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

Good morning, everyone, and welcome to the Fortress annual results presentation for the year ended 30 June 2023. I think, firstly, we just wanted to kind of pause and send our condolences to all of those people who lost their lives in the Johannesburg CBD yesterday. I think it's a massive tragedy. I mean that's just probably less than 10 kilometers from where we are today. And I think it's a huge tragedy. And for everyone that's involved in the built environment like we are, it really does bring compliance in health and safety and fire regulations to the fore, which is a huge focus of ours. So a real -- our thoughts and prayers are -- go out to those people who lost their lives and their families. And on to more positive things. It's been, I think, a fantastic operational result for Fortress this year. We sometimes are busy laying bricks, pulling up columns, building warehouses. And I think the result is that we've had now currently got a portfolio of income-producing property of ZAR 30 billion, which is the largest we've had in our history. And that's combined with the lowest vacancy we've ever had in our portfolio, which is 3.7% measured by GLA. So I think very well done to the asset management teams. If we saw this retail team, the team under Bruce, who spend every day trying to lease space and find good tenants. And I think it's also a testament to the strategy of selling the underperformers and building out new better stock. So that's been a huge highlight. Our logistics portfolio is now ZAR 18 billion, which was, I think, in 2018, I'll touch on it, it was around about ZAR 8 billion. So it's been quite a growth trajectory over the last 5 years. Obviously, the Pick n Pay deal was quite a big transaction for us, which we completed during the year. We've got a slide just unpicking some of the economics of that one, and Vuso will go through the retail trading and some of those highlights with you. So the Pick n Pay transaction, it did take a while. We actually signed the heads in the middle of sort of COVID when we were all actually holiday in December 2020 when we couldn't go to the beach, we couldn't buy any alcohol. So it was a bit of an odd time. We had agreed a deal where we would hold 40%, Pick n Pay would take 60%, and we would have a put and call arrangement with a premium. The actual yield that we were going to get at 7% didn't quite reflect the economics of that transaction. But I think given the market dynamics during the year, Pick n Pay approached us, and we renegotiated that transaction. We got rid of the puts and calls in the premium, and we renegotiated that to be an 8.5% yield on total development costs as it was defined in that transaction. We did have a partner there who is going to participate in the premium, so we did pay them out. So that yield to Fortress on our total cost was about 8.3%. We actually haven't ironed out our total cost yet. We're still waiting for some final accounts. But I mean it was, I think, the largest single-phase DC we've ever built in the country. As you can see, the tilt-up, that's the new way of building. There's no brick work. It's quicker. They cost the panels on site. So it's been an unbelievable project. It took us 2.5 years to build, and this video is about 2.5 minutes. Huge roof. We would love to do some more solar on that roof. Pick n Pay will do solar for their own needs. But we're really hoping that if we can get the planning and everything right, we can maybe tap into that because about 50 meters from that Pick n Pay DC, there's Africa's largest data center, which takes 70 megawatts, and they are -- have entered into an agreement that's under due diligence now to buy another 100,000 squares. They want to triple the size of that data center, which would make it still Africa's largest, and that would suck up about 200 megawatts of power. So they're desperate for some sort of solar solution in and around Eastport. And we -- as we've said before, we -- so I just want to pause there. That site just to the north there, we have an option to acquire that site. You can see there's a little T-road that's built in there. That's 36 hectares. We've got an option to acquire that in the same 65%-35% split that we own, the rest of Eastport, except Pick n Pay, which we own 100%. And I think it's quite a nice transaction with our current partner, M&T, to expand Eastport logically up north there just to the top right-hand side of your screen. I mean just in terms of the build, Wilson Bayly was the contractor on this, on time, on budget, no incidents on site. It really has been a fantastic project managed by our development team. That's the perishables unit, which is refrigerated, nearly 50,000 square meters. We wish them all the best there for the next 15 years, maybe longer. So just to touch on, this is really a historic -- some historic numbers. We did do this in a slightly different format previously. Just where did we allocate our capital during the last financial year? And what were those returns? Obviously, on the left-hand side, we've got the light green is the yield, and the light blue is really the capital growth. I think with the currency moves and with NEPI suddenly doing so much better operationally, that's been an outstanding investment for us. We allocated ZAR 800 million to that by taking the scrip dividend. Our CEE logistics has also been an outperformer. We've seen marginal uptick in growth there. So yields did go up in discount rates, but that was more than countered by NOI growth, and then the 34.2%, a lot of that was a foreign currency move. SA logistics, pretty much flat year-on-year in terms of the price, but that's giving us a nice yield. And I think when we look at the return that we get on that incremental CapEx, it's high. Retail looks a little low, but Vuso will touch on that. That's a net number, and we did sell some of the sort of underperforming clangers during the year like Secunda and Bellstar. Vuso will give you some details on that. Industrial, we sold quite a lot. Other was a hotel in Le Grand that we had. Inofort, we did spend some money, and I think that will start coming through. NOI growth predicted for next year is north of 15%. And then offices, again, negative valuation move. But fortunately, that is really quite a small investment for us. I think this has been a huge highlight for us is just getting the vacancies down, and you can start to see that coming through in the NOI and the like-for-like NOI growth. June 2020 was 8.9%, and that's come down now to 3.7%. And if you look at the core portfolios of ours, logistics, I mean, it's 0.5%. It's probably as low as we're going to get. There's always going to be some vacancy in a portfolio of 1.5 million squares. Retail is super low. And industrial actually surprisingly has come back quite nicely post COVID. Offices, if we do the planned sales, will be sub 20%. This is just our -- the 2 sort of core portfolios, as we call it, Fortress Logistics and Fortress Retail where we are at the moment. We've shown this slide quite a few times, and I'll show you the target on the next one, which is ZAR 20 billion to ZAR 25 billion in each. We've got ZAR 18 billion now in our logistics with a pipeline of ZAR 4.5 billion. Quite a lot of that, probably about 2 should be delivered in the next financial year. So we're almost at ZAR 20 billion. And on the retail side, when we include NEPI, we're at ZAR 27 billion at year-end. The asset disposals, again, that's real asset disposals of ZAR 5.2 billion and then a target of ZAR 2.5 billion going into next year. That's really where our source of funds for funding the development pipeline is. We've got to sell the underperformers. We use that cash to go and build these nice boxes with 10-year roof guarantees, triple net leases. So that's been -- and that's real. We don't -- it's not something that we talk about. We've actually sold ZAR 5.2 billion. That's our target asset base. As I mentioned, I think the retail is a little bit more than that. That's NEPI Rockcastle at the spot a couple of days ago. So that's really our focus is to get to those 2 portfolios, give them critical mass of roughly ZAR 20 billion to ZAR 25 billion each. Our strategic focus, just going into the next year, is really much of the same on the operational side. It's to focus on the operations to make sure that we continue the asset recycling, do the development pipeline and also make sure that the retail is expanded and enhanced when we've got assets that are performing and are in good locations. I think something that we're seeing post the huge rise in interest rates in SA but more so globally is there are a lot of opportunities. I mean I was reading an interesting article in The Economist, which referred to the sort of commercial real estate. If you've got cash and you don't have debt problems, the porridge is at a perfect temperature. It's like a Goldilocks economy, whereas the porridge is very cold if you've got debt refinances and high leverage. Property disposals. We disposed of ZAR 1.24 billion of income-producing assets at roughly book. And then we sold an office site actually just down the road here for a residential development. They're doing some, I don't know, I think, like 900 or 1,000 micro residential units called Sandton Platinum Residences, I think. So that was a good exit for us. If we look at that total sales for the year, the yield is 9.4% on what we sold. So I think it's not that dilutionary because we're selling assets with a relatively high vacancy and, certainly from a growth perspective, ones that we think are largely ex growth. So that's just -- what we're talking about earlier is our disposal proceeds plus the target for next year, ZAR 7.7 billion. And that's really going into developments where we look at what we've got in the pipeline for next year. That's about ZAR 9 billion. And the target for the next, call it, 5 years, I mean it's not really determined. Disposal proceeds. That's from our noncore portfolio from the office, industrial and other. That happens coincidentally to total ZAR 4.5 billion, and our pipeline estimate at the moment is exactly the same at ZAR 4.5 billion. So I think we've got -- as long as we keep selling, we've got the funding available without additional equity capital. I'll invite Ian Vorster -- it is his birthday tomorrow, so happy birthday for tomorrow, run through financials.

Good morning. Thanks, Steve. Appreciate that. So I'm just -- all right. I'm going to start with our distributable earnings for the year. In absolute terms, our distributable earnings is up by 5.3%. That's the difference between that ZAR 1,797 million and the ZAR 1,707 million of last year. There's a bit of a story to that, and I'll get to it shortly. We've introduced a new metric, and that's TNAV on an equity -- sorry, on a per share on a going concern basis. As a result of us no longer being a REIT from February of this year, we now have to account for something called deferred tax. And our net deferred tax position is a net asset of ZAR 1.2 billion. So there's a slight disconnect between the core businesses NAV and what is now reported in our IFRS accounts. So if you back that out, you get really to the core sort of net tangible asset base of the business. And if you look at that on a year-for-year basis, we're up 20%, 19.9%. Just moving on to our distributable earnings and what we make that -- what is made up of that. We start with the NOI from the properties, and that would include all the sort of direct rental less direct costs. We add to that our NEPI dividend. In that NEPI dividend of ZAR 1,405 million is an election for a scrip of ZAR 825 million. If we were to value that at 30 June, ZAR 888 million, and today, roughly ZAR 930 million. So pretty good capital allocation with regards to NEPI. I just want to draw your attention sort of -- sorry, from that, we deduct costs, bringing the interest cost, et cetera and overhead costs. I want to draw your attention to 2 numbers. One is the income tax charge, the ZAR 205 million. That is income tax applicable to the financial year 2023. And then below that is an amount of ZAR 72 million, which is a credit to the distribution. And what that relates to is interest on a tax provision that goes back to 2018. We had a matter with -- that obviously disclosed in financial statements and so on, but we had a matter that related to a couple of our subsidiaries back then, which has taken us 3.5, 4 years to sort out. And we had a very favorable outcome with [ ZARs ] in the current year, which resulted in a ZAR 400 million reversal of the provision -- well, sorry, ZAR 200 million reversal of the provision and ZAR 200 million in tax returned to the company and then, of course, the unwind of the interest that we then had raised on that provision. So that ZAR 72 million is an accounting entry. It was taken out of the distribution through that period and now needs to be put back in. So it's a release of a provision once-off in nature but comes back into the distributable earnings. We've tried to normalize both last year and this year's distribution to give the investors and, I suppose, the public an idea of what our normalized year-on-year growth would be. So the ZAR 1,797 million this year is a posttax number, whilst the ZAR 1,707 million last year is a pretax number. When we reported in June last year, we still had REIT status, and there were a number of proposals while there was a scheme of arrangement and subsequent shareholder led proposal that may have resulted in us remaining a REIT. And if we had remained a REIT, we would have distributed the dividend and had no tax to pay. So at 30 June, we hadn't provided for that tax whilst we disclosed that, that was the number that we would have to pay. Subsequently, we had to pay it. So if you compare like-for-like, you first have to back out the ZAR 246 million of last year to get to a base of ZAR 1,460 million against the ZAR 1,797 million, but then take out this once-off reversal of the interest to get to a normalized position for this year, giving us the ZAR 1,725 million. So that's really a normalized base for 2023 against last year's ZAR 1,460 million, and that is an 18.1% increase. I have split it by first half, second half. And just for noting purposes, last year, we've prorated the ZAR 246 million against the earnings. It might not be absolutely accurate, but it gives you an indication of what the H1, H2 split would have been. Our TNAV bridge previously would have been NAV, which obviously was very close to the core business. Now we've got the deferred tax. I backed that out so that it's really the core of the business that I'm speaking to. ZAR 12.46 opening balance to ZAR 14.94 closing balance. The big movers there, our listed portfolio has increased, and that's really NEPI's price movement in our accounting, even though it's -- we equity account for it. Ultimately, we sort of market to spot through that accounting. And that price move has been circa ZAR 23 from ZAR 87 to ZAR 110, ZAR 87 being the opening and ZAR 110 closing value. The core portfolio has grown at ZAR 1.31 per share represents ZAR 3.5 billion of new income-producing assets that have transferred from our development pipeline into completed assets. In there is Pick n Pay, ZAR 2.2 billion. It obviously wasn't in for the whole year. We only had it in income-producing for 1 month in the current year, gives us rental of roughly ZAR 15 million a month, ZAR 182 million for the year. And that will obviously find its way into the distribution in its entirety for next year. The negative move on the development pipeline is a net position. Obviously, we've deployed further cash in, but the net movement out into completed buildings is, as mentioned, the likes of Pick n Pay and so on. The other movement is relatively immaterial, with the closing balance of ZAR 14.94. From a liquidity and funding perspective, the business is in a fantastic place. We've been quite active in the debt capital markets. We placed in the year, ZAR 800 million. And then subsequent to year-end, we had an unsolicited sort of reverse inquiry, where we placed a further ZAR 1.4 billion. I suppose the debt capital markets view Fortress as a pretty good credit -- from a credit perspective, in a pretty good place to obviously place more funds. Our current NAV SA REIT metric, 35.9%. On a see-through basis, that includes NEPI's proportionately consolidated, our piece thereof in our balance sheet, 43.6%. No breaches of any covenants. The relationships with the banks are obviously still good. And we've met the KPIs for our sustainably linked bonds that we issued some time ago. Our exposure to variable interest rates and our hedging. There's a number of numbers on this page. But what we try and do is sort of calculate what our economic exposure is to debt. At the moment, it's almost the same as our drawn position, and that's really the ZAR 18.4 billion to the ZAR 18.8 billion. And then as a strategy, we hedge roughly 75% of that. At the moment, 10% higher at 84.5%. What that hedge looks like and what it -- what makes -- sorry, what makes it up or what it's made up of. We still favor cap over the swaps. That strategy has worked exceptionally well for us, specifically during COVID. I think during COVID, the cap position that we have with the interest rates coming off, and at that point, caps were favored over swaps as a result of the exceptionally high interest rates, resulted in circa ZAR 25 million a month in interest saving. At the moment, I suppose we like caps over swaps just given where the interest rate curve is and where it could go. In any event, both our swap and cap book, if you have a look at the fair value of those, well in the money at ZAR 204 million and ZAR 216 million, respectively, and a pretty healthy profile on both. Our facility expiries. With a fund of circa ZAR 22 billion worth of debt and tenors of between 3 and 5 years, we will always have between ZAR 3 billion and ZAR 5 billion maturing in any 1 year, not dissimilar this year. And I'd just like to point out that sort of 2025 tower, the ZAR 5.4 billion, obviously secured debt. The ZAR 1.7 billion in the debt capital markets doesn't quite tell the full story that that's spread over the financial year in various increments. And by then, I'm sure we would have reengaged with that market and either place more debt or move it into our secured pool. But with the unencumbered asset ratio of north of 33% at the moment, very comfortable position. We target an 80-20 split between the debt capital markets and our secured funders. And we find that works well in our mix between flexibility with our existing banks, et cetera, and achieving better pricing in the debt capital markets. At the moment, it's slightly higher. And it's really as a result of the issuance that we just -- that I've just mentioned, the ZAR 1.4 billion that we did post year-end. We do have some maturities that -- towards Q4 of this year which will assist in floating that back down to sort of our 80-20 split. In regards to our prospects, business is in a fantastic position. The balance sheet is in a great person. Our distributable earnings for next year, ZAR 1.93 billion, that's on a posttax basis. So that would be -- sorry, that would be circa 11.8% increase on our normalized number of that ZAR 1,725 million and a 7.3% increase on an absolute basis. Thank you. I'm going to hand over to Vuso now to take us through our retail section.

Thanks, Ian, and good morning, everyone. So our focus on the retail portfolio remains that we'll sell the nonperforming assets, reinvest in the existing portfolio and where there are opportunistic -- where are the opportunities for acquisitions, such as what we did by buying the additional 50% of the Flamwood asset will carry on with those. So when this management team started in 2018, I think we had about 62 assets in the retail portfolio. And at that time, we said that we wanted to trim that down by 20 assets. We identified 20 assets that were noncore. Currently, we're sitting at 45 assets. So I think we're working towards that goal. Our portfolio is valued at ZAR 10 billion. So we've got scale there. When we look at reversions, I think the reversions still negative, a low negative, but it's improved quite a bit. I think when I was looking at the previous slides, in 2021, our reversions were sitting at around 10 -- at 5.6%. I expect these reversions -- in fact, I think we're at the tail end of negative reversions in our portfolio. You can see that I'll talk to vacancies later on, but our vacancies have improved. We sold quite a bit of the tail assets. So we expect to see positive reversions going forward. The in-force escalations are stable at 6%. I think that's fine. That's good in the market where we are at the moment. When we look at vacancies, I think the team has worked quite well to reduce those vacancies. So by income, we are 1.5% vacant, by GLA with 2.3% vacant. If I exclude the office component within our retail portfolio, by GLA, we're actually 1% vacant at the moment, which is quite good for who we are in the market. Yes, but we'll carry on working on those. With regards to the NOI, it's quite low at 1.4%. Some of the main reasons for that is that our head lease with Shoprite and Mayville came to an end, and that was at the higher range. So we had a big drop in income. And then also, we've seen some increases in expenses, partly due to things like diesel costs, generator costs and some of the security costs since the rise last year. But going forward, with how tenants are trading within the portfolio, we've got good turnover growth. We've got low vacancies now. We expect to see an improvement in the NOI. If we look over the last 3 years, and we use 2019 as a base, we see that turnovers from our portfolio have been consistent in growth. I think we are around 20% higher this year than where we were in 2019. This hasn't quite translated to any meaningful rental growth. I think the main reason for that is that obviously, tenant occupancy costs have increased during the period. And that is something that is -- that we'll work hard on to get back to a sustainable rental increase. If we look closer to the turnovers and we compared our growth from last year, it was 7% up from last year. And really, the big drivers for this has been on the grocer side. I think within our portfolio, the grocers have gone up by 12%. And then obviously, restaurants, liquor operators and high-value fashion have also been stable in the period. In fact, they've performed well in the period. If we split our portfolio up into the various categories, the township centers have performed well. Some of that relates to leasing that we've done at Evaton, Yarona and Palm Springs. So that's improved the trading there. And then also, we still had a little bit of the -- in the base, the rise from 2021. So it was coming off a little bit of a lower base there. The CBD stores have a stable, but the growth there has been low. And I think the main reason for that, if you've been to any of the CBDs of late, the degradation has accelerated over the last couple of years. And we've seen [ a somewhat ] degradation and high crime levels. But what we're seeing there is that people want to shop in closed environments where there's a security. So our centers within the CBD centers like Park Central and Central Park in Bloemfontein, still performing well because they offer that enclosure. But where we have, call it, high street centers, that's where we're seeing a drop in turnover. So within our portfolio, we've got 11 CBD stores, 5 of those are on our sale list, and we've got offers to purchase 2 of those. So we'll keep the performing assets there because we see growth in those. But where we see that the environment around us is affecting us, we'll certainly carry on and sell. The suburban centers are ticking along. I think the trend of convenience shopping is still benefiting that category. And rural centers are stable, and that's carrying on. As I mentioned earlier on, we've got quite a few projects on the go, which is redevelopments and expansions of existing centers. So we -- in the period, we completed Mahikeng. So there, we've got -- it's fully let. I think Shoprite and Boxer are the main anchors. And then TFG, PEPCO and Mr Price is the remaining tenants. So I think going forward, we expect to see rental growth -- good rental growth from that asset. So far, trading has been very good. In fact, it's been above what we thought it would be. So I think that was a good move to invest in that. And then AbaQulusi, formerly known as Vryheid, that expansion is carrying on. We'll open in the next couple of months. Again, the letting there has gone well. Boxer is the anchor; Shoprite, second anchor. And most of the tenants there are national tenants. I think we got one small 70 squares that we're certainly to let, but I'm sure we'll let that soon enough. Again, that will help the portfolio to grow rentals because those are good tenancies. Morone, we are about close to finishing the redevelopment that we're doing there. So this asset historically has been -- has had high vacancies. I think the work that we're doing has reduced those vacancies quite a bit. Again, we're bringing stability within the portfolio. Hopefully, that will assist us to grow going forward. And then 204 Oxford, formerly known as Thrupps Centre. There, we're improving the tenant mix. We're signing on an additional anchor tenant, a food tenant, and then also just general improving the tenant mix there. But one of the things that has always been an issue with the center is the access. So we're improving that, the parking and the access into the center. I think already the work that we've -- we're doing -- we've got quite a high office component there. We've seen a drop -- we've signed up a few leases on the office side. So we've seen a drop in the office. I think tenants are excited by what we're doing and planning to do there. So we sold 4 assets during the period, and I've spoken about these assets in previous results presentations. Bellstar was a leasehold that we had with PRASA. Very good location by the train station. But after COVID, it's in Bellville. After COVID, the trains haven't been working as they were pre-COVID. So trading in that center has really dropped, and the value over the period since then has been coming down. So -- and it was difficult to find a purchaser other than PRASA because of the leasehold. So eventually, we were able to get agreement with PRASA, and we sold that to them. Secunda was the other one that I've -- Secunda centers are webbed -- 3 words in this Secunda. We just call them as the Secunda assets. In the CBD there, a big competitor, opened about 800 meters away from us some years ago. And since then, those assets have not been performing well. So it's been on the sale list for many years. Eventually, this year, we're able to sell it. So glad to be out of those assets. You can see what happens to the value when trading in a particular node isn't going as well as it should be. So we sold those assets at 3% below book value. I still think those were good deals because after selling them, we've seen that there's been further loss of tenants, et cetera, et cetera. So it was good to sell. With our energy solution, our energy plan, currently, we've got 25 solar plants installed. Where we've got solar plants installed? 20% of what we consume is generated by the solar plant. I think it's obvious that this type of investment provides a good return. We're seeing a 20% IRR return from this investment. This is something that we are going to roll out further. Those are our targets for 2024 and 2025. I think by 2025, we want to have 83 plants installed. Our project team is quite optimistic. So at the moment, we've got 10.5 megawatt AC installed. By the end of this year, we'll have an additional 5-megawatt AC installed. So it's something that we're really pushing at the moment. Of course, with load shedding, diesel cost is something that's topical. Our diesel costs for the portfolio are sitting at ZAR 15.6 million. We've been able to recover 82% of those. So I think that, that number is going to be with us as long as load shedding is with us. We've got a plan, particularly in the retail, to install generators in the portfolio. I think by the end of this year, we want to have 75% by GLA of our portfolio covered by generators. We've ordered and bought some of those generators. There are discussions with the tenants. Tenants are receptive because they can see the effect of load shedding, and it's -- for them, particularly the smaller tenants, or when I say the smaller tenants, excluding the anchor tenants, it's easier for the landlord to run these things because it just makes it easier from the purchase of diesel, the daily running and maintenance of those things. So we've got good feedback from tenants. And then again, if I stick on the retail portfolio, we want to roll out the solar installation. And I think by 2025 June, we want to -- by GLA, to cover 88% of our portfolio with solar. On the logistics side, the majority of tenants install their own generators. And I think that trend will carry on. Currently, I think it's 78% of the portfolio is covered by the tenants. On the solar, at the moment, we're sitting at 9% GLA covered by solar. That's something that we are going to roll out. So there's a big -- there will be a big jump on the logistics side. So again, we want 80% by 2025 to be covered by solar. I'll hand back to Steve now.

Yes. Thanks, Vuso. It's been -- let's hope 2024 is a better year for the retail. We have to cover the rights and load shedding. So let's hope this year, it's all upside. This is a new acquisition that we've recently made from Pick n Pay. It was part of the original discussion. They weren't quite sure what to do with their old DC. It's 15 years old. It's in Longmeadow. It's a fantastic site. Many of you have probably driven past it. And we agreed with them to buy it again. In the 60-40 split, we were going to have 40%. We're going to pay them 40% to ZAR 400 million. Dis-Chem then approached us to buy that warehouse for a net price of ZAR 492 million. We then agree with Pick n Pay to pay them a little bit more. We've acquired the whole asset for ZAR 500 million, sold that piece, just over 60,000 squares for ZAR 492 million. It really is a still -- I mean it's 15 years old, but it's still in a really, really good shape. Dis-Chem are just, at the moment, waiting for ComCom approval. We've got ComCom approval for the acquisition but not for the onward sale. This is at 44,000 -- 45,000. As we go through it, so the GLA grows, we find little bits and pieces added, but it's just over 45,000 by our estimates. We do have a lease on that. It's effective 1 November, but the rental really starts getting paid at ZAR 62 a square meter from April. It's for 7 years with a commercial battery assembler. They put together lithium-ion batteries. In fact, we have one of their batteries in our -- in the basement of our office building in Morningside. So this -- we just wanted to unpack how the Pick n Pay deal kind of panned out for us in the fullness of time. We acquired, obviously, 100% of Longmeadow, and we'll on-sell that about 60% of that just over to Dis-Chem. So the net capital deployed when we look at the sort of ins and outs plus fixing that hardstand just over ZAR 2.27 billion. The yield on that within the lease now on the top portion at Longmeadow, 9.5%. We think if we value that at roughly 9.5% forward yield on the older warehouse, we'll get an uplift on what we've deployed of 14.5% on a value basis and that the weighted lease escalation obviously heavily weighted to the 6% lease escalation in Pick n Pay versus the 7% we're getting along with it. So I think all in all, it was a great transaction for us, and I think that's what the logistics development brings us. It brings us opportunities to try and look for other unique real estate opportunities. We're using our balance sheet strength and the development capability that we've got. I think the standout highlight for me on this slide is the bottom middle block, which is the like-for-like NOI growth. And as I mentioned, that is driven by a couple of things. It is the lower vacancy. But in Louwlardia, we've just renewed a tenant there at ZAR 74 a square meter plus ZAR 15 for the racking. They've paid for the racking, and now they're going to pay for it again. So it's been a really -- I think we're starting to see -- with the rise in construction costs and a very tight market from a vacancy perspective, we are really starting to see some less bad reversions. It's still negative there. The older assets, there's a [indiscernible] still coming off high escalations, but it certainly is getting less bad. And I think less bad could be translated to improvement. It's improving. The market is getting better. We're seeing less competition. So all in all, I think this is a fantastic result. And when you look at our building valuations, 9,200 square meters -- ZAR 9,200 a square meter, sorry, the hard construction cost is probably sitting at sort of [ 8, 8.5 ] now. So I think it's still well below replacement cost, and that is driving the rentals and the vacancies lower. This is just a slide that we put together. We just wanted to kind of show a little bit of the journey on our logistics. It is important because we don't include the capitalized interest in our distribution. As we roll these out and let them, you do get a step profile, which we see coming through. Obviously, it's funded with the sales of income-producing properties. But I think it is often missed in some of the comparisons to our peer group. In 2018, if you look there, we had developed just over ZAR 600 million worth of logistics assets, and we had a portfolio which has been adjusted for some reclassification, ZAR 7.2 billion. And you look to where we are now. We've added that portfolio. We've developed ZAR 7.2 billion worth of logistics assets over the last 5 years. We have sold a bit. That's that negative number you see there, which is largely the tenant JVs, which is something that we really like. And I think we'll do more of it. It's been a real return enhancer for us such as like Crusader and Eastport where we developed at 8.25%, 8.3%, and we give them an option to buy half at 125 basis points compressed yield. So that really has worked -- actually in Louwlardia, we've just sold the second piece of Weg also at a compressed yield. And I think our total return there is probably getting close to 20%. This slide is -- it is a busy slide because we have been busy. During the year, we've delivered 276,000 square meters of new logistics space. And currently, on the go, we've got 206,000. I mean I think when we had the 1 million square meters a few years ago, it was daunting. We thought it would take a long time, but it's quite amazing to see that last year, we delivered 0.25 million, and this year, we'll do just over 200,000. I think also, if you look at that lease term column, 10, 15, 10, 10, 10, 10, 10, we're starting to get longer leases. We're starting to get better yields. So I think it's really starting to come to the fore as our sort of hard work at making sure that we get the phone call first when people are looking for new logistics boxes and premium logistics space. Again, this is just in the kind of in more of a graph, user-friendly form. We had 1 million square meters in 2018. That's reduced down now to 237,000 squares. I think when we looked at this huge land bank that we had acquired and capital in the whole sector became a little more expensive, a little harder to come by. We said, well, we need to chew through this land. We're going to have to do speculative developments to get the parks going and have to take -- develop a mindset where we sell pieces, we do JVs with tenants. And we did chew through it. And we said, well, at the same time, what did we learn from the past? Well, we learned that land banking these huge, huge parks and trying to do it with our balance sheet is often quite a drag on growth. It's quite a drag on the balance sheet. So we said, well, in the future, let's try and do it slightly more capital-light. And that's what we've done with that land at Eastport North, where we've got an option over the next 4 years to acquire that at quite a good price. And then we can see how the market pans out. If it's looking good, we'll trigger the option. If we can hook a tenant, we'll trigger the option, and then we can start to build. So I think that just sort of lessens that holding cost for us. That's just those same numbers in a more detailed form. Eastport, being one of our most successful parks, as I mentioned, Pick n Pay. Crusader have actually just moved in. We've got the occupancy certificate there. We did a speculative development. That's been let to Seabourne Logistics on a 10-year lease. And as I mentioned, we're looking at selling some more land also at quite a nice profit for us to Teraco. That's the land just at the back there at the entrance. So it's not as prominent or as in demand as the highway sites. And the funny thing is the tenants always say, no, we want the cheaper one. We don't want to pay a premium for the highway site. They come and look at it, and then they always want the highway site. So it's quite funny that. But largely, that's done, and there's actually a couple of RFPs floating around for the remaining piece of -- those 2 remaining pieces of Eastport. So by the end of December, it's not outside the realm of the possible that Eastport is fully developed December next year. This is Clairwood. Clairwood has had quite a long history with us. It took us a long time to get the planning approval. There were some soil conditions that we weren't really familiar with, the hippo mud -- the infamous hippo mud. But we started, and I think the critical thing was we had the sort of -- I think we had the financial strength, and I think we had the foresight to make sure that we finished it because if we hadn't done it or we had looked to sell it, I think that's when we would have crystallized all of the losses. So we look at it now is actually at a launch for Pocket 5A, which has been let to ZacPak for 15 years last week. The park is looking magnificent. We've got Pocket 5B under offer now. So we'll look to see if we can do that deal. And then Pocket 3C is under development, and that leaves us only with 1 remaining pocket until this whole asset is rolled out. Rentals there are now well north of ZAR 100 a square meter. So it is not comparable with anything, I would say, certainly not comparable with anything in the Durban South Basin and possibly not comparable with any other logistics parks in the country. Now Durban is still the busiest port in Africa. So it's extremely in demand. So there you can see that second building is the new Sammar building, 15 years with Sasol, step-in rights agreement, something that we would look to do again, which is where we've got logistics companies doing logistics for big corporates, quite nice to have access to that big corporate balance sheet if there's ever [ accreditive ] in, so we've got that ability. So we view that as Sasol [ lease ]. Super Group, you can see they're bursting at the seams desperate for more space. I think it's -- they are ecstatic with being in the park there. That was the first building. And I'll touch on some of the numbers there. We built it for ZAR 364 million. It was valued at ZAR 321 million on completion. It did lead to an impairment trigger on our side. And now that's valued at ZAR 400 million -- I think, ZAR 438 million. So as many people say, time and inflation is very kind to property, and we've got now from that initial cost -- unimpaired cost of 5%, roughly 5% compound growth on the value. That one is under offer, Pocket 5B. Also on a 10-year lease, it's a big internationally owned logistics company. They are very excited about coming into Clairwood rental, roughly ZAR 107 a square meter. I mean it's amazing. We're getting more net rents on our warehouses than offices. It's got a wetland. We've got the nature reserve up north at the Tugela River mouth, which was part of the offset land. That's our last remaining piece, Pocket 6. I think something that we've noticed is this container yard is in huge, huge demand. I mean we could have actually just done the whole thing, container yard. Obviously, with the -- with Transnet, with the port, everything as soon -- with COVID, people wanting to hold more stock. The slowdown is actually -- we've been a beneficiary of that in and around the Durban port because people now need more warehouse space because that just-in-time inventory management perhaps isn't working as well. Those mini units also great addition on some excess land that's actually, I think, where the horses used to line up because it was an old horse racing course. So as I mentioned, that initial one, we did lead to an initial impairment on Clairwood. Value on completion was less than cost. We had that again this year. When we finished Pockets 3A and B and Pocket 5A, the value is -- obviously, what's happened with interest rates over the current year with discount rates, the valuation came back a little more than ZAR 100 million below our cost. So we looked at it again. We reassessed whether we needed to impair Clairwood. We did impair it by another ZAR 291 million. But as you can see, I think the first one has now recovered from that initial impairment. I'd imagine that will happen as we progress. But we're nearly done. We've got another ZAR 1 billion to spend at Clairwood. If you look at that incremental CapEx, what does that ZAR 1 billion give us? It gives us well north of 13%. So we need to go and finish it. And at the end, we'll have an asset worth nearly ZAR 4 billion at a yield of about 8.3%. So I think it's going to be a standout asset hugely in demand. Cornubia Ridge is sort of about 40 minutes up the road in Umhlanga. We did a Makro there. Unfortunately, we lost a building to arson in the riots, but that same tenant who is in the building Retailability at the back, needed more space. They loved the site. We just delivered that to them. We gave them occupation in August this year. 13,00 square meters. They needed more space. They wanted a longer lease. It's looking absolutely magnificent that Retailability. And then we are busy with Dromex on the lower platform, 25,000 square meters, also on a 10-year lease. And I think it's nice -- so nice to see that redevelopment coming back to that node. Those retaining walls and everything, I think we spent about ZAR 155 million on the earthworks and getting it platformed. So it's nice to see -- seeing it being used for what it was intended for. And we only have that platform. And then when that middle platform is rehabilitated, we'll also be able to redevelop that in time. Well, those are just the stats there on Cornubia. Those 2 future buildings is what we can develop in that little piece on what we call the [ pimple ]. Offices, I think we did make mention a couple of times that it's sort of coming back a little bit with post COVID, with load shedding, the backup water, backup power that we've put in does lead to increased demand from tenants. So we're going to do that across the portfolio. While we hold this portfolio like we do with the industrial, we simply have to spend money. We have to refurbish, make it attractive. Otherwise, I think the chances of getting tenants or selling is diminished. So we have done quite a lot of CapEx and refurbishments at Wedgewood and other assets. And I think it's paying off. Like-for-like NOI growth also again, less bad. It's certainly down 1.9%, although the valuation change is down quite a lot. I think that's indicative again of interest rates of the market. But it's certainly not that bad. I mean we were laughing yesterday, the total GLA of our office portfolio can fit inside the Pick n Pay warehouse, only 163,000 square meters left. And the building valuation, ZAR 8,400, I don't know because it's not something we look at often what the replacement cost is. But I'd imagine it's well north of ZAR 20,000 a square meter for these offices. That is less than a hard construction cost for a warehouse, and an office is a lot more expensive to build. So I think we have valued these very conservatively. And as you can see, we're looking to sell ZAR 260 million, which is at our book value. Actually, 2 of those sales are to companies that want to do residential conversions. I think we've -- with a conservative valuation, you're able to get out to guys that can convert these assets to residential uses. Post COVID, as I mentioned, the industrial portfolio actually been surprisingly strong. Like-for-like growth, 4.4%. Vacancy is low. So it's actually been a -- really nice to see that recover. I think the tenants are looking for decent space, for well-priced space, smaller space. So that's good. It's also quite easy to sell. The weighted average lease expiry, always short. The guys want to sign 1 or 2, maybe 3 years. As we've seen with Inospace, I think they've done really well at breaking those up, but you can get a month to monthly, 6 months, 1 year. So the lease term there, not really what we're focusing on. I think it's just trying to drive that NOI growth and then look to sell them when we can. As many of you would have seen, our associate, we own 23.9% of NEPI. Unbelievable numbers that they've had for this last year. I mean tenant sales growth of 16.3%. I mean it's -- and I know Vuso probably gets a little bit jealous. But fortunately, he's -- we've got some -- quite a lot of indirect exposure there, but it's just -- what can we say? Many of you are probably shareholders in that business, too. Fantastic liquidity. It's been managed unbelievably well. The LTV is down to 33.4%. So they don't face the refinancing issues that I think many of their peers in Western Europe are facing. They've also been very prudent with the balance sheet and what they've done, made some very clear acquisitions. And I think we'll find out more of the economics around that scrip issue on Tuesday next week. But certainly, with what they've put on the table, slightly higher payout ratio and the discount, I mean, it looks like that's sort of definitely the way we would go. And we hope that people follow because I think it gives them the ability to recapitalize in a very, very fair manner. Although it may dilute the distributable earnings per share, it certainly doesn't dilute the distributable earnings per support of shareholder, which -- of which I think we are one. This is just one asset in Poland, which we added to during the year. I went out there with some colleagues. Actually, both of whom have left, [ Andrew Teixeira and Howard ]. When we went to first visit this asset in 2019, we had those 2 buildings on the left. It was all that was there, and that building in front of us was a shell that they couldn't afford to finish. COVID then hit. We took the opportunity to actually buy the asset from the [ nice ] debt lender being Griffin Real Estate. The gentleman, Maciej Tuszynski, underwrote that loan also came along with the assets. So he's our MD there. And it's been fantastic just to see the development at the site. Unbelievable location, close to the town, right next to the airport. We've got 1 site left there, 25,000 squares. We added a bit of solar onto that Hall E, which is the one in the middle. Unfortunately, a lot of these roof designs we're finding out, they can't -- we can't add solar as easily as we thought because of the snow load requirements. And in some jurisdictions, they've increased that. So it would require reinforcing and other engineering to add solar everywhere. But we'll look at that. But certainly, our new buildings, again, higher spec, better sustainability, better power, higher-ease height with solar. So I think in time, we're doing what we do here, which is just making sure that we really do have the premium product. I think that -- I mean the one stand out there, again, like-for-like NOI growth, obviously, the indexation was high. But also as those rent-free periods unwind on some of the deals that we inherited, that's adding to the NOI of the portfolio. And we also saw some uptick in value even in euros, which was pleasing when you convert that to rands. It's -- as I mentioned, it's like 26%, 27%. Low vacancy on that new hall we've got in Bydgoszcz, but we are trying to get a -- actually, a sort of pet pharmaceutical business in there, which we're hoping to close in the next couple of months. We did start development on 2 new sites there, in which -- in Central Poland in Zabrze, that was really catalyzed by a 28,000 pre-let deal with Notino, which is an e-commerce and bricks-and-mortar retailer. You would have probably seen them in some of the NEPI malls if you've done that [ too ]. And then in Zabrze, Lit Logistics also needed 11,000. So we triggered one portion of the warehouse to try and get going with those projects. That's there just over 50% pre-let, 160,000 squares in the pipeline. I think just briefly to sort of close out on our one logistics park in Romania, I think we would obviously like to grow in Romania. I think the one standout comparison when we look at those 2 markets is that the yields in Romania are so high, and that really does give you such a great buffer. We look back at the last 10 years, I think Romania's average -- compound average economic growth is about 4.5% over 10 years. They've got masses of EU funds. The rollout of the infrastructure is really starting to come. You can see the new highways, the new ring road around Bucharest coming. If you drive from Bucharest to Constanta, it's a fantastic highway. So I think it really is starting to sort of turn the corner, and almost, I think it feels a little bit like Poland was a decade ago. And the yields there of circa 8% are really attractive from a cash flow perspective. As Vuso mentioned, a lot of -- a lot is happening in our renewable energy space. We mentioned that we've hired 2 new engineers to try and assist with that and give us the sort of the best plan and the most workable plan for energy security at all of our assets and really focused on embedded generation. I know a lot of people are trying to buy solar power from the Northern Cape, et cetera. But I think our primary goal is embedded generation. On the social front, I think, a fantastic achievement there by Jodie under Ian's stewardship in achieving a level 2 broad-based empowerment rating. In, I think, 2018, we were noncompliant, and we've seen a steady progression to level 2. We do a lot of good things. And I think if you just look at those numbers, 19,000 trees, helping 870 children, 20 companies and 85 full-time employees created out of the corporate social investment that we make, it really is outstanding. We spend nearly 10% of our total head office costs on that per annum. From a governance side, we have 2 new nonexecutives. We'd like to welcome Eddie Oblowitz and Caswell Rampheri to the Board. Ben Kodisang and Bram Goossens left and, I think, added a lot of value to the business, and thank you for that. And obviously, our Chief Operating Officer, Donovan Pydigadu also left during the month of August, and we'd like to really sincerely thank him for the contribution and for the leadership that he showed over the last 5 years. Industry challenges. I mean that list is long, and we don't want to depress everyone. There are a number of challenges in our industry, a lot of SA-specific challenges, as I mentioned, interest rates rising globally. So it's -- but with that, I think, comes a lot of opportunities. And I think we need to acknowledge that. There's a lot of people looking to sell. The market is less competitive. So I think we'll just navigate these, but from that, there will be opportunities. That's just a summary of the portfolio stats. Thanks. I think now if we want to jump into any questions. I mean maybe we'll take some questions from anyone in the audience. And [ Ishy ], do you want to come and grab a seat here? I don't know if there are any questions in the audience. We'll do that first. You can just grab a microphone, or it's quite a small room, so you can shut out.

Just on the generators, why are you still putting up generators? Just your thinking there. Out of thought, you would have just gone straight to solar PVs.

So I mean I'll maybe get Vuso jump in here. But the solar PVs without a generator or a battery provide no buffer for load shedding. So what we've seen in the last year is when there's load shedding and you've got solar PV that you have to turn the PV off. So you can't draw directly from the PV without some sort of system to buffer that and to provide some base loads. So that's the problem. So we're doing solar PV as much as we can, as quickly as we can. The returns are fantastic. I think the benefit for the planet and in sustainability is great. But you need some sort of base load to come from a battery or a generator to assist with that. So generators are relatively inexpensive to install, very expensive to run. So that's a great backup. Batteries, on the other hand, I think we've got one in our office. We've installed a couple at the retail centers. They are very difficult. They are very expensive. And I don't think the engineers have quite got their heads around how to deal with batteries in our unique South African situation, which is you're getting power from the grid, you're getting power from solar, maybe you're getting power from a backup generator, and the software system needs to deal with all of that. So I think we're happy with the generator, and I think we'll probably need generators all the time as a backup even with the battery.

Yes. I mean, Steve, you answered it. I think hopefully, load shedding will be something, in the next couple of years, that will not be there. At that point, we won't need to use generators, but we'll obviously keep the solar. As Steve has mentioned, battery is something we're experimenting with. I don't think the industry is quite there yet from knowing how to operate those. So yes, unfortunately, for the time being, we do need to have some sort of a base generation.

Just on your budgeting for the generators and the solar PVs. You've just mentioned you're not actually pursuing batteries at all. Just how much you're budgeting for that?

I think at the moment, about ZAR 370 million, so it was -- the detail was in the...

Yes, ZAR 316 million. The solar -- I think the solar rollout is going to max up at about ZAR 316 million -- yes.

I think all in all, roughly at the moment, ZAR 500 million is kind of the ballpark of what we spend and what's to come, that kind of range. Is there anything -- any questions online? Obviously, we're here afterwards, if you want to grab us for a coffee.

Yes, there are few, Steve. Question for Ian. It's from Nazeem, Investec. He asked, what is the tax assumption included in next year's distributable earnings forecast that's FY '24?

ZAR 107 million.

Question for you, Steve. What occurs if the FFA entitlement is met while you are not a REIT? It's also from the Nazeem.

Well, what occurs? I suppose, outside of a Board decision to pay dividends, I mean there would -- the Board would need to decide. But as we said in the past, it would need to be a -- that's a decision down the line. We need to look at the sustainability of paying dividends on an ongoing basis. In that case, it's -- dividend is an active decision declared by the Board in the future based on the future scenario. So I think we wouldn't like to speculate right now.

A question from [ Sandeele ]. Can you explain what is driving the incremental return on CapEx for the SA logistics portfolio? Is there a specific target you are working on to achieve SA logistics as a percentage of the rest of your portfolio assets?

I think we just want to roll out the existing pipeline. I think we did, many years ago, set ourselves the broad target of 2/3 logistics, 1/3 retail, which is roughly ZAR 20 billion logistics, ZAR 10 billion retail. But we want to do that in a manner that's capital-light and make sure that we can get a higher return on the capital that we deploy, hence, more options and probably more pre-let deals.

Another question from [ Sandeele ], Vuso maybe one for you. On recycling the retail portfolio, at what attractive yields are you looking to acquire these retail properties? And what is your maximum appetite for vacancy rates?

So if you look at the last acquisition that we did, we bought that asset at ZAR 10.5 million, which is a good return, I think. So it's difficult to say, but somewhere around the -- some of the stuff that we're seeing, some of the bigger assets that you see out in the market, somewhere around ZAR 9.5 million at the moment.

I've got a question from [ Carlos ], quite a long question. With the distributable income guidance for 2024 at ZAR 1.93 billion, assuming no distributions for 2024 because below the current FFA benchmark, then for 2025, assuming a further 10% growth in distributable income, there would only be an estimate of ZAR 2.12 billion distributable income for 2025. And assuming the FFA benchmark rose at 4.5%, then you'll be at ZAR 2.23 billion in 2025. Is it probable that there will be no distribution in 2025?

Yes, I think that -- I mean that's speculation. I'm not sure. We haven't forecast that far ahead. I don't know.

Ridwaan, just a follow-up question on tax, Ian. Again, he asked FY '24 but then he also asked going forward in terms of your tax assumptions. I don't know if you can give any color on going forward.

Going forward but in excess of [ 2,000 ] of next year, it's quite difficult to say just given the nature of the -- and blend of assets that we have. Obviously, we can forecast things like our 13quins and 11es that we get, but things like the 24I lines is completely dependent on what happens with the exchange rate. So it moves in both directions. We've assumed a flat rate for next year, which obviously could change that tax number that we've put forward. So it's really a difficult one, almost impossible to forecast beyond the -- no, it's not a very clear answer, but I really can't do better than that.

Just a question around share buybacks. Are there any plans to repurchase shares in 2024?

I mean that's -- we've got the authority. It's always on the cards. But I mean, I think it depends what the opportunity looks like and what the other capital allocation opportunities we've got on.

A question for Vuso. Please can you expand on what's happened in the retail trading density growth, footfall and basket size in your mall portfolio, best and worst performing malls?

So unfortunately, in our portfolio, some of our assets are -- a lot of our assets are open centers. So it's difficult to measure footfall. But obviously, the turnovers have returned quite healthy. Most of the tenants are trading well. Some of the tenants that are still trading negatively are categories such as gambling, electronics. Some of the furniture categories are also struggling. And obviously, [ Homeway ], but generally, the rest are stable and trading positively.

We've got a question from [ Aegon ]. Are you able and ready to align to SBTi reduction pathway of 1.5 to 2 degrees? ESG question.

Yes. I mean I think the Science Based Targets is something that we certainly are looking at and exploring. I mean we can't commit to that, but it's definitely something that we are actively looking at. And possibly in the future, you can see if we can commit to that based on our portfolio. But I think it's nice that it is -- actually, there's a little bit of scientific quantification coming into the market, and I think it helps. So we would like to, but we can't comment on that in much more detail.

And then final 2 questions. They're both from Nazeem. The one is based on -- is a question on Europe. He says, can you give some more details on Slide 54? So maybe if you want to go to Slide 54, that's Europe. His question is, what is the cost in euros for the 76,000 GLA? Is the 8% yield on total cost, including land or top structure?

Sort of about EUR 50 million. I think about EUR 50 million. The yield is -- yes, that's about EUR 50 million, I think. That's right?

Yes, yes, sort of.

Is the yield on total cost including land or top structure?

Total cost.

Inclusive of the land, yes.

Yes, inclusive of everything.

Another question from Nazeem just came through. Would you be willing to use NEPI shares in some form of capital restructure?

I mean I think we're open -- as we've said many times before, the Board is open to any workable solution, provided it gets us to where we want to be, which is really optimal capital structure, which is a single share and provided it's in our best interest and it doesn't place the business or the balance sheet at too much risk. We're open to ideas. This is something that the shareholders have got the power to fix. It's an MII issue, and we certainly did give it a bash last year, and we're willing to look at any workable proposals. But at the moment, I think our main focus is the operations. Let's make sure that we use this time to get Fortress into a fantastic position. And we commit to what we said in the past, which is using the kind of retained distributions to either invest in liquid asset, share buybacks or debt reduction. So that's really our core focus at the moment.

And there's one last question from Ridwaan. He's got 2 questions. Please, can you talk to the valuation expectations for FY '24, especially retail and logistics?

Sure. it's hard to predict, but I think it's been -- we -- it was quite conservative last year and this year. NOI growth, probably slightly -- I mean I'd argue on a fundamental basis, maybe more stable market, certainly in logistics, lower vacancies but flat value. So I think our interest rate is going to skyrocket like they did over the last 12 months, I doubt it. So I would expect a marginal uplift in the valuations. I think we've got a better portfolio. Things are growing. So I'm pretty optimistic that we'll see valuations going up over the next 12 months, but again, I can't really comment much more than that, but I think it's going to be a good year.

Second part of his question, would you be taking the scrip again for NEPI?

Yes, at this discount, given where we see the share price. I mean we have to see what the economics looks like on Tuesday, and then we've got time depending on what happens post that. But I mean with the discount that's on offer, I think it would be, at this point in time, a no-brainer for us to take the scrip.

No further questions from online. If there's any questions from the room.

There's one at the back there.

I'm just -- sorry, on your capital allocation question, what would you say is your optimal LTV or debt level?

I think we've said 35% to 40% is where we feel comfortable from a debt perspective. I think when we look at -- I'm not sure if 40% was a magic number that just appeared in the REIT sector. I don't know who set it or where it came from. But I think when we look at our debt, in our circumstance, and I can't comment for other REITs, we've got, as we stand here today, roughly 17.4 billion of NEPI shares, which trade, I don't know , ZAR 100 million to ZAR 200 million worth of day, and we've got ZAR 18.4 billion of drawn debt. That provides us with an unbelievable buffer in that we've got liquid assets, which we could easily turn to cash to repay some debt, almost all of it. So I think -- from our perspective, I think we feel very, very comfortable with our debt given the composition of our portfolio. Had we got B-grade offices in our portfolio and we're sitting at 40%, 45%, I'd feel very uncomfortable. But we've got great assets. The logistics is in demand, and we've got a very, very liquid balance sheet. So I think 35% to 40% is where we've set the target. But even north of that, I think we've got quite a unique balance sheet makeup that provides us with a lot of buffers that may be the peer group who you're comparing the 40% made-up benchmark to, maybe it doesn't apply to us as much.

Well done on the results. It's from [ Kabalo ] from [ Maze ]. Just 2 quick questions from my side. So firstly, on -- I guess you're not paying dividends now, but it doesn't seem that your debt is rolling off and, well, fairly quickly. Is that linked to effectively more with the -- sorry, the Eastport acquisition that you bought, you actually expected proceeds from that, but you actually then ended up buying Pick n Pay's share? And then with your disposals lagging your capital allocation, is that part of the reason that that's happening? And then how do you plan on matching that given now that you're also taking -- you're sort of losing out on the cash flows from the NEPI dividends?

So I think we never really had an absolute plan to just reduce debt. I think that was the default position, but we did make it clear that the plan was we would be comfortable taking the excess retained income and buying NEPI shares or to following the scrip. So that's what we've done. That is probably the primary driver of us not reducing the debt. Pick n Pay, we didn't buy anything. We simply didn't sell to them. So we'd already paid for that in the LTV. So the LTV from December, it included quite a lot of that. I mean I think the LTV is very comfortable. And if NEPI is going to offer a scrip at these kind of discounts, we'll keep taking it. So I think that's why you're not seeing that debt reduction. It's actually sitting in the additional just over 8 million NEPI shares we've got worth about ZAR 920 million today. So that's -- where it's sitting, it's probably more on the asset side than the liability side, but you can see that come out in the NAV going up and the LTV not also coming down marginally. Even though the sales haven't matched the capital deployment, but hopefully, for next year, it kind of rectifies itself. Pick n Pay was quite a big capital drain for us. So I think next year, it's not going to be as much.

Okay. And just going forward on your -- I mean you've effectively accelerated quite a bit in terms of your logistical developments through that sort of transaction. How are you still comfortable with sort of the plans? I mean when I looked at your slide, it was around ZAR 5 billion -- roughly ZAR 5 billion disposals, ZAR 5 billion in proceeds that you're planning. So I mean is that still what you're looking at? And has that been adjusted from prior years?

I mean that does the -- what we're going to spend adjusts quite often. It also adjusts for what we've got in CEE because of the currency. So that has pushed it up a bit. It's a best guess at this stage. But I think what we have seen is a lot of the -- there's been a lot of tenant JVs on -- in terms of what we're building. So the capital that's required, I would say that ZAR 4.5 billion that we've shown is probably the upper end of the range. It might come down. You might get someone who wants to do a cross-dock facility or something else, which requires less CapEx, uses more land. And the -- those disposals, ZAR 4.5 billion is in the noncore. But as Vuso mentioned, there's still some retail that we think we need to sell that's underperforming, and there might also be some of the logistics tail that we kind of look at it and it was logistics. Now it's looking more like industrial as it ages. So we'll also be happy to sell some of that as we have done in the past.

Yes. Sorry. Last one on my side. Just looking at your NOI contribution, so I mean, excluding NEPI, quite a big chunk of that actually goes to debt holders. If you just look at your proportion of interest that you're paying relative to NOI, I mean that's not in line with the rest of the sector, I would say. And given that, that relates mainly to the SA balance sheet, excluding -- that excludes your NEPI debt. I mean are there plans to actually fix that going forward to sort of normalize that ratio? Because I mean if you have more than 50% of your earnings going to debt holders doesn't leave much for shareholders at the end of the day.

I think -- I mean I'm not quite sure how to answer that, but you've taken our biggest asset out of our balance sheet. And then you're looking at it, [ saw on ] ZAR 17 billion of assets. So yes, I mean, that may be factually correct, but then you've left all the debt behind for the SA assets. Is that right? So yes. I mean if you take NEPI out, then the NOI does go down, but you've taken out quite like ZAR 1.5 billion of earnings, ZAR 17 billion of assets. So you're right, but the equity holders, what's left behind includes the NEPI. So we still have NEPI in our balance sheet, and we just -- adds to our distributable earnings, and shareholders own it. So I think you're mathematically correct, but I'm not sure how we compare to others if you start stripping big assets out of balance sheets.

Steve, there are no further questions online. I don't know if there's anything in the room, and then we can wrap it up. All right. Thank you.

Thanks. Thanks, everyone. We're around afterwards if you want to chat.