Fortress Real Estate Investments Limited (FFB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Fortress Financial results presentation for the financial year ended 30 June 2020. It's been 6 months since we last presented our interim results, but it might as well have been 6 years. It's such a different world at the moment. But welcome. We'll hopefully have your attention for about an hour as we go through our portfolio overview, Ian Vorster, our FD will take you through some of the financial performance. And Vuso Majija, our Retail Director, will take you through some of the highlights of the retail portfolio. It has been a very trying time for the whole of Fortress, for our staff. And just -- I think I'd like to just say a big thank you to them. It's been incredible to see how everybody's worked remotely and actually all come together to manage the business, and in particular, the finance team to actually get these results done in the middle of a lockdown and trying to do audits remotely and things like that. So well done, and thanks to the Board for all their support and the endless Teams and Zoom meetings that I know we're all quite tired of. This is a slide up on the screen, just an overview of where we are. We have presented it a few times, and I think we'll leave it in the presentation just to kind of track where we are and where we want to go. Our LTV, if you look in the middle of that left-hand block, 38.5%. We had targeted 30% to 35%, so that is a little bit higher. It's really driven by the NEPI Rockcastle decline in the share price. We still have the noncore assets. Pleasingly, during the year, we disposed of about ZAR 2.3 billion of assets at this time last year we had identified as noncore. So we still have the offices in the land, the office land and the SA direct industrial and some small other properties, a hotel and some motor dealerships. And really, if you look to the circle on the right, what we're looking to do is to dispose of that noncore, and as we've said, recycle that into the top structures for our logistics portfolio. That will take the logistics to around about ZAR 16 billion, our SA direct retail, which in this little crisis we've had has really proved very defensive, of ZAR 10 billion, our shares in NEPI Rockcastle of 23.3% of that business. And then we had previously said ZAR 3 billion to ZAR 4 billion new acquisitions, but I think given the rise in LTV, that's -- we've said debt reduction and possibly some opportunistic acquisitions if the opportunities present itself. Asset disposals, development pipeline and our core asset performance, those are sort of 3 of the key strategic areas, which we focused on. We disposed of ZAR 877 million of property during the financial year. Unfortunately, the Deeds Office when the lockdown occurred towards the end of March completely closed and is still really on a bit of a ghost load, so open one day, closed the next. So we're struggling to transfer those held-for-sale properties. But if we include the two, and we're very confident that the held-for-sale will be transferred, we actually do get to the target that we set ourselves for the year of ZAR 1.2 billion of asset sales. And as I mentioned, the noncore disposals, which includes the disposal of our shares in Resilient, largely by way of the dividend, the scrip dividend that we paid out at the interims at ZAR 2.3 billion. So something else that we -- I mean, I think it does add excitement to the business, our development pipeline currently in the ground on a total basis. So this is the developments that we control, [ not ] our effective share, 172,000 squares. Our incremental CapEx of -- in terms of cost to complete that from 1 July, ZAR 675 million, I'll touch on that a little bit later. And we still are seeing a lot of interest in our development pipeline, in high-quality logistics especially given the pandemic. We had a lot of overflow space. We had a lot of e-commerce inquiries. So I think it is still something that, I think, globally is quite an exciting asset class. So we're very comfortable with that positioning in that strategy. In terms of our core asset performance, I mean, it really was all driven by the last quarter of the financial year. We gave tenants tenant relief of about ZAR 143 million. That was roughly a 60-40 split, 60% discounts and that was mostly in the retail portfolio and 40% in terms of deferments. And I think, in that, you can tell where the stronger portfolios are and the slightly weaker ones. Our industrial portfolio, we wrote off ZAR 11 million, deferred about ZAR 14 million and -- on ZAR 3.5 billion. So I think that does show you that there's a lot of weakness in that industrial portfolio. The load shedding over the last period and ongoing is really impacting those tenants. The logistics was not much in terms of write-off, ZAR 7 million, mostly deferrals. And offices was about ZAR 3 million in terms of the write-off and about ZAR 7 million in terms of the deferrals. Pleasingly, the logistics portfolio has actually had a record low for Fortress of 3%. So you can see that there's still good demand for that. And we just are now focusing on really tenant retention. When we look at the reversions, retentions versus new deals, it's far better to retain the tenant. So that's really a focus of ours. Just if you look on the right-hand side of the screen, under core asset performance, is a picture of our Linbro freezer there that was let to Imperial during the year. We shifted that lease over to Vector who bought Imperial Cold Logistics from Imperial Group. And if you just look at the bottom there, you'll see there's a little open site. That's actually the first acquisition we've done for a long time. We just acquired the site. Vector wanted to expand. So that was a pre-lease deal, but it's quite nice to see companies expanding in this market of the quality of Vector. I think if we rewind to where we were in the hard lockdown sort of during April, I think people were wondering what we're going to do with valuations. We did guesstimate that'd be sort of mid-single digits down and I think globally we've seen a similar trend. So our like-for-like value decrease for the year was minus 4.7%. And you can see there in terms of the different categories. Again, offices very weak, I think last year, they were down about 7.7%, down 8.6% this year, like-for-like; industrial; and then holding up remarkably well, in my opinion, retail and logistics. And we've just put a value per square there just to give you an indication, I think it's very reasonable. It's certainly below replacement cost for a lot of those assets. We left our valuers unchanged. We get 100% of our portfolio formally valued by independent valuers every year. So we don't -- on the outstanding portfolio of income-producing assets, we don't do any director's valuations. Discount rates didn't move much. I think there was a little bit of -- kind of opinion from the valuers that given the lower interest rates, they didn't move the discount rates, but they did move quite a lot with the growth assumption and the exit cap rate. So it was largely those 2 factors in the DCF that led to the decline in value. And most of the valuers now are using the DCF. I think it's just 1 valuer who does a lot of our Durban portfolio largely uses a cap rate. Just some interesting feedback that we are getting from our sales team. Still lots of demand for well-lit, higher-quality logistics assets. And actually smaller format retail, a classic sort of 8,000-square meter ShopRite, Pick n Pay anchored asset. This is a video of Eastport Logistics Park. It's still really got a lot of interest here on the R21. I mean as you head north on R21, you've got past Plumbago where there's Takealot, DHL, Kuehne + Nagel. You go past the new DSV super facility and then you get to Eastport on the off-ramp. Savino took transfer of their building. As we said in the past, very sad to see it go, but it was at a 25% premium to cost, 7.4% forward yield. So we made some money there. Along the highway there, that one is pre-let to Clippa 14,000 squares. They do have an option to acquire half. And then we've got 2 spec boxes on the go. There's still quite a lot of interest in Eastport. We own 65% of that park in an undivided share. Another interesting deal here is we've signed an offer to sell some land to a data center developer. It's land at the back. So it's not as prime as the highway frontage. It's actually there on the screen just above where that truck is driving exceptionally fast now. Just on the right-hand side, the left-hand side now. So that's actually great. I hope we close it, we'll get some interest in the park and I think we're also happy to chew through the land as quickly as we can. Just a few stats. The vacancy by GLA increased about 90 basis points from 88.9%. I don't think it's -- I think it's actually very good. I think the asset management team did well. And if you look at vacancy by value, which is something that we've been putting in for the last 12 months, 5.7%, only up, I think, about 10 basis points. It really shows that the weakness is in the lower-quality, lower-valued assets. In-force escalations, a nice South African nuance to property is still 7.3%, but unfortunately, impacted by a lot of negative reversions, which we saw portfolio-wide at minus 4.2% and our lease expiry profile at 3.1 years. As I mentioned, the total vacancy by value, it was ZAR 5.8 million, then ZAR 5.6 million at interim, it's ZAR 5.7 million now. By GLA, you can see it rising. And if you look to the second piece on the right-hand side under industrial, you can really see that shooting up. And that is a cause for concern, and we'll touch on some of the asset management interventions that we're planning in the industrial portfolio. As we said, the offices have been sitting around that level. There are a large number of big offices such as Oak Avenue and Centurion, which are vacant, so that number is high. But fortunately, we've -- it's -- the office portfolio is sub-5% of our overall portfolio. And pleasingly, logistics came down, retail kicked up due to the pandemic. Louwlardia Logistics Park, we will complete the last building in this park in about a month or 2's time. That one that you can see in this video is not quite complete yet. WeBuyCars took transfer of their 50% under that option agreement at about a 1% compressed yield from our yield on cost. Goldwagen, similar thing, took -- well, have exercised their option. They'll be taking transfer as soon as we can get the title deeds out of the Deeds Office and actually facilitate that transfer for 50% of that building at the top of the screen. This is Vodacom who moved in about a year ago and then you can see the one that we're looking to complete there. We do still have an option on the south side of this park, sort of on the left-hand side now. In terms of just acquiring more land there, but we prefer not to land bank in this market. So we've got an option there. It's a great node. You can see the cars flying down the N1 there, going a bit too fast. It's a great site, fantastic visibility and a really nice node. So we're quite -- we actually love these kind of parks. I think it's really been very successful. I'll hand you over now to our CFO, Ian Vorster, who will take you through some of the financial performance.

Good morning. Thanks, Steve. Appreciate it. As a result of the impact of COVID-19 on our standing portfolio and our investment in NEPI Rockcastle, Fortress will pay a distribution of ZAR 0.23 on the Fortress A share, and that's less than its entitlement of ZAR 0.76 for this period, which is on the back of an MOI amendment that was voted on and approved by shareholders in July earlier this year. In line with that MOI amendment and in line with the MOI, to the extent the A share entitlement is not met, the B share will not receive a dividend. The reference base for next year 2021 H2, will then be ZAR 0.7613. On the next slide, we have how we make up our distributable income and that's where we build up the income from the direct properties and make adjustments to it. We start with our NOI from our direct portfolio, ZAR 1.97 billion. This is down on last year, obviously, as a result of COVID. Notable adjustments to that is the increase -- sorry, the dividends we received on our listed portfolio that would have been income on our NEPI Rockcastle and Resilient shares. We've included the cap issue that we will receive from NEPI Rockcastle toward the end of this year, much the same as how we've historically treated scrip dividends. Just to note, we still have the capitalized interest that was distributed in the first half of the financial period being the ZAR 164 million. We did communicate to shareholders that Fortress would be deviating somewhat from REIT best practice distribution methodology in that we no longer distribute capitalized interest from H2 2020. So that's still the first half portion. At our interims, we also mentioned that we expected the interest rate protection costs to be much higher in the second half, and that's really as a result of significant interest rate protection that we took out earlier this year in the form of caps. They are quite expensive, but we certainly will see the benefit of those given the lower interest rate environment that we find ourselves in now. That gets us to a total of roughly ZAR 2.2 billion of distributable income. How have we distributed that? On the next slide, we can see the first half distribution of ZAR 1.7 billion, ZAR 1.697 billion. That was paid by way of a distribution in specie. We distributed our Resilient shares at an effective price of ZAR 52.69 per share. The second half distribution of ZAR 0.23 per A share equates to ZAR 274 million. That will be paid in cash with a small amount retained by Fortress, giving us a total of 89% of our distributable income being distributed in the 2020 year. That equates or translates to approximately 76% of distributable profit as defined by the JSE's listing requirements. The reason for that difference is we, obviously, calculate our distributable income based on REIT best practice methodology, which is really forward-looking or it employs a sort of a capital employed mindset to earnings whilst the listing requirements really looks back and -- in line with the taxable income for the period. The next slide, you can see our NAV bridge. We introduced a new metric at the interims -- sorry, at our interim presentation earlier this year of a NAV per equity share, and we've restated for June 2019. That's an amount of ZAR 16.07, recognizing down to ZAR 10.94. The big movers on this slide, as you can see, is some impairments taken in our direct property and development property -- development pipeline. Steve will speak to those later on in the presentation. And then the significant reduction in value in respect of our NEPI Rockcastle share. We equity account NEPI Rock and once the sort of IFRS adjustments are passed, we then effectively mark-to-market to the underlying price. So whilst its NAV would be -- probably there would have been very little movement on that line if we were to consolidate that investment, we've had to take the impairments just given the IFRS accounting for it. Some marginal movements on cash and borrowings, giving us the ZAR 10.94 closing balance. Liquidity and funding, as Steve's already alluded to, our LTV has moved out to 38.5%. That is marginally outside of our targeted range, the higher end being 35%, again, on the back of that price adjustment on NEPI. Our interest cover ratio, looking back at the 2020 year is 3x. Our current available cash and facilities on hand, ZAR 2.8 billion. At year-end, that was roughly ZAR 3 billion. We have repaid subsequent to year-end an amount of ZAR 241 million in the debt capital markets, which I'll get to shortly. Fortress has reentered the debt capital markets in the form of a public auction, which we haven't done in a number of years, and the intention was to sort of continue with that program, and of course, COVID has an impact on that. And really, we haven't really needed the cash right now. So we probably will be looking at that program in the coming months again. We refinanced approximately ZAR 1.15 billion during the hard lockdown and that was coupled to the ZAR 4.5 billion that we referred to at our interim results, which was really a refinancing and tenor extension of amounts expiring in 2020 and 2021, which leaves us with very little to refinance, in fact, in 2021, and I'll get to that shortly. To bolster our liquidity and shore up the balance sheet, we entered into a collar on 11 million NEPI shares. We retain the dividends on those collared shares and it gave us the ability to raise relatively cheap funding in the form of a ZAR 750 million loan at 4.3%. Cash collections, obviously, very topical given COVID and where we find ourselves at the moment. For the second half of the financial year, that's Jan to December -- sorry, Jan to June, cash collections were 96% of what was actually billed to tenants. 93% of that -- sorry, during the months of the sort of hard lockdown and the softer lockdown, April through August, we collected 93% of what was actually billed. It's important to note of what was actually billed because as we sort of worked through the lockdown amounts that were negotiated, discounts and deferrals and so on wouldn't have found their way into the actual billings. So this was against actual amounts billed to tenants. August approximates a pre-COVID sort of normal month in which we collected 97% and below shows the breakdown in which portfolio that 97% was collected. Another hot topic in my next slide is the cross-currency position to, I suppose, to us and the sector. The economics of this product has changed significantly in the last 6 months. We used to achieve a spread of approximately 7.5%. This is reduced to 3.9%. And for the significant risk -- or liquidity risk the product introduces, we have decided to close it out and we've effectively closed out all of our -- or closed out or neutralized all of the liquidity -- sorry, the currency risk attached to the product from Jan to now at a rate of ZAR 18.18. I suppose what's important to note then is that our shareholders have a greater exposure to Euro-based assets. Our interest rate hedging. Total debt at 30 June, ZAR 16.6 billion. We adjust for some fixed rate debt to an adjusted floating rate debt balance of approximately ZAR 15.2 billion, of which we've hedged by way of swaps and caps, ZAR 11.2 billion, a 73% hedge rate. If we look at the swaps and caps and the maturity profile of them and the weight in, it's important to note that we heavily weighted to caps, approximately sort of 55% caps versus swaps. And caps in the longer-date periods being 2025 through to 2028, which, along with the floating rate debt that we have exposure to, will give us a nice saving in the interest line in -- certainly in the coming years in this lower interest rate environment to the extent it remains. Our debt maturity profile. As I previously alluded to, we have very little to do in June 2021, only ZAR 1.1 billion. If we look at the portfolio book of circa ZAR 16 billion to ZAR 17 billion and tenors of between 3 and 5 years, you'd expect to see somewhere between ZAR 3 million and ZAR 5 billion to be -- sorry, to expire on an annual basis. What we've also included there is the portion under our DMTN program that expires in June 2021. There's about ZAR 900 million that expires in June 2023 and ZAR 500 million in June 2025. Of the ZAR 1.15 billion in June 2021, I've already mentioned that we've already repaid ZAR 241 million of that. The next slide, we have our listed investments. We still hold, obviously, our NEPI position. We increased the stake marginally 10,000 shares in the current year. Resilient, we've effectively exited 2/3 -- sorry, 3/4 in our scrip dividend of the first half at a price of effectively ZAR 52.69 and the balance was sold in the market at around ZAR 40 a share. So COVID has introduced some interesting accounting for us that we've had to do. As I mentioned previously, some of the discounts, et cetera, wouldn't have been billed or the deferrals not billed. Certainly, the discounts, given the interpretation of our IFRS sort of revenue recognition standard, we've had to book the revenue and then subsequently provide for the write-off, which comes through on 2 different lines, obviously, revenue and property expenses. The deferrals are caught in the straight-lining adjustment just given that the revenue still will come, but it's deferred over a period of time. Both of these amounts are excluded from our distributable income. I suppose the other side of that entry just being the write-off taken in the property expenses with some additional repairs and maintenance and an increased soft costs as a result of COVID account for the majority of the increase of our -- in our direct property expense line. And that's it for me. I'm going to hand over to Steve.

Yes. Thanks very much, Ian. I'll just quickly take you through Cornubia, I think just something that's a little bit of an update on this. It was where we developed the Makro. We own 50.1% of a subsidiary company in which we did this development. We did provide funding to the subsidiary of ZAR 620 million. Cost-to-date, it's about ZAR 850 million. We did recognize a group impairment of roughly ZAR 72 million. If you include that, the loan-to-value on the loan we've provided is about 80% and we're in the process of transferring it out in undivided shares and getting the cash back. That new box, 23,000 squares, very popular. I think what the one nuance with the Durban market is there is sometimes a need to be able to split it up. So we can split this box up into 4, slightly smaller requirements than we see down south in -- around the port in Clairwood. And that Makro, I mean, for the feedback, we don't get turnover numbers, but it's performing very well. And we've left the space between this box and the Makro. And we're looking at potentially doing some more big-box retail. If we can't get that going, then we'll just do another warehouse. I'll hand you over now to Vuso who's going to take you through the retail performance.

Good morning, everyone. Thanks for joining us. Our portfolio hasn't changed much. We still have 59 buildings. Although post year-end, we have sold 2 buildings, Protea in Brixton and [indiscernible] in [indiscernible]. We are awaiting transfer of these. It should happen in the next couple of weeks. As Steve mentioned, our valuations came down by 3% on the retail portfolio. I think this was expected during the period of COVID. And also the valuers are anticipating softer rentals in the year to come. So that's what led to the decrease there. We're still doing quite a lot of rental deals at the moment. We had about 449 leases that came up for renewal in the past year. We renewed about 80% of those and we signed 98 new leases during the period. We're still getting good rental deals. I think the reason for that is because our cost of occupation is sitting at 6%. So we're not over-rented. Yes, our rentals did come down with a negative reversion of minus 1%, but I think that can be expected in this market. We're still doing -- or still getting escalation rates of between 6% and 7%. However, tenants are pushing back, pushing back towards 5.5%. And we're still doing 3- to 5-year leases with the national tenants. Our vacancies did go up in the period to 6%. Edgars West Street -- or the EX Edgars West Street building in Durban is still our biggest vacancy at 10,000 squares. This building is on our sales list. We want to sell it. We had started a redevelopment there, but we delayed it because we are -- we're in discussions with -- in fact, we are in discussions with several potential buyers and most of them want to buy the building in its vacant state. We haven't concluded anything. We're still in talks. But in the meantime, what we have done is we have signed a lease with Clicks and Studio 88 and they'll take up some of the GLA. I think those leases, they'll start trading there before the year-end. Hopefully, we'll get to sell the building within the year or early next year. You would have seen that the Edcon business rescue process is proceeding well. We have reached agreement with the true purchases of the Jet and the Edgars business. We've agreed rental terms on 2 of the 3 Edgars' within our portfolio and 13 of the 16 Jets within the portfolio. Obviously, these deals are still subject to certain conditions, which hopefully will get fulfilled shortly. What that does to our vacancies is that there's 2 leases that -- 2 premises that have been handed back to us, Edgars Evaton and Jet Middelburg. We are talking to tenants on those and hopefully we'll fill those before year-end. I think during the COVID -- well, after the COVID started, we've had many discussions with tenants. The discussions have been constructive and I think that they've been fair. We've concluded -- or agreed rental credits of about ZAR 63 million for this period. What that has done to our net income -- net operating income is that it's decreased by 8%. Most of that sits in that number, in the ZAR 63.5 million. Over and above this ZAR 63.5 million is ZAR 3 million with off-rental deferments that we've also agreed with tenants. We've also seen our costs increase slightly because of COVID. We spent about ZAR 5 million on items that relate to the welfare of our staff and also the welfare of consumers at our centers. These include PPE, they include additional cleaners, additional security and hand sanitizers. So it has been a little bit costly, but I think it was necessary to do that. I think trading conditions -- or the year can really be broken down into 2 halves: the period before COVID and the period during COVID. For the full year to 30 June, our sales contracted by 2.5%. But in the first 9 months, July to March, on a like-on-like basis, our sales were up 3% and then you see that there's quite a sharp decline in April. Basically, in April, our sales decreased to about 51% of the previous April's turnovers. We've since seen an improvement as the regulations have been relaxed gradually. You don't see it on the screen, but in July, we're back up to 97% of the previous year's trading figures. I think -- within -- I think what we saw is that the retailers who were trading well pre-COVID are still trading well. In fact, they came out quite strongly from May. So grocers, pharmacies -- pharmaceutical retailers and hardware stores actually performed quite well. Pharmaceuticals in our portfolio are up 27% and so our hardware stores. We also saw that apparel retailers that are focused on the value market are also performing very well post-May of this year. If we look at our portfolio, based on our various categories, we see that the CBDs and the townships were the poorer performers during this period. I think there's a number of reasons for that. In the CBD, we saw that restrictions on public transport affected our market quite a bit. And we also saw that the fact that people are working from home -- or more people who are working from home impacted on those community markets. So if you look at one of our CBD shopping centers, for instance, Park Central, where we normally have about 1.2 million people per month, we are only back to just above 80% of the foot count at the moment. CBDs have been the slower ones to recover in our experience. And I think the reason for that is because people are still working from home, there has been some improvement in that. And if you look at townships, I think townships are down for several reasons. What we noticed in the period -- in the beginning of the lockdown, in fact, just before the lockdown, in the more urban areas, a lot of people were doing stockpiling buying. In the township areas that was slow. And I think the reason for that was because of the timing of month end. So what we saw immediately after lockdown was introduced, there were a lot of queues that were experienced in the townships. And the reason for that is obviously because these more densely populated areas and because of social distancing measures that were implemented. So what happened there is that the queues actually discouraged some of the motorized customers and they went to the nearby suburban centers. So we see this, in particular, in centers like Evaton, which is in the south and some of our centers in Tembisa and crossroads in KwaMahlanga. I think the thread did carry on during lockdown. So because of the queues in townships, we've lost a little bit of the motorized customer and we are left with more of the basket customer at the moment. What also happened in the townships is that Amagoduka migrant workers went home to the rural areas. That did help the performance of the rural areas, but it did harm townships. And obviously, there are issues related to job losses and salary cuts as well. The rural markets performed relatively well. As I said, there were a lot more people coming from the more urban areas that went home to the rural areas. But also this market and the township market is also supported by the Government's social grant system. You would have seen that the temporary social grants increases during this period. That has helped quite a bit. But even within the rural areas, you can see that there is a preference at the moment for High Street shops in the rural towns rather than malls, again, it's due to the queuing. So that's what we're seeing there. So our centers performed very well. In fact, the Eastern Cape and Northern KZN performed very well. Those areas in our portfolio were up by 6%. So our centers like Sterkspruit, Nongoma and Kokstad performed well for us. And then if you look at the suburban centers, those also performed relatively well. I think centers like White River, Arbour Crossing, Tzaneen Lifestyle and Flamwood Walk performed well for us. And that's because of the convenience offering of the centers and the fact that they're all open centers, so it's easy to go in and out. So that worked out well for us. I think looking into the rest of 2020, I think the trading conditions are going to be tough. And I think that it's difficult to look at trends at the moment because the situation is quite fluid. I think you'll only really start seeing where the direction is going once people start returning to work and once you start getting a feel of what's going to happen with the employment and generally with the economy. So our focus at the moment and for the rest of the year, in fact, and for beyond, is going to be on tenant retention. I'll hand back over to Steve now.

Yes. Thanks, Vuso. As you said, defensive portfolio, which is required in this kind of market. This is Clairwood Logistics Park. I mean we've had a long history with this park. It has been a tough development. It's taken quite a long time. But if you look there now on the left-hand side, we've got Sammar, you can see some of those piling rigs. The new buildings going on there built by Wilson Bayly. Just at the front, the new off-ramp is done. So we've largely got this park ready and now it's just putting the top structures on. Unfortunately, given the softer rental, the length of time, the soil improvement cost, we have had to recognize a further impairment of ZAR 392 million, which includes the capitalized interest, which I think this time last year we did expect. Excluding that, it's about ZAR 250 million, ZAR 270 million. So those 2 pockets will be ready mid next year. An interesting deal that we've just signed, if you look up at the top of the screen there, I'll come to a site plan. We've just signed a deal for a cargo terminal operator, so they will put a lot of containers on there. It's about 56,000 square meters. So we're looking to conclude a deal on that. I think it's -- yes, yes. Just at the top there, you can see that container yard. I think here it's noted the site here is 67,000. I think the deal, we're looking at about 56,000. So that really just does attach a rental to the land. There will be some hardstand improvements required at the bottom of the screen, near the M4, we've got pocket 4A, pocket 4B. Still a lot of interest in those 2 sites. I think it is a fantastic park. It's a great location in the Durban Basin. So I think over the fullness of time, we're going to be pleased with this investment. But unfortunately, it just has taken a long time and those soil improvements, if you want to do it properly, are enormously expensive. So -- but those are largely done. So that cost is sunk, literally sunk in the ground. Our logistics portfolio, I mean, it is becoming a much bigger part of our life. If you look at our total logistics exposure, including the land, it's 42% of our assets -- of our direct assets. I think the vacancy has come down to 3%, which is pleasing. Like-for-like NOI growth, only 0.8%. There were some discounts given in this portfolio, about ZAR 7 million. I think that middle block there are reversions, minus 7.2. That is a bit of a cause for concern. And what's driving that is we're still offering rentals at our new parks where we were 3 or 4 years ago. So we are almost capping our own product in terms of market rental growth. And that's really because construction cost has still stayed relatively static, which if you look at the impairment on this land is unsurprising that we had to impair it by at least the capitalized interest. Lease expiry profile, 3.7 years. As we sell the old and build the new, we expect that to improve. And a building valuation per square of ZAR 7,600, still quite below replacement cost. Yes. I mean just a couple of key lettings that we've done. Consol, I think we do feel for them in the lockdown they couldn't turn their furnaces off. So they're producing a lot of bottles, need a lot of overflow space. So we've let 40,000 square meters to them. At the top right-hand side, that's a picture of the Zest box that's coming up that should be ready around about January next year. It's a pre-let deal. We also signed a lease at Ikhwezi, 16,000 squares with guys doing a documentary series. And on the bottom right, there is N1 Business Park. We own 20% of that where a deal was signed with Takealot. I think we have quality space. And as we see the quality space is very easy to let. Although the rental growth is still quite soft, you can let it. We signed a deal with a retailer who wants to do some cell phone distribution out of one of our prime facilities in Longmeadow, DSV Pharma moved out, 17,000 squares. So I think that's very, very pleasing to know that there's still demand out there for quality logistics space. This is the pipeline. I think I'm sure many of you would have -- would appreciate that when the hard lockdown hit and we needed to conserve cash and nobody knew what the future looked like and we're steering into the abyss we had to then go and really assess what we could turn off in terms of liquidity and what we didn't have to. We sat down and went through this with the development guys and with our Board. And when we looked to the -- from sort of the year-end going forward, our pro rata share, the last column on the right, ZAR 675 million out of ZAR 1.4 billion of total cost. So it's less than half. So what we looked at is we were halfway done with a lot of these developments. So pausing it really wasn't feasible. I think it's very hard to let a building without a roof. So we decided we've got the cash, let's finish it -- finish this round of speculative developments and the 2 pre-lets and then we'll reassess where the market is on an ongoing basis. So I think we feel comfortable that we can fund this round of development, ZAR 675 million, quite easily, and we're still getting a lot of interest and demand. I mean Zest is pre-let, 8.5% yield. Clippa is pre-let, 9.4% yield. And we're getting close to closing a deal at Cornubia Ridge. As I've touched on a couple of times, really, our approach to the pipeline, we're happy to do JVs. We're happy to sell the land as we have done in Eastport, do turnkey development. So I think our approach is really one of a developer. Whatever is going to maximize our profit on our land holdings, we're happy to entertain. So this is the, I think, part of the disappointing part of our pipeline. We did have to recognize an impairment. A lot of that, as I mentioned, was Clairwood. But also a lot of that was our Sandton sites. We recognized ZAR 270 million impairment on our site office at the Sandton Gautrain next to the Old Mutual new head office and another -- for the year, ZAR 104 million further down the road. It's a JV we've got with Barrow. We own 80% of that site on Rivonia Road, but we are -- we have actually signed a sale agreement on a portion of that. It's quite small and that's currently under DD. So yes, I mean, I think now our land has really been --has been fair value down to quite a low level, in my opinion. If we exclude the capitalized interest, which I think when we looked at that last year, we thought it's going to be capitalizing coming back down, ZAR 595 million impairment on our landholding in total, excluding the capitalized interest. So that's a sort of, I guess, a real value write-down from last year. The office portfolio. As we've said, offices are still structurally oversupplied. If you just look at those pictures there, yes, we did choose the nice ones with the fever trees in front, but I think it is a really nice portfolio now. It's decentralized suburban offices, we can sectionalize them. I think companies appreciate that they get their own stand-alone box. It's very easy for them to control 1,000, 2,000 square meters, not dissimilar to the office part that we occupy here in Morningside, if you've ever come to visit us or if will be allowed to again, I hope so. So this -- we've also written it down, as I mentioned, 7.7% last year, 8.6% this year. So it has come down in value. It's only 5% of our assets. High vacancy. But that building valuation, ZAR 11,000 a square meter, radically below replacement cost, probably about half. So I think it is quite easy, hopefully, to sell these granular office assets, to owner-occupiers and other private investors. If you look on the right-hand side there, Kildrummy, we've -- it's a great office park, but it has high vacancy. And then below that, Wedgewood, which is actually full for the first time, that's pretty much opposite Nicolway if you know Johannesburg. And it's also -- it's just a great node, but the rentals are under pressure. So again, we're looking to asset manage and sell. The industrial portfolio, as I mentioned, really a huge shoot up in vacancy, which has led to that like-for-like NOI growth of minus 15% because you've got a lot more vacancy. These are big buildings and when they're vacant, they need -- they suck up a lot more cost. You have to put security in place. Unfortunately, the environment that we're in, if you have these big boxes with no security, takes a day or 2 and then all the wiring stripped and they start to strip all the nickel out. So the vacancy does lead to quite a high negative yield, unfortunately, in this portfolio. But again, ZAR 4,700 a square, we think we can sell it. This is something that we've done with InnerSpace, which we quite like on 50 Electron, a bit of a problem asset for us. It used to be Barloworld Logistics, but awkward huge offers. It's actually on the way to the airport in Johannesburg. But really nice concept. So I think we're going to do a lot more of these in terms of breaking up the space, getting it -- attracting a different type of tenant and increasing the rental and then also looking at sectionalizing our industrial miniparks and trying to sell those off on a sectional title basis. Property disposals for the year, pleasingly, quite a nice premium to book ZAR 877 million. As you can see there, the smaller assets, actually, ZAR 50 million -- ZAR 50 million to ZAR 100 million, quite easy to sell, quite a lot -- a much bigger market than assets that are -- have got a much bigger price tag. These are our held-for-sales. Hopefully, we've transferred Broad and Simmonds. I think Protea, which was a retail center, which was actually a deal closed and locked down should transfer in the next day or so pending the Deeds Office. I don't think we cannot say something about our share in NEPI Rockcastle. It's a huge part of our asset base. It's a really, really great company. I think their results were excellent. We are very pleased to see that office sale go through, which reduced their loan-to-value to 33%. They're now very liquid, very, very strong balance sheet. I mean I would almost say a Fortress-type balance sheet, maybe that's the wrong term. Green bond issuance of EUR 500 million bond in July. I mean it really is still a great business. I think as Ian touched on, we did do a collar, but that was really just because we didn't want to sell it and we just needed to -- we felt that given the uncertainty during the lockdown in April and May that we should probably just take some proactive steps to shore up liquidity for the balance sheet in the event that the lockdown took longer. I think at that stage, nobody knew when it was really going to end. Environmental, Social and Governance, just a few highlights there. Our solar rollout is really going well, I mean, as we touched on load shedding and things like that. So it is exciting. We've actually increased our solar output year-on-year from 2019 to 2020 about 5x, 500% increase in the amount of solar we produced. I mean it's -- it was off quite a low base, but I think we're adding about another 13 solar projects at the moment. So really going flat out with that. The economics make sense. Not quite there with the full battery backup. And as we've seen, we've had some learnings. For example, we bought cars, we added too much solar and it's now a waste. It's producing more than the guys need because we can't feed it in. So we're looking at seeing how -- on our logistics parks, we can maybe cross over the urban lines and things like that. It gets a bit complicated from a regulatory perspective. We've also put smart water meters. We're rolling those out. We've got it on a few of our retail assets where we've got boreholes so we can track things, and it's amazing to see how quickly we pick up leaks. So I think that's also -- it's also a great system for our tenants who now pick up the cost if there's a tap left on. On social, B-BBEE, we were level 9 last year. We are compliant. We're just waiting for our rating to come in. We're hoping that it's better than level 8. We certainly are expecting that. Great partnership with Food & Trees for Africa. It's really one of our favorite charities to support, and it also unlocks a lot of community involvement at our retail assets. And we're supporting a number of CSI initiatives and pleasingly the Board, non-execs and execs stood -- listened to President Ramaphosa and I mean also gave about a month worth of salary on both sides, salary and fees in terms of donations during the lockdown. On the governance side, I mean, I'd really like to thank Dr. Iraj Abedian. He's been a really steady hand at the helm of the Board over a challenging couple of years. He stepped down at the end of June and is replaced by Robin Lockhart-Ross, who has been a non-executive for just over 2 years. Highly capable, very enthusiastic Chair. So I think I'm looking forward to the future with Robin. Also joined our Board, Ina Lopion, he was MD of Vukile's SA business, immense property experience and in particular, in retail and in our kind of retail. So she's on the Investment Committee, which is also exciting for us. And we bid farewell to Banus van der Walt, who's been a longstanding Board member. He's a Capital and then Fortress Chair of the Investment Committee. He's now really, really retired, down on the South Coast. And Bongiwe Njobe, who does have another full-time role, and I think you'll appreciate balancing the 2 sometimes is quite challenging. And Mark Stevens stepped down as we announced around about this time last year. There is a process just to streamline the Board committees and just get things more efficient, make sure there's not overlap and slightly more effective. So we'll update the market in due course. Guidance and prospects. Unfortunately, we weren't in a position to really provide certain guidance. I think it's still quite fluid in terms of a lockdown. I mean we are still under lockdown level 2. What's happening with NEPI, they only guided till the end of the year. So we will as things progress. And when we feel more confident in putting out guidance, we will do so. But I guess prospects for Fortress. I think we're in an extremely comfortable position with our balance sheet. We've made a lot of hard decisions: closing the cross-currency swaps, shoring up the balance sheet, paying out the dividend interims in the form of Resilient shares. But I think that's really made us defensive, and I think we are now in a very comfortable position, happy to pay the dividend, albeit at the minimum level for JSE requirements. This is the last one, just quickly another video while you all have your feet up at home in your La-Z-Boy chairs. Long Lake Logistics Park, so you can see actually, that's our one in the background. It goes quite quickly. So that's a small one in the front, and that's actually our site on the left. In Linbro Logistics, you can see the one, the big roof in the back, that's ours. It's literally the extension of Marlboro drive. I think it's a great location. It's very convenient. And well done to M&T who bought it from Zendai, have made a really nice node. If you look down on the right, you'll see the Modderfontein dam, there's a nice -- I think they moved the Fourways Farmers Market there. It's actually a really nice node and there's lots of developments. I think that's a Zenprop one on the right-hand side there. So it's a great logistics node. The K113 here is going to go all the way through mid ran to the N1. So it's very convenient and that one is pre-let. So I think this is another node of site. On the right-hand side as you look slightly up the hill, it's also ours. So we'll develop that in time, yes. And lots of interest, I think, the 12,000 not let yet, but we've taken a few potential users out there. I think that is quite a popular size. So I'm pretty sure we'll let that. That's Long Lake. These are the portfolio stats as of June 2020. And we'll take some questions now if there are any.

Yes, sure. Ladies and gentlemen, thank you for dialing in this morning. [Operator Instructions] And we do have a few questions. And just to highlight, of course, some of the information hasn't been provided or is confidential for reasons. So there are going to be times we can't answer it. But we do have a few questions here. Steve, you made comment that it is prudent to declare a reduced dividend during COVID. Would it not be even more prudent to declare no dividends at all? How does this work with the minimum requirements of remaining an SA REIT?

Yes. Thanks, [ Hawi ]. So we didn't have that as an option. The JSE listings requirements still requires you to pay out 75% of your distributable profit, which is per the listings requirement calculation. Otherwise, you do lose your REIT status unless you aren't solvent or liquid, which we clearly are, so we had to pay out at least 75% of our JSE distributable profit, which we've done.

And you also made a comment in the presentation that you, of course, need to maintain the REIT status. And are there any long-term costs associated with maintaining this REIT status? And if so, what are these costs?

I don't think so. I mean I think if we weren't a REIT, I think it would be much more adverse situation for our group structure. I think bear in mind that REITs, where you've got a lot of subsidiaries like ours, you actually use that REIT structure to capitalize your subsidiaries in a different way. So now to go and turn that on its head, would be -- I think it would really upset the apple cart if it you give Mr. Foster gray hair. So it is really a great regime. We don't want to change it. We like being a REIT. I think people invest in us because we're a REIT, so we need to maintain that REIT status. And I think it's only beneficial, the cost is really marginal to not much. You need to be listed. So I guess it would be the listing fees.

And then we got 2 questions specifically on guidance for next year. I'm not sure if we can answer them, but just to ask them. Please, can you advise if you plan to conserve cash next as well? And do you have an estimate of when the dividend will be resumed? And if so, is a normalized dividend of around ZAR 0.70 a reasonable number?

I don't know, ZAR 0.70 on what share? I mean, obviously, the A has a minimum, which will tick up. I mean we are in a fortunate cash position at the moment, but the LTV is high. I think the market is uncertain. SA has got weak fundamentals. So we'll assess it continually, but we are a REIT. So I think it goes without saying that we want to pay dividends out. That's kind of the nature of the investment. But we can't do that at the cost of the balance sheet and the cost of the business.

Another question just on the specifics on net asset value. It's disclosed that's ZAR 10.94. We can see FFAs NAV is down 46%. FFB, up 6.8%. And could you explain briefly how that works?

Sure. So the NAV, given our share structure, has always been a bit complicated. In the past, it was disclosed as the NAV of the A was a 60-day VWAP and the B was the residual. That really came from the MOI. When we looked at it last year, we -- the MOI really detailed 60-day VWAP in the event of winding up or liquidation. So outside of a winding-up liquidation type of event, the 60-day VWAP is largely irrelevant. In a going concern scenario, obviously, that A get preference to the distribution. And the Bs get the residual, but rank pass-through in terms of most of the other provisions and in terms of any capital distribution. So we thought, well, let's rather just show NAV per share, which is the total NAV of Fortress divided by all the shares issued. So that's a going concern NAV. And then we still do present the NAV just for comparative purposes, the A is on a 60-day VWAP, and given the price decline, that's what we're showing there at the end of June. And then the B is the residual.

On the cross-currency swaps, in the commentary, it states that you have -- you've settled all the positions in notes. But there still is some reference to a position of EUR 152 million and there's also a fair value liability of ZAR 664 million. Would you mind just explaining this a little bit, and how the difference between closing the product and offsetting the product works. And just a final question on that is, have you completely removed exposure to these products?

Yes. So what we did is we were at EUR 464 million at December, in January. And actually we announced it because it was just before our results announcement in March, we closed about EUR 162 million and that was just closed and we settled the mark-to-market, there wasn't that much at that stage. What we did was we saw the volatility in the pandemic. So we closed another EUR 150 million, which was an outright close, settled the mark-to-market with the bank. And there was about 1,850-ish and then it kind of spiked up and it came back down and we decided, well, let's rather look at just neutralizing it with an equal and opposite forward. So that's what we've done. So we've now got a cross-currency swap, which is essentially long the rand and we've got a forward for the same amount and the same maturity date, which is short the rand, and that offsets each other. They're both net settle -- well, both settle around about April next year. I think the ZAR 664 million is our total derivative position. So the derivatives obviously are swaps have moved out the money. So that derivative, yes, the ZAR 664 million, there's an element of cross currency, but there's also a big element of mark-to-market on our swaps.

Just moving on to the NEPI collar. Could you please provide any more information if that's possible? Could you provide possibly the strike price and the put and call levels? Anything -- any more detail on that?

Yes. I mean just given the capitalization issue, those will change. But the call strikes at around about ZAR 93.50, the put strikes around about ZAR 72.80 and we retain the dividends on the shares. That will be adjusted as SAFEX adjusts the capitalization issue.

And on to the BEE partner companies, would you mind explaining just why 2 of the companies are consolidated and 2 are not at the moment? Ian?

So we had 4 entities that's Fortress impairment 1 through 4. The 2 that are not consolidated, we've effectively sort of done deals and are not exposed to the underlying movements in the BEEs that sit there over the strike of ZAR 12.08 at which we concluded those transactions at. The other two are sort of ring-fenced and in waiting for a further transaction. And as a result, we still consolidate them, whilst not in our control.

And then maybe just a follow-up question, the technicality on the SA REIT. What makes up the difference between the 76% payout for REIT requirements and the 89% payout that was achieved on earnings?

Thanks. That's quite a sort of a complicated question, but it's really the different methodologies applied in determining distributable earnings in REIT best practice. And that's -- it follows a methodology, which is sort of capital employed on the basis that every rand is working all the time. One accrues -- or the business accrues for dividends to be received on our -- in this case, NEPI Rockcastle share almost on a day-to-day basis, that matches when our dividend would be paid whilst the JSE's definition of distributable profit follows that of taxable profit and that looks backward over the financial period in what was actually received. So typically what forms part of our dividend -- if we go back a year, at June '19, would have been NEPI's dividends received by us in September and paid out in September with reference to the prior period and that sort of follows on. So you've got a bit of a mismatch between the IFRS accounting and REIT's best practice distribution methodology.