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

Good morning, everyone. Welcome to the Fortress results presentation for our interim period of our 2025 financial year. Certainly, been an interesting 6 months with our coalition government sorting themselves out and I think providing our own country a bit of stability and then the US elections providing a little bit of global instability and uncertainty. So I think it's been an interesting 6 months in a global context. But in the context of Fortress, I think it's been a very good 6 months. Everything seems to have stabilized quite nicely, and there certainly seems to be a lot more positivity returning to our market, a bit more stability, I think. Vuso will touch on the retail trade, but everything seems to be just cruising along at a nice speed and gaining a little bit of momentum, certainly from where we were this time 12 months ago. So just touching on a few of the highlights that we had for the last 6 months. Our interim distribution per share was -- is tracking ahead of our forecast, which necessitated an increase in guidance. And I think Ian will give you a bit more color and context on that. But it's quite positive in our view. It's probably about half of it is really from the standing portfolio of assets and some of that is selling vacant assets, which have been a drag on growth and then letting the developments and seeing that NOI come through. And then some of it is the mix in our treasury, which Ian will talk to and lowering of interest rates. We did buy an asset in Gdansk in Poland just after year-end, a very key market, I think, in terms of the Polish logistics landscape and something that we liked. I think we've had quite a lot of success with buying assets that are half complete, half developed. It gives us nice NOI, and there isn't really a market for that. So you get a lot of investors who are either -- they need to take the greenfield development or they need income producing. So we bought an asset in Poland, which was actually from a Kuwaiti fund, and I'll go through some more detail later on. Great results yet again from NEPI. They had a record, and they're guiding to yet another record dividend for next year. I think in the middle of the screen there, that's really what our focus is, I think, for the next 6 months is driving the NOI growth. And you can see there at 5.9%, it is above inflation and that's really the -- that's the core metric in our business is how we can drive NOI growth over the long term. It drives our valuation and supports our balance sheet. Again, for the period, we funded our development pipeline with asset sales. I think a key focus, as I mentioned, is optimizing our portfolio NOI. And I think our asset management team has done a really, really great job in the last little while of getting the assets geared up, refurbished, looking for the tenants that we like, selling the assets that we just have no hope and don't see a future with. And I think that is starting to now really sort of increase our portfolio NOI, grow the distribution per share. So that's been a key focus for us. And another one is how do we use technology just to get more efficient. During the 6-month period starting on the 1st of July, we did internalize some of the property management. We now internally manage 37 buildings and I think that's been a huge success for us. It brings us closer to the tenants. So we don't have a third-party property manager between us and some of our key tenants in the logistics space. The value of that portfolio that we internalized about 4.5 billion. So it's giving us better tenant relationships, and it's also saving us a little bit of money on the property management side. Growth and opportunities, I think, we remain always opportunistic. We did participate in the NEPI book build. We had said to them a while ago that we would be supportive if they did come to market and we were able to support them. And I think also gave them a lot of confidence in terms of coming to the market to raise the EUR 300 million. As I said, we acquired something in Gdansk. And then we continue to sell the older assets. This is just a picture of where we were at the end of December. Real estate assets around about ZAR 50 billion, including our NEPI shares, net debt of about ZAR 20 billion if we take the cash off. And again, split almost equally between our logistics portfolio and our retail portfolio, which includes NEPI. You'll see there it gets a little bit busy at the top of the slide where the kind of shaded picture is and that's our noncore portfolio that we use to fund the pipeline. So as we sit here today, our estimated CapEx in our development pipeline requires about ZAR 2.9 billion, both here in SA and in Central and Eastern Europe, mostly in Poland. And how do we plan to fund that pipeline? Well, as we have been over the years, which is really selling our noncore assets, which is mostly our industrial and office portfolio. We do have other assets, ZAR 200 million, which is two residential schemes. And then Vuso has a couple of retail assets that he feels are really noncore and unlikely to perform in the future. So that's also something that we're looking to sell. So we've got ZAR 3.4 billion of noncore using that to fund our pipeline. And I think if you look at the history since 2018 -- sorry, 2020 there, we've developed ZAR 10.9 billion of new logistics developments, and that has largely been funded by our asset disposals of ZAR 8.4 billion. There is a bit of a difference there that's made up with debt and equity. But the developments have really been, I think, our success story over the last 5, 6 years. All of those developments are currently fully let. There have been some tenant JVs in there and I think that's something that we're very, very open to. The tenants where it's a key operational asset, like to have the ability to own at least a portion of that asset. Target asset base that hasn't changed. It's been the same for about 5 or 6 years. We're just making progress in getting there. Logistics, we are now just over ZAR 20 billion, Fortress retail, direct is ZAR 10.7 billion, and then we've got just over ZAR 16 billion in NEPI shares. So I think we're making headway in terms of sticking to our strategy and really trying to get more focus in these two core portfolios. The overall vacancies, certainly in our logistics and our retail are very, very low. I think when we look at the logistics market as a whole, there has been very limited supply coming to the market. So that gives us a lot of ability to keep the vacancies low and I hope over time to also increase the rentals that we ask. Office is still very high vacancy, but it's a small component of our portfolio. Industrial, the typical industrial tenant signs a 3-year lease and that vacancy has remained quite high. And there are a couple of specific assets that are pushing that up, one of which we have an offer on. But I think the vacancy has been very, very well managed and is low, and that also helps us with the NOI growth. This is something that we just wanted to present, and I think it's a trend that we've seen. And this is really a sort of core metric that we look at is what's happening when tenants are renewing or we're reletting vacant space. What's happening from the expiring rental to the rental that we're able to achieve. And really, that is the reversion. If you look back in 2021, just coming out of COVID, that sort of turquoise logistics logo, we were minus 12.5% on reversions, and that was on 32.5% of our GLA, which really pulled our earnings down. It didn't get much better, gradually better in 2022, 2023. But as you can see in the first half of this year, and I think we see that trend likely to continue and improve is industrial was 5% up. The industrial is an interesting one because the leases are short, you're always resetting. So where you see positive reversions there, it really does indicate that the market is able to sustain or you're able to ask for higher rentals. Logistics is a little bit down, but if you look at that, it's only 4.8% of our GLA. And we're starting to see expiring rentals even off the back of longer leases, roughly matching where those rentals were. And if you think of the reversions there and during that period, we have 7% contractual escalation. It's been a huge catch-up in the market in the last couple of years. The big driver of that has really been inflation and inflation in construction costs. So that means it's going to cost more to build. There's been constrained supply because the cost of capital has gone up. And I think we've been the beneficiary of that. And hopefully, our standing portfolio will now be able to grow rentals and certainly not move backwards as we had seen in previous years. Our sales team has been very hard at work selling assets and trying to get the best price for us and indirectly for you as shareholders, not leave too much on the table. I think there always needs to be something left on the table for the buyer, but hopefully not too much. What's interesting here is we're consistently selling at a premium to our book value. And I think that's indicative of, firstly, conservative book valuations. And I'm hopeful that during the course of the next 6 months and when we run our formal valuation process as we do at the end of every financial year, that the market and the valuers start to realize that actually the valuations that we have been given in the past have been quite conservative. I think the key factor here and something that we don't forecast is where we sell vacant buildings, and what's the impact on our earnings. And if you look there in that little red highlighted box there, you'll see those are the yields that are actually in force. So where we're selling vacancy, we will assume that the vacant space has a market-related rental, and that's the column on yield fully let. So logistics at 9%, industrial 13.5%, office 11.5%. But if you look on the right there, the offices that we sold were only yielding us 2.1%. And we sold about ZAR 155 million of very highly vacant offices in a portfolio of 3 assets to a residential conversion specialist in January. So we actually aren't losing income on these sales. It's actually accretive. And as we roll that out into our developments, particularly because we don't include the capitalized interest, that 7.4% is converting into a 10% plus yield if you look solely at what's happening in our distributable earnings. This is just a summary of the points I mentioned before. So we have about ZAR 3.4 billion of noncore assets, ZAR 2.9 billion in the pipeline, excluding the option that we have at the Eastport North site, which we'll own 65% of if we exercise, we have about 2 more years left to make a decision there, and it's looking quite positive on some larger boxes there. I'll get Mr. Vorster to run you through the financials.

Good morning. Thanks, Steve. Appreciate that. Yes. So as Steve has mentioned, we're very pleased with the 6-month results and our distributable earnings per share, ZAR 0.7615. It's important to note that when we look at the half year from last year, the ZAR 0.8144, those are not comparable numbers, and I'll come back to that in a bit more detail when we look at the forecast and specifically what's happened there. But if you recall, we had a scheme of arrangement that was passed in February of last year, 2024, which was -- resulted in a massive buyback using our NEPI shares or 53 million NEPI shares to fund. So that 2024 year includes earnings for half the year of those NEPI shares. So it's not quite comparable, and we'll come back to what the normalized position is. Again, the same thing for the absolute distribution for the 6 months that ended, the ZAR 917 million versus the ZAR 952 million, just an important point to note on the slide. Our LTV is marginally up. SA REIT best practice, 39.9% vs 38.2% at half year. And again, I'll come to that shortly when we get to our debt position. So what drives the distributable earnings for the 6-month period. This slide used to be very, very convoluted with a lot of moving parts. It's simplified largely over the last couple of years, and it's really 5 areas. One, the NOI from the properties. That's ZAR 1.3 billion for the 6-month period. Interesting to note, and this is exactly what Steve has just spoken about for the same or equivalent 6-month period last year, that number was [ ZAR 1.181 billion ]. So roughly ZAR 140 million up, standing portfolio increases, but alongside that, all the new development income that's now coming into the NOI. And that's sort of not like-for-like, but just new revenue, which, of course, comes at a similar cost because we've been burning the interest and that doesn't form part of our distributable earnings because we don't include the capitalized interest in our distribution. To that, we add the NEPI dividends and it's hedged, roughly ZAR 594 million. We deduct the total debt charge, which is a combination of the hedge, our interest paid and interest received, roughly ZAR 840 million, fund overheads after some marginal capitalization of costs there, ZAR 125 million. And then, of course, tax. We are a taxpayer given that we are not a REIT and we don't get as a deduction, the dividend that we pay. But for the 6 months, the provision, roughly ZAR 30 million plays about ZAR 33 million for the equivalent period last year. So as mentioned, on a normalized basis, if we adjust for the scheme of arrangement and simply what we've done, this is not a perfect sort of pro forma financial information. But what we've done is we've just adjusted for the earnings on that ZAR 53 million NEPI shares that we would have had in the last period. So agreed, it isn't exactly like-for-like. But to give you an indication, that would mean that our distributable earnings in the 6-month period would be 30% up, ZAR 0.76 plays ZAR 0.58. Along with that, so one of our strategic goals that we introduced post-June last year is that of enhancing shareholder returns and focusing on total shareholder return. And in line with that, we've made an offer to shareholders again for the 6-month period to elect a NEPI share alternative to cash at a ratio of 0.0069 NEPI shares per Fortress share. At the moment, it's at a premium of around 18% to 20% to that of cash. We have done a little example there. So I don't think it's necessary to go through it, but it is in the presentation for reference if you want to come back and have a look. With regards to our TNAV bridge, not much change, TNAV ZAR 25.14 to ZAR 25.23, but there's a story in that in itself. Firstly, we don't revalue the portfolio in its entirety at half a year. We really look for sort of outliers and make some minor adjustments. But the portfolio is looked at in its entirety by third-party valuers at 30 June. And as Steve has indicated, we do expect to see some uptick for 2025. But the TNAV staying flat, as mentioned, is a story in itself is in that period, we did distribute some NEPI shares as part of our dividend for the period ended 30 June, which had an element of a capital return in it as well. So despite that, the TNAV has remained flat. Those 2 blocks that you see in the middle of the slide, and that's really just illustrating the rolling out of the development pipeline. So the spending in the development pipeline and those new buildings moving out of development into direct property, that's about ZAR 450 million for the 6-month period, of course, funded by proceeds on sales of about ZAR 800 million and CapEx in the standing portfolio as well as the new developments of about ZAR 800 million. As I mentioned previously, we have had a slight uptick in the LTV. And what that really is, is the subscription for 13.9 million new NEPI shares in October, and November of last year funded by way of debt. We drew down on a facility, a euro-denominated facility that we had against a collar that we had put in place against some NEPI shares that we had reported on at June. And that's really the reason for that marginal uptick in the LTV. Some key metrics of the portfolio. As mentioned, our SA REIT best practice LTV, 39.9% on a see-through basis, and that's where we take our NEPI position proportionately consolidated into our balance sheet, 47.4%, so still comfortably under the 50% mark. Our all-in cost of funding for SA 9.48% and for Europe, 3.94%, and in a healthy cash position or available facilities of circa ZAR 3.9 billion at the balance sheet date. We've had a busy 6 months with regards to our funding and liquidity. We raised a further ZAR 1 billion, just over ZAR 1 billion in the debt capital markets. And we've had a strategy over the last couple of years to move back to the debt capital markets in the form of public auctions. And this was a really successful public auction. I think it was almost 3x oversubscribed, and we placed twice last year. And between those 2 placements had a tightening of the margin by almost 15 basis points in all tenors, which I'm told is unheard of in any 1 year by any issuer. In any event, we're comfortable in the debt capital markets now, and I'll come back to the mix shortly as to where we're going, but we will probably land up moving closer to the 25% of our total book, whereas previously, we've been around the 20% mark. And what drives that decision is really the reduction in the size of our development pipeline. So as we build out the developments, we'll have land that is not yielding, turning into yielding properties, which is, in effect, unencumbered assets for that of the secured funders. And the more of that, that we have, the more comfortable we are to move, call it, up the risk scale in the debt capital markets. Separate to that, we raised a further EUR 10 million against our European portfolio for expansion. And then we refinanced the SPVs in country where our sort of Polish and Romanian portfolio sits a further EUR 57 million and repaid circa EUR 25 million just post year-end. I've mentioned the EUR 100 million against the collar that we had funded those that -- sorry, the NEPI acquisition. We raised a further ZAR 500 million with ABSA, and that's in a really attractive pricing attached to a sustainably linked sort of debt position. We refinanced over ZAR 1 billion with RMB and ZAR 500 million with ABSA. As regards to our hedge position, it's quite a busy slide, but really, what we try and do here is calculate what our economic exposure to variable interest rates. Our net debt position is roughly ZAR 20 billion. We make some adjustments to get to a sort of ZAR 20.6 billion, and it's against that position that we'll hedge. We still favor caps over swaps at a group level, though it's sort of SA caps over swaps, Europe swaps over caps, but we are about 60-40 in favor of caps and comfortably hedged at the 85% level. What that book looks like, as you can see. I suppose the important point on this slide is really the average tenure of 2.7 years in SA, 4.7 in Europe. And if you put the 2 of them together on a weighted average basis, we're sort of north of the 3.2 years with a healthy sort of back-ended portion in those caps. And what that really means for us and how it translates into earnings is that as JIBAR starts to come down or has come down, we start to share in a greater proportion of the floating -- sort of floating rates. So I think when we showed the slide first last year, JIBAR was probably at about 8.3%, and we are really floating above the cap strikes, which meant that our absolute cost of funding or our net cost of funding wouldn't reduce in so far as what shareholders would see because we would just be in the money on the cap. But as we hit that cap strike and if rates come off, then we really start to see the benefit in our distributable earnings. So at the moment, for every 25 basis points reduction, it's probably around 13% that we would see on the absolute debt balance, which immediately flows through to the bottom line. In our forecast, which I'll get to shortly, we haven't assumed any interest rate cuts coming between now and June. Our debt maturity profile, no different to any prior period. Our facilities are around the ZAR 24 billion mark with tenors of between 3 and 5 years. On that basis, you're going have roughly ZAR 4 billion to ZAR 5 billion expiring in any -- sorry, any 12-month period. If you look at where we are at the moment, no difference this year. But as mentioned, very comfortable with our secured funders. The relationships are good. The spread of the debt across the funders is comfortable. There's appetite in the debt capital market. So we're really in a healthy position from a sort of funding perspective at this stage. Again, as I mentioned, our sort of DMTN to or debt capital markets to secured funding split around that 80-20 historically has started to move to 75-25. And now with the introduction of the European funding that we have against our direct assets or euro-denominated direct assets, that split of the drawn position, total facilities is roughly 16.5%. But against drawn positions, it's closer to sort of 20%, but still very comfortable against euro earnings, euro assets. So to the forecast, very busy slide, but if we can just focus on the big block at the bottom and perhaps those 2 sort of grayed-out areas. We've taken last year's earnings and as mentioned, backed out the effects of the buyback of all the B shares. So the return in effect on 53 million NEPI shares for that period and sort of normalized it, again, not like-for-like, but normalized it to give an indication of what the growth would be period-on-period. So backing that out for 1H of 2024 versus 5 -- sorry, '24 and '23, being December '23, December '24, ZAR 0.5868 plus ZAR 0.76. And then, of course, with the revised forecast, that Steve has already alluded to, we anticipate a distribution of around 0.83, 0.84 in the second half. Now in conclusion, as mentioned, the balance sheet is in a pretty comfortable position. Funding liquidity is good. The effects of the scheme of arrangement now largely in the business and in the base, and we can now see what we're dealing with. We knew that there would be an impact, for instance, on our interest cover ratio, and it's obviously been dealt with many of the funders, but it's now sort of baked in and again, as mentioned, pretty comfortable. On the back of that, the Board remains committed to a 100% distribution policy -- sorry, 100% distribution of the Fortress distribution policy, which is not the same as REIT best practice for many of our peers. It's probably on a more conservative basis. But the principle that backs our dividend is that it is a cash-backed dividend and the idea being that we are not an incremental borrower to service that dividend. And on that basis, it should be sustainable, maintainable and hopefully growing as the portfolio continues to grow. Thank you for your time. I'm going to hand over to Vuso to take us through the retail.

Good morning, everyone. Thanks for joining us today. The video I'm about to show is of AbaQulusi Shopping Center in Vryheid. You'll recall that we completed a successful extension there in 2023 for about 8,000 squares. The mall is fully let, anchored by ShopRite and Boxer. Most of the tenants here are national tenants. It attracts about 900,000 people per month visitation-wise. And what we did about a year or so ago, we installed an 875-kilowatt AC solar plant. And over the last 12 months, that plant has generated about 30% of the energy consumed in the building. So that's working out quite nicely for us. This mall is at the main taxi rank of the town, taxi and bus rank. About 4 months ago, a new competitor opened, about a 30,000 square meter competitor. We haven't felt any of that in our turnovers or the foot traffic to the mall. Our focus continues to be on the commuter and convenience retail market. The portfolio was valued at ZAR 10.6 billion. In the last 6 months, we renewed 204 existing tenants, leases and signed 48 new leases. The result of that was the positive reversion of 0.8%. Rental discussions at the moment are tough. That's expected in a low-growth economic environment. However, I think that we'll see a continued improvement in our rent reversions based on our healthy rent-to-sales ratio of 6%, healthy demand for -- from tenants for space, a decreasing supply of new shopping centers in South Africa and stable turnover growth from the tenants and also obviously, decreasing vacancies within our own portfolio. Our in-force escalations are sitting at 6.1%, which is an important growth driver for our rental and also our NOI. Vacancies decreased a bit. The team did quite a lot of work to reduce vacancies. Vacancies are down to 1.1% from the 1.4% reported in June. If you look at our -- the makeup of our vacancies of that 1.1%, that includes both office and retail. The true retail vacancies are actually sitting at 0.6%, and we continue to work hard to reduce those further, both retail and offices. Our NOI growth was 9.2%. The main drivers of that NOI growth, in fact, 70% of the -- what led to that NOI growth is rental growth, reduction in vacancies, reduction in R&M spend, in particular, air cons and insurance, but also we saw a big reduction in diesel costs and generator costs due to load shedding in the previous period. This is our Mayville Mall, which is in the north of Pretoria. It's anchored by a Checkers Hyper. Checkers in itself is about 11,000 squares. Recently, it upgraded to its latest [ Fresh spec ]. The Checkers trades phenomenally well. I know a lot of people like to say that my Checkers or [indiscernible] is in the Top 3 in the country. I won't say so, but this one trades very well. In fact, the whole center trades well. We also installed a solar plant on this building and 20% of the energy that we consume in the building is now produced by the solar plant. We are about to do a second phase and expand that plant. We're hoping to increase that penetration rate from the 20% to about 33%. So that will come sometime during the course of this year. Trading, the turnover from our tenants over the last 12 months has increased by 4.3%. Now what this graph aims to illustrate is that over the last 5 years, our turnover growth has actually been above inflation. The big drivers of that have obviously have been the grocer categories, the value fashion category and the pharmaceutical category, which is the more essential sector. In the last 3 months, November to January, turnovers have grown to about by 4.7%, which is obviously higher than the 4.3% over the 12-month period. That's obviously as a result of a stronger Black Friday, stronger festive season and a very strong back-to-school period. January on January, growth was actually in our portfolio, 6.9%. We hope that, that trend continues into the year. This slide aims to illustrate that the majority of our turnover comes from 5 categories being supermarkets, fast food and restaurants, health and beauty, apparel and department store. Those 5 categories account for about 75% of the turnovers that are generated in the portfolio. Obviously, you've got some outliers like liquor, furniture performed particularly well in the last year and motor-related stuff that sort of pull us closer to the 4.3% turnover slide. 80% of our tenants in the portfolio are national tenants. These are the Top 15 tenants in the portfolio. From these guys, we get about 60% of our monthly rental from these 15 tenants. Again, this illustrates that our portfolio is mostly skewed towards the more essential goods and services providers and the value fashion tenants which have been defensive in this low growth economic environment. This is our mall in Kokstad in the Eastern Cape. It's about 8,000 squares in size. It's ShopRite Kokstad. It's on the main road right across the road from the main taxi rank in town, trading well, mostly national tenants in there, fully let. We also installed a solar plant about 3 months ago. And since then, about 43% of the electricity consumed in the building comes from our solar plant. Obviously, that was in the very hot months. So we expect that to taper off. We anticipate that it's going to taper off to about 34% penetration. So the solar is actually paying off for us at the moment. This slide, we used to split our portfolio into the various categories. You'll notice that the township shopping centers are fully let and the trading there is quite strong. I think we've got strong demand from tenants. So we expect that there will be very low vacancies, if any, in that portfolio going forward. The CBD portfolio also has got good turnovers, slight vacancies. However, again, those vacancies are actually in 2 buildings and they're all offices. We've got an offer or waiting an offer on about half of that 0.8%. So if we sign it, the vacancies will decrease. The suburban centers, the turnovers have been lower, mainly because of the work that we've done -- we've been doing at 204 Oxford and the redevelopment that's happening at Bloemfontein Value. I think when those are fully in the numbers, the turnovers will improve. The 0.8% vacancies -- sorry, the 2.1% vacancies in the suburban portfolios, again, relates to some office vacancies that we had at the end of last year, one at Pineslopes and one at 204 Oxford. We've got an offer for the space at 204 Oxford. Hopefully, we'll conclude that and that will see some reduction. It also includes some vacancies at Equinox Mall in Jeffreys Bay. We're doing some rework of the shopping centers, bringing in some national tenants. Hopefully, once that's in, the turnovers and the vacancies will improve again in that portfolio. On the rural portfolio, stable turnover growth, again, some vacancies there. We're working on a vacant pocket at Lephalale and in our building. If that pulls off, I think we'll reduce that also. Just to talk about some of the ongoing redevelopments that we're doing. [ Sterkspruit ], you'll recall that we are expanding the existing 15,000 shopping center by 4,500. That work is progressing well. In fact, Boxer is opening today. The rest of the tenants are still in their BO and they'll open in the next month or 2. The other development we're busy with is the renovation of Bloemfontein Value Mart and the introduction of ShopRite in that center. Again, that will open within this first half of the year, and I think trade will improve there. And lastly, we recently started the extension of Checkers in Weskus Mall in the Western Cape. Checkers is trading well, and they exercise their option to expand. So we'll be doing a 600 -- in fact, we're doing a 600 extension for them at the moment. 204 Oxford, you'll recall that we've been busy with this redevelopment for about 12 months now. It's now completed. Woolworths opened at the end of last year. It involved the reconfiguration of the parking area, the egress and the entrance and exit is now working much better. New tenants include KAUAI, Woolworths and Naked Coffee, which is quite popular. For the first time, since 2019, in fact, our visitation to the center from a car count point of view in January was up 45%. Now that's the first time that we've seen that number since 2019. So which means that this redevelopment is working and being supported by the surrounding market. I'll hand back to Steve now. Thank you very much.

Thanks. Vuso, really great performance from our retail portfolio. This is just a snapshot of our logistics portfolio. We've got about the same GLA, ZAR 15.6 billion. I think, again, that top right slide, top right block there, the building valuation, just over ZAR 10,000 a square, still quite significantly below the replacement cost of the existing assets that we're building, which again is, I think, bodes well and just shows the conservative valuations in our portfolio. I think the like-for-like growth of 4.7%, that's pretty good. We'd expect to see that go up for the full year. So we're still optimistic on that, very low vacancy. And the lease expiry profile has been the same. So I mean, you would expect it to come down by 0.5% if we hadn't done any leases. But it's not something that we fixate on. We often entertain a lot of the big tenants, guys who are coming in for 20,000 or 30,000 squares, if they do need a 5-year lease, we'll entertain that, but we do charge a premium or we have a breakage fee if they exercise a break option. So we're quite happy because of the size of our portfolio to do that. But if the tenants want to pass a bit more risk to us and want a bit more flexibility, they have to pay for that. Development update. We actually didn't deliver that much in the last 6 months. It was one pocket in Clairwood, Eastport, John Deere, which we actually, our partner there, M&T Developments had built that. They had the relationship. It was very small. They wanted to do the development. So we bought it when they were finished at 8.5%. And then Bydgoszcz MEDiVET on a 12-year lease, I'll show you a video of that. We do still have quite a lot in the ground, 91,000 squares. Some at Eastport is the bulk of that, and I think it's going very well. If you look at the yields there, I think, those are as we've been showing in the past, but obviously, construction cost has gone up. So those are at higher rentals, but we're still managing to achieve acceptable yields. That Liquor Runners one was, as I mentioned, 5 years. They wanted to ramp it up. So we let them play a little bit with a slightly lower initial starting rent and that then ratchets up to get us back to an equivalent 8.5% yield. So those will come on stream during the course of 2025. This is our pipeline. FY 2018, we had just over 1 million squares. We've whittled that down to 157 plus an option on 150, as you see that, we don't actually have that much left. We really have 1 pocket at Eastport, 2 pockets at Longlake, 1 at Clairwood and 2 at Cornubia. So it's pretty much done. And I think it's looking back over the last 6 or 7 years, Jason Cooper and Grant and Nico and the team have done a fantastic job in terms of building these assets on time, on budget and getting them let. Eastport, as I mentioned, those buildings on the right in the grayed out black and white boxes are ongoing. We decided to do spec in between Liquor Runners and Crusader, which were both pre-let, just made sense from a cost and timing perspective to do the earthworks and to build that box. The Teraco land, they are busy building Phase 1, Phase 2, Phase 3 of, I think, what remains Africa's largest data center. I think when it's done, it will use about 1% of Eskom's power. At the bottom there, we've got one more site along the highway, which is, it's quite funny. The tenants will come and say, we want to pay a low rental. We don't need highway exposure, and then they look at it, they come visit the site, and everyone wants to be on the highway with their brand and signage up in light. So I think it is slightly more valuable to have that highway site left. And then to the left there, which is actually on the compass North is where we've got the Eastport North land of about 360,000. We have an option to acquire 65% of that. This is Clairwood. It was a long road from when we bought it as a racetrack from Gold Circle, I recall. It took us a long time to do the EIA. I think there was a lot of interference from competitors there. So we got through it. We did it. It was a painful process, but it's now done. And I think touchwood, we had, I think the balance sheet and the vision to see it through. Otherwise, we would have really been making losses and locking those in. We only have Pocket 6 left. We have enough demand from tenants in the park to fill that pocket at the moment, but we are in still negotiations. I would say advanced negotiations, but it's caveated by advanced and slow negotiations with a large 3PL just to try and close out that pocket. But if that doesn't work, I'm pretty sure we'll find another tenant. It's a very, very in-demand park. We could probably -- if there was space around that location in Durban, even though Durban's got issues in the port, we could probably double that park without any issues. Longlake is one that we haven't shown for a while. So we've got almost 100,000 squares there of GLA on completion. We've developed the ones across the road. I'll show you a video of that. It's just behind Linbro. In fact, across the road from the Gautrain in the video, you'll see our Linbro logistics site. This whole Modderfontein old AECI land was purchased from M&T and then we purchased these sites back. If you look up at the top of the screen there, that's Zenprop developments. They're doing smaller 5,000 to 8,000 square meter, mostly owner-occupied type developments, and these are our sites. So we developed those a few years ago, let to Zest and Cargo Carriers. The site opposite, we can do 3 boxes there. Liquor Runners is in one until Eastport is ready. And then we've platformed space for another 40,000 squares. We're hoping to conclude a deal with quite a big global business on 24,000 squares, and then we'll develop on spec, if we have to, approximately about another 17,000 squares, just to complete that park. I think tenants generally don't enjoy being in an active construction site. So if the park is finished or there's one more building, it's generally easier to let than the first one. As you can see, the solar, only 50 kilowatts on that roof. And I think as we've seen in Cape Town, but it's a little bit more difficult in Johannesburg and [indiscernible], I think once we get wheeling going, these huge rooftops that expansive roofs that we have, I think, will certainly unlock quite a lot more opportunity from our assets to do a lot more solar. The office portfolio is getting really small to the point that it's almost not worth mentioning. Currently, we have ZAR 735 million worth of income-producing assets. That excludes the whole opposite the Gautrain, which we are the very embarrassed owners of. It's not an asset that we like. I think if you look in the middle there, reversions up 2.5%. We actually haven't seen that for a while. The like-for-like growth is low, the WALE is low. But I think the sector, when we look at it and certainly our suburban more B-grade portfolio is, actually coming back. We're definitely not going to buy more, so don't panic, but it's definitely coming back. We're starting to see a lot more tenant interest. And touchwood, because our valuations are so conservative, we're able to sell these at book or better. And the last package we sold in January, ZAR 155 million, very high vacancy, and we sold that to a residential conversion specialist who will look to convert all of those 3 assets to residential, and we wish them luck. It's not a space that we'd like to play in. This is our industrial portfolio, and I've mentioned it a couple of times. I think it's a portfolio that really has surprised to the upside. Short leases, you're always renewing. They aren't generally triple net. So you do bear a lot of the costs, but reversions of 5% and like-for-like growth of 9.7%. It really is actually doing well. And I think that's going to make holding it while we look for buyers much easier for us. And I do believe that the buyers are then going to come to the market and probably start to pay up a little bit because the same dynamics that are driving our logistics growth are also driving the industrial growth, which is just a lack of supply of new space and increased demand. I see I've got Rael Levitt, the CEO of Inospace here. Thanks for joining us, Rael. This is a JV that we had with Inospace, and I really think it's been very, very successful from our point of view. They're able to drive NOI in ways that I think we just, quite frankly, aren't. This is just a video. So we've got a JV portfolio of about ZAR 1.2 billion, ZAR 1.3 billion with them. We have just over 51%. I think Rael and the team are very good at cutting up the spaces, generating NOI outside of just pure rental in terms of other additional services. And you're renting a unit. I mean if you've ever rented a hotel room, it's unlikely that you knew what the square meterage of the hotel room is, and it's similar to this, they're renting units and often getting very, very high rentals per square meter. You look there at the micro spaces rental rate, they're getting ZAR 141 a square meter for renting out these micro units. It does cost to cut up. You have to have the operational platform, which they have. You live with higher vacancies. But in that whole process, we've grown the NOI on a like-for-like basis, 15% on the comparable period. And they're getting, if you look at the top right, rental through rental rates on the other spaces of ZAR 80 a square meter, which I think is fantastic. So this is something that I think we would like to add appropriate assets into that JV because Rael and the team are able to do things that we can't. And I think their team is about the same size as the whole head office count at Fortress. So it becomes a very operationally intensive type of business. These are all of the -- I think the sales points and what they're very good at, adding flexibility to leases. You can walk in there, you can sign a lease on the spot. It's only five pages. You can pay with your credit card. You can get access to e-commerce facilities in the building. So it really is a sort of one-stop shop for small businesses, e-commerce businesses and actually smaller office tenants. A lot of these old industrial buildings that they've been so good at repurposing, tenants are looking for 100 squares or 200 squares. I just want to go somewhere to sit with a few of my partners and those old kind of office components in the industrial section are actually also being let quite nicely. We still have 16.3% of NEPI, ZAR 16.7 billion at the 24th of February, maybe a little bit less than that now. NEPI still a fantastic investment. We're very comfortable that we have it. I think it's -- when you look at the liquidity of that share, it really does add a whole another dimension to the investment over and above direct real estate. Their loan-to-value is low. And I'd like to just draw your attention to that middle block, investment property value, where you look at the EPRA Net Initial Yield of roughly 7%, I do really believe that, that is too high for the strength of their assets, the growth of those markets. I think it's probably suffered in Central and Eastern Europe from a spread to Western Europe that is ingrained in a lot of people's minds. But when you factor in the growth of those markets and the quality of NEPI's assets, I think that, that Net Initial Yield is high and you're still buying it at a discount to that because it's trading currently at a small discount to NAV. Very, very strong balance sheet and low gearing, financially conservative. So we really do like that and the fact that they've guided up from this very high base is also pleasing. Another highlight and something that we've been focused on is our direct logistics portfolio in Europe. We did, as I mentioned, acquire something in Gdansk. The vacancies are low. I must say, I think the positivity that we've seen in the last month or two coming back from a tenant perspective is really, really interesting to us in terms of what's happening with the market there. I think things have gotten a lot more positive in Poland. People are signing leases potentially with a view that the conflict in Ukraine may end or just, just comfort with that. So you've seen the zloty strengthen, which I think is a sign that there's a lot more foreign capital flowing into Poland. And our team has proven their capabilities in terms of what they've been able to deliver. This is one park. It's multi-let in Bydgoszcz in Poland, just northeast of Warsaw. I remember when we initially visited the park, it only had -- it had two buildings, the two, as you'll see now along the road, those two on the right-hand side. Hall B was a shell that had been stopped because the developer ran out of money. And I think that it proved fortuitous. We were able to buy the asset from the Mezz debt lender, and we rolled it out. The latest hall, we've done a temperature-controlled facility, that one there, Hall C for MEDiVET, which do pet as well as human pharmaceuticals. So they needed quite a high-spec building that our team were able to deliver. And we actually have quite a firm inquiry for another 7,000 square meters in that building allied to Volcano, an existing tenant who signed for 4,000 square meters. So we will be expanding that building by at least the four, potentially by more if that next transaction comes to fruition. And then Bydgoszcz is done, and it's been a very successful development. The one tenant is moving out of a smaller unit in Bydgoszcz into a bigger unit. And I think that's something that we really do like to see and we like to encourage if tenants are looking to move within our parks or our portfolios, we like to try and accommodate them. This is just a plot of where we are. We're in most of the core markets. I think if you look in Poland, probably missing something closer to Krakow. Zabrze is not far, but Krakow and Warsaw would be the two that we would probably look to grow in. Gdansk acquisition, although the yield was 675, there were a number of deductions that we could make and also the land price we got was quite attractive. So 675 was current passing rent. If we look at where we are now, the leases are about to index. So it's probably forward of about 6.9%. And then there were several deductions that we were able to make to make it quite attractive. So it did come with debt, and we settled a net EUR 26 million, which we actually utilized the additional ING debt to pay for. So the interesting number on this slide for me is we've got a pipeline there of 185,000 square meters. As I've mentioned before, the land cost and the holding cost in Poland and Romania is much, much lower than in South Africa. So I think you're able to land bank there at a much lower holding cost than the RNSA and that current pipeline, if we exclude Eastport North is slightly larger than our pipeline here in South Africa. On the renewable energy side, we've mentioned, I think we're going great guns on our solar probably unless we can get to wheeling on the logistics boxes winding down in the next two years, we've done quite a lot. Our CSI continues. I think we've got some really, really fantastic programs there. As you would have seen yesterday, our Chairman has decided to step down at the end of June, Mr. Robin Lockhart-Ross. I would really like to give him a sincere thank you from myself, from the whole of Fortress for seeing us through some really tough times. Robin joined us midway through 2018, which was a hard year in the life of Fortress and I think he's provided steady guidance to the company, to me, to the Board. And I think is certainly leaving at what I view as a really great time in the life of Fortress. I think the company is in a good space. We've got focus. We've got a strategy that we're executing on. We have a single share and a very flexible capital structure. And I really do think that under his guidance, Fortress has become a much better company, much better business. So thanks very much for your stewardship, Robin. We also say goodbye at the end of June to the Chairman of our Risk Committee and a member of our Property and Investment Committee. Ms. Ina Lopion, who's also been fantastic at the advice she's given us on certainly the property side, the property fundamentals, and we wish her all the best in her retirement. And we look forward to welcoming Herman Bosman as our new Chairman on the 1st of July, deep experience in chairing listed businesses in the financial markets, I think, a very well-known name in the business community. And Jon Hillary will then replace Jan Potgieter who retired, as you would have seen last year. Jan is living in Portugal and Jon Hillary, who also has a long experience in property. He was a Group Five executive, so he understands a lot about development risk will chair our Property and Investment Committee. And I think I'd also like to thank our Nomination Committee. I think these changes are well thought out, well forecast, necessary to retain some bench strength on our Board and I think a very welcome corporate governance highlight. Ian has mentioned the outlook, and I really do think -- this is coming from good fundamentals. We're not adding cross-currency interest rate swaps. We're not fiddling with the accounts. This is really just growth and genuine cash-backed earnings, which I think is we're looking forward to. A comment was made that we shouldn't have guided so high because it sets a high benchmark for next year, but we'll just have to beat it for next year. These are our portfolio stats. I think we can move now to Q&A. I don't know if we want to start with anyone here in the audience who's got any questions for us.

So Ian, you mentioned the interest cover ratio is just a bit tighter right at 2x. I wanted to know if do you have options to get more relaxation if you guys expand your development pipeline? I assume that maybe there's a relationship there.

No, we don't actually have any reason to sort of decrease it further, et cetera. The reason I made that point is that historically, it was around the 2.3, 2.35 mark and that was obviously as a result of higher earnings. But on our projections, this is really the low point of that sort of cover ratio. And the reason for that is building out the development pipeline. As you build out the development pipeline, you create new income and that's what's evident. So when I would have started -- sorry, not when I -- when we started this sort of forecast a couple of months ago post the scheme of arrangement, our initial sort of thinking was it would have been closer to sort of 1.9. Our covenant level with the banks is around 1.75 and 1.85. That's generally sort of across the board. But as it turns out, we haven't even got close to that, just given how the development pipelines moved on, the standing portfolio increases, et cetera. So to answer your question, we're not looking to relax it at all. We actually think this is the low point, and we probably grow out of it come June and December.

Trinity Ngobeni from Anchor Stockbrokers. Just a question on your disposals, that 3% premium to book value, what book value is it referencing? If it's FY '24, how would that number change if it was being referenced to FY '23?

I don't have that figure off hand. But yes, it is of FY '24. So it is a 3% premium of FY '24. I'm not sure what the previous book value was, Trinity. It is in our financials on the website. If you look under our 2023 financials, we publish all of the formal valuations there. But just on that, I mean, just another point is we're selling these assets because they're moving backwards. So I would expect to see, if you look back 2 or 3 years a higher valuation. If the values were going up in these portfolios, it's unlikely that we would be looking to sell them. So I do think historically the value was probably higher. The rentals were higher, et cetera, et cetera. These are assets that are generally deteriorating and moving backwards from a rental perspective.

All right. Thank you. Just one more question on retail. You currently have, I think, about 2.6 exposure to Boxer by rental. Do you see this number increasing given Boxer's national store rollout in the next few years or so?

Yes. I think Boxer obviously is increasing and looking for opportunities. We are talking to them on a couple of things, nothing concrete. So yes, more likely that number will increase at some point.

We'll go to questions on the webcast. First one for Ian from Mahir at Absa. Could you please provide guidance for the tax expense at the full year?

We penciled in another ZAR 40 million for the second half, about ZAR 45 million, if I'm not mistaken. It's a difficult one to pinpoint because there's a number of moving parts within our tax charge, but I don't anticipate it being significantly higher than that.

Question for Vuso on the retail portfolio. Like-for-like rental growth was impressive. Given that reversions were 0.8%, were there notable once-offs in the base period for 1H '25 for example, reduction of provisions, et cetera. Do solar installations help explain the growth?

Yes. There were -- as I mentioned, there were some once-off big expenses in the previous period. I mentioned in particular, things on the R&M. In that period, we also had quite a high insurance cost, but also we had high diesel costs, diesel and generator cost. So those were once-off. So I think there was a benefit of that. Solar does contribute, but that was not the main driver of that growth.

Question for Steve. FY '25 distributable income guidance is well above market forecast. It implies a strong acceleration in earnings expected in the second half. Can you discuss the areas where 2H improvement is expected to come from?

Yes. I did try and mention that. But again, it's where we sell vacant buildings, that has a very, very big delta because often the offices are actually negative yielding, and we sell that and we sit on cash and we eventually redeploy that into positive yielding assets. That has quite a big delta that's difficult for us to forecast on timing. So that's a lot of it. And then just general uplift in rentals that we're getting in NOI, also some focus on our part on ensuring that the costs are low. So that also helps with the NOI outside of just rental growth. And then as Ian mentioned, about half of that is also the funding -- lower interest rates and the mix of funding that we've got in our treasury.

Against guidance just to add the NEPI distribution in the second half. So I think that question is with reference H1 to H2 in the second half, we'll obviously receive a dividend on the additional 13.9 million shares. We don't accrue for the income on a daily basis from subscription. We account for the earnings, cash back when we receive them. So H1, you arguably don't have that earnings. H2, you do.

Question for Ian, also from Francois. What interest rate do you earn on cash in SA and in Poland separately? And how much of the cash is in SA versus Poland?

Perhaps if I could answer that in a slightly different way because I think, where Francois is going with this is to assist him in his modeling and so on. If we look at Europe, it's not part of our treasury management to sit with cash on the balance sheet. That is hell of inefficient, very inefficient to have cash on the balance sheet. So if there is cash over a reporting period, it's really just as a result of cash being moved there to deploy within the coming weeks against the development pipeline. So there would be a couple of million euro if that at any one balance sheet point. If you look at it from a modeling perspective, the interest received for the 6 months around, I think, it's about ZAR 55 million and so on. It's not that we sit with cash on the balance sheet through the period. It's used as a sort of a treasury management mechanism. So for modeling purposes, I'd say we try and as best we can make it as neutral against the existing debt facilities as best we can. And the reason for that is whilst you might earn slightly less on the cash deposits, when you take into account the reduction of margin, but a parking fee against the access facilities within the debt facilities, it's kind of neutral and, of course, as we generate this cash and over time, sort of de-gear against what we refer to as the ramp, we've got less of these access facilities to use. And hence, we have to make use of cash resources on the balance sheet. But for modeling purposes, around the same sort of cost of borrowing number.

Question for Steve from Denise. What is the reason for fewer logistics developments during the period? Second part of the question, is there appetite from tenants to partner up with us to do developments?

Yes. It was just -- I mean, just coincidental timing on when we pushed the button on those pre-let developments. Yes, there is a lot of interest from tenants to do developments alongside. I think it's a request that we get quite often. As I mentioned, key operational assets for tenants, for retailers is often something that they do want some kind of ownership share in because it's so key to their whole supply chain. So it's something that we accept. And as long as we can make a fair return of that, we're very comfortable. I think we're probably more open to partnering on an asset-by-asset basis with the tenants than with other co-investors.

Second question from Denise. On office and industrial, I'm assuming this is noncore. When do you think you complete selling and exiting these sectors?

I think probably 3 years. I mean, we'll likely be left with a couple of ones that we can't sell, but I think 3 years. We were quite disciplined on the sales process in terms of almost reversing the order of quality and focusing on selling the lower quality, more problematic assets first. And what we have left with certainly in the industrial space is much better than the average quality of the portfolio a few years ago. As well as the offices, our big one being Wedgewood in Bryanston, it's actually performing quite well and I think we'll be able to sell those more easily than we have been able to sell the lower quality assets in the past.

Third and last question from Denise. What percentage of old industrial buildings will you allocate to the joint venture? I'm assuming this is the Inofort partnership we have. Maybe you can also just clarify the existing kind of split in that JV.

Yes. So we contributed just over 600. They contributed about 600. So that's why we had a slightly higher share. I think Inospace has had more success with taking older industrial boxes, cutting them up, repurposing, reletting than taking mini units and just simply rebranding and managing those. So I would imagine it's probably more of the older industrial units. The mini parks actually, funny enough, are in demand from a lot more investors. It's not something that we have to focus on repurposing because we can just sell those to the general market or you can sell it to the existing tenants. So those are in high demand. I think where the specialism lies is taking older, bigger boxes and cutting them up and really cranking up the rental and giving it a new lease on life. In terms of quantum, I don't know, but it's not our whole industrial portfolio.

Question from [ Joan Muller ]. Do you have a target in mind with regards to your exposure to CEE to be a percentage of total assets from the current around 40%?

In terms of an overall target, I don't think we have set that. I think it's driven by how we view opportunities in the business, how the growth of the business is looking. The CEE business now at EUR 250 million with the development pipeline, we will quite quickly run out of runway in terms of our own capital that we can fund that business with. And I think looking for capital alongside us would be a smart thing to do so that we don't -- we grow the business with someone else's money and hopefully make a profit on that. So I think that's probably going to be more of our future focus with that business. But we do like the split. I think it gives us a bit more diversity, and we like that location. I think Poland and Romania has been very successful for NEPI and has been very successful so far for us, touchwood.

A question for you, Steve, from Francois. It's quite a long question, but it is a single question on our CEE direct portfolio. The 7% to 8% yield on developments in Polish logistics is attractive given your cost of funding, an average book value yield of 6%. Are book value yields achievable on disposals at the moment in Polish logistics? Second part of that question, why would you allocate capital to SA developments at similar yields while these opportunities exist in Poland?

Yes. I think that question is complicated because the yield isn't the total return, and the total return is what we look at. In SA you're doing 8.5%, but you're getting 6% contractual escalations. And as long as those contractual escalations keep pace with market rental, which they haven't, but as I mentioned, which we see they've now started to catch up, you're still getting a very attractive total return. And the funding here is also very attractive from a gross margin perspective from the banks. So I think it's different. But yes, Poland, you get a lot higher development yield. The growth is then linked to inflation. So it is a bit more pedestrian. But what does happen in that market is it ends up -- you don't really get much over-rented or much under-rented. It tends to tick along quite nicely. Could we achieve our book values? I think we could at the moment. The market is still probably suffering from the inflation and interest rate hikes we saw. And I think it's emerged. Its -- deals are happening, but I think a lot of those investors have been spooked and are looking to exit. So you can still pick up quite a lot of assets at prices which are, I think, a little bit below fair value.

Thanks, Steve. There's a final point to that same question from Francois. He asked, can you discuss the pipeline of development opportunities in Poland longer term?

Yes, longer term, we do have a team there. They look for land opportunities, capital-light opportunities where they approach the landholder on an option basis. So they are exploring some of those. Gdansk was developed by Panattoni. In Poland, if you're doing logistics developments, you will interface with Panattoni because they are so big. But they're a developer by nature. They aren't an investor. So they're also looking to sell, looking for capital. So that does create opportunities for us. I think having the ability to do developments and negotiate with a developer alongside doing developments on our own is quite strong because we're not reliant on the developer. If they don't want to do it, we don't like the terms. We can just say, look, let's cancel the agreement. We'll buy the asset from the owner, and we'll do it ourselves. I still think there's a lot of opportunity in Poland. The supply has come down. There's far less supply coming on to the market since the 2021, 2022 ludicrous years we saw in terms of logistics globally. And I think other than perhaps CTP in Poland, you've got the big players, but there aren't a lot of owner developers as we would be, people who want to develop for themselves for ownership over the long term. I don't think that market is more probably driven by pure developers, and they are sometimes constrained in terms of what they can do. So I do think there is an opportunity there for us.

Thanks, Steve and team, there are no further questions from the webcast. May we open up the floor.

Mweisho Nene from SBG again. Just in terms of your overall asset mix on the current portfolio, do you guys have a target for where you want your NEPI Rockcastle stake to be sort of medium-term term maybe?

I think we're quite comfortable. As you would have noticed, we've offered another NEPI dividend alternative. I think below 10% does give us some trickiness on the tax side. But we're comfortable if it's appropriate, and if the Board deems it appropriate to do this dividend alternative again, we will. But please don't think that we have any kind of commitment to it. As I mentioned, NEPI fantastic business, really, really great. I don't think we're going to be selling it. But if we start to give that value to our shareholders and they make that sell or hold decision, I think that's fine. It's very, very different from a perspective of we've decided to sell it because we feel it's over or undervalued. We don't. We think it's undervalued, and it's got a fantastic runway. But it is a big mature business. Its market cap is 5x Fortress' market cap. So it is starting to really become a behemoth that we would struggle to hold on to. But we like it. It gives us stability. So I think if we saw a wholesale change in our outlook, we could maybe tactically go one way or the other. But at the moment, it's kind of slow and steady, and we focus on de-gearing the run. Anything else? No. Okay. Thank you. Please join us for coffee afterwards. Thank you.