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

Good morning, everyone here in the auditorium at 11 Ellis Lane. We didn't have it at the JSE this year, so I'm glad everybody managed to make it here. The JSE were -- were busy and full, which I think is a good start to the year for them. And welcome to everybody viewing this online. This is our results presentation for the interim period in our financial 2024 year and the first results presentation in Fortress' history with a, currently in place, single share structure. So that's I think, fantastic. And just some highlights. I mean, first and foremost, I think that one on the top left of your screen there, simplified capital structure is something that we've been trying to get across the line and a huge thank you to all the shareholders for assisting in that. I think it certainly does make the business easier to manage, and it's far simpler and more transparent, I think, going forward. That led to really, I think, the second most important part, the bottom right, which is a resumption of dividends. So ZAR 0.8144 per share on the FFBs, which Ian will go through in a bit more detail, but that was the old FFA, which we converted to FFBs post the scheme. A couple of other highlights. I mean, our largest portfolio in -- within Fortress', the logistics portfolio, ZAR 19.2 billion, and Central and Eastern Europe, that like-for-like growth was 9.8% over the comparative period, which I think is fantastic, largely driven by lower vacancies and then some rental escalations and indexation. Our retail portfolio, Vuso will go through in a bit more detail with you still large portfolio at ZAR 10.4 billion, just under 7% year-on-year turnover growth, which I think is great. And vacancy rate also nearing record lows. And I think Vuso and his team have done unbelievably well there. I think any logistics fund needs a strong development pipeline so that we can go and build new prime, top quality, energy-efficient warehouses. Our current pipeline stands at 677,000 square meters, 135,000 currently under development, both in SA and in Eastern Europe. So I think that gives us a lot of runway to create value and to look for deals with tenants looking for additional space. And as you will see later on, the vacancy in our logistics portfolio is still very, very low, and that's indicative of good demand. Our solar PV rollout has really accelerated over the last year. We've got an in-house engineering team currently as we sit here today, there are 50 plants, and we're hoping in the next probably 18 months to double that to close to 100. It is our -- we've got our largest direct portfolio since Fortress was listed ZAR 34 billion. As you can see, most of that -- ZAR 30 billion of that is in our core portfolio, logistics and retail, noncore sitting at about just over ZAR 4 billion. And then added on to that, we still have, post the scheme of arrangement, ZAR 14.5 billion as we currently sit here today of shares in NEPI Rockcastle. We have about 107 million of those. Our spot LTV, which Ian will touch on in a bit more detail, currently estimated at 39.4%. So also comfortable that is post buying back nearly half of our listed shares, and paying for those in the form of NEPI shares, which was valued at around ZAR 7 billion. So I think it's still amazing to see that LTV comfortably below 40%. Noncore asset disposals, which is really our asset recycling so that we can pay for the developments, 15 properties, ZAR 1.14 billion at a very high premium to book, largely driven by the Longmeadow transaction. And then as I mentioned, the resumption of dividends. This is just the vacancy progression. That little purple block is vacancy by rental. Once we've caught up with a couple of years reporting that will probably lose the vacancy by GLA. But as you can see, very, very nice trajectory there from the end of 2020, which was COVID and the vacancy is definitely did spike during COVID. The really low vacancy in our core portfolio, logistics and retail is a very pleasing result. Still, office is very, very high, but as I'll touch on a bit later, that's sort of aligned with the strategy of high vacancies in industrial, just the nature of the beast, but our like-for-like growth has been good. So this was our asset base at year-end, which was pre the scheme of arrangement. We still had 54 billion of assets. A lot of that was in the NEPI shares, which went from ZAR 20.2 billion at year-end to currently around about ZAR 14.5 billion. Really, these are the two focuses of Fortress. Our logistics portfolio alongside that, the development pipeline and then the retail, our SA direct and our shares in NEPI Rockcastle. Currently, ZAR 19 billion with a ZAR 4.5 billion pipeline in our logistics developments. And what we've tried to highlight there is really how do we fund that pipeline? Is it just with debt? Is it with sales? And what we've been doing is we've been selling the noncore assets. So you can see noncore there around about -- just over ZAR 4.5 billion -- ZAR 4.7 billion, pipeline ZAR 4.5 billion. And what we try to show on this slide is asset disposal since 2019, ZAR 6.4 billion as at December with a target of ZAR 7.7 billion for this financial year. And what we've done with that cash on the right-hand side there is we've rolled it out into our development pipeline. So as at December, we had done ZAR 7.9 billion of new developments from year-end 2019 with a target of ZAR 8.6 billion, and that's probably going to be achieved because we are currently in progress with a lot of those developments. So I think that's really changing the quality of the Fortress portfolio, selling older assets, doing JVs with tenants and using that to recycle into high return, better quality assets. And if we wind forward into the medium term, I guess, to give you a sense of where we're going, really the focus on logistics and retail, gross assets of ZAR 20 billion to ZAR 25 billion. Retail is already there at circa ZAR 24 billion, and logistics will be there once we roll out the pipeline a little bit further. So we're actually not far away from this target, which, when we first presented, it seemed medium to long term, it now seems shorter to medium term. Just to give you a sense of our focus and what we're looking at, this hasn't really changed that much on how do we get from where we are today to our target, focusing on the development pipeline, doing the logistics developments with our in-house team, as we have been doing, touch wood, as we sit here today, I think apart from 5,000 square meter piece in Poland, we've let every logistics development, we've built on spec. So I think that does give us a lot of certainty in what we're doing and the product we're delivering to the market. I think what has changed just in terms of where we are now to get our park going and if most of our parks are currently going, you need to do some spec developments. Now that the parks are up and running, focusing really on pre-let developments, which are inherently lower risk, sometimes lower return, but I think allows us then just to fill up those last few pockets of the park. Retail, expanding and enhancing our best assets. That's something that we have done, Vuso will touch on that in a bit more detail. The asset recycling is really important to us. And I think it's maintaining that discipline of selling assets and making sure we recycle that into, into the development pipeline as well as enhancing the retail. I think we've done that very, very well. The one aspect of our portfolio that is now getting very small, it's probably about 3% of our assets is the office portfolio. It's been underperforming for a while. And also, we are subscale in that market. So we need to accelerate that disposal. And I think just where our office values are per square meter, there are a couple of opportunities there to sell them to owner occupiers or to sell them to residential conversion specialists. Just on the opportunity slide on the right-hand side, I think just 12 months ago, we saw the collapse of Credit Suisse, and we saw a regional banking crisis with Silicon Valley Bank in the U.S. So what we're seeing a lot of is I think everything slowed down last year. Interest rates are at generational highs, massive capital constraints, banks are running scared, particularly in Europe, and that does create a lot more opportunities for people with capital. So we are seeing that. And our associate, NEPI Rockcastle is also seeing quite a few good opportunities that perhaps 3, 4 years ago weren't coming to market. I think our single share structure allows us to unlock value for shareholders in a better way, possibly to raise capital more easily and certainly leads us to be less distracted and more focused on the business. Our fundamental business has got healthy demand, both logistics here and in CEE. And the CEE markets more generally in which 40% of our assets are placed, are still very, very strong performers, I think, in particular, compared to other parts of the Western world. As I mentioned, property disposals. So currently, as we sit here financial year-to-date, we sold ZAR 1.14 billion, 15 assets at a 23% premium to book. That did include the old Pick n Pay distribution center, which we sold 60% off to Dis-Chem and actually that picture on the screen now is the piece that we kept, and we let it to a lithium-ion battery producer/importer called Freedom Won. So they've got a lot of batteries in there, obviously, massive demand at the moment. I think most pleasing on that slide is the office sales of ZAR 203 million year-to-date at a 3% premium to book. That market has been sluggish for a while, not getting a lot of knocks on the door from potential buyers for those assets. So I think the team has done unbelievably well at selling them. And if you look at the portfolio wide, even excluding Longmeadow, 4.6% premium to book. So I think, once again, we've proved that our book values are fair to possibly even conservative. This is just a bit more on asset disposals, recycling into developments. And if we look forward, that ZAR 4.7 billion of noncore assets with a pipeline in SA and CEE, round about ZAR 4.5 billion. Obviously, that could change depending on what we build. If we build lower coverage assets, that cost will come down. If we do more tenant JVs, which we have done in the past and could possibly do more of, that will also come down. So I think that ZAR 4.5 billion is probably the upper end of our estimated pipeline. So sustainability has become a lot more of a focus and in particular, our solar PV rollout. So we just wanted to give everybody a sense and just maybe a bit of an overview on what we've done. I think that ramp-up that we've seen in -- sorry, in 2023 post the end of December 2022 blackouts when we were all on holiday and trying to cook turkeys for Christmas really didn't go down well. So I think everybody in the country has come together and rolled out a lot of solar PV plants. As we mentioned in the past, we're still fairly focused on energy security. And the way we view that is solar PV generators lower demand from tenants, more energy-efficient buildings. So at the moment, we're going through a lot of the portfolio and trying to get tenants onto a switch over where there is load shedding. You're either going to be sucking power from a battery or a generator and really, you just need the critical items on that growth. So there's been quite a lot of going into each building rewiring, getting new distribution boards, which does take time, but I think it leads to just lower energy consumption for tenants and more efficient buildings. The generators are still giving us good baseload. In time, I think the battery technology will catch up, but we haven't seen it there just yet. We're still having quite a few problems with these large battery installations in terms of the management systems and the softwares. The softwares are -- our engineers are looking at that, but it's definitely getting better. I think the energy security is one thing, but really, we've taken a bit more of a holistic approach. And we look at utilities in general, which includes stable electricity, stable water supply as well as high-speed Internet. Without those three utilities especially in a retail center, you simply can't expect to get rental income from tenants. The retailers can't operate without high-speed stable Internet connection. They can't operate their point-of-sale systems, their stock systems. So we view that as really our utility offering to the tenants, and we need to control all of that. So what we don't do is allow, for example, third-party fiber providers inside our assets. We don't let the roof space. And we've got a lot of water tanks backup water. A lot of the retail portfolio has boreholes, which provide potable water actually often the only sort of drinkable water in those areas and stable water supply in a lot of the areas in which our retail malls are placed. So that's really our utilities offering to tenants and something that we focused on in making sure that the portfolio is defensive and has all of those stable utilities. Otherwise, I think the -- you're going to hit a dead end in terms of trying to trying to sell space to tenants when you don't have that offering and they can't utilize that space efficiently. There's our June 2025 target, 91 solar installations and 33-megawatt AC peak. So I think it's certainly coming a long way. I'll get Mr. Vorster to give you some insights into the financials.

Thanks, Steve, and good morning, everybody. So for the first time in a couple of income periods or previously referred to income periods, we've been able to declare a dividend, and that's thanks to the scheme of arrangement that was implemented in the first half of this year. All the numbers that you see there are the actual reporting -- sorry, our actual reporting period for 31 December without any of the effects of the scheme. So notable numbers. Distributable earnings is up by 18%, and that's on a like-for-like basis post a tax provision. Our NAV per share up by ZAR 1.75. And I'll unpack that shortly, but mostly as a result of spend and acquisitions in our development and standing portfolio as well as price movements and additional NEPI shares. Our LTV at 31 December, 34.2%. So the effects of the scheme, what has happened? NAV per share, a significant increase, ZAR 7.02 up on our tangible net asset value per share, and that's mainly as a result of the buyback of just over 1 billion B shares, at a significant discount to the intrinsic NAV attached obviously, as a result of the scheme, I suppose, an unfortunate result is that the LTV does increase from our stated 34% to 40.4%, again, at 31% December on a pro forma basis. We have referred to the scheme of arrangement or the impact of the scheme of arrangement as well as the Empowerment transaction. So as part of the scheme or post the scheme of arrangement, we unwound the four Empowerment vehicles that we had that was Fortress Empowerment 1 through 4 and we kept the NEPI shares that would have been delivered to them in settlement of the various PREF and loan funding positions that they have. So our net position, the net NEPI shares that left Fortress was 53 million and not 60 million. We revised our guidance downward by circa ZAR 270 million, and that's mainly as a result of no longer having the ZAR 53 million NEPIs. So what that means for the current year is that ZAR 0.8144 in the first half and then a forecast ZAR 0.60 to ZAR 0.65 in the second half. From a distributable earnings perspective, where does that all come from, the ZAR 952 million? From our standing portfolio is just under ZAR 1.2 billion. Our dividend receipt from NEPI, you'll see that, that's in the, call it, cash in nature of bucket, the ZAR 842 million net of the dividend hedge that we have so circa ZAR 802 million. We view that as cash on the basis that we had the election, obviously, to take up the cash and then it's a subsequent capital deployment decision to put it back into NEPI units obviously proven to be a wise decision in the last 6 months given the price increase, and we'll touch on that when we get to the NAV. Interest paid, ZAR 946 million in isolation, but net of interest rate protection, ZAR 880 million. From that, obviously, the fund overhead cost and the tax provision for the first half of ZAR 33 million. So our NAV bridge, what's happened in the 6-month period, everything on the left of the dashed line, the notable changes there, direct property, development property and the listed portfolio. So in our direct property, we would have completed a number of buildings that would have moved from developments into completed buildings as well as acquired the distribution center from Pick n Pay and subsequently sold a portion of that. Our development pipeline that includes the spend in Zabrze [indiscernible] in our CEE portfolio as well as Cornubia, Clairwood and Eastport. And then our listed portfolio in NEPI, the increase there. Obviously, the price increase year-on-year given the accounting implication for that as well as the additional 8 million shares that we got as a result of the script. A slight increase in our net debt position mainly as a result of filing our rights in terms of the scrip dividend in NEPI. Post 31 December, that's the ZAR 7.02 and all the discount that set in that B repurchase now embedded in the FFB share, which was previously the FFA share post the conversion in February of this year. Funding and liquidity. As we mentioned, our current spot. Now this is -- we have mentioned 34% at 31 December. On a pro forma basis, it was 40% and current NEPI price is about 39.4%, which is pretty comfortable. Our rating with Moody's has been revised. The rating outlook from negative to stable, mainly as a result of the scheme of arrangement and unlocking the uncertainty around the ability for us to do anything with our equity. From see-through spot -- sorry, see-thorough LTV basis, the 46.4% is probably the more relevant number, obviously, post the scheme of arrangements. We have had no breaches of any debt covenants and our all-in cost of fund in Europe, 4.5% and 9.65% in South Africa. We had previously mentioned that we had early refinanced ZAR 2.15 billion with RMB. We implemented during the period. We placed a further ZAR 1.65 billion in the DMTN market. We raised a new Euro-denominated facility to fund our development pipeline in Europe of EUR 50 million. We paid some debt, and we have currently available to us ZAR 3.3 billion likely and abroad. Exposure our to variable rates. We do a little sum to take our drawn position to what is our economic exposure at this point, even though there's a number of ups and downs, it's sort of about the same number, about ZAR 19 billion that we have drawn at this stage. We cover that with interest rate protection of roughly ZAR 16 billion, split between swaps and caps of 65% in the favor of swaps -- sorry, of caps and 35% in swaps, and I'm going to go into a bit of detail just on that in a moment. The profile of that hedge position is still pretty healthy and weighted to the long end. If you have a look at the amount we have in 2027 and '28, still favoring a cap position, which we do want to just go into and unpack the benefit that we'll see should we see some interest rate reductions. So this is a new slide. Currently JIBAR at roughly 8.4%. And each one of those towers is the strike on either a swap or a cap that we currently have in place. To the extent that the building peak is below that JIBAR value, we're already in the money on all of those positions. So you can see the entire hedge book currently is working for us. What that means is if we do have some interest rate cuts, it won't necessarily transpire into immediate benefits, specifically on the caps. One is to have the JIBAR rate float below the strikes. And given when we did some of that protection at 5.11% and 5.61%, we may not see further benefit from the product as it's unlikely that we'll see interest rates to that extent or interest rate cuts to that extent. But what it means is if we have a 100 basis point cut in South Africa, we'd probably share in the benefit of about 16% immediately. And of course, remaining the money in the overall position, which is still quite valuable at about ZAR 460 million of fair value at this point. From a debt expiry profile perspective, we have roughly ZAR 23 billion worth of facilities with tenants of between 3 and 5 years. So one would expect to see a maturity profile of about ZAR 5 billion to ZAR 6 billion on an annual basis, not dissimilar this year and for the coming 12-month period. That ZAR 1 billion that you see in the first bucket of 2024 is now refinanced. How do we view our debt? We still have -- sorry, we are active in the DMTN market, as I've previously mentioned. And we like a split of roughly 80-20 between secured and unsecured. Given the scheme of arrangement and now the sort of resumption of dividends, it's actually made it a lot easier for us to plan our cash flows and also plan placements within that DMTN market. Previously, managing the liquidity wasn't as straightforward because we ensure if there was a dividend to be paid, it wasn't going to be a dividend to be paid, and these are obviously material numbers when you're looking at our drawn position. So we now have certainty. We will be a permanent feature in the debt capital markets, and we do like the split of sort of 80-20 as we go. With regards prospects, as mentioned, we've revised downward our distributable earnings by the ZAR 270 million, translating into ZAR 0.60 to ZAR 0.65 in the second half. primarily as a result of the reduction in our NEPI position. And we have made available a scrip alternative for this 6-month period, which there will be some detail in the circular to follow, but it will be priced at a 5% discount to the 5-day view at that point. So thank you very much for the time and a big thank you to our shareholders for the support in the scheme of arrangement. I think it is a game changer for Fortress going forward. I'm going to hand over to Vuso to take us through the retail.

Thanks, Ian. Good morning, everyone, and thanks for joining us today. I'm just going to show you a video of Central Park, one of my personal favorite buildings in the portfolio. It's in the CBD of Bloemfontein. It's a commuter shopping center. It's got buses on top of the roof, about 180 buses that go through the facility per day. We installed solar there probably about 2 or 3 years ago, working nicely. It's a two-leveled shopping center anchored by Boxer, who's trading very well. In fact, we did an extension for them a few years ago as well. They're trading well there. We struggled with some vacancies on the first level, but last year, we [indiscernible] when one of the tenants Fashion Fusion opened. They took a big portion of the first level, which had been vacant for like 10 years, about 2 million people that go through the center per month. So it's a busy center. Cool. As Steve mentioned, our portfolio is valued at ZAR 10.4 billion. We've kept our strategy of selling noncore assets and reinvesting those proceeds in the standing portfolio, particularly into our core assets. I think over the years, we've done quite well to sell some of our noncore assets. I think when we started in 2018 with 62 buildings, we're now selling at about 45 buildings. Some of those -- in fact, most of those buildings were sold at book value or higher than book value. We've also had, in that time, spent quite a lot of time fixing up buildings to improve their value. And we realize that through their sale or through uptick in the valuations. In this period, about 577 leases came up for renewal. We renewed and retained 490 of those, which is about 85%. So the rental discussions have been -- are improving, although still tough. Our reversions are sitting at positive 0.2%. This is the first time in the last 3 years where our reversions are actually sitting in a positive. And I think it should get better from now on. A lot of the work has been done. The escalations that we're getting with the tenants are stable around 6%. And I think that will remain there for a while. In terms of vacancies, Steve spoke about it briefly. So by rental, we're 1.6% vacant. By GLA, we're 2% vacant. Our -- if you look at the structure of our vacancies. Throughout the portfolio, we got about 9,500 vacancies. 40% of those are actually office vacancies by GLA. If you strip out the office vacancies, the [ through ] vacancy for the retail is sitting at about 1.1%. And there is work happening in there. So I'm expecting that to actually improve in the next, call it, 6 months or so. The NOI is positive 2.4%, it's lower than what we would like. The major reason for that. It actually sits on the expense side, in particular, R&M Air Conditioning and we had a huge increase in insurance costs. But I think that's in the base now, hopefully, that we'll see some improvement as we sell some of the older buildings because a lot of that relates to the older buildings. So as we sell some of the older buildings, that should improve. And as tenant figures improve from a trading point of view. This is a slide that I'd like to show. We've been showing this slide since COVID. Basically, we're using 2019 as the base. It's just an indication that over the last 3 years or so, we've been well above the 2019 figure. I think if we look -- if we compare year-on-year trading of the tenants on a like-for-like basis, you'll see that 2023 were close to 7% up on the previous year's figures. And a lot of this turnover is driven by the process. We're still seeing double-digit turnover growth on our grocers. We're still seeing good growth from the health and beauty. We're still seeing good growth from pharmaceutical tenants as well and also liquor tenants. And when we look at the performance via the various formats, townships are still performing very well. I think some of that relates to improved vacancies and also improve trading -- improved tenancies at particularly at Evaton, Palm Springs and Yarona in Tembisa. The CBD retail market is still struggling with the way CBD -- there's a lot of degradation in our CBDs and a fear of crime. However, in a CBD format, if you've got an enclosed shopping center that is secured. You saw us performing very well. So the center like Central Park the one I showed and Park Central in the CBD of Joburg, those are performing very well. If the high street where we actually want to get out of those, and we've identified those as noncore. So we sold quite a bit of those is still a few to get through, but that's what we will do. And then the suburban centers really still benefiting from the convenience offering, and I think that will carry on. The rural portfolio, we had some vacancies in the period that were filled up later in the period. So that affected this. So as those come down, I think that the turnovers will improve also. The video I am about to show now is our shopping center in Burgersfort. It's Morone. This is one of the examples where we had a building that was negatively affected when Resilient opened their Tubatse Crossing. At one point, this building was sitting at 45% vacancy. So we have to do some work on it and work really hard and improve the tenancies. So last year, we introduced Shoprite to the building. A few more tenants and the building has improved. We're now sitting at a 3% vacancy. So a lot of work has gone into that. I think that vacancy will come down further in the next, call it, 6 months. It's one of those buildings that at some point, we really could not sell. But now it's actually a building worth keeping and we'll see what happens. At the moment, actually, we're busy installing solar plants at this building. So call it, in the next month or so, we should finish that project also. Some of the work that we've done on the projects. I'll talk a bit more about AbaQulusi was -- Vryheid, formerly known as Vryheid Plaza. We took this building from 8,000 squares to 16,000. We finished the work around November at an 8.6% yield. Marone is the one that I've just shown you now, we finished that around September last year. And then we're still busy at 204 Oxford, formerly known as Thrupps. Most of the parking work has been done. The facade work is almost complete. And I think Woolworths will start trading in the second half of this year. So AbaQulusi Shopping Center. As I mentioned, we expanded it. In fact, we had to demolish a lot of the older buildings. So effectively, this is a new shopping center. We took it from 8,000 to 16,000 square meters anchored by Shoprite and Boxer. And then you've got all the usual suspects in the typical center like this, your Studio88, your [indiscernible], et cetera. It's a commuter shopping center. It's the main call it, transport hub in the town. We've got about 380 taxis that go through the facility every day and about 62 buses that go through the facility, covering about 40 different routes. So this shopping center, it's been in the pipeline for expansion for just more than 10 years now. We were delayed with getting a water use license. In fact we got it about 2 years ago, and we're then able to do this extension. It is the main shopping destination in Vryheid and it's trading very well. I've only received positive feedback from the retailers trading there. It's 100% let at the moment. And yes, I think it will remain that way for the foreseeable future. There's quite a lot of demand for it. If we had the ability to expand it further, we probably would, but we just don't have the land. I'll now hand back to Steve. Thank you.

Yes, thanks Vuso. Just to touch on some of the logistics portfolio stats. As I mentioned, ZAR 13.3 billion. I think the one on the top right-hand side, building value per square meter, just under ZAR 10,000. We've seen a rapid rise over the last 2 years in construction costs, and it's probably not that far away from hard construction costs and some professional fees, excluding land. So I think the building value per square meter is well below replacement cost at the moment. Just if you look in the middle of that screen, reversions minus 5.6%, we've been saying quite a lot of positive things. We've got a low vacancy around our logistics or why the negative reversion. And that was really in the period, we had one lease come up for expiry. That was supplementing Cape Town, up sort of north just off of N7. And they renewed it for -- renewed the lease for 10 years. So we did give them a slightly lower rent and actually did quite an interesting deal where we've passed on some of the solar savings to the tenants, and they were very happy with kind of those that sort of ESG metric within their business. The WALE has gone up to 4.9 years. I think around 2019, it was sitting at 4, marginally below. Unfortunately, with the march of time, every 6 months, if you do nothing, that's going to come down by half a year. So actually to push that up by a year over the last 5 as we've grown the portfolio is great. And really, that's driven by -- by tenants taking a slightly different view over the last 2 or 3 years because the vacancy is low, they want to sign longer leases to secure the space as opposed to leave the optionality open and sign 2 or 3-year leases, which I think in the past, they were probably more predisposed to sign a shorter lease, keep the option open. But now that the market is hardened, that has -- that tenant dynamic has changed a bit. It's just a summary of the developments we have on the go. As you can see, currently under construction, that's roughly 75% pre-let on mostly 10-year leases, one 5-year lease for an existing tenant in Clairwood. This is our logistics development pipeline progression. In 2018, we had 1 million square meters for all of our parks. We've chewed through that, I think, unbelievably quickly -- probably a lot quicker than we thought at the time. 230,000 square meters left on those parks. And then we've got an option just north of Eastport, which takes the pipeline in SA to 380,000 square meters. That Eastport North, we've estimated GLA of 150,000 square meters. So this is Eastport. We finished the Pick n Pay distribution center last year that Teraco started looks like a warehouse from [indiscernible], but it's actually Africa's largest data center. And we have signed an agreement to sell them more land. They will triple the size of that data center. So it will go from roughly 70 megawatts to 210, which will make it by far the biggest. If you look there, you'll see those 2 sort of gray boxes, the 1 on the bottom left and bottom right. Bottom left is a small little piece of land, we're close to closing a deal there for an attractive distributor and on the bottom right is an existing tenant in Eastport. Also wanting to expand there. And actually, we're also close to closing a further deal of 30,000 square meters also on Eastport. So that really leaves us with probably 2 or 3 smaller sites, and then it's done. I mean, this was 1 million square meters of land to start off with. Clairwood has -- I mean, it's been a long road in getting Clairwood up and running. We had some soil issues there right at the start, some EIA issues. So it was it was a bit of a nightmare for the first few years, but I'm very, very glad that we stuck to it. Fortunately, we had the capital to push on and make sure that we actually turned the asset into an income-producing asset. And right now, that building there is worth more than the original cost even pre impairment. So I think over time, we'll recover some of that impairment that we took. We've signed that ZacPak CHC is coming just behind their 2 slightly smaller units, long-term leases. And what's nice to see is an existing tenant in Eastport, African Sugar Logistics actually took 3C, which we developed on spec, let it before the completion date in April. Clairwood's really a standout in that whole Durban South mode. That's the new facility. It was completed in December, tenant just had some issues with their mechanical equipment for the internal. So they'll start -- they'll move in, in April. That one is an interesting one. Kings Rest container terminal, a nice piece of land. We have to do some specialized earthworks there for the containers. It was both Kings Rest and Grindrod buying for that site, Kings Rest were happy to pay a little bit more on the rental front, so we went with them, even though they weren't as well-known as Grindrod, and Grindrod has now bought the whole of Kings Rest, so they are now our tenant paying the higher rent, which they didn't want to pay. So I think that's been a great result. Those middle units that we did because we had a strange shape of land has actually been great. Lots of the tenants in the park like those little 2,000 and 4,000 square meters, which they can use alongside their bigger facilities. We only have 1 pocket, the 1 very far on the top right of the screen next to the Wetland Pocket 6. We are in discussions with a big logistics user there. So hopefully, we'll close that. But we'll be patient. I think the demand for space in Clairwood has really been very strong. There's nothing like it in that part of Durban. And even though the port is slow and transmits slow, that almost leads to people, tenants wanting more of a buffer in their supply chain. So they're looking for more -- for more warehouse space. It's just a summary of some of the goings on at Clairwood. Cornubia up north, really [indiscernible] has been another good development that we had a fire there in the right. So we did lose one building, but we've just finished Dromex there. They make sort of workwear, protective workwear, great tenant privately owned. So we did a 20,000 square meter development there for them, just that's the one in the far distance. Makro on the left-hand side, on your screen, Retailability who bought Edgars, Beaver Canoe, Legit and that's a new one for Dromex. They've recently moved in. We can do another roughly 20,000 squares just behind there and then about 8,000 on that funny shape at the end. I think this site's unbelievably located. That's actually the N2 highway, which is the longest highway in the country just over 2,200 kilometers long really go Cape Town all the way up the coast and then I think ends in Ermelo or somewhere like that. We have begun adding solar to this. It was just pre -- the video is just pre that, those installations coming online. So we can do about 54,000 square meters there. We own just over 50% of the site alongside our partners. Fantastic visibility and I think an excellent location. So to touch on one of our noncore portfolios, the office quite small, that ZAR 1.3 billion is under 3% of our total assets. We've been, I think, fortunate that we can sell the assets. We actually sold Oxford Manor and that transferred recently. That's the one not far from here along just off Oxford Road, which has got Bellagio, the restaurants, it's just opposite Bellini's. We sold that to a residential conversion specialist as we did Monyetla, which also transferred during the, I think, just after the period end. So we've had some success and I think probably more success than we expected on selling these older suburban offices to -- to people looking to convert them to residential, which we don't want to get into that game. It's specialized and difficult. So we're happy to let the assets go. So currently, the vacancy is sitting at 25%, but post the transfer of Oxford Manor, that's down to 20%. I think the building valuation, again, is -- I mean, I would imagine not that we -- that involved in the sector, that's probably about 1/3 of replacement costs for these assets. So fortunately, people aren't building more. If we take some supply out the market with some residential conversions potentially that might be a turning point for the offices. But rather than comment on that, I think we'd rather just exit completely from this sector. The vacancy is high, but we do that strategically. It's often quite difficult to sell a multi-let building. So we prefer often to keep them vacant and then hope that either an owner-occupier comes to buy it or someone looking to convert the asset to residential. So that's a strategy. It's a costly strategy. But I think over time, if we want to exit, it probably gives us more optionality. Also, noncore, but I think surprisingly good performance from our industrial portfolio. We've got ZAR 2.5 billion in there, like-for-like NOI growth just above 10%. We did a JV on some assets. We put about just over ZAR 600 million of assets alongside in the space, we put a similar amount into a joint venture company. We set them the target to increase the NOI last year for the budget year ending June of 16%, and they're tracking to that. So I mean that's been pleasing. I think similar dynamics to the logistics is that companies are looking for good quality space, albeit smaller 200, 300, 500 square meter units. So our mini parks are doing very well. The Inospace portfolio is doing very well. And fortunately, over the last few years, we've managed to sell the older, larger classic industrial type of facilities, which I think has still got some headwinds. NEPI Rockcastle, many of you would have seen the results. This slide just shows that our shareholding has gone down but worth ZAR 14.3 billion on the 7th of March, unbelievable results that distributable earnings per share is the highest ever, loan-to-value 32%, NOI -- like-for-like NOI growth of 13%. I mean the tailwinds in that market and in that business are unbelievable. Strange, we sit here 4 years post COVID when everybody was calling for the death of large-format retail. And I think, once again, these results from NEPI has proven that completely wrong. People are still going to the malls, bricks and mortar retail is having a bit of a resurgence and to have a very large strategic stake in this Central Eastern European -- Eastern Europe's largest retail mall owners is quite something for us, and it does underpin a lot of our balance sheet and value. Alongside the CEE strategy many years -- a couple of years ago, about 3 years ago, we entered into the Polish and Romanian logistics market. Those completed buildings now worth ZAR 2.2 billion, 4-year WALE. I think, again, the like-for-like NOI growth 14% is a combination of indexation and then some unwind of some rent-free periods, which the developer gave to those tenants and its market practice. So I think these figures look very, very good reversions are positive. Vacancy, the portfolio is quite small. So we have a small vacancy in Bydgoszcz, but it's exaggerated just because we don't have a lot of square meters there. Sorry. This is just location of our sites. So we've got 4 in Poland and 1 in Bucharest. The one in Bucharest is actually very, very well located and doing very well. That was a good acquisition for us. Unfortunately, we would like to grow there, but we haven't seen opportunities come to us. The pipeline there 160,000, which in Zabrze will be finished around about midyear 2024, which has got a -- sorry, Czech retailer called Notino, who signed a 10-year lease Zabrze. We've done 11,000 on the back of a pre-let, adding another 11,000 and we'll just add to the building to develop out the 70,000 to 80,000 square meters that we can there. As I touched on at the start, renewable energy is, I mean, a big, big focus for us on the environmental side as is just building more energy-efficient buildings, trying to get smart technology into the hands of our tenants so that they can monitor their consumption, both of electricity and water in real time. And I think that's something that we've been working on for a couple of years. And hopefully, that will start to -- I mean, maybe we can give you some slides on that at year-end, but I think it's something that's been certainly close to my heart in terms of trying to just use less and produce what we are using from sustainable sources. The social side, we've, I think, done a lot. I think South African corporates do probably a lot more than they should on this side. Food & Trees for Africa has been a great partnership for us as has the education side, 724 children in early childhood development and school program, 72 bursaries. And the one at the end, which I think is also important for all of corporate SA to get involved in, which is where we do enterprise and supplier development to try and get those companies into our supplier base to really give them that longer-term support. On the governance front, Vuyiswa did leave us. She's now the Chairlady of RISE Mzanzi and looking to compete in the national elections and at our AGM, John Hillary, who is here today joined us. And then that led to a few changes in committees. So that's just details here, as was previously announced on SENS. Industry challenges, they haven't really changed that much, as I mentioned, utilities. But rather than having a morning slide, we put some actions that we're taking because I think relying on government to do anything here, which assists the private sector in growth would be a little bit naive. So energy challenges, we've got our solar generators, batteries, water as I mentioned, water tanks in most of our offices, boreholes in most of our retail centers. Rates is a challenge because that's a municipal tax. So really our action on that one is support SAPOA. We hope many of you with high connections to government and from the banking industry would do the same because ultimately, we all pay the price in higher, higher consumer prices because the rates we try and pass on to the tenants, we wear some of that, the tenants wear some of that, and they'll try and pass that on to the consumers. And it's really paying for substandard services, if any. So I think there's an ethical dilemma there on what we're paying for. Low growth, well, really, I mean, other than supporting positive initiatives in the country, we can diversify, as we have done with 40% of our assets in the higher-growth markets in Central and Eastern Europe. Other aspects which we face challenges from a property industry is, for example, the Competition Commission, most property transactions of any kind of significant size above ZAR 100 million CompCom approval. And often they come with challenging, challenging approval conditions, which are hard to implement and do slow us down in terms of the sales. These are -- that's just a summary of the portfolio stats for your information. Okay. Now I mean, maybe you want to join me up here [indiscernible]. We'll take some questions. I think let's start with anyone in the room. If there are any questions, please raise your hand. You will get badgered by badger, anyone in the room?

You just told us about that big solar installation that you've been working on. And we've got I think you said just over 9,000 megawatt hours of generating -- of electricity generated in the last 6 months. Can you give us a sense of what percentage of total electricity demand that might be from your different types of South African businesses?

Yes. I think it's probably sitting at about 10?

So if I get the question correct, what we used -- 30% of the power that we use actually comes from our solar plants on the buildings where we've installed them.

Yes. The target is to get to about 25% I think that's where it will sort of even out. The logistics warehouses only need about 5% of the roof space. The retail, you can't get enough solar to supply all of the power the retail needs during the day. So I think that will be about a quarter when we look at the current plan once we've rolled out all of the plants that we plan to.

And just a quick follow-on question then is, how do you sell that power on to your tenants?

So we meter it. The tenant pays what they would ordinarily pay counsel on that tariff. So at the moment, we -- the tenant is just -- is paying us and their bill looks exactly the same as though they had powered directly from counsel. When we started doing the solar, we modeled it very conservatively because, let's not tell the tenants, but we had forecast that a lot of the tenants wouldn't be able to swallow the NERSA increase of 15%, 18%, 20%. So we modeled that on a 4.5% escalation over 20 years, which was roughly inflation. We figured that, that was probably a reasonable scenario to assume that we would get an inflation-related increase on the solar. We have gotten a lot better than that in the past. And I think following last year, the tenants are now far more focused on energy security and stability as opposed to what they're paying from either us or the council. They're just happy to pay us if we can supply stable supply 24/7. And that links in with the generators, which are also metered specifically for each tenant from that source. So where we are running the generator, we know that the generator is running in that kilowatt hour charge to that specific tenant is going to be higher. The problem that if you don't get the tech right, is that you end up adding all the diesel together and you divide by square meters, a portion at randomly, number of tenants, and that's where you have a difficult conversation with the tenants and get some push back. If there's nothing else, do you want to just...

We've got a few questions from the webcast, if you just bear with me. First one is from [ Yusuf ] at M&G. He asks are there developments, met the company's cost of capital.

I think we did have a slide that dealt with that at year-end, we will do that again. I think overall, that development business is certainly giving us a return in excess of our cost of capital. Each development would be hard to measure on a development-by-development basis. And where we had some impairments for example, Clairwood, I think we then look at that as a new base cost and how does our capital return look on each incremental rand that we spend. And I think that's how we base the decision. But certainly, Eastport and other sites, yes, I would imagine well in excess of our cost of capital.

There's a question about our LTVs and specifically breaching the 40% threshold. Are we concerned about this at all?

Not really. The -- we're going to look at LTV in conjunction with what the asset base is. So we still sit with 107 million NEPI shares, highly liquid almost cash-like investment on our balance sheet. So it's not a scary number for us, 40%. And NEPI's had a good run of late, but it's still at a slight discount. So that 40% is on a discount as well. So not something that we're particularly worried about.

[ Pruneeta ] at Standard Bank and Nazeem at Investec, asked similar questions around ICR. Specifically, can you give us an indication of where ICR sits post the scheme of arrangement? And how do we see that evolving going forward?

Look, timing is important with an interest cover ratio and quite rightly point out that there will be an impact on that. So if you look at the current year, we will be missing circa ZAR 270 million of income. That's for the second half, the 53 million net NEPIs that we don't have. So where do we land? Probably around 2. And what does it look like for next year? Well, obviously, we've got base increases for next year. I'm talking about rental in the existing portfolio. Without any interest rate cuts, I suspect [ 2 ] growing and why is that because all the development income that we get of the new builds that we're doing will be in for a full year or for a full period for next year. So it's a -- one has to look at the timing and what's coming online as well as the base increases.

Mihir from Absa has a question, what our full year expected income tax charge would be if you could give some guidance?

So we penciled in ZAR 100 million. ZAR 33 million in the first half. And then it's a difficult number for me to put an absolute pen on because we've got some 24 higher items. And for those of you that are not tax experts, that's the -- the unrealized gains or losses in our hedge book that we get taxed on or that there's a release on. So all things being equal, the rand remains around [ 20 50 ] around the ZAR 100 million mark and possibly better than that for now.

We have a question around the office sector. Given the numbers you showed, are the signs of the office sector has bottomed out?

I mean -- I don't know -- not really. I think there's still a lot of oversupply. I think people -- landlords are doing deals at levels just to cover their rates, taxes, holding costs. I think until we see some economic growth and more supply taken out of the sector, I think it's going to be tough going. And I think we all know that the dynamic, and certainly, we're here in a professional services firm environment, a lot of the professional services firms are still flexible and still working from home. So I don't know where that bottom is, to be honest, certainly can speak to our portfolio. I think the rate per square meter is attractive enough for us to be able to sell these assets to owner-occupiers and to residential conversion specialists, but where that office market comes back, I don't know. And I think we'd rather just exit completely and then watch from the sidelines.

There are a few questions around regaining REIT status. Specifically, is there a time frame and the impact that this would have. Francois alludes -- Francois, Anchor alludes to a deferred tax asset of ZAR 818 million on the balance sheet as an example of potential consequences.

REIT status, I think we wouldn't look at it as a time line. We would look at it as well, when you aren't getting -- when you aren't sort of gaining from what the benefits of being a non-REIT are, which is all of the tax deductions and flexibility, REITs really just give you two things. It gives you pass-through of income when you pay a dividend to your shareholders. So the company doesn't incur the tax, the shareholders incur the tax, and it gives you no CGT on property sales. That's it. But that comes at a cost of losing a lot of the deductions, for example, Section 13quin on our new development. So with that -- sorry, and added to that is we've got a lot of exempt income from NEPI, which we turn in a REIT model that all of that exempt income roughly ZAR 1.2 billion now gets turned into taxable income when we declare it out. So I think we would look at it and say, well, provided, we aren't leaking a lot of tax and paying a lot of capital gains tax, then why would we convert to a REIT because you lose a lot of other benefits. So I think we would really ongoing -- on an ongoing basis, monitor those two items and say, well, as soon as the let's hope the income grows exponentially and then we don't -- that tax shield is a smaller component of the net income, we would then look at that. And capital gains tax, we have a big deferred tax asset, which we would lose if we convert it to being a REIT. And unfortunately, in the SA climate, the offices and industrial assets that we're looking to sell, we are still generally selling at a loss to our base costs. Ian, do you want to add something.

Spot on, that's exactly right.

There are a few questions on NEPI specifically. I'll group them. Luqman from 91, given's the lack of control and high gearing, where does NEPI sit in terms of our capital allocation? Would you look to recycle NEPI to fund the development pipeline or other opportunities.

I don't think the gearing is particularly high. So we've got no pressure to sell. We still have a very big shareholder, 16.2% of NEPI. I think we would really like to stick to the plan, and we've executed, I think, quite well on that plan over the last 6 years, which is selling the underperforming assets, the ones that are noncore to our strategy and using that cash to expand and enhance our retail and roll out the logistics pipeline. So that's really what we need to do and must do, that's got to be our focus because I think that changes the whole composition of our ZAR 34 billion of direct assets and makes it better quality with more defensiveness and higher growth prospects.

Just following on that, Francois from Anchor, he asked now that our holding is at 16%, do you expect to retain NEPI board representation? And then when you look to increase more strategically meaningful level? Or do you see the 60% stake as core or noncore?

We still see it as core. I think we still see it as a fantastic business. The Board representation, I guess, it doesn't really change. We're one of the largest shareholders, 24% or 16%. You still have to ask for a Board seat and you still need to add value to that Board. And I think if you look at the performance, I hope we've been a positive influence on that business. It's really, really doing well. It's focused on CEE. It hasn't strayed from its core markets, and it's made some strategic acquisitions. So I think it's -- it's been definitely not all of the work from Fortress' side, but I'd like to say some of the work and guidance that we've given to that business, which has helped them get to this level of performance.

A question for you, Vuso. From [ Yash ] at Anchor, he's asking, what kind of conversations are you having with Pick n Pay regarding the performance of their corporate stores in our portfolio. Maybe you can give some color on our exposure and the conversations you have any?

So our exposure to Pick n Pay by rental is less than 4%. So we've got actually more exposure to Boxer. And those stores are trading very well. Most of the Pick n Pay stores in our portfolio are actually trading well, a couple of stores where we are having discussions with them. Some actually are likely to convert to a Boxer, one or two of those. So it doesn't, the position doesn't scare me at the moment because I think Boxer is trading very well and that's where our exposure is skewed to us.

Thanks Vuso. A couple of questions on the scrip offering. Luqman from 91, he asks are you comfortable issuing new equity at deep discount given your scrip offering on your dividend in this period.

So I think the answer is yes to our existing shareholders. At deep discounts, we think accelerated book builds would be very unfair and completely value destructive if people don't partake in that book build exactly and the existing shareholders. So we would certainly shy away from accelerated book builds at a discount to NAV, but where you're giving your existing shareholders a choice between taking up additional shares or cash, so they get a choice between dilution and nondilution. So it's entirely up to them.

[indiscernible], just following on to that. You just asked some thinking around the scrip dividend offer, potential opportunities for this raise? Have you identified opportunities?

No, there's nothing identified. I mean, it was -- we're also offering a scrip discount in a period in which we took ZAR 840 million worth of NEPI scrips. So it is matching that. We didn't get that in cash in our bank account, and we're offering scrip to our shareholders for the same period.

Mohammed from [indiscernible], he asks around the 20% dividend withholding tax. Is this still paid if shareholders select the scrip option?

No. I'm assuming that's an individual shareholder that he is asking about -- so that they'd only be the only one subject to withholding tax, and there wouldn't be any dividend withholding tax on the scrip.

Francois from Anchor had a question around corporate and admin costs increasing by 15%. Were there any once-off costs involved? And where do you expect these to sit in the longer term given the simplification of Fortress structure?

Yes. It's a little bit of a misleading increase that because a piece of our overhead cost is allocated to our development business, depending on the activity that takes place in that period. And when you look at year-on-year, if you go and have a look at the same sort of period last year, I think we capitalized ZAR 19.9 million of our head office spend to our developments, and that was primarily as a result of the Pick n Pay DC that was under development this period, it's slightly less. So if you back that out to normalize it, I think the increase is only 7.7%. So it's marginally misleading. It's not actually once-off or a massive difference in the business.

[indiscernible], he asks what is the tax base of the investment in NEPI?

It's about ZAR 152, ZAR 154 a share. It was ZAR 176 but through a number of scrip offerings that we followed, the base cost sort of floats down. So that's about ZAR 154, I think it is at the moment.

And the last question from the webcast. The one from Anchor asks the property disposals at a premium to book. Were the yields net -- were the yields net of all relevant costs per sector, please? I wonder if you have those numbers?

I need to work it out per sector. But if we exclude the Pick n Pay Longmeadow that had no yield at the time. We look at it at a -- so if we assume that all of those assets were fully let, and this is all, I think there were 12 of them, the yield would have been 9.8%, but the standing yield was 7.8% on the sales because there was -- some of them had high vacancy or some of them were fully vacant. So 7.8% was the actual yield if we look at -- at a point in time on the sale, 9.8% would have been the yield had all of those vacancies being filled. I don't have the sector split, sorry.

We can get back on per sector. There are no further questions from the webcast. If there are no other questions in the room, we can end it there.

Okay. Thanks, everyone. We'll see you for a coffee. Thanks so much.