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

Good morning, and welcome to the Fortress Interim results presentation. Thanks to everyone for dialing in. This is the 6-month results to the period ended December 31, 2020. We did release our results last night on SENS, and it's -- and this presentation is on the website if you want to log on and download it to you, you can do that. We released it about 30 minutes ago. So just to touch on a couple of highlights for the 6-month period. I think most notably is we did come to the market a few years ago, we had acquired about 2 million square meters of land, not all of it 100% owned by us, which converted into approximately 1 million square meters of GLA, which we had to get developing and get letting it was admittedly quite a big pipeline at that stage. I think really, the highlight for the last 6 months is of that 1 million square meters, we've completed and developed about 250,000. But during this 6 months, we've secured tenants and received offers on 340,000 square meters of that 1 million squares. And we'll touch on how much we have left, but we've sort of chewed through just over half of that pipeline, which I think really does derisk it and speaks to the capabilities of our development team. Also, very pleasingly, another highlight, we sold ZAR 1.1 billion of properties, marginally above our book value, and we have another ZAR 371 million held for sale. So we're using that cash to build the pipeline. Strong balance sheet, LTV reduced marginally to 38.1%. We did acquire 2 logistics parks, a very small investment in Poland in new warehouses with a bit of a pipeline. Vuso, our retail executive and his team managed to do a stellar job and maintained trading densities in our retail portfolio at the same level, marginally higher than 2019 for the comparable period. And I think pleasingly also, we reduced our vacancies from June from 8.9% to 6.8% of GLA and continued our solar rollout, which is not only economically very lucrative in terms of the returns that we get, but also, I think, a strategic imperative for sustainability and something that our tenants do value. So up on the screen now, we've just got an overview of our current asset base. We've been showing this for a number of years. We still have noncore assets of about ZAR 6 billion. We have reduced that quite dramatically over the last few years. So SA Direct offices and a little bit of land we have there, the direct, industrial and other, which is motor showrooms, hotels, a few residential properties of ZAR 400 million. So that ZAR 6 billion is noncore. We're looking to dispose of that and chewing through that. And then we obviously have our core portfolios, SA Retail, SA Logistics, our logistics development pipeline and then our investment in NEPI Rockcastle. So that's where we are as of December 31. And this next slide is really our target asset base over the medium term. Where do we want to go to? And I think we've got 2 core portfolios. We've got logistics and our logistics developments, and we've got our retail, which is focused on convenience and commuter-orientated centers and then obviously, NEPI Rockcastle. So if you look at that relative split, we really want to try and simplify the business. And I think rather than be a multiportfolio monster, we're focusing on what we've got core competencies in, which is logistics and retail, both in South Africa and in Central and Eastern Europe. So that's largely the target asset base, ZAR 40 billion to ZAR 50 billion. So more or less the assets we've got now. And how do we achieve that is selling the ZAR 6 billion of noncore and using ZAR 3 billion of that to roll out our SA pipeline, of which we also have ZAR 3 billion of work in progress, so that will get us to ZAR 6 billion. So we'll end up there on the left-hand side of that of your screen there in the blue, about ZAR 15 billion, ZAR 16 billion of SA Logistics, a relatively small, roughly ZAR 2 billion in Central and Eastern Europe and then ZAR 20 billion to ZAR 25 billion of retail exposure. That's really where we're headed, which makes us far less diversified and far more focused. So this was just a strategic focus to really get us to our asset base. As we mentioned, a ZAR 6 billion of noncore asset sales. We're hoping to hit our target of close on ZAR 1 billion for this year, and then using that cash to roll out our pipeline. Currently, we have 312 million squares of GLA under development or in the process of planning and agreeing terms. After that, we'll have about 440,000 square meters in SA. We've got 110,000 square meters in Central and Eastern Europe. So we need to focus on letting those and rolling out that pipeline. Just something there to give you a sense, so we've got about ZAR 3 billion land and developments in the logistics portfolio in South Africa. Top structures will be about the ZAR 3 billion to ZAR 3.5 billion. It depends on the JVs and what we actually build, if tenants require coownership. But at the moment, our pro rata share after coownership with our tenants is roughly about ZAR 3 billion. So that will give us ZAR 6 billion of income-producing assets. And if we then look forward, if we execute on that, ZAR 6 billion of noncore sales, ZAR 3 billion of pipeline, it will give us a little bit of a cash buffer of circa ZAR 2 billion to ZAR 3 billion. And obviously, what we do every day when we come to the office is just focus on the core assets, a lot of that at the moment is refurbishments, making sure we've got the best product for the tenants, focusing on asset management and offering tenants value, which I think for the good tenants that's really what they seek, and building on that tenant retention and tenant relationships and then being open to innovative ideas in terms of asset management. Just some portfolio overview. At the back of the presentation, we've got sort of -- we've got it broken up into our portfolio silos. This is the whole portfolio. So I mean, I guess, it becomes a bit meaningless when you put it across 4 or 5 different portfolios. But pleasingly, our vacancy did come down. Vacancy by value also came down. In-force escalations marginally down, but still sitting at an attractive 7%. I think the telling number there is reversions over the 6 months, which we have said in the past, it is a relatively small sample size, but it was a tough 6 months trying to renegotiate with the pandemic. So reversions were quite negative. And the lease expiry profile is slightly shorter than it was. Vacancies, I think, a pleasing performance to get that down to 6.8% of GLA, 5.2% by value. The logistics ticked up a little bit. I think what is of concern is the office vacancies. I see it's not out of line with peers, but that's really something that we are looking to address. But fortunately, as a component of our overall portfolio, it's quite small. And then the best performance was in Industrial. We managed to let up quite a lot of the larger industrial boxes, which is very pleasing, and I think that also leads into the like-for-like. I'm going to hand you over now to Ian Vorster, our CFO, is going to take you through the financial performance.

On thanks, Steve. Appreciate it. As we explained in our pre-close call in December and confirmed 2 weeks ago on SENS, we will not be paying a distribution to our A shareholders and, in fact, our B shareholders as a result of our distributable earnings being less than the A minimum entitlement as contemplated in our MOI. So what that means is MOI doesn't -- sorry, it prohibits us from paying a distribution in that scenario. The A entitlement for this period would have been ZAR 0.801, and that will become the base for the first half of 2022. Our simplified distributable income slide seeks to show how our distributable earnings is made up, and it sort of eliminates the noise that IFRS creates in our normal income statement. So if I start at the top, our net operating income from our properties, that is obviously rental and recoveries net of expenses, including our investments in art and galleria. Dividends accrued from NEPI. We include that as -- whilst it's an accrued number at December 31, included in our cash in nature box there, and that's really as a result of it coming to us in March in the form of cash. And that -- on the timing would have been more or less when we would have been paying a distribution. So it's -- it is classed as cash. Interest paid, banks will only receive cash from us, they don't accept cash. Interest on our -- interest received in our cross currency swaps. So we had mentioned previously that we had negated the effects of the cross currency, which has now been closed out. That was done prior to June last year, but there was some interest received for the 6-month period, but was received in cash on a quarterly basis. Interest on our staff and development partner loans. The bulk of that relates to interest on our development loans is about ZAR 9.4 million that relates to staff loans. And we still have the staff scheme loan adjustment of ZAR 9.1 million, and that is not to distribute the noncash backed portion of that interest. Interest rate derivatives, our swaps and caps, and that's really the cost for our interest rate protection. Swaps, if we have a swap of, say, 7%, and we're paying roughly 6.5%, that differential gets settled also on a quarterly basis. The cap is somewhat different. The cap is an amortization charge attached to the premium on entering into that product. So what we do then is we amortize that cap premium over the lifetime of the product. So as to not burden a current shareholder with a future benefit or vice versa. Admin costs, obviously, cash in nature. There's a small portion that gets capitalized to our development -- in our developments, and that's really for our development capabilities on the basis that it's done internally and not paid for externally, which would have been -- would have the same result if we were to pay a third-party and capitalize it to our building. CSI expenditure, cash in nature, and that includes our BEE initiatives. What you don't see there, which is different from prior periods is that of capitalized interest we introduced a Fortress Pacific Distribution Policy last year this time, and that was to exclude paying out capitalized interest on our landholdings. And as Steve has already mentioned, with the new buildings coming online, et cetera, that will then turn into direct NOI from those new buildings without the effects of capitalized interest. Given that we won't be paying a dividend for this first half, the question may be how do we satisfy the requirements of 13.47 in the list requirements, and that's to part 75% of our distributable earnings. This is obviously the dividend or distributable income calculation from a REIT-based practice and Fortress perspective. Given the nature of our earnings that we actually received for the 6-month period, which would include that of the capitalization issue by NEPI, we're pretty confident with those earnings and the next 6 months as well as the anticipated dividend to be paid in June that we will satisfy those requirements of the JSE being the 75% of distributable earnings as defined. Our NAV bridge. Again, this was a metric we introduced about a year ago is the NAV per equity share on a going concern basis. Just a bit of background to that. Our MRI contemplates -- oh, not sure what's happened to our numbers on that screen, but the -- sorry, our MRI contemplates a scenario in winding up for liquidation in which the A share would receive a 60-day VWAP. In the absence of those scenarios, we've calculated a NAV per combined equity share and which is roughly ZAR 10.94 at June and ZAR 11.35 at December. Some of the notable movements there, whilst the numbers don't appear on our screen, the small increase in direct property is really as a result of the acquisition we have done in Poland. The material move there in our list of portfolio is the effects of NEPI, whilst we equity account for that investment, we, in effect, revalue the balance that we carry on our balance sheet to the market price at reporting date. And there has been an uptick in that price from June 30 to December 31, resulting in about ZAR 1 billion increase in our NAV. The next big mover is a decrease to our loans to partners and that was as a result of some cash that we've received on our -- from our development partners at our Kuehne site. And then our borrowings are marginally up primarily to fund the acquisition that we've made in Poland. From a liquidity and funding perspective, we're well placed. We have roughly ZAR 2.8 billion worth of cash and available facilities. Our LTV, as Steve had mentioned, is marginally down at 38.1%. Our see-through LTV, applying NEPI Rockcastle as reported EPRA NRV, is 35.6%. If we move on to funding. We managed to place ZAR 680 million in the debt capital markets from when we last reported. We've also repaid ZAR 300 million in that space. So we've placed ZAR 560 million in a 3-year note, been in October last year, ZAR 300 million and the balance in Feb this year tapped to the same note and a further ZAR 120 million in a 1-year note. What's important to note there is that the credit spreads on the DMTN placements are similar to that of our secured debt still. So it would appear that there's still appetite for Fortress paper and at competitive rates. We have approximately ZAR 4.4 billion worth of maturing debt, and I'll get to our debt profile shortly. In the coming 12 months, and that's 12 months from our 31 December reporting period. The bulk of which sits in the third quarter -- third and fourth quarter of the calendar year 2021, of which ZAR 3.6 billion has already been credit approved. We've had no breaches in our covenants and the relationships with the banks are still strong and good. With regards to our interest rate hedging, I think it's quite a busy slide as well. But the important point here is of our adjusted variable rate exposure of ZAR 16.3 billion, ZAR 11.6 billion of that is covered by way of swaps and caps, which is 71% and for a tenor of 4.6 years. So well within our stated policy. Just with regards to the protection that we have, we're still favoring caps, and you can see by this slide, we're roughly 53% weighted in favor of caps and 47% swaps. A year ago, we were favoring caps because of the exceptionally high real interest rates and the idea was that you would capture any benefits on the way down. Now we're favoring caps because of the exceptionally high or steep curve weighted to the long end. And so long as the interest rate doesn't move along their profile, we would capture that benefit in time to come. Obviously, it comes at a significant premium as mentioned before, that is that's the charge that we're taking the amortization over the life of those caps. With regards our maturity profile. We've split the portions into secured and unsecured debt. I've already sort of mentioned that we have roughly ZAR 4.4 billion in the coming 12 months, so that -- those numbers that you'd see on the slide are by -- sorry, by financial year. But within the coming 12 months, we've already refinanced ZAR 3.6 billion. Another important note on this slide is that only 10% of our circa ZAR 20 billion worth of facilities sits in the debt capital markets, and we do have appetite to do more, and with that being quite low, there's obviously a very low refi risk attached to it. Our cash collections for the first half of this financial year of the 2021 financial year. For the 6 months at the portfolio level, 98.9%. By portfolio, retail, 100%; Logistics, 98.2%; Industrial, 98.1%; and Office, 98.8%. Just an important note here. So the way we measure this is of what we build in a particular month is what we've collected. So any COVID-related discounts, we effectively don't treat them as a billing. So they stay out of the earnings. They stay out of the distribution. They're not straight-line or smooth. And then the cash collection attaches only to what is actually billed and collected in the month. For the 2 months, at a portfolio level of January and February, we collected 97.7% and 99.8%. I think what we can see there in Jan is some of the pressure coming through from the semi lockdown or semi lockdown introduced by government sort of mid-December. Just to end with NEPI, as I've mentioned before, we effectively mark-to-market the investment in our books, and there is an uptick from June, 88% versus the 93%. But our share, whilst remaining static as a percentage of shares in issue by NEPI, those additional 4 million shares that you see there is really as a result of the capitalization issue that that they did in October 2020. I'm going to hand you over to Vuso now, which can speak to some more exciting stuff in our retail portfolio. Thanks.

Thanks, Ian. Good morning, everyone. You will notice that there's a slight decrease to our value and the GLA. That's because in line with our strategy of selling the tail of our portfolio, we sold 3 assets in this reporting period with another 2 that we've signed agreements, but those have not yet transferred, but they'll transfer probably before June. So that number will come down a little bit again. So it's been a tough period to do negotiations, particularly in rentals. You see that we've got negative reversions of 7%. I think that we opted or prioritized tenant retention in a market where costs were going up for tenants from utilities and things like that. But also the trading environment, the economy is not conducive for a particular good growth. So I think we've done our best to contain those. It is disappointing to us. But I think in the environment, we sort of understand what's happened there. We are still doing renewals. I mean we've got a 90% retention rate. We renewed 204 leases in this period, and we signed 77 new leases in the period. We're still able to get between 7% and 6% escalations and the lease tenure varies between 3 and 5 years in most cases. We managed to decrease our vacancies from the 6% reported in June to 5.3%. We expect this to decrease further when we transfer we probably decreased this by another 1.6%. Our team is working hard on reducing those vacancies even further. So hopefully, June this number will look better. Collections have gone relatively well. So we're back at collecting 100% of what we bill, as Ian said, after the adjustment for COVID relief. We have continued to work with tenants, particularly restaurants and bottle stores in the most recent period. I think the COVID credits that we passed in the 6 months was ZAR 6.6 million. But in total, since COVID started in April last year, or the pandemic in April last year to February this year, we've passed -- we've agreed credits with tenants amounting to ZAR 75 million. What we're trying to illustrate with this slide is that in the last 6 months, July to December, our retail sales have returned to pre-COVID levels. It's been a bit of a rollercoaster ride since the drastic decrease in sales in April, as you can see there. October was the first month where retail sales were above the previous year's sales levels. But then again, in November, it decreased again. I think most of that was due to the poor performance on Black Friday. December was pretty flat. And what we're seeing in January and February -- or January was down, driven by the delay in the back-to-school season. But February and March, so far in March, the tenants are telling us that it's much better trading. This slide here just gives a bit more color on the different categories and how they performed in the 6 months. You'll note that the Rural portfolio is performing very well. That's the one in the purple there. It's probably our strongest in this period. The township centers have recovered the slowest. Those are the ones in green. But what we've seen is that similar to what we reported in June, the grocers and the pharmacies are doing really well. And of course, at leisure, hardware, also doing well. You'd have seen the results recently. is in our top 10 tenants. So that was pleasing that they showed good growth. Still under pressure, restaurants, fast food and bottle stores. Although those are improving since the relaxation of the lockdown conditions. As mentioned, the rural centers are performing fairly okay, particularly our assets in the Eastern Cape and KZN showed good growth. I think some of that is influenced by the fact that we some -- a few years ago, we revamped and extended some of them being Nongoma, Sterkspruit and Kokstad. So that's coming out nicely. In the townships, as I said, growing a little bit slower than the other portfolios. I think there, the employment numbers have an impact -- or the drop in employment has an impact. What we're seeing is that there is some customers that are closing shopping accounts. And a comment that was made by one of the center managers at one of our centers is, we think more people just hanging around the mall, people that went in during the week, which is sort of an indicator of what's happening there. Also, even though the grocer sector is positive, generally, I think within the townships, we think that the grocery category is pretty much flat. But it's still fairly strong. It is -- I think we're also seeing that the government social spending is supporting this, particularly the ZAR 350 grant. Some of the tenants are reporting that they're seeing more lay-bys. So guys postponing or paying off their purchase over a certain period of time. In any case -- nonetheless, we are pleased with this performance. I think it's -- it is, under the circumstances, it is pleasing performance. The CBDs and suburban centers also performed fairly well. I think both benefiting -- well, more of the suburban centers benefiting from people working from home and looking for a more convenience center. And the CBDs from the fact that people have gone back to work or going back to work and the relaxations on the public transport restrictions have also helped in there. So our focus going forward is that we will be, as I mentioned earlier on, we are selling our tail. But on the other side, whether we'll be doing immediately our Palm Springs, Mafikeng and Weskus. At Palm Springs, we'll be adding an additional grocer. We'll be improving the parking area and adding a public transport facility. At Mafikeng, we've commenced with expanding the grocer offering there. We will be adding a clicks and more line shops. At Weskus, this is more of a renovation or a revamp. The center is 12 years old now. It looks a bit tied, so we need to freshen it up just to make sure that it retains its dominance in that West Coast. There are some -- so the properties that we have sold -- or there are some more assets that we're looking at to do redevelopments. And those are at various stages, mostly at Council approval, all those sort of things. So I think in this year, you'll see a few more coming through. With regards to the assets that we're selling, the ones that we sold, the 3, Groblersdal, Port Shepstone and Protea. I think there, we had extracted the value that we're looking for. We are waiting for West Street and Nongoma to sell that should come through now. We are in the market to buy new assets in the commuter and convenience categories, new developments or existing stuff -- existing properties we'll look at. Obviously, the price will determine where we go. But we are in the market for that. I think there are opportunities. I think what we're seeing in the -- in this past year is that the category where we play, which is the commuter market and the convenience center, it's quite resilient. It's a market that we like. We do see opportunity going forward. And yes, hopefully, we'll land 1 or 2 opportunities. Thank you very much.

Yes. Thanks, Vuso. I think a pleasing performance there from the retail team. So we're going to through a couple of videos now. They are back to back. So I'll just talk to them as they go. These are really just on our main parks. So the first one, we have here at Clairwood. It's the big 1 in Durban. It's taken us a long time to get this going. We let the first building to Sammar, you can see some containers there. We've done something that's just quite exciting. It's a container terminal at the back where there wasn't much land. Hopefully, getting a rail siding that's still in a negotiation with Transnet. So hopefully will be seeing that for the next couple of years. That's pocket 4A and B which we've let most of to African sugar logistics. We still have a little piece of one of those buildings to let out. But it's gaining a lot of momentum as people see the buildings coming up. And I think Kings Rest Container terminal there of 56,000 squares is also attracting quite a lot of interest. They've got big tenants such as Costco and Maersk and guys like that. So I think Clairwood is picking up. We've done some I guess you could call them mini-units on a little finger that's protruded, so we had a little bit of extra land right at the back there along the railway line. So we're doing some mini-units there. The next one Cornubia Ridge. So we did the macro a couple of years ago. We built 23,000 squares there. It was a little bit big for the market. So we had to split it to 14,000 squares, which is let to -- it's Arista, I think the official name is UPL South Africa, they do a lot of chemicals logistics. And then 9,000 squares on a 10-year lease to Retailability which was a company that bought Edcon and I think owns a few other brands at Legit, Beaver Canoe. You can see the racking coming in there for UPL they needed a little bit of financial assistance with the racking. So we provided that to them. And again, I think we get a pretty good return on that. So that's something that we've done before with a number of tenants. Longlake, we've announced the pre-let deal with Zest about a year ago, that's 24,000 squares. And then we built a little 12,000 square meter box at the same time, which was let roundabout completions to Cargo Carriers. So that one is done. It's a really great node that whole Modderfontein area is being unlocked. New roads, easy access, exactly the kind of product that we really think the good tenants are looking for. We have a little bit of land at the back there across the road, just slightly up the hill, which we can do another 60,000 squares on Phase 2. So this is done, and now we're looking for tenants. If you look there on the right-hand side, looking for tenants on that 60,000, probably due 3 20,000 square meter boxes or something like that. But I think the node is taken off. Louwlardia I know that our Chief Operating Officer loves to brag about this one, it is our most successful park, 89,000 square meters, WeBuyCars, Goldwagen, Vodacom and USN. WeBuyCars has bought half their building, Goldwagen has bought half their building, which, again, is a model that we really like. It recycles capital. It gives us a much better yield on our cost and a 10-year lease. Just to the south of that, so if you're sort of looking there now further up on the screen with that, we're looking to do Phase 2 there. We are charting to the landowner, looking to do JVs without land banking. So I think that given the demand in the area, we will hopefully be able to do another circa 50,000 or 60,000 square meters of boxes there. It's been a really great park this one. That's the N1 at the moment and then the Gautrain just to the right of there. So tenants who need a bit of exposure really do like this park like WeBuyCars. Eastport our biggest logistics development that land there that you see on the left-hand side, we sold that to Teraco who build data centers. They're going to build a data center there. That's a spec box, roughly 20,000 squares. We've got another one of about 13 and then the one at the front against the highway, 14,000 squares was led to Clippa. They also do a lot of logistics for sweets and food. They also will buy half they're building at again a compressed yield. So we like that. Savino Del Bene the one just next to Clippa along the highway bought the whole building. We announced that last year at a 7.29% yield. And next to Savino in a box that looks pretty similar Teralco Logistics, not to be confused with Teraco they do logistics for Tiger brands. So there's a lot of food products in there. And I think -- I mean, one of the exciting things that to be looking at here is a large distribution center, which will take up about 360,000 squares of this land, we'll show you a map now. So if you look on your screen there, that's the map of Eastport. It was 1 million squares. It was quite a daunting size at the beginning, but we really have chewed through that. So as we said a while ago, our approach is more of a developer approach to maximize economic profit on this. So happy to sell land, happy to do turnkeys, happy to JV. This large DC, which is under offer. We haven't finalized the terms yet nor the design, looking like 160,000 square meters, and there will be some coownership involving us and the tenant with our partner owns 35% of Eastport looking to exit. So this one is quite exciting. We do have 2 spec boxes coming at us in the next couple of months, but quite a lot of interest there. I think that R21 North-South Road is far less congested than then N1. So it seems to be gaining a lot of traction. This is just an overview of some of the portfolio stats for our logistics portfolio and is -- our share is increasing in terms of GLA. So that's kind of speaks to the strategy that we want to follow of logistics and retail. Building value per square, I think it's still quite fair. There is a little -- the new stuff is sitting at sort of a 8.5% to 9.5% and the slightly older stuff, a little bit lower than that. I think if we pick the good and the bad of this slide, the good is like-for-like NOI growth of 2.3%, which is really great. I think it's -- in this market, 2019 to 2020, the second half of those years, I think that's a great performance, still relatively low vacancy, nice in-force escalations. And the standout negative on the slide is the reversions. We had a few negative reversions coming off some longer leases, which reverted down. Again, it's 6 months, so that sample size is a bit small. So this is just the progress that we've made in our lettings in the pipeline. So during the period, what we've completed and let just over 62,000 square meters. In the commentary, you'll see 62,495, the difference is in Cornubia given the split we didn't build a bit and we lost a bit. So that one wasn't quite the GLA that we had in the initial plan, it was a little bit smaller. So that -- I think that's very pleasing. And then developments completed, but just after the period, both of which have been let is Longlake Extension 4, which, as we said, was let to Cargo Carriers on a 5-year lease and Clippa was completed on a 10-year lease at a 9.4% yield. So that really is pleasing. And then if you look currently under construction, we've got Clairwood Pocket 7, which is the mini-units. I think that Durban market is still -- I mean, it still amazes us at how strong that Durban market is in and around the port. Then we've got the 2 at Eastport, which we mentioned, a little bit to let at Clairwood pocket 4B and then the container terminal. So I mean, we've got GLA of 152,000 squares, of which we've let 90,000. No vacancies on anything that we've completed. So it really is going well at the moment in terms of the logistics. This is a summary slide. So our logistics under development, which includes land, ZAR 2.9 billion of value, as we mentioned, right at the start, we need to add 3 roughly to get to 6 of income producing. Louwlardia is done. Eastport, we've kind of sold some land. So that goes from 450,000 GLA that we're thinking of doing down to 420,000. So that we've done 61,000 that gives us available of 358,000. As we mentioned, the large DC under negotiation is 160,000. The 2 spec box is 33,000. So that leaves us with 165,000 approximately to develop. Longlake, as we said, that's Phase 2 of 60,000, but 36,000 is done. Clairwood, we've got -- we've done 25,000, and we've got the 90,000, which is actually let. And then we've got a little bit of spec, which is the minis at Pocket 7 and the rest of Pocket 4B. So that leaves us with 155,000. Cornubia quite small, 61,000 squares to go. So I think this is just a summary of -- we were at 1 million squares a few years ago. We've done 250,000. We've got 750,000 left. We've got a little over 300,000 under negotiation let and under development. And that leaves us with 440,000 roundabout to -- of remaining GLA to go. So we really have focused on getting through the land and chewing through that as economically beneficially as possible. So I think that's working and credit to our development team. I think we've mentioned most of this just really focusing on converting our land into a yielding asset base. It did in a strange way before we stopped paying out capitalized interest. If you were a shareholder, it had a yield when we capitalized the interest of circa 8.5%, 9%. Since we stopped that, it now -- if you're looking from a share perspective, doesn't have a yield. It never actually had a yield. We didn't get any rental. So just turning that tap off saves the balance sheet, but the advantage of that, as Ian mentioned, is as we develop these all of that net income drops to the bottom line. The office portfolio, I think it's it's tough out there. Credit to that team, they do -- I think they go out there and do the best they can. It is really, really difficult. Reversions down 16%. Our vacancy up to 26%, looks like it may be heading to 30% in the next couple of months. I guess it's a bit disappointing, but the best thing is we now well sub 200,000 square meters, and it is less than 5% of our assets. So this is a -- it is a very small portfolio for us. And fortunately, at a little over 10,000 a square meter, it's very well priced, fairly valued. There's a bit of noise in the market about converting to residential. A handful of properties probably tick the right boxes to do that on an economically sustainable economic basis. But hopefully, the market returns, people get back to work and to offices. Yes, as we mentioned, negative work from home, the structural oversupply remains. The big positive is it's very small in our balance sheet and in the life of Fortress. The industrial portfolio, I think, although it's noncore, ZAR 3.3 billion, ZAR 3.4 billion, negative reversion. But that like-for-like NOI growth, minus 1.9%, relatively pleasing given the situation. And I think what drives that is really focusing on getting the vacancies down. Obviously, for that, you sometimes need to wear that negative reversion, the instruction to that asset management team has been just let the space to the right tenants, get it done, don't sit on vacancies. Just to the right there, you'll see 50 Electron. This was a little bit of a pilot project that we did alongside InnerSpace who managed that for us. It was 11,000 squares let to Barloworld Logistics, high office component. At the back there, there's a multistory industrial storage unit with a goods hoist, no yard. It's just really not something that we like. It doesn't really have a future. But what they've done here is quite exciting to break it up into a lot of mini units, mini offices. And other than a couple of offices that aren't let, it's full. So I think that really has proven beneficial, very high admin cost, very high-touch in terms of management, but it's working, and we're getting through that. We did mention we did one at the bottom of the screen there also with the red Crocker Road, it was 15% vacant. InnerSpace came in, rebranded it. We spent, I think it was sub ZAR 2 million, and it's now full, and now rentals are going up. So that's working. That other one Waterpas. We added pumps and tanks, 7,000 squares. Unfortunately, to get the sprinter pressure up, we now need pumps and tanks on anything above about 2,000, 2,500 squares. So that costs a lot, but without doing it, you don't get tenants. So we are spending a lot of CapEx repositioning these assets and hopefully, once they let, we'll be able to sell them. As we mentioned, property disposals, it does include Cornubia and Weg. But even if you exclude those, it's still a bit of a premium to our book value, which is very pleasing Weg we have got that cash now in our bank account. Cornubia Ridge, as we mentioned in the commentary was a -- it was in a subsidiary of ours, but with the minority partners, we decided to take it in undivided shares. But again, it's very pleasing to note that I think this is the majority of this portfolio is our tail. So it is underperforming assets that we're selling, and we're managing to get our book value from June last year. So I think we feel that our assets are fairly valued. These are the slightly weaker ones. And we're chewing through that. We're doing it the hard way, which is asset by asset, which is a lot of work I'd hazard a guess, I would say, probably 1 in 10 sort of offers actually land and stick. So there's a lot of work in the background that gets done by the sales team. Held for sale at the moment, of which we've transferred 30 Bell, 122 Koornhof and library office parks. So we have transferred a few of those. As Vuso mentioned, we've got an offer on Nongoma which is one of our smaller retail assets, also a pretty attractive premium to our book value of about 14%, 15%. So we're getting through there, and we're using this cash to develop out our pipeline. As you would have seen, Alex and Mirela and Marek presented the NEPI Rockcastle results I think we're very comfortable with their liquidity position and what they've done to to really weather the COVID storm and still good performance. And I think, hopefully, Europe will get ahead of the curve in terms of vaccines, and we'll see people starting to return to those shopping centers. So it's not something we're worried about. It's still a core holding for us. So something that we've done, which is a little bit new Fortress Central and Eastern European logistics. We bought 2 logistics parks in Poland, 1 in Bydgoszcz and 1 in Stargard, both in Northwestern Poland. Stargard is near Szczecin. Relatively small investment, it is more of a dip our toe in the water and grow a team there. We have hired a Managing Director who was from Griffin Real Estate, Maciej Tuszynski. So we do have a very, very competent Managing Director there looking after our interest in these 2 parks. And we quite like the blend of roughly 1/3 income producing; 2/3 I'm going to -- I'll play the video for you now. 2/3 pipeline. So it's roughly 60,000 squares of income-producing, 110,000 of pipeline. This first 1 in Bydgoszcz, obviously, it's a little white there with the snow. It is quite --it's sort of between and Warsaw, but it's a strong node. It is a little bit competitive in this node. Panattoni have got some assets down the road. That's PK's 5,000 squares. At the back there, that bigger 117,000 squares is a company called keeeper. It's owned by a German listed business. They manufacture plastic products, and this is their distribution center. That one in the middle, Hala B was under development halfway. So actually, year-end half was complete and the rest completed after year-end. Two more sites there, which we can expand and do just a little south of 50,000 square meters there. Again, exactly what we do here, generic boxes, great accessed by highways and in and around denser urban populations, which is nothing different to what we do here. And I think it's a very through the cycle defensive type of strategy. Stargard, it was a little bit more off-line. You can see there's a little bit of space there. CEVA Logistics is in this building alongside EcoReadyBath which take a smaller piece. In the background there that's the little distribution center of about 60,000 square meters. What's interesting with this node is when you look at it on Google Earth, there's almost nothing there, the development is really taking off in this node. I think pleasingly, we got this asset on a yield of 7.5%. That's a little in the background there, and that's our park. Lots of demand there, so we can do 80,000 square meters. We've actually just pushed the button on a second box. The 1 tenant needs to triple their size. So we'll build another box for them. I think the asset yield, 7.5%, but really what was attractive with this is the land entry price is EUR 11 a square. So we'll just look at these maps. As I said, you've got Warsaw slightly to the east of the country, then got Bydgoszcz and then right near Berlin, you've got Szczecin again, really on good highway networks in terms of this. Bydgoszcz, we bought the assets at a yield of 7%. We bought the land at EUR 36 a square and the rest of the park infrastructure we just paid cost. You'll see their Hala A has a few pockets of vacancies. They moved to Hala B again. Tenants needed more space. I think the fundamentals here are really exciting in terms of the tenants just growing there's not a lot of new space. So I think fundamentally, it is very attractive when we compare it to South Africa. So 2 more boxes to do there. Stargard, as we mentioned, not far from the Amazon DC, which is close to the German border, 160,000 square meters there. It's really close to Szczecin. One box there, very attractive land price. And we're actually entertaining a couple of offers on bigger boxes in terms of RFPs already on Stargard. Something that's growing in importance. And I think we get asked a lot on ESG matters in terms of the -- from the investors. Our environmental approach really is twofold. I think it's really renewable solar photovoltaic installations. That's critical for us, as we mentioned. So we keep -- we're banging on that. Hopefully, we'll have -- we've got 10 operational, 5 under construction and about another 10 or 12 in planning and a lot more being generated. The tenants love it. It works economically. So it's something that we just have to do. Obviously, all of those ratings, something that we're looking at, I think just when I look at it, there's a myriad of ratings at the moment, and we are aware of all of them. We try and tick all of them and focus on getting ratings for everyone. I'm sure in time, they'll probably narrowed down, and there will be some ratings that become more favored and others that drop out. But at the moment, we're trying to do everything. Just on the environmental, we do have a pilot project on really active water monitoring on retail assets and our industrial sites, so that we can -- if there is a leak, we get alarms, and hopefully, we can address that in a water-scarce country like South Africa and especially where our retail assets are in rural SA, sometimes we're only -- the only sort of property with access to clean potable water. On the social side, we maintained our level 5 rating, which we announced last year. The partnership with food and trees for Africa is really going well. I'm tempted to say, bearing fruit. But it is looking good. It's in and around our retail centers. So there's that benefit, and I think a lot of sort of synergy in that relationship. And obviously, our educational programs, we still continue to to support. In terms of governance, as we did announce last year, condolences again to the family of one of our nonexecutives, Tshiamo Matlapeng-Vilakazi passed away during the 6-month period. We have appointed 2 new nonexecutive directors to the Board, Ben Kodisang and TC Chetty. So very much the executives looking forward to working with them and getting some of their insights into various sectors in which they are very experienced. And Djurk Venter who was Chair of the Audit Committee and on the Board right from the listing of Fortress in [Audio Gap] big thank you to Djurk. He's been with us through some exciting and through some tough times and really gave us a lot of support. So guidance and prospects. Going forward, I think something that we -- that Ian has put together for us is just how much distributable income is there for FY '21, which is obviously what we reported ZAR 820 million for this period and then a little more than ZAR 1 billion coming for next period. So to ZAR 1.846 billion distributable income that we have for the year. I think what's important to note is what's in there. We don't have cross-currency swaps in there, we don't have euro debt, we don't have capitalized interest. So it really is now a very clean base, and it will grow as we roll out the pipeline, sell the land, do tenant JVs. So I think that -- we've got that base down to a really manageable level on a solid commercial policy. When we look at that just as a -- really as a point of interest on the market cap, that's about 10.3%. I think also bear in mind that of that total income that we get, about 1/3 of that is euros from NEPI. And without the euro debt, that your exposure, although we do hedge a little bit, a little bit of it 100%, 2/3, 1/3 in terms of 1 year, 2 years, 3 years. There's still a lot of euros in that 10.3% yield. So dividends forecast for the second half 2021, which is the period to 30 June 2021. FFA dividends using a 3.5% CPI, assumption, ZAR 0.7879, and then we're expecting the B to be approximately ZAR 0.10. Again, in the results announcement, we do draw your attention to all of those caveats, please do read those. It does explain how exactly -- I think the key assumptions as to how we got to the ZAR 0.10. These are the portfolio stats. Obviously, we've got the introduction of CEE Logistics, 50,000 was at December, but it's now closer to 59,000, 60,000, and there was a little bit of land and developments in the ZAR 237 million, which has been converted to income producing. So those are just for your information. I don't know if there are any questions, have we?

Good morning, everyone. [Operator Instructions] We do have 1 or 2 questions already. The first one coming from Daniel King from Avior. He asks, could you reconcile the funding of the Polish and Romanian logistics that might be on the horizon? Could you reconcile between direct in-country debt, local disposals, local debt and retained earnings or anything else?

Sure. I mean...

Not at -- maybe a broader reconciliation just of what you're going to use?

Yes, I don't have my excel. Look, I mean, really, what we're doing is, we're disposing of the noncore assets. So as we said, that ZAR 6 billion. So recycling that into top structures. But the top structures with the tenant in our SA development business with the tenant JVs and our pro rata shares, actually not sucking that much. And remember, we've got the land on the sole improvement, down the earthworks and down the park infrastructure. So in terms of incremental cost, it doesn't actually use that much. I think if you look at the cash flow, I mean, Ian can maybe provide you some more detail on that, but it was kind of net investment of about ZAR 370 million post disposals, I think is that right, Ian? Post disposals and post investment in CEE. So really, that's what we're doing. We're selling assets here and developing out our pipeline, and we've bought a very small amount of of assets in Central and Eastern Europe, being Poland and Romania. The in-country debt in Poland, EUR 12 million, Romania will be about EUR 18 million. So relatively small ring-fenced, no recourse to the SA balance sheet. And we also aren't using euro debt here through any synthetics.

Just a follow-on question on that from Nazeem Samsodien from Investec Securities. Would you be using NEPI Rockcastle to fund this Polish development?

So -- I mean, I'm not sure if I follow -- I mean, obviously, NEPI gives us roughly ZAR 1 billion a year. I mean in terms of funding, it's a big part of our balance sheet. So -- but I mean, there's nothing specific. I mean, we're certainly not looking to rotate out of that into this. I think what we're looking to do is rotate out of SA Office and SA Industrial and our Other, which is a hotel in Midrand, some residential units in Rivonia, some residential units in Secunda and some residential units in and a couple of motor dealerships. We're looking to sell that. That stuff really doesn't fit our portfolio and focus on logistics and retail.

Next question from [ Aeneas Murry from Yager ] to the extent that the company's distributable income in any future interim period does not meet the FFA entitlement for that period, is it the company's policy not to declare any distribution for that interim period?

So no, it's not our policy. It's the way that the founding document of the company, which is the memorandum of incorporation is written. So the Board is not authorized in that scenario to declare a distribution to to shareholders. The is on the website.

Next question from Peter Cromberge. He asks what are the company's plans for the ZAR 4.9 billion worth of borrowings maturing before June 2022? Given that the DMTN spreads are similar to your secured debt, do you plan to increase your proportion of bond debt?

So I mean, more a question of Ian -- for Ian, but we have refinanced a large portion of that, Ian, about the ZAR 3.6 billion is we've already got credit approval. That's actually only in November this year, but we brought that forward. So we've already got credit approval, and we'll do those documents. Yes, I think 10% in terms of DMTN, and we probably could increase that. But that does come with risks as we've seen. The market is volatile, you're not dealing with relationship bankers. You're dealing with a host of people that change, I guess, not on a daily basis, it's not that liquid. So we are -- we could increase it, I think as long as the terms are attractive, and we will maintain our presence in the bond market. But I think at the moment, the mix is probably quite comfortable, and we don't really have a need for additional borrowings because we're recycling assets at the moment. In fact, the sales team is running a little bit ahead of the development team. So we're actually sitting on quite a lot of cash at the moment.

Next question from Jonathan du Toit at Oyster Catcher Investments. What does the current tax charge of ZAR 28.5 million and the cash flow statement payments of ZAR 51.7 million relate to? Please, could you elaborate a little bit more on that?

Okay. So that was the tax charge -- to 2020, because we didn't pay out enough to get no tax. So there was a little bit of a tax charge from the 2020 year. And then that was it that was the question?

Yes.

And then just following on to that. For the Direct CEE properties, what's the likelihood of in-country gearing that Fortress will run on those assets?

Yes. So we will look to in-country debt, and I think we'll do it on a very moderate, roughly 40%, 50% loan-to-value basis. But there is already in-country debt in there, but only EUR 12 million in Poland.

Next question from [ Vim Murry at Fort ]. He asks, could we comment on some of the challenges of concluding a during the COVID environment? And how did you source these opportunities and find them in the various sites?

Sure. So we've been looking for logistics opportunities there for, I'd say, about 4 years. We've been looking at that market. So right since early 2017, in fact, earlier than that, we had a broad strategy to go and have retail and logistics and have retail exposure in CEE and NEPI Rockcastle and logistics direct with us, we couldn't find an alternative to that. So we've been looking for a while. We got a little bit distracted, I think, as a management team in 2018 and the earlier part of 2019 and then went back there and found these assets in 2019. Negotiated, COVID was a bit of a challenge, but I think eventually actually through that pandemic got a slightly more attractive deal.

Next question from [ David Russo at Fair Tree ]. Just -- I know you don't have the details in front of you, but could you broadly unpack the valuation declines and increases since June per property type? And what's your outlook on that?

Sure. So I mean, obviously, we don't do, Daniel -- sorry, David, we don't do the formal valuations at the interim period. But what we do do is we look for indicators of impairment. So there were a couple of indicators of impairment. For example, Protea Hotel Midrand, it's a variable lease. Secunda Retail we took to market, but there wasn't a lot of demand. So there was a further indicator. Life Healthcare left Oxford Manor. So that was an indicator we weren't going to get our reletting assumptions Ascendas business park had a slightly higher vacancy and then Monte Carlo Office Park, it looks like 1 of the tenants is going to leave there. So I think on -- it was about 5 assets. We did recognize some valuations, really some impairments, that was ZAR 170 million. So we did take that down. And then in terms of our developments, we recognized impairments of ZAR 95 million. That was primarily the Sandton side opposite the Gautrain Station. That was about ZAR 62 million, ZAR 65 million. And then a little bit at Cornubia and bits and pieces elsewhere that we that we had to impair down. And a lot of it was really the capitalized interest.

Next question from [ Tobby Lojne at Cafman Capital ]. He asks, bearing in mind your interest rate caps are roughly 3% in the money, you have about 65% of debt exposed to higher short-term interest rates, it appears rates maybe 2% or 3% higher in 2 years by some forecasts. Are you comfortable you can absorb higher rates without impacting distribution growth?

Well, yes. I mean it would -- obviously, if rates go up, our interest charge goes up because -- you're absolutely right. So it's not 3% in the money, it's, I suppose, 3% of the money, it's above I think, the problem is there is that we've got to choose between caps and swaps. We can't have nothing. So if you have the swap, well then you don't have the cash today. You're just paying that out to the bank. And given the steepness of that curve, as Ian mentioned, I think that curve is probably ending in 10 years' time at a forward point of -- I think it's about 10% when we last looked. So that's 6.5%, 650 basis points of increases on a steady basis over the next 10 years. We just don't think that the Reserve Bank is going to do that. And also, obviously, we have a policy, and I understand that sometimes there's a bit of noise, but we don't hedge long-term interest rates. We hedge short-term interest rates. We hedge a rise in the short-term rate we don't try and hedge any of the long-term rates. So whatever gives us the best protection to that is what we're going to look at. But yes, it will impact distribution growth if there's a rise in interest rates because the caps are, let's say, capping us at 6% and the repo rate of 3.5%. So if they raise at 1%, we do essentially float below that cap level, but it gives us insurance. And I think we're comfortable with with that at the moment. And certainly, at the moment, it's giving us more cash generation on our lower interest charge.

Just a comment on your LTV and your see-through LTV levels. Of course, you've got assets in NEPI Rockcastle shares, you've got the CEE assets offshore, you reported LTV is 38%. There are some comments that if you just look at your SA properties with your debt, obviously, that LTV looks a lot higher. But maybe if you could just discuss your strategy on how you see debt, both in the South African portfolio, maybe the new CEE portfolio and the way you think about the see-through gearing with NEPI Rockcastle?

Sure. So I mean, obviously, we do encumber some of our SA assets, and then we've got our bond program. We don't -- we have a marginal amount of NEPI shares encumbered with some of the financial institutions, but it's really just a top-up security as and when we release some other assets, it's not the bulk of it. Yes, there is see-through gearing, as we noted, it's about 35% when we take an NEPI in and use -- take a pro rata share of their asset base, it actually brings our see-through gearing down a little bit, but then we have the balance sheet. So overall, at 38% with these rand interest rates, I think we're very comfortable.

Next question from Suren Naidoo from Moneyweb. He asks, were there any specific write-downs in the overall SA portfolio, especially on the office side with the vacancy spiking?

So yes, I mean, the SA portfolio, we wrote down ZAR 170 million at interims, which is not when we independently and formally value our entire portfolio as we do in June. As we mentioned, it was Oxford Manor and Monte Carlo Office Park, which was the the big negative write-downs due to some changes in tenancy and reletting assumptions.

Another question from Jonathan de Toit at Oyster Catcher Investments. He asks just what happens if the MRI prevents a distribution, but by not distributing you potentially lose SA REIT status, how do you manage those 2?

I mean I guess we would manage it the way we managed it last year, which was to go to shareholders and asked them to -- last year, we asked for a temporary amendment to the MOI for that period only, which allowed us to pay out below the A minimum and maintained our REIT status. So I would -- I guess we cross that bridge when we come to it, but we'll probably do the same thing again. But certainly, for this -- for this year, we expect to maintain REIT status and no material tax leakage.

Two questions from Bandile Zondo. The first 1 -- from Standard Bank Securities. The first 1 is, do your like-for-like NOI increases, have they been able to reverse some of the impacts of COVID-19 relief?

I'm not sure I fully understand the question. I mean our like-for-like is -- we do strip it out. But the COVID -- the big COVID impact, Bandy, was really in the period sort of April, May to June. So there's not a lot of covert in that like-for-like, a little bit in resource retail portfolio, I think, about 6.5%, but the rest is like ZAR 3 million really negligible in the rest of the portfolio on a like-to-like basis if we factor in any COVID adjustments.

And then just a comment on logistics development yields. It seems that development yields have tightened to around 7% to 8%. That's not too far from market pricing. Do you have any comments on how you see that versus where things are trading in the market at the moment?

Yes. I mean, I guess, look, I guess it's positive because we're developing it at market, which means our land, our build costs, rentals, everything else is probably aligned to market. I think there is a lot of demand and especially investor demand for our logistics. But that's -- it's good demand. It's not really just hot capital because we see as we showed our development pipeline and the interest is there. So there's real demand for these assets, not just demand because it's, I think, in vogue at the moment with the investors. And just on that, it is 7% to 8%, but that's our total development cost, which includes all of the costs, capitalized interest, everything like that. So that's a kind of all-in yield. It's not a yield, just for example, on top structure or anything like that. And as we mentioned, when we're not capitalizing, suddenly, as we bring that on it just adds in on the pipeline.

[Audio Gap] distribution per share at year-end, in your view, have you taken that into your forecast? And how does this compare to the previous year?

So no, we haven't taken any potential new lockdown restrictions into our forecast. Really, what we've got in our forecast is is as is at the moment with a slightly softer market, but that's been -- that was pre COVID in SA anyway, So no, we haven't factored in any specific additional lockdown measures or restrictions. I think it's just too difficult at the moment to do that. If there was another, for example, hard lockdown, April and May this year, we'd need to then adjust our forecast.

A question from Zaid Paruk of AION Investment Management. Could you comment if the shareholder simplification structure or a change to the structure will be relooked at this year?

We don't have any plans to to do that. Yes.

And a final question on the webcast from Glen Baker at Anchor Capital. He asks most of the retail tenant credits of around ZAR 70 million were taken in the second half of 2020, is there any straight-lining going forward? And a similar question across the rest of the sectors is, are there going to be any straight-lining effects going forward across some of the other sectors?

I mean I'll answer that and maybe give Ian to answer, but the pain, correct me if I'm wrong here. The pain was taken when it was -- when it hit, we just took it. So if there were discounts, we took the discounts, and we didn't recognize rental to the extent that they [Audio Gap]