Dipula Properties Limited (DIB) Earnings Call Transcript & Summary

Good morning, and welcome to Dipula's interim results for 2024. I have with me our CFO, Sudesh Moodley, who will take you through the presentation. I request that you please keep all your questions to the end. Sudesh will go through the questions, read them and then we'll take them depending on what's been asked. I'll comment to the presentation that a 3-part presentation as is the norm, basically just go through a general business update portfolio, just the trading environment as we're experiencing it now. Sudesh will then provide sort of deeper insights into the financial affairs of the business. We'll then conclude on our way forward. Just looking at the performance highlights for the period under review, our revenue was up 9% to about ZAR 755 million. Contractual income at the same time was up to about ZAR 566 million, 2% up. These numbers come on the back of, obviously, a very active leasing activity during the period. We'll provide some color in that regard. But I think the one number that impacted us quite a bit and will impact us going forward was where we renewed our offices, particularly the offices let to government. We see that, obviously, as a negative and a positive, but we'll chat a bit about that when we get to that portfolio. I think overall, we're quite pleased that we've got an improved WALE across the portfolio and at the same time, a much better debt expiry profile. That's quite useful as we will discuss as we go through the presentation as a whole. I think the resultant impact of some of those factors was a net property income that was 6% up and distributable earnings of about ZAR 249 million, 3% lower than the prior period, mainly interest rate impact. And basically, distributable earnings per share were down 2% more at about 5%. But that's just because we have more shares in issue this time relative to the same period last year. Net asset value during the period ended at ZAR 6 billion, which is 2% up on the prior period or pure valuation-driven. And from a retail performance point of view, the underlying properties seemed to be doing quite good with a 14% increase. We'll provide more color on that number in later slides. Our gearing is at the half year 36%. And basically, vacancies also dropped by about 2% from 10% to 8%. More color will be provided. And our tenant retention rate was sitting always in the same level as the prior year at roughly 89%. Excitingly, we've now pressed the go button on our solar. We've approved or basically tendered out about 5.3 megawatts of solar on 9 properties. That obviously is going to provide fairly decent support to performance going forward. But I think the key thing also here is just from a sustainability point of view, we're making great strides there. But that will be discussed in detail in the later slide. Actually just looking at our portfolio, what are we trying to achieve here? I think it's been the long-term strategy of basically cleaning up, improving quality and improving the income-earning ability of the property as well as the tenant quality across the portfolio. And that is paying off. Obviously, we've had a few years where the speed of that got derailed a bit. But I mean we're now feeling that things are definitely improving a bit. I mean, there's always the headwinds that are happening that are obviously clear in everybody's mind in terms of what's going on generally in S.A. at the moment. But we're thinking of various creative ways of making massive sort of shifts in getting this portfolio into the ideal mix of assets that we want to hold on to. We've got quite a few properties that we want to dispose of to recycle capital. So far to-date, we've only sold about ZAR 40 million worth of properties. And we spent about ZAR 59 million on refurbs. That refurb number is going to pick up quite a bit in the second half of the year. But I mean, obviously, we had a bit of a slow start. I think last year when we reported, I mean, our intention was to press the go button on only CBD. But I mean, we all know what's happened there. So we've changed course of action there. And I'll tell you about that when we get to the retail portfolio. And hence, the slower spend in this first half of the year. As I mentioned earlier on, vacancies dropped from 10% to 8%. And basically, our WALE in the portfolio is slightly up to about 2.7 across the board. That's in the office portfolio, in particular, where we've had a big jump in WALE. Our in-portfolio escalations are still sitting at about 7%, which is still quite healthy. If you look at this particular slide here, in August this year, we had about 274,000 square meters of leases coming up for the 2024 financial year. That's been reduced to about 162,000 square meters. And what it meant was it was income exposure, gross income exposure of about ZAR 32 million. So that income exposure of ZAR 32 million has now dropped to about ZAR 18 million by the end of the period. So about half of basically the income exposure that we had coming up as renewals, obviously, presenting some sort of risk has been dealt by period end and more post-period as well. If you look at those 2 graphs there, the brighter one kind of just shows you where we're sitting now and that gray one shows you where we were. And you can clearly see that we're pushing that lease expiry profile out quite nicely. In terms of just the quantum of leasing done, we have done about 19,000 square meters of leasing amounting to ZAR 105 million of lease value. That relative to the asking rentals was sitting at about minus 2%. So I would say that's flat. That's more or less our asking rentals interestingly. For the 2 years in a row, we have been achieving more or less our asking rentals and weighted average escalations achieved at 7.2%. So these new leases are not going to drag down our portfolio escalations to actually keep them more or less the same. And then the WALE achieved was about 3 years, 3.3 years. If you look at new leases in the period -- sorry, renewals in the period, that's where the bulk of the activity has been for us. Tenant retention obviously been critical to how we perform. We've done 188 leases there at 845,000 square meters. I mean, when you -- regards to the big box portfolios, we'll talk about it doing 5 leases in a year or 10 leases or 15. We're talking about doing almost 200 leases in 6 months. So it's a huge amount of activity on our end and that's worth about ZAR 850 million, as I said. And in GLA terms, it's 125,000 square meters of GLA renewed. Rentals achieved there unfortunately, we went backwards. But I will explain why that was the case. It's mainly the office portfolio. And we'll touch on that when we get to the office portfolio when we renewed those government leases. Weighted average escalation here was about 6.3 years. That would be lower because it's weighted towards retail. And we'll provide more color on the retail side because the retail guys do tend to sign lower escalations, especially our blue chip guys. The WALE there was about 4 years, 3.8 years, which is higher than what we did in the prior year, where we were achieving about 3.2. Might be indicative of market participants wanting to lock in what is seemingly maybe lower rentals at the moment before the recovery in the market. If you look at retail, so we had about 96 properties in the prior year. Now we've got 83 because we sold some properties, particularly towards the end of the prior financial year that the barcodes of those properties transferred. So we don't see that number in these numbers because we're comparing 6 months to 6 months. But there's been quite a nice significant drop in number of properties there, which is kicking our average value up. And what are we selling? We are selling the smaller properties. We are selling the isolated properties. We are selling the more sort of management-intensive properties and trying to move the portfolio more towards shopping centers because that's where our better performance is. And that's really where we would like to pay more attention from a resourcing point of view. In spite of the sales that we did last year, the portfolio remained at about ZAR 6 billion purely due to the fact that what we kept is improving in valuation because it's got underlying growth in it. We'll see that the average rentals in this portfolio has actually gone up. And it's due to having sold noncore assets and all of the strategic revamps that we've undertaken in the portfolio obviously paying off here. We've seen very good turnover growth from our underlying tenants here. The turnover year-on-year growth was about 14%. In that number, it's obviously where you had the tenants with lower turnovers in the prior year. You might replace those tenants with tenants that are doing better turnovers, so there's replacements. But you're going to strip out the non-like-for-like out of that number, then that is basically the growth there in trading density on average was about 2% on a year-on-year basis. And if you look at the split of these turnovers and how they kind of played out, obviously, in line with our understanding of our portfolio and what we explained to you before. This portfolio is still skewed towards your essential retailers, food and grocers making up the lion's share of the portfolio, followed by fashion and footwear and then the rest are sort of below 6% and below. And then from a split point of view, I mean, these are mainly -- we've got rural centers and rural strips in, was making up 35% of the portfolio. And then your urban and urban strip centers making up another 45%, with another 23% sitting into urban townships. Looking at just the leasing activity in this portfolio during the period. Again, similar pattern to -- like the overall picture was showing you, where we basically had 114,000 square meters of renewals to deal with. We've not only the stage left with 66,000 for this year. And from an income point of view, there's about ZAR 10 million of monthly income to speak for from about '16. I mean, these numbers do not necessarily reflect nonrenewal because I mean, that you'll see in the retention, they just reflect the fact that some of these leases are coming up later in the year. I'd be fairly confident that they'll be successfully dealt with. And again, your lease expiry profile is stretching quite nicely if you look at those graphs there, which is what we're trying to achieve here. We've still got some vacancy in this portfolio, which we view positively. Our vacancy has dropped to 6%. But there's still some vacancy in some of our centers, some vacancies in the CBDs that carry very little in terms of rental value. But I mean, we think that most of the vacancy in the centers will be dealt with in some form, shape or the other. In terms of new leases here, asking rentals worth about ZAR 150 a square meter. We achieved about that much. We achieved about ZAR 150, ZAR 152, thereabouts. And that was flat on last year, improving sentimentals definitely here because if you look at last year, we had actually gone 8% below our asking rental. So I mean, the guys are paying up for the better space here. And the weighted average escalations achieved there were about 7.7% on the new leases. And that's about 3.4 years of WALE. And if you look at the renewals, there we also did a fair chunk of renewals, about 50,000 square meters, 161 expiring rental, 166 achieved rental that's about a 3% upward movement from expiry to renewal. Fundamentals are really great in this portfolio, will lead to an average period of about 4 years here. And escalations achieved about 6.5 versus 6.1 in the prior year. If you look at our office portfolio, definitely been derisked quite significantly in this period. We still have about 34 properties. We have about 35. So we haven't sold much in the form of this office portfolio. As indicated previously, I think we are looking at a way of doing maybe a strategic transaction that might shift the needle a bit. But I mean, that's still in the brewer. But I'm excited to just say that we've now derisked this portfolio quite significantly by renewing that government leases. We've only got one government lease still to deal with. And that's also progressing fairly nicely now at the moment as we're talking. Vacancy decreased quite nicely here from about 27% to 23%. What are we seeing here? I saw a caption of a highlight this morning, then talking about Vodacom's results having been hit quite badly by the return to office phenomenon in S.A. at the moment. So that can only mean that offices will be occupied. There will be more demand for space here. We know that development activity is stable down here. So with less space coming to market, more people going back to office and this is no longer just anecdotal. It's actually -- you can see it, the trend. I mean, there have been many a company that's actually spoken about the fact that they're calling people back to the office. So fundamentals can only improve. Rentals are reasonably low in this portfolio. So we should be able to catch some of that return-to-office crowd. Weighted average escalations in our portfolio still sitting at about 7% at the moment. And our retention rate was at an impressive 94%. So our WALE here for our overall portfolio has gone from 1.6 years to 3 years. And just to remind you, I mean, those government leases were all done at 5 years. Again, look at the graph, it tells a good story. 54,000 square meters of office renewals due in 2024 and we've now only left with 11,000 square meters to deal with. And I think it will be about half of that is government and the rest is just normal tenants. So we should be able to deal with that by the end of the year. Took a big knock as I said earlier on the renewals. I mean, just starting at the table below the renewals table, you can see that, that was 27%. We're actually fortunate. Obviously, that office is only about 15% of our GLA. And that although it's hurting us in this half and it's going to hurt us in the second half, probably a little bit more, I mean, that only still amounts to about ZAR 0.03, but it's quite a big absolute number for the office portfolio itself. But also, I just need to remind you that for years and years, we haven't been reporting divergence in our office portfolio in the marketwise. And that's -- we did roll the government leases on shorter leases during that time. So I mean, if you take that 27% backward and you kind of look at where we're sitting relative to maybe some sort of index on office assets, it's a shock, yes. But I mean, that's a shock that for 5 -- we haven't for 5, 7 or 10 years, taken massive negative divergence in this area. That was just something that was due to come. These leases were running for quite a lengthy period. Average escalations achieved on renewals were about 6% and the WALE achieved was about 3.8. I mean that's obviously blending government and other leases in there that were renewed for shorter periods. And if you look at new leases here, there's definitely still pressure because, I mean, we achieved for those spaces that were moved 13% below our asking rental. If we look at prior year rentals asking to this year rental, those numbers look very dissimilar. There would be because every space pocket carries a different rental. So you can't look at it and say, "Oh, no, rentals are going backwards." They're not necessarily. There's offices that we're asking ZAR 90 for and other offices that we're asking ZAR 150 and other offices that we are asking ZAR 180 for. That's a mixed bag of different types of assets. So don't look at that number and think that, that number actually means that there's a big downward reversion of asking rentals in the portfolio. It doesn't mean that. Look at our industrial portfolio, still yielding stable performance, more or less the same as what we had in the prior year. There hasn't really been much sales here. We had one big 8,000 square meter tenant go bankrupt. That's led to 12 and 14 months and then industrial going vacant. And that's the reason our vacancy has gone from 4% in the prior year to about 5%. We will lease those properties. And basically, weighted average escalation in those portfolios is also still sitting at about 7%, 7.3% and the tenant retention rate was about 86%, dropped from 94% in the prior period. And that's purely because we lost this one large tenant here. Again, still got a bit of leasing to do here, a few leases coming up at Corporate Park, advance discussions with DSV in [indiscernible]. And it looks like that lease is definitely getting renewed in the next few weeks. That will drop that number of leases that we still need to deal with in this year to quite a big number. The rest of the leases are coming up from about May to August. And again, there, we don't foresee too much of discontinuing most of those leases. From a renewals point of view, you'll see there, we did 16 deals here. And one of those deals was quite a large over-rented 12,000 square meter warehouse hangar-type facility to government, so that was part of that big government negative reversion story there that you've seen filter through there. And in terms of impact on earnings, that's all in the number that I mentioned earlier. And we've lumped it in there that ZAR 0.03 so on distributable earnings line. Residential portfolio, we see a lot of value in this portfolio. I mean, I think the one thing that's led to us probably sitting in a position where it looks like these rentals are a little bit on the low side is when we launched Palm Springs, I mean we launched Palm Springs in the middle of COVID and at very attractive rentals to get it full. And we can see that the average rentals there are still reasonably low at about ZAR 5,400 square meter in the prior period -- sorry, in this period. And in the prior period, it was sitting at about ZAR 5,100. So we've actually picked up about 5% upward in this Palm Springs asset, which is our single largest one. We think that or we believe or we know that those rentals can go much higher. And basically, if you look at the other 2 urban village, but rent, it was a bit of a 2% increase in rentals on average year-on-year or period-on-period. And Bruma was a 6% increase in rentals period-on-period. And at Norwood, we achieved a 8% increase. I mean, I don't see any reason why 8% increases can't be the norm here. But obviously, we need to filter into the system slowly as we churn. And you can only achieve the higher rentals on the back of brand new tenants because with the existing tenants there, it becomes a trickier times. But I mean, we're obviously working on that. So this portfolio is meaning -- it's not huge in our lives. But I think there's underlying value either by us selling it off and taking the money and recycling in the portfolio or working it harder to make even better contribution to our income growth. So just stats on the portfolio, just briefly on sustainability. Our B-BBEE rating has improved from Level 4 -- sorry, Level 6 to Level 4. Our emphasis on the -- in fact, maybe just start by saying that sustainability to us, we see a lot of opportunity here to drive returns only. And I now clarify the statement just now. But from a B-BBEE perspective, we've dropped to a 4 from a 6. We were hoping for 3. But I think we just missed that 3. And I think for next year, we may be hoping for 2, maybe even a 1. Our focus is on supplier development, CSI, enterprise development and learnerships. That's really what drives. And I think those things are very gratifying. I mean, in the past sort of 5 years or so since we started our learnership and training program, it has been really gratifying seeing these graduates that otherwise don't have any -- many options out there given South Africa's unemployment rate, walk in here, get confident, get skilled. We've retained 1 or 2. But most of them have been placed out in the marketplace and they find themselves really great jobs. So we'll continue. That is very impactful. And this Phase 1 of this bigger solar rollout thing has kicked off in all earnest. As I said earlier on, we've got this 5.3 megawatt that's rolling out in the next 3 months. And that's come at a very competitive price of about ZAR 50 million. And coupled to that is we are looking at efficiencies across the board. So I think that should drop to the bottom line. It's amazing what you find when you start looking at how you use power and how you consume water and these things. I mean, things like recycling, things like gray water harvesting, things like harvesting rainwater and things like that, I mean, those are just things that we have scratched the surface on. So -- and we're really excited to -- with a prospect of actually starting to make real money whilst being friendly towards environment in the space. We've engaged a number of providers in the space and then really exciting things to come here. I think having the roof space that we have across the portfolio, I mean, what we find is that in some of the industrial assets, they have more capacity than what we need from a power perspective. But I mean, the market is opening up for wheeling their power to other users and/or selling it back into the grid and that sort of thing. So that's really exciting for us going forward. Particularly, it's all location-specific. But I can't see that most of the municipalities and regions are not going to start doing or doing the same things in terms of opening up that market for players like ourselves. So it's very exciting, the fact that we've got orders through space that we can do things with. After this implementation, our solar under portfolio will increase fourfold to about 7 megawatts. But in about maybe 36 months, that might be 3x or 4x that. But I mean, it is quite exciting, the prospect that this holds for us. Waste management is another area that we're looking at. Waste-to-power, but also just recycling and being in -- in some of the times that we're in, it's quite -- they're quite filthy. I mean, there's onetime that we looked at where our centers sort of like the cleanest place to be in the town. So what we're thinking is -- sorry, why don't you just clean up the 5-kilometer radius around our property and recycle as much as we can and maybe make a buck out of this as being impactful for those people that are in the value chain for recycling? It's a very, very exciting project that we're embarking upon and I think we'll provide more color as we go. Pleased to report that our consumption of diesel relative to the prior year was lower due to lower load-shedding in this period. Our net recovery was up from 77% to 85%. But our leakage was only about ZAR 513,000 versus ZAR 900,000 in the prior year. Sudesh, over to you.

Sure. Thanks, Izak. I'm going to start off by spending a short amount of time on some of the financial highlights. And then I'll provide more color as we go through the detail of the presentation. Starting off with revenue, we've seen revenue grow by just over 4% to ZAR 729 million, which assisted us in achieving a net property income of ZAR 474 million, which represents a 6% growth. If we have to move on to our balance sheet, we've noticed that our investment property has grown by 1% to ZAR 9.8 billion. And our interest-bearing liabilities has remained stable at ZAR 3.7 billion. These 2 combined have assisted us in achieving a net asset value of just over ZAR 6 billion, which represents a 2.3% growth from our prior comparative period. For noting, our shares traded at period end at a discount to NAV of around 41% and that was at a strike price of ZAR 390. Moving on to our distributable earnings. We achieved earnings of ZAR 249 million for the period. That represented a 3.1% decrease from the prior comparative period. And that translated to a distributable earnings per share for the 6 months of ZAR 27.31. And that decrease from the prior period was at 4.9%. The reason why you see a difference between the 3.1% and the 4.9% is as a result of our DRIP issue in 2023 that had a dilutive effect to our distribution per share in 2024. The Dipula Board had approved a payout ratio of 90%, the result of which we are intending to declare a dividend per share of ZAR 0.2458, which is 4.9% lower than the prior comparative period. Moving on to our distribution statement. We've seen revenue growth, as mentioned to 4.4% to ZAR 729 million. And this is largely due to an increase in property rental income as well as higher recoveries on our municipal recoveries. Our property-related expenses is made up of a combination of municipal expenses and operating expenses. The significant increase that you see of close to 15% is largely due to significant increase in municipal tariffs. Electricity being a bigger contributor to this has seen average increases through our portfolio, close to 16% or 17% on average with sewer and water increase in tariffs being closer to 9%. Our operating expenses or the significant contributors to our operating expenses happens to be security and cleaning. And these have escalated at a rate of 7% year-on-year, which is quite commendable when you consider that the nature of these expenses is that it's not truly all in our control and a lot of it is dictated by the bargaining concepts. This has resulted in us achieving net property income of ZAR 443 million, being 1.4% down from the prior reporting period. Our administrative and corporate costs has seen a reduction to ZAR 26 million. And this is largely due to improved efficiencies we've seen within our admin and corporate cost centers. Combined, we've achieved a net operating profit of ZAR 417 million, being pretty flat or, in fact, 0.4% up from the prior period. Our net finance costs as can be expected, has seen the ZAR 10 million growth from the previous period, up 6.7%. And this is truly as a result of the significant interest rates we've seen over the last period. And this brings us to our distributable earnings of ZAR 249 million for the period, 3% down from the comparative period with distributable earnings per share of ZAR 0.2731, dividend per share of ZAR 0.2458, which has resulted in us achieving cost-to-income ratio that has increased marginally up from the prior year, mainly as a result of some of the reasons I just mentioned above. And our admin cost-to-income ratio due to the efficiencies that we achieved in this area, we managed to curb the 5.3% from last year to achieve 4% in the current period. The next slide basically draws an interesting journey of our distribution per share, starting off with the prior year distribution per share of ZAR 0.2872 and adjusting it for movements in the current cycle to achieve the distribution per share of ZAR 0.2731 at period end. The first movement basically is on our net property income, where we've seen ZAR 0.66 negative movement that are no longer part of our 2024 comparable base and that contributed to ZAR 0.93, a negative effect. And then we have the impact of the government reversions. Whilst, as Izak mentioned, we have seen the significant benefits in extending the tenure of our government tenants, it did come with a drawback with negative reversions. And this contributed to a minus ZAR 0.01 through the period. And lastly, we have a ZAR 0.0127 contributor being the performance of our Held properties. Combined, these 3 elements contributed to the minus ZAR 0.66, as I mentioned. Efficiencies within our admin cost center contributed to ZAR 0.08 positive through the cycle. And the impact of higher interest rates had a negative impact of minus ZAR 0.01. And lastly, you see the impact of the additional 18 million shares that was issued in the prior period that had a dilutive impact to our distribution per share in the current period and that was a minus ZAR 0.06. Combined, this all contributed to a 4.9% decrease in our distribution per share, which translated to a ZAR 0.0146 through the period. Our sectorial performance includes basically the 164 properties within our portfolio throughout the country. There hasn't been a significant shift between these sectors between 2024 and 2023. But I'll touch on at a net property income level some shifts you see -- we have seen through these sectors. Starting off with residential, you see there's a slight improvement from 2% to 3%. And this is largely due to the improved rental we've been achieved at our residential properties. The office contraction from 18% to 17% -- sorry, I lied, that's the industrial, the industrial contraction between 18% and 17% is as a result of a property that has been disposed within our industrial portfolio with the property no longer being part for 2024 base. The contraction from 17% to 15% in our office portfolio is largely due to the rental or negative rental reversions experienced with some of the renewals, as Izak mentioned. And lastly, you see the retail portfolio improving from 63% to 65% in spite of properties we've disposed in our residential retail portfolio. What we found that the net growth within our retail portfolio has assisted us in increasing from 63% to 65% in total allocation. Moving on to our statement of financial position, Dipula's balance sheet is quite simple in nature and easy to follow. We basically have achieved a total assets position of ZAR 10.2 billion, which represents a 1.4% growth from the comparative period. And this is largely a result of investment property growing to ZAR 9.8 billion. That's 1% up and this is due to the property revaluations we processed during our financial year-ended in August 2023. We've seen trade and other receivables increase quite significantly at 16%. However, the reason for such was we used our debt syndication process as an opportunity to simplify our property holding structure Dipula, where we transferred a fair amount of properties out of multiple SPVs into a single controlling entity. As such, we needed to acquire or contribute towards municipal services in order for us to obtain the necessary clearance figures to facility transfer. If we have to exclude this amount of ZAR 32 million, you'd find the year-on-year movement of trade and other receivables would actually be quite stable. The movement on derivative assets is basically as a result of movement in our valuations of our mark-to-market valuations of our swap instruments where our interest-bearing liabilities effectively being quite stable at ZAR 3.7 billion. Our non-controlling interest, just our interest actually relates to a portion of our industrial portfolio that is co-owned with an external party. And this represents our minority partner's stake or share in the net assets of these properties. The growth you see from 2023 to 2024 is a direct result of the positive performance we see within these properties. Trade and other payables had seen a decline of 16%, but this is in the ordinary course of business. And it's interesting to note that as of August 2023, this balance was around ZAR 183 million, which is slightly lower than the ZAR 191 million we see at period end. In summary, as you can see, our balance sheet is quite solid. The positive performance of our property portfolio and the stability of our debt portfolio has resulted in us achieving a positive growth at a net asset level, where we've increased it by 2.3% to just over ZAR 6 billion. And that has translated to a net asset value per share of ZAR 6.60, which is a 0.3% increase from the prior reporting period. Again, all of the positive movements in our balance sheet has assisted us to improve on our loan-to-value ratios. That has improved from 36.9% to 36.3% in the current period. Net asset value per share slide is quite interesting in that it actually highlights those factors that caused significant movements in our net asset value period-to-period. Starting off with a net asset value of ZAR 0.0658, we basically have our ZAR 0.0658, we have investment properties contributed to 0.14 positive in the current period as a result of our positive revaluations in August 2023. There's minor movements as a result of IFRS adjustments. And you have the positive movements of ZAR 0.6 that related to positive cash of net statutory profits through the period that has been adjusted by a negative ZAR 0.054 that related to dividends that I will pay through the cycle. And lastly, you have the impact of the DRIP dilution that add a negative ZAR 0.13 through the period. And this has resulted in us growing our net NAV per share by 0.3%. The debt profile is actually quite an interesting slide because it's quite evident in reading this graph that you can clearly see the benefits that we see as a result of the conclusion of our debt syndication. What you see is we managed refi our entire ZAR 3.8 billion facility. And in doing so we managed to secure quite excellent, in my view, weighted average margins of 0.76 compared quite favorably when we compare that to the 30 basis points higher margin we've experienced in the previous facility. What this has done for us as well is improve our weighted average debt expiry, where we've currently achieved a 4.1 years, which is quite favorable when compared to the 2.9 years in the previous period. At period end, we experienced a all-in weighted average cost per debt of 9.54%. And this represents a 80 basis points increase from the previous period where we achieved 8.74%. Our debt hedge through the current period was at 61%, slightly below the 73% achieved in the previous period, with a weighted average age expiry of 2.5 years over the previous period of 2.4 years. In summary, our liquidity position basically is a positive ZAR 400 million. And this is made up of a combination of undrawn debt of around ZAR 150 million and surplus cash or available cash of ZAR 250 million. Combined, it gives us a ZAR 400 million positive liquidity position. To summarize our cash flow, our cash flow position at period end August 2023 starts off with a ZAR 62 million cash balance and the movements we've seen period-to-period. I'll just touch on some of the significant movements at our cash generated from operations. You see we achieved a slight decline compared to the prior period. And the main reason for this or the contributors to this is those properties that have been disposed of and are no longer in the property base have an impact in the current period. And you also find that the cash flow effect of us contributing towards our municipal clearance figures has resulted in further outflows that had a negative impact. The impact of a higher interest rate climate has result in us increasing our net finance costs by around ZAR 37 million to ZAR 173 million for the current period. And the dividend paid period-to-period has seen the movement from ZAR 291 million in the prior period to ZAR 245 million in the current period. Capitalized costs have been pretty consistent period-to-period with ZAR 80 million spent in the previous period compared to ZAR 72 million in the current period. And the same with disposals through the cycle, where we had ZAR 17 million in inflows in the previous period compared to ZAR 22 million in the current period. The next significant movement is obviously movements in our debt revolving facility, where we utilized ZAR 165 million in the current period versus ZAR 184 million in the previous period. These all combined have resulted in us achieving a net cash closing balance as of August -- as of Feb 2024 at ZAR 138 million.

Thanks, Sudesh. Yes, just looking a bit into the future. I think as mentioned earlier on, Atrium was delayed after the explosions in the CBD. We had lengthy and very difficult discussions with the national tenants that committed and some had pulled out. But our anchor tenant, they were still committed to the scheme. But I think we've now jointly decided that it's maybe not the right scheme for them to go into and for us to go into in terms of capital outlay. So we've significantly decreased the amount of capital allocated to that revamp. And we are 50% pre-let, but no longer doing substantial work for the property as we were going to do, would become they being the anchor there. So we started work there with that 50% pre-let position. I mean, our town planning approvals are still valid. So we're going to start work there before that expires and basically approaches quite simply for one of the floors we've got a head lease. And that particular tenant that's taken that head lease that will then sublease that space to lots of smaller tenants is potentially also going to take another floor and then we've got a different tenant on the other floor of the property. So some income is going to start coming in for that property into 2025, unfortunately not 2024. And we obviously foresee that there'll probably be some drops in interest rates much later in the year. So I mean, that's not going to impact our numbers in any form, shape with the other in this financial year. If it did, it will probably be quite small, but there's certainly a prospect that some positive movements and basically, we see -- still see a huge amount of value in leasing on the portfolio. I think there will be -- there should be positive leasing results coming from the office portfolio. It should still be continuous positive leasing results coming from the retail portfolio and that will underpin our numbers going forward. And I think now that the government leases are out the way, we're now sitting in the dispensation where we've taken the pain and now we're going to start getting escalations out of those particular assets. I mean, our view is that the second half should look similar to this first half. But going into 2025, numbers will look much better. And if I have to just summarize the picture in terms of how we're seeing Dipula now, strong balance sheet, good potential for rental upside, good potential for non-GLA income in the form of the sustainability initiatives that we are embarking upon. And I think a great ability to recycle capital through sales and get into more of these assets that work for us and the sustainability projects that we're looking at. We will now open the floor for some questions. And you're also welcomed to phone us and/or arrange a meeting with us if you'd like to get further insights. Thank you very much.

I'll start off with the first question from [ Talia from Anton Wealth ]. Are your WALE something that you're particularly worried about? Or would you materially like to improve?

Is there another question?

Second one from Talia. What were the drivers of your property-related expenses other than security and cleaning? It's up almost 15% year-on-year, which is very high. Third one from Talia, how do you find your malls or your properties in northern provinces, being in Pomlanga and Limpopo, how do they perform versus Gauteng?

Talia, thank you for those questions. Yes. I think if you look at the nature of our portfolio, the longest lease possible in the portfolio is 10 years; sometimes you do, do the odd 12 years. And then as those 10-year leases roll off, retailers typically renew for 5 years at a time. And there's a strategic reason for them to renew for longer period. So I think you probably for a fund of our nature, we'll always be looking at a lease expiry profile of -- I would say that if you're sitting between 3 and 5 years, you're fine. And if you're sitting below 2 years, obviously, there's a bit of -- there will be a bit of risk in that. But I mean, these properties all roll off at different times. And I think that because you're sitting with a number of assets and not one particular asset, I mean, why would you be worried about lease expiry profile? You'd be worried because you'd be worried about where we renew those leases. But I mean, if your risk is diversified by virtue of having multiple assets that sort of takes care of that as well. So in simple terms, anywhere between 3 and 5 years, we're comfortable with that and we think that that's normal. What drove property expenses? I think Sudesh had mentioned that municipal costs were the main driver. Part of the reason why we're achieving such a shocking B rating in prior years is that a lion's share of our expenses is municipal costs. So that 14% or 15% increase in expenses was mainly municipal costs. But I mean, we recover most of that. So it's a bit of an in and out to some extent, obviously, a number to watch because it speaks to all-in cost of occupation for tenants. But I mean, that was mainly driven by electricity. I mean, rates didn't go up when we look at the average across the various municipalities by such a scary number. But your other sort of non-municipal costs are going up anywhere between 5% and 7%. I think we're averaging about 7% during this period. Inflation did peak last year at some stage. So I mean, you negotiated into a very high inflation environment. I think it has a role to play. So I mean, we need to hopefully have contracts also expire differently with the various service providers to make sure that we play around it at risk. And when it looks like the costs are going up a little bit too steeply that we need to maybe retender the work out and look at different ways of doing things and really guard that bottom line through driving top line performance as well. How the mall is doing in northern provinces are retail there. Northern provinces are densely populated. There's lots of people. In some of those towns, as agri and mining activity going and lots of government tenders and things happening and lots of informal and formal businesses. So I mean, those centers are trading quite nicely. And I mean, those -- that northern province is quite strong. As I said, it's densely populated. You might not see it when you drive through a little town in Limpopo, but when you go deep into the villages and then you'll start to see that actually there's a huge amount of human settlement in those areas. Thank you.

Next question is from [ Rafael ]. Do you see any other major reversions in the industrial renewals or any other renewals? Two, what would lead to either an increase or decrease in the payout ratio? Three, the net finance cost and the cash flow seems higher than the income statement, ZAR 159 million versus ZAR 173 million. Why is this?

Okay. Sudesh, you just check that net finance one. I think we're through the worst of reversions, just dealing with the first question. I mean, that was purely, purely government-driven. And as I said, I mean, those leases that escalated for a very long period. If I think about that Sterkolite industrial building, I mean, we've had that building for 13 years, over 13 years. We hadn't actually done the renewal there. And I think when we bought it, it had a 8-year lease. And for the past sort of 4, 5 years with the short-term renewals and the renewed it more or less the same rentals were slightly up. So we just got ourselves into quite a high situation there. But besides that, I think the offices themselves -- obviously this cycle is into the worst time in the office cycle in terms of just oversupply and all this. So we went for safety there. But I mean, into next year and later this year, I mean, I'll be very surprised if there was anything close to that. If anything, I actually expect positive reversions from the portfolio. Payout ratio, at this stage, the Board is comfortable with that 90%. Things that could swing that decision is if we need money for something that makes a lot of sense and the only source of that and the most sensible thing is to withhold dividends. But I'm sure the Board will make that decision, but it will be on a transparent basis, what the market, but at the moment, liquidity position is decent. And it allows us to do what we need to be doing with short-term and medium-term CapEx, and obviously our first source of funding these things is to try and sell assets and recycle and redeploy the cash into the portfolio. So I don't really see the Board tempering too much where that payout ratio at the moment.

And if I could answer the last question. Basically, the recap, Rafael asked on why there is a difference between the income statement net finance cost of ZAR 159 million versus ZAR 173 million. And this is because the cash flow is effectively the true cash payments through the period versus the income statement, which was our actual cost. There is an element of interest accrued from the previous period that was paid in the current cycle that basically resulted in a difference. Out of interest, we concluded our debt syndication on the 28th of Feb. And in doing that, we had to be up to date with most of our facilities. And as a result, most of the interest was paid as well. So that also gives you an indication that we didn't need to have a larger accrual in the current year as well. Next question is from Zinhle from MSM Property Fund. Please talk to the [ 14,600 ] redevelopment in the office portfolio. Also, can you share more information regarding further assets recycling for the second half? And then -- yes, that's from Zinhle.

Thank you for that. In that number is basically mainly and mostly the assets that we've earmarked for residential redevelopment. They're at various stages, I mean, about half of that we've got zoning approved and everything. So we should be enabled to actually -- we should be able to actually just start those redevelopments. But also in that number is another asset that we had earmarked in this fashion. That asset was sold post-period, so we sold the [indiscernible]. So I mean, our options with that is we aren't going to develop that bulk out ourselves or we're going to get the rezoning and get the thing to get a bit of a better value. And if we decide to actually sell the zoned park on to another developer, but may be that as it may, I mean that's what those assets are. They're basically those ones where we've done a whole lot of modeling. And we've got schemes basically that we can on-sell. We sell it as a package where we've got -- we know exactly how many units we can develop and at what cost and that sort of thing. So we had to lay out the capital ourselves or we sell the bulk on.

Next question is from [ Chris ] from All Weather...

Oh, sorry, she also wanted to know about further recycling. On the second question, yes, we're working on various things. I think it does take a while to conclude transactions. But I mean, we have quite a few irons in the fire. And obviously, it's -- these are sensitive discussions that we have with various parties. I mean, as soon as something meaningful comes from those discussions and some of them are very promising, we'll inform the market. But I mean the numbers could be extreme. I mean, you could see just normal ZAR 100 million, ZAR 200 million sort of recycles or you could see recycles in larger numbers than that. So it just depends on how successful we are. But I mean, when we recycle in this manner, it's obviously to get further into the asset classes that are working for us and the portfolio continue to go retail buyers. I mean, we're not dumping any of the asset classes and that sort of thing, but I mean, I think it is probably better to run a simplified business. And that's why we -- I mean, these assets would still be meaningful in other hands, probably more meaningful if it's focused. And so that's what we're trying to do through this -- the recycling. And we'll have use for that money because, I mean, if you recycle out of one asset to buy another asset at similar yields or better yields, then you're actually not diluting your position by just strengthening your portfolio basically in the process.

Three questions from Chris from All Weather Capital. The first one, can you comment on discussions with PIK regarding conversions or special reductions? Two, what potential do you have to further reduce debt margins for upcoming maturities, given government office renewals? And 3, what are your views on share buybacks?

Sorry, what was the first question?

Can you comment on discussions with PIK regarding conversions and/or space reductions?

Sure. I think, if you could maybe just clarify who PIK is and I'll attempt to answer that question. And then the second question was?

What potential do you have to further reduce debt margins for upcoming maturities given government office renewals?

Yes. So Chris, I think the banks are definitely looking at us favorably because we've got a better debt expiry profile. And you've now got signed leases in place and that sort of thing. So -- and basically, you've also got a debt book that's sitting fairly secure. I think our room for reducing debt margin is probably on new acquisitions going forward. And depending on the quality of that acquisition, as I said, I mean, as things stand, I mean, we can't reduce any margins because we're locked into the 4 -- average 4 years, which is basically 3. Our first opportunity is going to be in about 3 years' time, just all things standing as they are. So there's no immediate opportunity there. But on new acquisitions, if we were to actually get involved in new acquisitions or redevelopments, where we've recycled capital into those assets, then, obviously, we'll probably be in a position to actually negotiate better margins going forward.