structure. And I'll touch on -- through the presentation, there are various items on the business and we can see everything else is running on track and actually exceeding expectations, but the capital structure is effectively [indiscernible]. So on the DIA side, we're trading at 16% discount to NAV and on the DIB side we're trading at a massive 60% discount to NAV at end of August. Then moving on to the distribution statement, so this is not the income statement, it's the distribution statement stripped out of all the IFRS adjustments to explain to you from a distributable earnings basis of ZAR 552 million, how we effectively arrived at that. On the revenue side, we effectively achieved ZAR 1.352 billion for the year, so there's 8.4% growth. And very similar on the income side and on the recovery side, just north of 8%. So just to touch on an important number in that is during the current year, rental discounts passed for COVID amounted to ZAR 13.7 million. And in the previous year, we effectively passed discounts of ZAR 49 million. So that's one of the reasons why there is an 8.4% increase. So it's a combination of that and the intrinsic growth in the property portfolio itself. On the property expense side, we grew by 3.3%, which is -- I think it's a good result and you'll see that effectively dropping down into our expense ratio. So expenses pretty much under control. I think besides that -- staff that Izak touched on, I think we confirm besides the staff, we've got great service providers, whether it's our contractors, our professional team, our consultants, corporate advisers. So I think it's taken us 6 years from internalizing property management and I think we've got the recipe almost 100% now. So I think the complement of great staff, great advisers, products in the right location, I think everything is coming together. Net operating -- admin costs to effectively decreased by ZAR 2 million from the previous year. In the previous year, there was 2 transactions where we -- there was a corporate action and there was a large acquisition. So in total, there was about ZAR 2 million of professional fees and legal fees that we paid in 2020, which didn't repeat itself in 2021 year. That results in the drop of about ZAR 2 million. Net operating profit, ZAR 858 million compared to ZAR 766 million. And if I just to give you like-for-like numbers, if we adjust for the COVID discounts, assume the COVID discounts didn't take place, in the current year -- in the previous year, strip out the acquisitions, the like-for-like growth on the property portfolio is 6.4% year-on-year. Finance costs decreased by 6.9%, mainly because of lower interest rates across the 2 years. And then on the non-controlling interest, we -- there was ZAR 26 million to ZAR 34 million, the main reason for that being in the previous year, we had Palm Springs, Cosmo in for 2 months. And at that stage, there was the -- pro rata share that we need to obviously pay to the co-owners and during this year it's for a full 12-month period, so there's a higher amount obviously we had to pay to the NCI shareholder, translating to this ZAR 552 million distributable earnings. Then just touching on the property cost-to-income ratio and the admin cost-to-income ratio, both of them decreasing year-on-year. The property cost-to-income at 36.3%, and yes, the increase in revenue does play a part to assist in that ratio coming down. But at the same time, the cost did not grow as high as what -- the income growth, so the combination of the 2 resulting in a 4.5% decline in property cost-to-income ratios. And our admin cost-to-income ratio is sitting at 3.1% for the year. I think we're probably sitting at one of the lowest admin cost ratios in the REIT sector currently. So obviously, we have the right complement of staff, but I think the team drives efficiencies. We're not overstaffed and everyone adds value to the company. So I think this gets under distribution statement. Moving on to the sectoral performance, we -- effectively on a net property income basis, we -- retail contributed 60% this year compared to 62% in the previous year. And in offices and industrial, 19% and 17%, similar to the previous year. And you can see now the complement of the contribution for residential sitting at 4% for this financial year. Previous year, it was almost zero there. So still a retail bias portfolio, retail biased mainly towards urban township and rural retail and convenience shopping centers, which in this current market is -- withstand the pressures on the other sectors experience. Moving on to the statement of financial position, our investment properties, including held for sale, is sitting at ZAR 9.2 billion. Just to highlight properties, all properties over ZAR 12 million are independently valued and properties below ZAR 12 million, there's a retaking process, we wanted is basically valued very externally. But in summary, only 5% of the property valuations are done internally. 95% of those valuations are based on external property valuations. And I think the reason why the property valuation is maintained is if you look at the income stream, the income stream is effectively flowing through. So it makes sense we compare what the income numbers are delivering to what property valuation numbers are resulting in. Trade and other receivables, we effectively -- there's an increase from ZAR 164 million to ZAR 233 million, and that's not mainly to trade at this. There was a portfolio of properties in Weinberg that we effectively sold. There was a commercial effective date before year-end. But the properties have not yet physically transferred the deeds office and the cash hasn't exchanged in, so there's ZAR 42 million of debtor sitting in there that relates to properties that were sold and effectively we're waiting for the cash. So that's the main reason for the ZAR 164 million to the ZAR 233 million. Other large variance is on loans receivable. Previous year, we had ZAR 206 million. This year, we have ZAR 9.5 million. I think we're pleased to note that as well, all the majority of 95% of the vendor loans that we had in place have been settled. So there's no risk of vendor loans defaulting. We've effectively cleared that balance on the vendor loans, so that's a reduction of 95%. Cash and cash equivalents, we're holding ZAR 62 million. And then on the debt side, as I mentioned in the intro, we reduced debt from ZAR 3.5 billion to ZAR 3.4 billion. And I think just on the net asset basis, we're sitting at ZAR 5.4 billion compared to ZAR 5.3 billion. Derivative, financial liabilities and the swaps also reduce, that’s your mark-to-market value on the swaps, decreased from ZAR 155 million negative to ZAR 84 million. And on the loan to values, 36.5%, reason portfolio maintained value decrease in debt resulting in the 36.5%. Our covenant levels, we -- previously, they were sitting at 45%. You'll note in the results announcement we advised the covenants increased to 50%. So the banks have -- as part of the renegotiation on some of the debt facilities agreed to increase the covenant to 50%, which effectively is similar to what most of the other REITs are in this sector. And I think the 45% was a historical issue when the Dipula's portfolio was smaller in size and maybe certain properties non-core, that was the reason for the 45%, but we've got that increased to 50%. I think that's just a summary on the finance -- balance sheet side. And just moving on to the areas -- the trade debtors across the portfolio, you see, we've got a history running from April 2020 to October 2021 from the time COVID started. So when we started, occupancy collections were low, 72%, 89%, then it increased to over 100% where we managed to recoup some of the April and May figures. And for the period, we -- until October 2021, we're basically reporting 97% of collections for all sectors. On the retail side, we collected 98%, the office side 91%. The main reason for that is because of government. The debt will be recovered, but it takes time, when there's a process and there's delays in payments, but we will effectively recover that amount as well. Industrial is quite good, 99%, and residential at 97%. So I think in total, whatever we needed to provide for the -- our debtors book, we've provided for adequately. If I take the total amount of debtors we have outstanding less provisions, there's probably about ZAR 13 million in total in the entire portfolio that isn't provided. So if we -- every single debtor we haven't provided default to ZAR 13 million there. But obviously, that scenario is highly unlikely. So I think we're happy with the collection process on the trade debtors as well. Moving on to the cash flow, I think cash flow year-on-year, pretty similar. There's just one item I want to just identify and highlight is on the taxation paid. You see in the slide in front of you, there's ZAR 86 million that was paid for taxation. That amount is not in the distribution statement, the reason for that being for IFRS purposes, when you look at the income statement you see the amount reported, but the ZAR 86 million relates to the taxation that's due for FY 2020. And to remind participants, in FY 2020, there was ZAR 447 million distributable income. The Board took the decision after considering all the scenarios in our liquidity position to withhold that dividend for FY 2020 and the resulting impact was we had to effectively pay income tax on the amount -- the ZAR 447 million, less any -- less losses we had. So that effectively is the ZAR 86 million that we paid during this current financial year that relates to the previous year. Okay, then just on the debt profile, we have -- we refinanced during this current year, there was ZAR 987 million of debt that we renewed. The nominal rate on it was 6.3% for 2.4 years. Our total debt hedged -- at 31st August, we hedged for 67%. There's obviously been recently, especially in the last month, a shift in the swap forward curve. So we're actively monitoring the swap rates on a daily basis, and we probably increased the deposition made to over 70% -- probably to the early 70% level to reduce our exposure on the interest rate increase cycle. Weighted average cost of debt for the year was 8.2%. I think that's an all-in rate, and it's reduced from the 9% in the previous year. Weighted average debt expiry in the portfolio is 2 years. Edge expire is 2.4 years. And the total debt we repaid capital repayments is round about ZAR 100 million that we repaid the banks during this financial year. And that was part of the process in the ZAR 987 million debt negotiations. So as we stand at the end of August, we see this 29.1% of debt that matures in the next 12 months. That translates into ZAR 1.1 billion that matures in the next 12 months. But we're pleased to advise that we have successfully concluded on one specific bank the entire debt that sits with them, that's about ZAR 1.2 billion. We've refinanced that entire amount for periods -- for an average period of 3 years at 5.99%. So one bank that -- in type that expire in the ZAR 1.1 billion is taken care of. So we have about ZAR 400 million odd that we would need to refinance for the remaining of the financial year. We've started those discussions. The -- most of that debt comes up in 2022 calendar year. And we're quite confident we'll be able to refinance that debt at fairly attractive rates, seeing that our LTV covenants -- our LTV ratios are sitting at quite a healthy state, and the business is performing well. So we'll work on that. But what we're also engaging with is to try and diversify our debt. So we have large exposure to 2 banks. We have one new bank, Investec, that we've -- on the Midrand and Bruma properties that we recently acquired that's come in. So we're trying -- we'll probably look at maybe increasing some exposure on Investec side and maybe bringing some other funders because we ideally want 4, 5 funders in the portfolio. We're sitting with 3. So we'll work on the diversification strategy. And the other item we will effectively be looking at is on our solar projects. We'll probably go-to-market to raise funding to fund the solar projects, and we have a pipeline of about ZAR 238 million of refurbishments that we need to fund in the next 18 months, so that LTV ratio is definitely going to pick up from where it is currently to fund these projects I've highlighted. But I think our target is still -- we probably sit around about at 40% level post funding of these new opportunities, which is the -- 10 percentage points below our 50% covenant level in terms of our loan agreements. Yes, I think that's it from my side. Back to Izak.

Just briefly, I think looking ahead, priorities being set by Board is to resolve the capital structure discussions with the market now at a moment. As Ridwaan alluded, I think the broadening of funding sources is top priority here. And I think we don't want to find ourselves in a similar situation again where you're kind of uncertain. And So that's not an easy thing to do because you obviously -- there's always a discussion about how you move the assets and that sort of thing. And don't get to be wrong. I think our funders, we have difficult discussions with them, but they have been great and so on. But I think even for their sake, it will probably be better if we had more people in the room in terms of our funding. We have identified at Board level that rental policy and as far as LTI is concerned need some reviewing. There's no specifics about that now at the moment. But it's something that the Board is applying its mind to just try and get better alignment and then also get -- retain some key staff in the Company. I think we'll obviously be communicating to the market in due course in terms of what thoughts might be around that because I think COVID and everything else that's going on in the market has really put this thing upside down here. So we need to do something about it. But need is obviously to focus more on ESG and we have the plans in place to sort of work a little bit harder in repositioning our Company from an ESG point of view, especially environmental and the social side of things. I think the social side of things is actually paramount, just given the locations that our assets are located in and how important it is to find synergy and harmony with the communities that shop at our centers. So it's quite a big focus area for us going forward. Many of our Board members have obviously served for quite a lengthy period on the Board and some are aging. So now the Board has identified that there needs to be some sort of succession planning. And So this is something that is being prioritized at Board level now at the moment. And again, we'll update the market as we deal with those issues. Next year, we're also looking at implementing process management systems, very, very important. We've got lots of assets. We've now got a reasonable amount of people. How do you track transactions from A to Z, how do you assign proper accountability to people in an electronic way, now that people can work from anywhere, anytime, that's a project that should be implemented in the first quarter of next year. We're quite far down the line in terms of that. That will make us more efficient, and we really look forward to that implementation. We are looking to roll out more solar. We've got about anywhere between 7,500 kilowatt peak to about 15,000 kilowatt peak to roll out [ at least ] of solar. As I said earlier on, the return should be sufficient and that's anything between ZAR 60 million and ZAR 150 million. If you take that ZAR 60 million to ZAR 150 million, you take the ZAR 240 million that we're talking about, how do we fund that? I mean raising new debt is not that easy. Selling assets to fund those things, you can't really tell on the timing of when and how that can happen. But we need this money, and I think it probably seems like the most logical is to fund that out of our own operational cash flows and how do we actually do that in a balanced way. And lastly, I think from a guidance point of view, I think we did put out some numbers in our FIA, and everything hasn't changed in terms of what we put out in those FIAs. Thank you very much. I think we'll now have an opportunity for questions, and then take it from there. Thank you.

Our first question is from Nazeem Samsodien from Investec. He's asking, why is the AB restructure dependent on an equity raise from Resilient? Is an equity raise really necessary given the LTV?

Nazeem, thank you for the question. I think that question was partly answered here. I think our CapEx requirements are a little bit understated at ZAR 240 million. CapEx requirements are -- could go up to ZAR 500 million, even if you bring in the solar projects that we need firstly. Number 2 is if you look at the deal that we've put in front of the market in terms of FIA that we issued, and obviously, more details will be provided in the circular that's due to come out, we went from obviously ZAR 1 billion from Resilient without potential for the market to participate in it to basically the ZAR 600 million being open to the market as a whole to participate in. And out of ZAR 400 million is the beginning of a strategic relationship with Resilient. I mean it has an asset that comes in, we form a partnership and we form a partnership with the management team that we highly respect and a management team that respects us. And who knows where that could lead Dipula in terms of an opportunity set going forward. So I think, yes, there's -- it will appear that there's no thinking in it but I think there's a lot of potential and very positive potential that could come out of a strategic association with Resilient. That's certainly how we see it.

And the second question is also from Nazeem Samodien and then Yusuf Mowlana from Prudential Investment Managers asks a very similar question. I'm going to read all 3 of the questions to you together. Nazeem is asking what is the rationale for not paying a dividend if the dual share structure is retained? Yusuf Mowlana is asking, please explain the need to potentially withhold all dividends next year, should the dual structure remain in place? In discussions with the management team of resilient over the years, they've always said that a payout ratio of less than A 100% means that the balance sheet has not been managed properly. Do you agree Or do you disagree? And last question from Yusuf is, how does the dual unit structure complicate THE payout ratio whilst the answer not to implement the payout ratio and see where the share settles? It also feels that the discount is not -- the discount on the share is not out of line with SA-focused REITs. How can you be sure the discount is due to the capital structure?

Okay. Thanks, that's a mouthful. Let me start with the end. I think there's probably one -- maybe very few of us that are SA-focused here. I mean if you look at our relative performance, if you look at what we've delivered to the market, and you're familiar with the numbers, and we look at, say, a [indiscernible] a better example, I mean the discount at which are Bs particularly or -- and where we're trading on a combined basis to where they're trading, covering the same market segment in terms of our retail, generally speaking, and with us was -- if I may say it myself, I think that a track record of delivery and a track record of stability and good management and all these other things that we've been saying, I mean I can't believe that with a defensive portfolio like ours that discount should be as deep as it is. I understand that there's as SA Inc. risk that people are concerned about here, but should that discount be as high as it is -- we don't believe it should be. I think there's always concerns around what -- where the B will settle on the back of a payout ratio of sorts, number one. And I think as a Board from how we've looked at the situation is that if you've got dysfunctionality in your capital structure, if you've got Bs paying for everything in the Company, then the B price obviously will be under pressure and the As just becomes -- there's the harmony in the system, which you can't actually deal with because going forward, will you raise money from B guys going forward, will you raise money from A guys, and how is it going to work? And historically, we've never had issues raising A money, but we've always had issues raising B money. But if we had A and a B, we could have actually raised capital. We can't, for example, do a reinvestment, a dividend reinvestment program, because if we do a dividend re-investment program, we can't issue more As than Bs. If As go for the reinvestment program, which is logically what we think would happen, then we just don't have the ability. So there are intrinsic problems with the capital structure as it stands that's actually preventing us from competing fairly in the market. And again, as I said earlier on, the Board has a fiduciary duty towards the Company as a whole, which includes our creditors. I mean as our creditors perceive our capital structure to be weak, that obviously the banks will be a little bit skeptical around funding Dipula because you've got 50% of your shareholders that might not always be happy and your voting becomes dysfunctional and everything. Now, how do you implement -- how do you -- why did we say that there's a chance that we might actually not pay dividends, which is obviously something that we're very serious about? It's because the way we see it is that when we implement the A and B structure, it was never anticipated that in South Africa, at the time, let alone Dipula, everybody was paying out a 100%, right. And what subsequently happened in the past 5 years is everybody started tapering down and going to a payout ratio, okay, for obvious reasons, to fund CapEx and do all these other things. We couldn't necessarily go there because our structure never anticipated the payout ratio that will only prejudice one set of shareholders. It does. And I can understand that as an A shareholder, you're sitting there and you're thinking about your own position and you didn't care about the position of the B. And I can understand as a B guy, you might also feel hard done. You might feel that the A position doesn't matter to you. But as a Board, we have to think about the As, we have to think about Bs, we have to think about our ability to raise capital from equity, funders and from banks and any other providers of capital. And we believe that as things stand, we can't. We also believe that what's the point of being listed and being a REIT if -- because REITs are capital hungry type structures. So we try and -- because we pay out all of our income, so we need to raise capital for expansion. But if we can't risk capital for expansion, what's the point of being here.

Wilhelm Hertzog from Rozendal Partners is asking, the proposed corporate action appears very dilutive for the B unitholders on a net asset value per unit basis. On what basis do we expect the B holders to vote in favor of the transaction?

I think as a B share -- let's leave the capital raising aside. I mean, past shareholders must vote on that. If the capital raising doesn't happen, it doesn't happen. But the key thing that we want is to have harmony between the As and Bs that we have restructured as undone. Again, as a B shareholder, you should obviously just ask question around why don't you just go on, taper down the payout ratio, let the B take all the pain. As a B shareholder, you need to think about how much pay you potentially can take if indeed the Board just settled for a payout ratio. I mean, if you don't think about that, you don't really understand what you invested in. And it is -- this thing is -- it's not about as not about As, it's not about Bs, it's about finding a compromise position between the 2 because you can't fix a structure that was intended for different market conditions without a price being paid for that. And we're trying to find a balance. I mean we put together what we think is a fair swap ratio, but it's also about what happens post that, which is where we [indiscernible] positioned in terms of -- otherwise, we're going to sit here and basically, we're just going to eat off our own same pace until there's nothing there's nothing left.

Just in response to your earlier answer on the retained earnings, Yusuf Mowlana from Prudential said he disagrees that it prejudices beholders. He says the retained earnings don't disappear into thin air, it goes towards the net asset value and improves the growth prospects of the Company.

What to be paying for the loan! I mean there's an equal number of A and B shareholders in the system, and I think we're worried about what that does for B share price. We're worried about what that does to our ability to raise capital because we can't be a REIT without the ability to raise capital. We can't have a situation where our operational performance is not reflected anywhere in our share price. I mean we can market this Company as much as we want. And as I said -- I mean, I understand where Yusuf is coming from me. He's an A shareholder. I mean, I'll be doing the same thing as an A shareholder, but we almost need to get to a point where we all sit in a room, we find a compromise position because Dipula will not box its abilities with a 2-tier structure. It was fit-for-purpose at a point, we believe it's no longer fit-for-purpose.

Kailan Vandayar from Laurium Capital is asking, should the deal go through what will the dividend policy be? And will this be sufficient to achieve REIT status?

I think if the deal goes through and we've got our gearing at the levels that we did, if it goes through with capital raise and the money is not applied towards buying back As, we'll have sufficient cash for CapEx and everything else, so we will have a high payout ratio. And our intention here is to give the market some sort of guidance around the payout ratio on the back of the transaction depending on what happens. But I mean, if we could retain 100% payout ratio, we would. But I mean, we know that that's not necessarily realistic. But if we went down, I don't think there to be an immediate downward spiral in that payout ratio. And I think we're thinking anything between 95% and 90% as a payout ratio potentially if that -- but only -- and we'd like to keep that flexible, but give some sort of floor in terms of how low we can go and that we can give to the market. But at least there will be a little bit of a tolerance level in terms of guidance that we give to the market But it's not going to be a shock to the system. There is no way that we're going to go immediately to 75, that makes zero sense and -- or 80 or anything like that.

Then obviously [ Liya ] from Salandia Capital asks, the terms to Resilient is very attractive. They are selling 50% of an asset for a very good price and at the same time they get shares as consideration at a highly discounted price. Are you convinced of the strategic benefits to Dipula? And can you quantify these benefits and the time frame to fruition?

Yes, as I said, I mean I think, firstly, we like the asset. That's where our capital is trading at the moment. And as we said, [indiscernible] buying. I think we like the asset. We like the potential strategic alignment. And I don't know how to price that. I think it's -- it could be any number. And there's obviously -- there's a once-off dilution from an income point of view, but that asset becomes quite a significant part of our business as a stand-alone asset. So we kind of like that. But ultimately, the cap raise, the essence of this transaction is that the cap raise as a whole, the whole ZAR 1 billion, that's a -- shareholders voted that. I think what we need to achieve out of all of this is in whatever shape or form we want -- or we are pleading with our shareholders to help us find the right compromise position to give Dipula its rightful place in the marketplace. Dipula should be growing. Dipula has proven its ability to actually sweat assets, its ability to run itself, and now Dipula is sitting in a position where it's going nowhere. And we can sweat every single little detail of this transaction, if we miss that principle then we're going over. So I mean, I understand where Yusuf is coming from. I understand where everybody is coming from. But how do we resolve this issue because it's definitely pulling the Company backward.

Kailan Vandayar from Laurium is asking if you could give an indication on the timing of the circular.

We -- more or less?

I think initially we were planning to have that vote towards the end of Jan, but I think we are delayed, and so it might be probably towards the middle of February.

Kopano Makhu asked an operational question. He's from Mazi Capital. What is the longer-term outlook for your office space? And how much of your office space would be suitable for conversion or repurposing?

Luckily, I think the office space -- and I'm not implying that if everything in our office were in pressure, which is impossible. We wouldn't suffer a loss. But likely, it's only about 18%. I think there are still some conversion opportunities in the portfolio. I mean we're looking at a few now, but I think it's all going to be in the management. It's all going to be about as a debt deal, and there are storage opportunities in the portfolio that one can exploit. There's obviously, as I said earlier on, the flexible offerings. But I fundamentally believe that -- last year, if you look at trading and -- of REITs last year or the market as a whole, around April, May, I mean everything dropped to almost rock bottom and recovered again. The question on where offices are going, going forward, that's still unanswered. I don't think everybody -- I don't think people have all the answers around it. But then part of the reason why we is to actually just try and navigate our way through probably the most difficult cycle of offices, the ones that we're still holding, but we haven't been buying lots of offices. Again, on the back of the ability to grow if we didn't have this inability to raise capital that we have now, we probably could have reduced this office exposure to about 5 or 6% by now. But we've literally been going sideways for the past 4 years, we haven't actually done any meaningful acquisitions for the past 4 years. So we definitely think that we've got our end in the path in terms of just dealing with the short-term challenges around offices here. And we're pleased that it's not a massive component of our portfolio.

Luqman Hamid from Ninety One asks, can you please confirm company guidance? Is the flat guidance for the Company as a whole, and hence the A shares will increase by inflation and the B shares will decrease?

I think that's correct. On a combined basis, we're saying the 208.65 cents, that's what you need to work out on a combined basis for 2022.

That concludes the questions. There are no further questions.

Thank you very much. And thank you, everybody.