Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

All right. So good morning, ladies and gentlemen. I'm Mike Brown from The Investment Analysts Society. We've been given the nod we could all go ahead. These presentations are connected to webcast and to the satellites and the clouds in the world and whatever have you. But everything is hooked up. So on behalf of the -- this is the interim results for the period ended December 2019 for Growthpoint. The company, I think we all know well, has been listed since 1987, a ZAR 50 billion-odd market cap. I think it's still up somewhere around the -- you never know where the market -- where the prices are. It's -- and of course, it has a global footprint with a significant portion of its NAV and its earnings are now located offshore. On behalf of the members of the Society, I'd like to thank Growthpoint for hosting us this morning. Norbert Sasse is going to start the presentation and hand over to Estienne de Klerk. And I think at the end, they will be available to ask questions, and there's other members of the executive here. So we'd like to thank them for this and for always, in fact, hosting these types of presentations to keep the analysts informed of what's going on in this significant group. So over to you. Thanks, Norbert.

Good morning, everybody. I heard somebody's cellphone ringing there just as I got up. And I think I'll excuse you if you want to keep your cellphones on because you might have some of your bankers giving you a call on a margin loan, you need to top-up some security at the state of these markets, down another, I don't know, 4%, 5%, 6%, 7%. It's absolutely crazy and unprecedented. So for those of you who've got some tight margin core positions, you can keep your phones on, that's okay. Ladies and gents, thank you very much for joining us here today. These, as Mike said -- thanks for the introduction, Mike. This is the results for the 6 months to 31 December 2019. Just whooping down the agenda very quickly. I'm going to cover sections 1 to 4. Firstly, just giving you a bit of an update on the strategy and the current strategies that we're following as a group. I'll touch on some of the salient financial features, delve a little bit into the financial numbers, and then update you on some of our international investments and how those are traveling. Estienne will do sections 5, 6 and 7, updating you on the South African portfolio, the funds management and the capital management of the group. And I'll then come back and try and pull it all together. So regarding the strategies, I think this is probably about year 4-odd that we've been following these strategies. We do have another session with the Board in April this year where, I guess, we're going to have another refresh of these and review whether they're still relevant and pertinent, and whether there are potentially other strategies that we need to start looking at in an ever-changing environment. But just briefly on the ones that we are busy with. On the internationalization front, I think for the last 6 months, we did continue to make pretty good progress. We now have about 35% of our property assets by book value located offshore. That's up from just over 30%, I think, at the year-end mark, about 24.3% of our earnings before interest and taxes coming from offshore. During the period, we invested about ZAR 1.3 billion or just on about EUR 78 million into Globalworth. Globalworth had a capital raise. And in order to maintain our shareholding at 29.4% and not be diluted, we invested ZAR 1.3 billion. And then I guess the big investment towards the back end of this year, I think it happened literally in the middle of December, I think [ Dirka Trisha ] was still at her desk on the 23rd of December sorting out the last couple of payments. And we invested ZAR 2.9 billion or about GBP 150 million into Capital & Regional, and I'll elaborate on that investment a little bit later. More closer to home. On streamlining the South African portfolio, it's fair to say that the market and the liquidity in the market is incrementally getting more and more tough. Liquidity is really challenged. So for this particular period, we were able to sell about ZAR 433 million worth of assets. And at balance sheet date, we hold ZAR 223 million worth of assets for sale. So those would be properties that have been sold. We've got a valid, binding, legally executed sale and purchase agreement, but they haven't actually transferred yet. So if you add those together, just short of about -- around about ZAR 650 million worth of sales during the period. Looking at the strategy to introduce new revenue streams, in the first instance, trading and development. We earned about ZAR 7.7 million worth of fees, third-party fees, from some of the development initiatives that we've undertaken. We've got a pretty healthy pipeline of opportunities in that business. But as communicated before, we don't believe that more than 1% to 2% of our total distributable income will ever come from this business. We will contain the level of activity and manage the level of activity in the trading and development division so as to not overexpose ourselves and only 1% to 2% of our total dividends will eventually come from that business. We have in order of ZAR 2 billion worth of approved and contracted developments, some of which were completed during the period. And then in addition to that, we have about ZAR 900 million worth of developments where we are developing for third parties where, essentially, we're doing turnkey developments for third parties. So these would not be for our balance sheet. We would take fees and hopefully make a profit on trading those assets or selling them to the eventual occupier. On the Funds Management side, we also had a pretty decent 6-month period, in particular, towards the latter half of the year in the Africa fund. I think Estienne will update you a little bit on that when he gives you an update on the Fund Management side. But we have in order of about ZAR 10 billion worth of assets under management now between the Africa fund, on the one hand, and the Healthcare Fund, on the other hand. Two of those funds are up and running at the moment. Some of the salient features then for the period under review. We managed to increase our distributable income by 2.2%, up to ZAR 3.2 billion. At a per-share level, that translates to about 0.2%. So you may dial back about 6 months when we presented the year-end results in June -- for the June '19, but we presented that in about September last year. We stated that we would be looking for nominal distribution growth on a per-share level. And I think we put the word in there, if any, and we'll get to the prospects a bit later. But a couple of the investors and analysts were asking, well, what does nominal mean? And is it real? Or is it notional? Or -- and there was a long debate over what nominal means. I think you can see what nominal means. It's 0.2%, it's nominal. So at a group level, again, property assets grew at 15.2%. On a group consolidated basis, we now have in the order of about ZAR 160 billion worth of assets on balance sheet. Group LTV still sitting at a relatively healthy 38%, still below the 40% mark, which is sort of a key line for us in terms of our engagements with the ratings agencies and trying to protect our local scale rating. Can't really say much for the global scale rating because I think there, we're clearly really dependent on what the rating for South Africa is and the countries. But in terms of local scale rating, we're trying to preserve that. And with LTVs, it's still below 40%. We believe we're pretty healthily capitalized. And then at an NAV level, NAV per share decreased by 0.8%, mainly a mix of pretty decent growth in assets -- or NAV in the, let's call it, the offshore subsidiaries, in particular, Australia, but largely offset by property revaluations downward in the South African portfolio. Delving into the income statement and some of the detailed numbers a little bit more. Looking at the calculation of the consolidated distribution. I have to say, we said yesterday and tried to recon some of the numbers to the IFRS accounts. And I know the auditors are in the room, ex-auditors and current auditors. Both Estienne and I eventually threw our hands up in the air, and we would have pulled our hair out, but we don't have any left. But we really are struggling to follow -- more often than not, we're struggling to follow the IFRS accounts and what they are trying to do. IFRS 16, in particular, it's -- it really is very challenging to follow what's going on. So what we tried to do is to simplify it and get to a distribution calculation for you. So looking at the property income, gross property income at a high level grew at 2.2%. South Africa, not really growing, flattish at about just over ZAR 4 billion, ZAR 4.143 billion. GOZ had pretty decent growth in gross property income, up by 6.4%. Capital & Regional coming to these numbers for the first time. Now as I mentioned earlier, Cap & Reg, the deal was done at the mid of December. So the income statement effect of Cap & Reg is actually pretty small. There's only about 2 weeks' worth of effective revenues and expenses in the numbers. You'll see a more fulsome impact of Capital & Regional in the second half and, obviously, then going forward. GHPH is Growthpoint Health care Property Holdings. So we consolidate the Healthcare Fund onto our balance sheet given that we control that vehicle, not only in terms of our shareholding, but also in terms of the structure that we've gone and created for an unlisted REIT. We have to control that vehicle and because we control it, we have to consolidate it. But the Healthcare Fund grew its gross property income by 9.2% to ZAR 130 million. And then trading and development, we all know, it's always going to be a little bit lumpy. So for this particular 6 months, we only earned ZAR 7.7 million out of fees. No physical profits from the actual trade. The prior period had about in total ZAR 49 million. We do, however, for the second half foresee that we will bring in some -- we will achieve and realize some decent trading profits which will rectify that line item in the income statement. On the expense side, property expenses grew at 4.9%. South Africa, just over 1%, just over ZAR 1 billion, ZAR 1.087 billion of property expenses. GOZ expenses grew at 8.7%. Capital & Regional at ZAR 32 million came in there. And then the Healthcare Fund expenses going up 15.4%, but it's only ZAR 2 million on a ZAR 13 million prior period number. So that leaves us with net property income at the net property income line, up 1.4% to ZAR 4.489 billion. Other operating expenses, this is more group head office type costs, not costs that are directly linked to the properties. In South Africa, that grew at 7.6% to ZAR 183 million. In total, it grew at 16.9%, South Africa at 7.6%. GOZ was probably the bad child in this equation. The other operating expenses grew at 45% from ZAR 62 million to ZAR 90 million. The bulk of it attributable really to remuneration and incentives in the Australian business. The Australian business, obviously, performing particularly well in a very strong market over the last couple of years. So management incentives and bonuses, and there's also some new staff and head count that the Australian subsidiary have taken on board. So the bulk of that due to those remuneration-related numbers. And then the Healthcare Fund expenses -- operating expenses went up 5.9%. So at the bottom line there, the net property income after operating expenses up just 0.5% to just under ZAR 4.2 billion. This slide is actually a continuation of the previous one. So you start at the top with the same number. We then have our finance costs that we take off and deduct, and the finance costs grew at 4.1% to just over ZAR 1.4 billion. South Africa went up by 5.7%. GOZ actually saw its interest expense come down by 10%, mainly as a result of reduced borrowings. They had a capital raise which completed in about July '19. And they also had some interest rates which came in a bit lower on some refinancing of some of the debt. And then we've got, for the first time, an interest charge there on Capital & Regional coming through the income statement. On the other income line, this is mainly the contribution from our investments that went up 23%. The investment from the V&A Waterfront grew -- or the V&A Waterfront grew their contributions and distributions to us by 7.7% to ZAR 349 million. Globalworth and GPRE strongly up, ZAR 334 million versus ZAR 231 million. That is driven by the incremental investment, obviously, as well that we made that I spoke about earlier. Capital & Regional, ZAR 69 million. And then the other finance income is mainly interest on bank debt, et cetera, that was down mainly due to lower bank balances throughout the period that was down to ZAR 36 million. And then the funds management income from the management company of the Healthcare Fund at ZAR 18 million, up 5.9%. We then adjust at the bottom of that slide for all the noncontrolling interest, the minority shareholders in GOZ and various other minority shareholdings as well as taking out some foreign exchange, profits and gains and taxation. And we're left with, right at the bottom line, distribution of ZAR 3.183 billion for the period that is 2.2% up in absolute numbers. So this slide tries to give you a bit of a sense of what drove that growth. So that's a real mix. If you look at the slide between the offshore businesses and then the -- contributing in a positive manner. Some of the fund management stuff not really contributing yet, but we do see that we're going to start seeing some proper contribution from the fund management business and the Africa fund going forward. And then trading and development, you saw that income statement number a bit earlier because we didn't achieve any real trade profit in this period that dragged the growth by about 0.2% -- sorry, 0.3%. And then the South African number pulled us down by about 0.3%. I was going to say, well that point, it doesn't look right there. That 1.3 -- that was 1-point-something in the South African number. So I'm not sure why -- which version of the presentation we have here. So South Africa was quite a bit worse. I've got to check my -- in the hard copy, I think you got -- the numbers in the hard copy are correct. The numbers in the -- on this slide is not correct. So 2 point -- what does it show there 2.9%. So yes, SA was 2.9%. I saw this, yes, I thought it wasn't that, it doesn't really ring a bell. But -- so look, the bottom line message here is that the South African business is really struggling. I mean the South African economy is in dire state. We've seen in the last week a number of companies deliver results. And then Pullinger from FirstRand commenting that probably 3 to 5 years or 2 to 5 years before the economy turns. We saw the business confidence index, the numbers came out yesterday, 21-year low. So all of these noises and messages that you hear in the press and through other companies presenting their results, we are experiencing that day to day. Yesterday, we had some press interviews, and I also just made the comment that, operationally, we have never found it more challenging than we are now. I mean we've been around -- Estienne and I have been running around with Growthpoint for almost 20 years. The day-to-day operational -- I mean people think of a property company such as Growthpoint as a -- often as an investment company. So you sit in the office, and you've got a couple of buildings, and you collect the rent and the value is coming right, the value up. These are operating businesses. Every single business -- every single property is an operating business. And you have people on the ground. You're having to deal with council on water connections, on electricity connections. We -- this load shedding is causing untold chaos. You can just imagine, at the V&A Waterfront, you have over 200 generators there or thereabout that management are having to ensure that they work, that they refuel. The heat these things generate is, again, it causes tremendous stress on the air conditioning systems, et cetera, et cetera. So -- but across the board, we have never experienced tougher times operationally. Forget about investment and all the other side, then we are at the moment, it really is tough out there. So SA, obviously not performing well, minus 2.9%. And then the growth coming from the other strategies, in particular, the offshore strategy. And whilst last year, the performance of South Africa was not as bad as it is now, the offshore businesses were able to give us a resulting -- I think our numbers were 4.5%, 5% dividend growth. The South African business has deteriorated to such an extent that the offshore stuff is now only sort of able to keep us pretty flat. All right. Then quickly looking at the balance sheet. The total property assets, ZAR 136 billion. This is a bit different to the ZAR 160 billion you saw on an earlier slide. The different ways of calculating these numbers and what we include on a segmental basis, the ZAR 160 million on the previous -- on the first page talks to more of a segmental analysis. But South Africa has got about ZAR 79 billion of assets. It's up 1.1%, mainly due to the additional CapEx that we spent during the period, the additional investment that we made. For the year, I think we spent an order of ZAR 1.4 billion worth of CapEx on projects as well as CapEx on the properties and revaluation was actually downwards. So as you saw, a downward revaluation of just short of 1%. The number is, I think, in order of about ZAR 730 million downward valuation on the South African portfolio. GOZ, growing strongly. There's a bit of rand impact in there. There's obviously some acquisition impact in there. But also GOZ saw very strong valuation uplift, 5% growth in property values in the GOZ portfolio. And then Capital & Regional, coming in for the first time at just short of ZAR 15 billion. Our equity investments on balance sheet, the V&A Waterfront is ZAR 7.6 billion, Globalworth at about ZAR 8.8 billion. The increase there reflecting the additional investment that we made, the investment in GIAP. GIAP is the Growthpoint Investec Africa Property Fund. So we've now fully invested into that fund. The drawdown took place to -- during the course of the 6-month period. And we've now invested our full $50 million commitment into the equity of that fund. And then we have a few smaller investments. The listed investments is, down below, there is the 15% investment in ADI, which is the APN Industrial REIT. It's a listed property company, a REIT in Australia, and GOZ owns 15% of that entity. It's worth about ZAR 848 million. We've got an unlisted investment in Edcon. You can see the numbers come down from ZAR 96 million to ZAR 69 million, effectively amortizing or writing that investment down. So the number there reflecting the write-down for the period. Our borrowings sitting at ZAR 61 billion, ZAR 39.9 billion in South Africa. GOZ has got about ZAR 13.5 billion of debt, and Capital & Regional has got about ZAR 8 billion of debt. So the total of all of that, about ZAR 61 billion. And at the bottom, you'll see shareholder interest or total NAV in aggregate grew from ZAR 74.9 billion to ZAR 75.6 billion. That, again, is in absolute terms on a per-share basis, given the shares we issued on the DRIP last year September dilutes that to the -- I think it was 0.8% down. Right. So moving on to the international investments. I've made some comments during the commentary on the income statement on these and are conscious of time, so I'll move through this reasonably quickly. We own 62% of GOZ. The cost of our investment was ZAR 9.6 billion, and the market value ZAR 19.6 billion at December. I don't want to know what it is today because the Aussie market was down over 7% overnight. So GOZ raised $173 million of equity. I think the price was $3.97. Last year, I think that transaction completed in July. And at $3.97 at the time, Growthpoint decided not to follow our rights, not to participate. If you looked at the yield, we thought it looked a little bit steamy, and so we diluted from 66% to 62%. So when you see some of the numbers later in the detail, you got to appreciate that our effective shareholding in GOZ has reduced from 66% to 62%. As I mentioned, 5% increase in property values. Portfolio there is worth now $4.2 billion. You saw some cap rate compression, and the average cap rate of that portfolio at valuation was 5.7%. At a share level, they had a good 12 months to December '19, and GOZ delivered 17.2% total shareholder return in Aussie dollars. They reduced their interest costs quite significantly due to the capital raise and reducing some of their interest rates. The weighted average interest rates came down to 3.7%. The debt maturity was extended to 4.7 years, conservatively geared at 31%, actually brought that down by 2.9%. 69% of all debt expiry there is fixed or debt exposure is fixed for 5.5 years at an average interest rate of 3.6%. The portfolio is 98% let, and you have 3.3% weighted average rent reviews. During the period, the team over there were also successful in renewing and extending the lease with the New South Wales Police in Parramatta, which is Western Sydney, for 25 years. I can't recall ever seeing a 25-year lease, and I do think that this stacks up as one of the longest leases ever in Australia. The impact of that was to extend the weighted average lease expiry of GOZ by 1.4 year, currently sitting at 6.4 years. Quiet-ish period, only 1 acquisition of $42 million and then $67 million of development and capital expenditure, and their future commitments outstanding there on some of those developments of about AUD 69 million. So Aussie is -- somebody was saying, you're going to be asked what keeps you awake at night. Aussie doesn't keep me awake at night until this morning when the market collapsed by 7%. But no, I think really, if you think operationally at -- on the ground level, the management team, it's a small team, 28 people. It's well -- very well managed, very conservative balance sheet. Aussie continues to travel well, and it's the least of our worries. On Globalworth. We still have 29.4% investment in Globalworth. Cost of the investment, ZAR 8.8 billion, and market value at December was ZAR 9.6 billion. Globalworth actually had a cap raise in about October last year for EUR 264 million, and we followed our rights and invested just short of EUR 78 million to maintain our share at 29.4%. Some of you may or may not have followed the press over the last couple of weeks. I think the announcement actually came out on the 3rd of February. But there have been quite significant changes to the shareholding in Globalworth, where the founder of the business, Ioannis Papalekas, still had about 11%, 10-point -- 16.7%. And he sold his shares to a company called CPI Property Group. CPI is one of the leading hotel and office investors in Central and Eastern Europe, mainly in Czech Republic and Germany. So they bought his shares, and they immediately went into the market and bought another 19%. So they spent about EUR 700 million over the course of a week acquiring 29.4% of Globalworth, putting them pretty much at a par with ourselves. So we're obviously sitting with our own 29.4%. And then Aroundtown, which is certainly Germany's leading office and hotel investor, it -- they own 20 -- just short of 22%. So it's a bit of a bun fight there between ourselves and CPI and Aroundtown. Collectively, we own about 82%. The free float is only about 18%. But to our mind, all of it is actually quite positive because it demonstrates the real demand out there from very astute European investors for this particular story, for the Globalworth story. And I guess time will tell what might happen going forward. It's probably fair to say that having that kind of shareholding is not sustainable in the long term and that there might be some further changes to shareholding near in time. Globalworth's dividend grew at about 11% to EUR 0.30 per share for the second half of FY '19 compared to EUR 0.27 per share in the prior period. It's got a phenomenal portfolio. Globalworth has got an exquisite portfolio of 61 properties in Poland and Romania. 38 of them are in Poland, 23 in Romania. Portfolio is worth about EUR 3 billion that increased from EUR 2.7 billion at the June half year for them. And they're sitting with occupancies of about 95%. They had 3 acquisitions during the period for EUR 247 million, outstanding assets. And then 2 development assets were purchased as well for EUR 185 million. And those acquisitions are principally in Warsaw and Krakow. So as I mentioned in some of the earlier presentations, the acquisition activity is more or less focused in Poland, and the development activity is focused in Romania. So on the development side, pretty much all Romanian, 90 -- there's a Globalworth Campus, which is 3 buildings in total, making up about 91,000 square meters. The last -- the third tower is essentially now complete. And then probably only a couple of hundred meters away from Globalworth Campus is a new development called Globalworth Square, and that's a 28,400 square meter office development in Bucharest, and that development is progressing very well. On the industrial side of the portfolio in Romania, we also have 1 or 2 developments that sort of targeting the last-mile logistics sort of industrial space. And those are focused in a town called Chitila and then down towards the coast at Constanta. In Capital & Regional. So we acquired 51.1% of the shares in Capital & Regional in mid-December for ZAR 2.9 billion. The market value at December was ZAR 2.5 billion, the share price having come down below our effective investment price. For us, this was a bit of a contrarian view on retail and the retail shopping center investment space in the U.K. The company has, to our mind, a very defensive portfolio of 7 shopping centers across the U.K., mainly in the London and Southeast region of the U.K. It's fair to say that there is massive dislocation in the U.K. retail property market, not only property, but even in the retailing itself with, obviously, the Internet sales and online sales having quite a big impact on physical retail in the U.K. I think the U.K. and the U.S. are 2 markets that have probably been the most affected. We saw all of this dislocation and the fact that no investor -- I think the total value of retail property sales in the U.K. last year was GBP 1 billion, the lowest on record. So nobody wants to touch retail. Nobody wants to even look at retail assets. And we find that -- and again, everything in life is relative. We're sitting in South Africa and you're looking at some of the local challenges you've got, you look at the opportunities there. We thought or continue to think that the, let's say, total disregard of retailers on asset class is overdone. And if you look at where property values are and yields are, you're literally able to pick up some of these assets now into low -- very high single digit, in some instance, even double-digit yields, and we think that as being an attractive opportunity. So the deal was a little bit complicated. So we injected GBP 78 million of fresh equity into the company, which brought deliveries down. And then we made a partial offer to existing shareholders to acquire about 30% of their shares. There was another GBP 72-odd million. So in aggregate, we spent GBP 150 million. The LTV at December is 46%, obviously, a little bit on the high side. Average cost of debt, 3.2 -- 3.3%, and average debt maturity is 5.4 years. Capital & Regional declared last week when they delivered their results, a dividend of 11p per share. Some of you might get a little bit confused on some of the numbers. You got to appreciate that the Capital & Regional, as part of the deal, we did a 10-for-1 consolidation. So some of the numbers that you might pick up somewhere else might still talk to pre-consolidation. So you might even have seen that there was 1p per share was the dividend, but there was only pre-consolidated number of shares. On the post-consolidated, 11p. At a portfolio level, 7 assets, very well located, the bulk of it in the London Southeast near -- sort of within the 20-, 25-minute commute of London Central. That market is still being impacted by CVAs, these voluntary administration, companies going into administration, the likes of Debenhams and others. And the impact for their reporting period was a negative GBP 1.3 million as a result of that. They spent about GBP 11 million CapEx on the portfolio during the period. Property portfolio valuations for the year declined by 15%. Some of you here, Ruby, hopefully, you're not one, might have some intu shares. They revalued their portfolio down by 22% during the year, over ZAR 2 billion worth of value was written down. So we, in our investment analysis and in making the final decision on investment, we have allowed effectively for further deterioration and further asset write-downs. Our effective entry price is 28p per share, this is on the peak, so GBP 2.80. The NAV post all of this write-down per share is 36. So you could -- we've effectively allowed for a further 10% write-down in property values before you get to NAV of 28 or GBP 2.80. If the values go below that, then maybe we didn't do such a good or clever deal. If they go down or if they don't go down as far, then perhaps the deal we did was a fair deal. And on equity level, the yield, the dividend yield is, after withholding -- after at a 90% payout ratio, is sitting in for us is about 8.5-odd percent in pounds. So there is no doubt that nobody should be telling you that retail in the U.K. is bottomed out and it's turned and it's going to be fly. It's still very tough there. We anticipated that, and we bought into that story. On the basis of that, there is going to be further deterioration. But we think in the long term, these assets are not going to just disappear and be worth nothing. You're buying them at, in some instance, at below -- 50% below replacement cost. And we think there's certainly long-term good growth prospects once we get out of the current turmoil in the markets. They're 97% let. And based on the rental value, expected rental value -- and if you look at the fundamentals at an operating level, 66 new lettings took place in the period, that's new lettings and renewals at a combined average premium of 20% to the previous passing rent. So on the ground, things are not nearly as bad as what the values and the valuations are suggesting. So were they overvalued in the past? Yes. Cap rates are definitely widening and rising. So that is the big driver of the valuations at the moment, these cap rates, not so much the underlying property income. But it is still -- it remains tough at that level as well. Right. So I'm going to hand over to Estienne then to take you through the South African business, and then I'll come back. Thank you.

All right. Thank you very much. No? Okay. On the salient feature side for South Africa, as Norbert pointed out, that is a very difficult market for us in South Africa at the moment, but it's a little bit below the surface line, which is calm. Everybody's pedaling like hell. And as he pointed out, everybody is really working very hard to get the best outcome for shareholders. So in the time, we've relet 560,000 square meters of space. The renewal success rate has weakened somewhat to 67%. So we lose 1 out of every 3 tenants effectively. But this is a very key focus area, and it does speak to how competitive the market is. Vacancies have deteriorated a little from 6.8% to 7.4%. In there, there is a little bit of development that -- of partially let developments, and I'll get to that when we get to the 3 sectors. The LTV, the balance sheet of South Africa, so that would be effectively looking at the South African balance sheet, all the debt on our balance sheet as well as the investments. If you eliminate the consolidation of Capital & Regional and GOZ, and you bring in the investment values at NAV, and you include the properties as -- at market value, then the LTV is at 33%, which speaks to a strong balance sheet. And in this process, we're using this strong balance sheet to leverage the opportunity for Growthpoint to internationalize. If we look at the renewal growth rate, that has also come under pressure. And you'll see when I speak through the sectors, there is a play on a whole bunch of different dynamics, which includes the initial rental escalations and tenant installation costs. Our total expense ratio has ticked up. The bulk of this tick-up is really not in our control in that, it comes from assessment rates. And we've seen, I think it's been pretty well-publicized over the past couple of months, MSCI have actually done proper research into what's been happening in assessment rates. And we've seen a 559% increase over the past 10 years, so that's over all the properties, which is pretty much most of the listed property companies as well as all the institutional companies that they research. So that 559% is more than double inflation, inflation being at about 220% for the same period. So a big challenge for us. What we are doing is we're obviously, across the portfolio, trying to reduce the cost of occupation for our clients, so technology, bringing down electricity usage and other utilities to the best of our ability. And the reality is, even with all these initiatives, we're finding it tough. Norbert mentioned earlier that we've disposed of ZAR 433 million worth of assets, and we've acquired 2 small office buildings strategically for ZAR 134 million. We still continue to invest in the business, and we've developed -- in the period, we spent ZAR 1.4 billion on developments, and we've got further commitments of about ZAR 1.2 billion. The South African portfolio, in the current environment, the Board felt that, certainly, looking at all the fundamentals that definitely justified a devaluation in -- a negative revaluation in this time. And we wrote down the properties by 1%. So gradually writing them down. We really started 2 years ago and probably ahead of most of our peers, but gradually bringing these property values down. And then our arrears are well contained, but they did kick up quite a bit from the year-end, and we are actively managing it. Our bad debts have also increased quite a bit, but it has to be seen in context of the scale of the business. So if you've got a distributable earnings line of ZAR 3.2 billion, if you -- I don't think there's that many businesses that will only have ZAR 20 million write-offs in that period. There are a couple of big clients that are in that number. Just briefly running through each one of the sectors. So on retail, vacancies have ticked up a little bit, but they really concentrated in a couple of single properties, I would say, secondary quality properties that we have. And we're busy working on either disposing those assets or letting the space, and then we have made some inroads into that as well. In fact, if you take our top 2 -- top centers, the sort of general vacancy is 2%, which is kind of the standard. And if you -- in some of our mixed-use developments, there's also offices in that. And in fact, of the 4.4%, 0.4% of that is, in fact, the office space. But vacancy is increasingly more difficult to sort out. And if you've got big clients leaving, there aren't a million retailers looking to expand space in this market at the moment, so increasingly difficult. Our renewal success rate is reasonably stable and satisfactory from our point of view. Clearly, we try and retain every client we can. But there is always churn in a big portfolio of this size. So the retail portfolio is about 1.4 million square meters, and there is always a bit of churn. The reality is, is when we look at the renewal growth rate, the in-force escalations and the escalations on renewal that speaks to a very difficult market, hard negotiations. And we've seen that in each one of those key indicators that times are a little bit less rosy and that we're having to concede a little bit in each one of those categories. Our arrears have ticked up a little bit, mainly in the sort of line shops and restaurants side of the retail shopping centers, but once again, reasonably contained and well managed. Like-for-like, so all the in-force growth, if you'd like, from our leases, it's wiped out by vacancies and the negative reversions on renewals, and the like-for-like has been flat. Trading density, there is still growth, but I think the word nominal can probably be used for that as well. No retail presentation will go -- be complete without a little mention of Edcon at the moment. So we've obviously got now a very, very close relationship with Edcon being one of their shareholders. So we speak to them quite often. And just to contextualize, we had 120,000 square meters of Edcon exposure by -- if CNA is disposed of and with the other work that we've done in reducing some of this space, the total GLA to Edcon will reduce to 88-odd-thousand. They still are the largest retail client in the market, and we actively are working with them to make them more successful. Norbert mentioned the impairment of the investments. Clearly, at year-end, we'll -- once they give us a formal set of financials, we'll be able to assess the valuation of our investment there. On the developments side, been very active. We continue to invest and improve our shopping centers. So across the country, we've continued to invest. We've expanded at Lakeside Mall and brought in the Dischem and the Pick n Pay into the movie space there. And then we're moving Waterfall -- at Waterfall Mall in Rustenburg, we're moving the Dischem into the mall, which we've expanded. So across the country, Pall Mall, La Lucia, all these malls, we're looking at expansions or refurbishments. On the office side, this is -- unfortunately, it remains the toughest space. Corporate South Africa continues to consolidate and reduce space, and it is a difficult environment. We have got 1 or 2 developments that we -- that are still rolling off in the office space, of which 144 Oxford in Rosebank is the largest, that's 36,000 square meters. And there, we've -- actually pleased to announce that we've actually let the whole building from the 1st of July, which I think in this market is quite a feat. And yes, I'd like to congratulate just the team that was involved there because in this market, it's super competitive. Clients are like hen's teeth, and it's a bit of a bun fight if there is a client anyway that looking for even a square meter and a tile. So we're happy to see that development basically fully let. The consolidation scenario for corporate South Africa is specifically impactful in Sandton. I mean in November last year, the 2 million square meters of Sandton office GLA was 450,000 square meters vacant. So it gives you only a 1/4 of it vacant. It's a combination of one of the big developments that was let that the tenant didn't move into as well as a lot of backfill. So we always knew as a business that '19 and '20 were going to be particularly difficult years from a backfill perspective. And certainly, that has materialized. What we didn't, I think, expect is that the economy would be as dire as it is at the moment. Renewal success rate, in-force escalations and escalations on your renewal, all of those factors, you can see, the pressure is on. And it talks to a market which is certainly more on the tenant side than it is on the landlord side. And you're effectively fighting to keep your tenants. And those that you're attracting, you have to giving them quite sweet deals. And on top of that, which is not reflected here, tenant installation costs certainly has increased quite a bit. On the arrears side, I think that number, I wouldn't say is a normalized number in any respect. We have one specific client that owes us quite a -- pretty much half that number, and we're busy dealing with them. It's actually a multinational, and they have certain liquidity issues. And we have done -- we've actually managed to get them out of the property, so we're busy reletting the asset. And we've done a transaction with them to hopefully recover the money over the next 2 years. Like-for-like is negative for office. So the market reversions as well as the vacancies is eating away at the growth. And the -- if we look at the portfolio positioning, certainly, very few acquisitions at this stage. And unfortunately, the liquidity in the market is of such a nature that you -- it's not really a market where you can go and sell large quantities of assets. On the industrial side. So over the 3 sectors, industrial, certainly, nationally is performing better than the other 3. It's not all moonshine and roses, I must point out. We can see our vacancies have ticked up a little bit. Some of that is what I would call self-inflicted. So in Durban and Cape Town, those are actually -- those 2 markets have actually performed better and continue to perform better than Gauteng. We've actually developed some partially let space. And we've got -- we probably added about 50,000 square meters of vacancy to the portfolio, of which we've already in -- post this period, we've got either let or under offer half of that GLA. So when you build these new developments, it's not always perfectly timed in terms of having it pre-committed fully. And some of the sort of product, you can't actually pre-commit. The nature of mini and maxi units, they're only let once you've developed them. So in these strong markets, we've taken a position and we are letting them, but it is taking a bit more time in the current environment. So the renewal success rate has remained reasonably stable. That has come at the price of initial rental. And you can see that the renewal growth rate has reduced by 4.4%. And if we look at -- we're keeping those escalations at 8%. I mean there's been a lot of noise around in-force escalations with some of the retailers with offshore kind of interests that are looking at the escalations in this environment and complaining a little bit about it. But I think depending on how the economy goes, you might find that you could have a bit of an overrun scenario if we maintain these escalation levels in saying that the leases have become generally increasingly shorter, so they revert to market so much quicker. Arrears are well maintained, and like-for-like growth is positive in this specific sector. If we look at the V&A. So the V&A, once again, looks like a different country entirely. We've got net property income growth at over 9%. There's expansion there. We've built an additional 4,000 square meters for Woolworths, dropped them into the basement. They've got a 9,000 square meter store, which opened in December now. There's a company called Spaces, which occupies just under 3,000 square meters in Dock Road. Certainly, it seems like the water crisis for now is out of the way, and all our hotels are performing particularly well. I heard in one of the previous presentations, somebody asked the big question about the big C word, the coronavirus. So we haven't made any comments in this presentation. We didn't want to contaminate our presentation with the coronavirus at all. But from Growthpoint and the V&A's point of view, we've got a task team working on it. We've got active plans. We've actually improved hygiene services and increased hygiene services at all our facilities right across the portfolio, and we're actively liaising and, clearly, trying to avoid unnecessary panic in this environment. To get back to the hotels, performing strong. The Radisson Red is actually a hotel where we have full operating exposure in that it's a management contract, and that's also outperformed CPI and our budgets. And then the cruise terminal, which the V&A manages, has seen much more tourists flocking to our shores than ever originally anticipated. Now that obviously might be impacted over the next couple of months depending on how this whole sort of pandemic pans out. But still strong, healthy distribution growth out of the V&A at 7-odd-percent. And certainly that on a like-for-like basis, at 6.3%, outperforms anything in South Africa by quite some mile other than our Healthcare Fund, which I'll get to. There's still a good pipeline at the V&A. So clients are still looking to move to the V&A. We're building for Deloitte. There we've rolling out a new flagship store, which will open in March 2020 for Apple. And certainly, this diversified portfolio, even in this challenging environment, we've seen the trading densities are growing at 6.1%, outperforms the market by some major margin. And if you think about that asset today, it's the most visited property and the most valuable property on the continent. But it really is a South African asset. So if you're a tourist coming to South Africa, we've done a study. And if every dollar that's spent in Cape Town, $0.60 of that actually is spent in the V&A. So a very, very good asset for our company and for our country. And there is still strong demand across the board, and we are looking to expand the asset continually. Our Fund Management business, which is one of our newer initiatives. So as Norbert mentioned, we've got the 2 funds. We've got the Africa fund, which is a initiative in JV with Investec Asset Management. I'm pleased to announce that this fund now has assets of over $500 million. Effectively, these assets reside in Nigeria, Ghana and Zambia. And those assets effectively came in right at the end of this financial period that we're reporting on. Growthpoint has a $50 million investment into the fund. And if we think about the total equity of the fund, it's around $300 million today. And this fund for the period did not contribute any income, not on the income side from distributions or on the management company side, but we will be seeing income flowing from this coming period. The Growthpoint Healthcare Fund, also a new initiative. There, we've had investors as at year-end of ZAR 685 million, third-party investors into the fund. Growthpoint's effective holding was 72.9%. We, just after year-end, introduced another investor at ZAR 288 million into the fund, and we diluted down to 62%. So we earned fees from the Manco, and then we obviously earn a distribution. Now the distribution on this fund has increased by 7.5%, certainly outperforming pretty much any of our other underlying investments. And the actual growth came through both the distribution as well as in our Fund Management fee of ZAR 18-odd million. And we are looking -- on the development side, we -- hopefully, we'll be completing the Pretoria Head and Neck specialist hospital in Menlyn Maine that will be done in April this year and be opening in August, so a pretty exciting development. And we hope to introduce a 15% BEE partner within the next couple of months into the management company of this fund. So actively still raising capital from institutions and growing the underlying business with a very strong pipeline of opportunities. On the capital management side, we're pretty neurotic about our balance sheet and actively manage it similar to any of our business units through our treasury. Our nominal debt of ZAR 39.9 billion is reasonably conservative. And we have been able to access the bond market actively where we're now the second largest issuer into that bond market. We issued bonds of about -- of ZAR 1 billion in periods between 3 and 7 years at spreads between 125 to 162 basis points. The weighted average term of our debt is at 3.8 years. And our unsecured debt, which is obviously quite important for our rating agency, is 57.8%. Moody's has downgraded or put Growthpoint on negative watch, which is in line with the sovereign rating. But they haven't changed the outlook with regards to our national scale rating, which is AAA. The interest rates, we have hedged our interest rates to the extent of 82%, and then the weighted average cost of our debt is at 9.2%. But if we include our foreign debt and cross-currency swaps, it reduces to a 6.5%. When we look -- and I think this is quite a topical issue in the industry is how these -- how the companies in the REIT sector are funding the offshore expansion. And what we have tried to demonstrate on this slide for you is, per investment, what the asset value is of -- at NAV of the various investments. We've got the fixed debt against that. So you can see that our gearing, depending on the specific investment, varies from 92% to around 43%. The one factor that is important to always have a look at when looking at and thinking about these things, and I know the bankers in the room will probably be familiar with this, is certainly, to the extent that you've got debt at 90-odd-percent, it's 80-odd percent, it's important to go and look at the interest cover ratio. And there, you can see from those interest cover ratios that varies between 2.7 to 4.7, they're very, very conservatively geared. And on top of that, what we also do is we hedge the surplus currency that gets converted to rand, which is paid out to you as investors on a rolling basis. And you can see that pretty much for the year-end, we have hedged predominantly all the debt. We've actually been doing some active hedging into this weakening rand, and the hedges are at 85% to 88% at quite attractive rates. So Norbert will just take us through the conclusion.

Thanks. Just conscious of time, so I'll be going through the prospects very briefly. Most of what are on these slides on the prospects, I guess, have been spoken about or mentioned in both Estienne going through the results and the section that I did. So I'm not going to hop on any particular issues within each one of them. But safe to say, South Africa, at the risk of belaboring the point, is very, very challenging. We don't see that there's any catalyst for any major improvement in the short term. So we are projecting and forecasting that South Africa continues to slow down and deteriorate, which obviously is quite challenging for the business as a whole. V&A Waterfront. Obviously, the coronavirus issue is very topical. You can't open a website or switch a radio or a TV on without hearing and listening about coronavirus at the moment. The one asset, which is our best-performing asset by a mile, is the V&A Waterfront, but it's probably also the one that's the most exposed to coronavirus. So we're managing the -- the cruise liner terminal is actually an asset that we rent from Transnet. We manage that. We manage the people boarding these ships and getting off those ships. So certainly, nobody is better positioned to understand the impact of what's happening than the management team at the Waterfront. They are in active discussions with all the relevant health authorities and immigration authorities. They've set up a task team that are, obviously, managing to the best of their ability the inflow and outflow of passengers through that terminal. Once they've landed, I guess, where they go is out of our control. And it would be foolish to think that many tourists aren't -- they're going to be finding themselves in the Waterfront. So again, there, the Waterfront team on the ground have done whatever they can from a sanitation perspective in the different facilities within the precinct. So the biggest impact, I think, that could be felt at the Waterfront would be in the hotel sector and then potentially, obviously, then in the retail. So it is a concern. It's a big unknown. But be that as it may, the Waterfront is, by far, still the best-performing asset, and we continue to look to invest more into the V&A Waterfront. GOZ, as I said earlier, don't really lose too much sleepless nights over GOZ. It's as good as we could hope for. And they have put out their own guidance for 3.5% dividend growth in Aussie dollars to $0.238 per share. At this point, there's nothing to suggest that they might not achieve that. So we look forward to receiving those -- that growth in dividend from GOZ. Globalworth, again, operating in a very strong macro environment. Poland and Romania are arguably 2 of the strongest economies in the CEE region. There's still significant demand from multinationals for office space in those markets. And the opportunity to continue to do accretive acquisition and development opportunities with the cash that the company raised last year remains. Obviously, the capital markets have switched off to our minds. I mean anybody looking to raise equity and/or debt in this market, given just what's happened in the last week, I think, is going to be thinking twice. Fortunately, the company has got a strong balance sheet. They probably have balance sheet date. I can't remember the number now, what they had in cash on balance sheet. Gerald, can you remember? Is it EUR 300 million or something, Dirk? Somebody will get the number. But it's in order of EUR 300 million cash on balance sheet. So Globalworth, by all accounts, well positioned. I spoke about the change in shareholding. So again, time will tell how that evolves. And -- but clearly, with Mr. Papalekas leaving, he's indicated -- or selling his shares. He indicated he will remain as CEO at least until the end of the year, until the 31 December. And we've got a Board meeting on Monday, and I'm sure right on the top of the agenda, other than coronavirus, will be what about the continuity of management in that fund. So certainly, the Polish subsidiary is well staffed. The Romanian subsidiary, I guess, that's where Ioannis built the business from, that's where the biggest exposure will be. Capital & Regionals, the new baby. We always expected or we knew we're buying into a weak market. We expected it to continue to weaken. The question is, will it weaken beyond what we anticipated and expected and priced in when we made the investment? And time, again, there would tell. In none of our investment scenarios did we contemplate a coronavirus scenario, so all of this is new, and we're going to have to deal with it as on the run. Bottom line of all of this is that at this juncture, we don't believe that there's any need to change our guidance. And we guided for dividend growth for FY '20, if any, to be nominal. So you saw the half year nominal. We're still, at this point in time, confident that we can deliver a nominal growth for the full year, barring any complete unknowns, left field issues or major corporate failures that we haven't allowed for. Right. So I think that completes the formal part of the presentation. And Estienne and myself, and there's obviously a number of our management team in the audience as well as well as some of our directors. I see our Chairman is -- always joins us on the stage. So it's a pleasure to see Francois and his wife, Renée, here as well. So any questions from the floor, we'll be happy to take. Obviously, there would be some snacks and drinks afterwards. We'll be around for some questions after if you'd rather ask in private.

Might as go straight to Ruby whose hand immediately rises.

There are a number of items on the balance sheet that stand out because of the major differences from 6 months ago. Trade and other receivables are down 17% approximately, a reduction of ZAR 3 billion. Trade and other payables have increased from the -- over the same period by 38% to nearly 8 -- by nearly ZAR 800 million. What is the explanation for those divergencies?

So Ruby, as I said, the accountants are driving us crazy. But no, look, on the one, I think I can answer immediately. So the trend of the receivables is really just a reclassification of the shareholder loan that we have to the V&A Waterfront. So the V&A Waterfront is partly funded by shareholder loans between ourselves and the PIC. So we've got our equity investment, and then we've provided about ZAR 4.5 billion, ZAR 4.2 billion of shareholder loans. Now our ZAR 2 billion-odd shareholder loan was previously reflected in receivables. It's now reflected as, I think, a long-term loan on the balance sheet. So that's the explanation on the receivables. On the...

Payables.

Payables, I'm looking...

Capital & Regional.

Oh, so consolidating Capital & Regional. So that's the impact of consolidating Capital & Regional for the first time, and they bring on the creditors.

Remaining on the balance sheet. Interest-bearing borrowings also over the last 6 months are up ZAR 12.3 billion, that's an increase of 24%. Would it be fair to argue that with the 24% increase in the capital outstanding that there would be an additional 24% interest to pay in the next 6 months? Now that's rather a key issue because the 24% I'm referring to would equate to an additional ZAR 400 million of interest. Could you comment on that?

If I can answer that, I think, Ruby. So I mean obviously, the increase in debt is directly linked to the increased investment activity. So the bulk of that increase in debt, I think, ZAR 8 billion nominal is the actual 51% of the debt -- sorry, 100% of the debt of Capital & Regional. So we consolidate Capital & Regional. That movement there, the bulk of it, ZAR 8 billion in rand terms is the mere fact that we've consolidated Capital & Regional. Over and above that is clearly our incremental investment. So we spent ZAR 2.9 billion buying 51% of Capital & Regional. Now clearly, the -- yes, there will be interest on that. But the quid pro quo is we're going to get the dividend. So we're going to consolidate and get the income. And at the end of the day, we're going to get the dividend. So that dividend should be -- we believe the impact of Capital & Regional in the way we funded it, partly with pound debt and party with rand debt, the impact on the bottom line distributable income is going to be pretty immaterial. It won't really be an impact. So all of that, I think, Ruby, is -- the other was the incremental investment of ZAR 1.3 billion into Globalworth. Again, that comes at a yield. We funded that with euro debt in -- partly euro debt, partly rand. And again, the dividend yield and the dividend we should be getting from that investment should be more than enough to cover the interest expense.

Right. And finally, although they're 2 minor items, but they appeared for the first time. One is tenant incentives of ZAR 1 billion and then right-of-use assets of ZAR 2.4 billion. What is the explanation for that?

So that, again, is the accounting changes. So right-of-use assets is essentially the new IFRS 16, if I'm not mistaken, the introduction of that, which is long-term lease. But the bulk of that, I think, relates to GOZ, where they have some assets. The industrial portfolio have long-term leasehold land, 49-year leases, land leases with the Brisbane Airport Authority and the Melbourne Airport Authority. And so that's the right-of-use assets. The other item is...

It's the tenant installation.

Tenant installation.

So it's also once again, primarily GOZ because they -- in this 25-year lease, they had a 400 -- over ZAR 400 million tenant installation out of the balance, which is on the balance sheet. Right. Any other? We've got a couple of questions, Norbert, just here from the investors. I think I'll take this first one for Dan King from Avior because this is a question relating to the potential impact of the coronavirus is highly uncertain. Is it not prudent to retain some of your distributable earnings until the situation stabilizes? So Dan, my feeling on that would be there is one virus that is worse than the coronavirus, and that's called the SARS virus. And if you don't pack your distributions, then you pay a lot of debt. And we think that we will rather have the certainty of not paying tax than dealing with the uncertainty of what has been really hot as a virus. There's no doubt it will have an impact on our business, but we don't think it will be as impactful as not paying out our distributions at all. Then...

I mean there also obviously, the REIT regime requires you to pay out at least 75%. So I don't know if Dan was suggesting to pay no dividend at all or just adjust the payout ratio. The whole issue of payout ratio is -- I mean it's obviously very relevant and very topical. We've had the discussion at Board level. And I think that is something which is going to continue to receive a time at the Growthpoint Board meetings as well as our strategic offsite in April. At this particular juncture, the Board has taken a view not to adjust the payout ratio but to continue with our historic policy of effectively paying out 100% of our distributable income. So -- but it is clearly something which is very topical to my mind. There are a bunch of factors you need to think about, your total gearing levels, your LTVs, your access to funding, can you do a DRIP, continue a DRIP. All those factors to my mind need to be put into the pot and be analyzed and understood. And when you've done all of that, you can, I think, make a clearer decision on whether it's meaningful to cut the distribution payout ratio or not. For us, we pay 10%. If you were to cut the dividend payout ratio by 10% from 100% to 90%. On an annual basis, we will probably, say, retain cash of about ZAR 600 million, so it's not insignificant. But in the context of the size of the business, it's also not super material. And look, so the point really is that we were not ignorant to all the discussions that are going on. In fact, I think globally and also then just locally, the whole, let's say, REIT model or sustainability of the REIT model is being questioned, if you want. So as a Board, that is certainly taxing our mind, and we will be -- if there's any change in the short to medium term, we'll be communicating that to investors.

Right. Then we've got another question from a person that claims to be a private small investor. And they posed their question in African, so I'm just going to translate it for the benefit of our international folks on the line. So the investor has asked that we just, as Growthpoint, keep them in mind when taking on additional debt so that we can ensure the sustainability of our distribution payouts.

I think I've -- to my mind, I think I've answered that in the previous comments that I made.

Great. Okay. Then we've got Ruan Koch from Laurium. On retail, are there any of our tenants experiencing supply issues into the winter season? Other landlords mentioned that especially apparel tenants are understocked for the winter. I don't know, Neil, if you had any feedback on that? Maybe just...

Just take the mic.

Good afternoon. In our discussions with the retailers, they are expecting some impacts. It hasn't been accurately identified now, but definitely that there is going to be a bit of an impact because of the late starts and slow getting back to full production in China.

Okay. All right. Then we've got Glen Baker from Anchor. Why gradually write down the SA portfolio and not arrive conclusively at a valuation point which would reflect the current and at least the short to mid-term environment? So I think there's a couple of issues there. Do you want to give it a crack?

I'll give it a crack, you can add. So look, I mean if you look at Growthpoint's historic valuation, the valuation trends, you'll notice that I don't think through any cycle have you ever seen material write-ups or write-downs. It's always been a very gradual, depending on the cycle that you're in, in a rising cycle, our values have gradually risen. As Estienne mentioned earlier that for the last 2 years, we actually haven't written up our portfolio at all. In fact, the last 2 years, there was 0 write-up of the property values. And now clearly, the cycle is definitively downwards, and now you see downward revaluation. So at the end of the day, we -- our only entire portfolio gets valued by independent valuers. We have a policy that 75% of the portfolio value needs to be valued annually by third-party independent valuers. We've got a panel of about a dozen of these guys that do that for us. And we are, obviously, in that regard, very dependent on what -- on the outcome of the valuation process. It's not just a number that we sit and pick as a Board. The half year number is clearly -- it's more internal valuation and more of a Board valuation than the year-end. So I think the half year write-down that we've done at about 1% talks to the trend. And one could probably see towards the end of the year once 75% of the portfolio is valued externally, perhaps that trend continues and perhaps even accelerate. So I don't know what the final outcome will be. But we've never -- if you -- again, if you look at the average value per square meter and the valuation metrics that Growthpoint has applied over the last 20 years, it's always been a conservative approach. The valuations are also very theoretical. There are tenured discounted cash flow valuations. We don't have -- unlike the U.K., the U.S., Australia, where you have significant transactional evidence of what property valuers are doing because they might have -- I mean in the U.K., they had GBP 1 billion of retail they've sold. But in a normal course in the 12-month period, the U.K. might have as much as GBP 15 billion to GBP 20 billion worth of retail assets that trade. Now from that, you can gather real or live market data. What are cap rates? What are yields? In South Africa, you've got very little, if any, transactional data. So you end up with a very theoretical valuation. And to my mind, that ultimately does give you a much smoother trajectory up and a much smoother trajectory down depending on the cycle.

Thanks. Then the last question is from Mohammed Mayet from ClucasGray. And he asks, what is the rationale behind the disposal of Ioannis Papalekas' stake in Globalworth?

Look, obviously, we built a very strong relationship with Ioannis since we invested in 2016. Unfortunately, on a very personal level, Ioannis had a really bad at 2019, losing friends and family to cancer. His father also had, I think, half a lung removed due to cancer. So it's very much personal-driven. I mean Ioannis is young. He's 42 year old. He's built the business. He works 24/7, 365. And the events of that that happened in 2019 at a personal level made him rethink a little bit, I guess, on life. And he took a decision at the time to dispose of his shares with a view to taking a different perspective on life going forward. So there is no fundamental -- fundamentally, nothing wrong with the business. It's a very good business. As I mentioned earlier, it's got some of, arguably, the best quality office portfolio -- not arguably, but to my mind, categorically, the best quality office portfolio in Romania. In Poland, it's got an exceptionally high-quality portfolio. It's a well-capitalized business. When we invested, it was the Ioannis Papalekas show. And there were probably 70 or 80 people in the organization, all based in Bucharest. Today, you have 220 people, 110 -- or just over 100 in Poland and just over 100 in Romania. It's no longer the Ioannis Papalekas show. They've got professional managers. They've got an organizational structure. Whilst he will be missed clearly as the leader of the business, it is, as I said, it's no longer just the Ioannis Papalekas show. So the show will go on, and it remains a phenomenal portfolio and a phenomenal business. We just need to find, I guess, at the end of the day, the right replacement for Ioannis. It has become a much more corporatized environment than what it was when we invested in 2016, when it was still just almost like a private company of Ioannis' that happened to be listed.

I think the other point to make is he has undertaken to stay until the end of the year, so there's no imminent panic necessary in terms of...

And it's probably a bit of a natural evolution. When you have somebody as entrepreneurial as Ioannis, when you corporatize the business to the extent that, I guess, we have with over 200 people and you've got governance coming out of your ears, Board meetings and risk meetings and RIN meetings and all these kind of meetings, it's just not him. Okay? So he finds it terribly frustrating. And I think he'll emerge with something entrepreneurial once he eventually steps out of the business altogether at the end of the year.

I think that's all the questions from...

Any other questions from the floor?

In fact, is just -- sorry, just one coming in. Okay. Please go ahead, [ Fred. ]

Just briefly. I'm sure it's in the booklet. But is your dividend just a cash dividend, or is it a normal option of a share reinvestment?

So we've kept the option there. We love optionality. It's there to offer the DRIP, so all the documentations there. The final decision needs to be made, I think, on the 20th of February, whether we're going to actually offer it or not. So the documentation is there. The option is there. When -- before we started the presentation, the Growthpoint share price was down 4.4% to ZAR 16.70 or whatever the number was. What happens in the next couple of days through to the 20th will determine, I guess, whether we ultimately cancel it or continue to offer it. But for now, we're just waiting to see our guess between now and the 20th, right?

There's one more question that came in, Norbert. Sorry, you got some more? Yes. Please, finish.

In the presentation, you mentioned a Sandton vacancy level of, I think, 450,000 square meters.

Of 2 million, so about 85% percent, yes.

Of 2 million? That's a heck of a height...

Yes. So obviously, that's not all our property. That's the total market, okay?

Yes. What happens in all the -- the area currently under development comes into the market?

So effectively, most of the development has actually rolled off. There isn't all that much development happening in Sandton at this stage of new buildings coming out the ground. And most of the stuff that actually was built or is being built is demand-driven. So the issue is more the backfill than it is the actual new building per se. And those backfill buildings normally take another 1.5 years, 2 years before they hit the market. So an example would be Discovery moves out of the existing offices into a new building, which was demand driven and built for them. The backfill took about 2 years, 2.5 years before it came back into the market. And it is letting up, so that vacancy factor was around about 450. I think it's dropped down to about 380 already. So there is a bit of natural takeup. And it's -- the trend is tenants letting up, so they're moving out of, let's say, poorer quality space, and they've got the opportunity to actually have better quality space at lower rentals. The reality is, is you can rent in Sandton now cheaper than you can rent in many of the other office nodes because of the surplus availability.

I remember at year-end...

I'll just add to that. I think there is a bit of a trend. I don't think it's a major impact, but certainly going down, what's it, Grayston Drive?

Yes.

Not Grayston Drive. What's the other -- Fredman Drive.

Fredman.

Some stock -- historic office stock is being converted to residential. So some of that vacancy number eventually gets taken out of the overall vacancy and stock number as it gets converted to residential, but it's not a huge play.

Certainly, in Cape Town, that has a big dynamic where they took empty office buildings and converted them to empty flats. And that took out a lot of stock. And actually, it was pretty good for the commercial sector for us.

A year ago, you told us about the inducements that you're having to offer. It must be even heavier now. And when you said it would mean to hold or to attract a new tenant, you would have to offer up to 12 months free rental. Well, that wasn't normally. There were such examples. And to hold existing tenants on -- yes, to offer quite substantial discounts, I don't remember what those are, but can you give us an update on those factors now, please?

Yes. So obviously, I think if you look at the dynamic in terms of reversions where you've said that those reversions were around about the 5-odd-point-9 percent, that kind of gives you the dynamic on what's happening to leases being renewed. They're going back. So it's not total carnage in saying that here and there, you do have very -- over market leases that do take -- that do revert quite materially. The tenant installation allowances are a factor, and they come in different forms. So it's not just rent free. It could be fit-outs, corporates that you know, et cetera. And for Growthpoint, what we have done as a strategy, obviously, we -- if you're dealing on a Growthpoint property, you're dealing directly with a Growthpoint staff member. Those people are empowered to make decisions and to be able to do deals. And they do have a whole host of different tools that they can use, all of which are in the dynamic. But on top of that, typically, our properties are really, really well maintained. So the product is usually a little bit better than that of the competitor. In saying that, in Sandton, what we've seen is brand-new buildings come to the market that were going to be occupied and now are vacant. So now you are competing on a kind of like-for-like basis, and that is pretty hectic in Sandton specific. Rosebank, there seems to be still quite strong demand. As I said, we let up -- in 6 months, we let up a whole brand-new spec building of 36,000 square meters at and around our feasibility rentals. And those rentals are firm and strong.

Earlier, Norbert said the markets are crazy. Would you consider that this could be a new reality as you've gone from extreme optimism, extreme overvaluation to another level, which could be here to stay, considering the outlook on the economy as a whole?

So I think there's 2 sort of sides to that answer. I'll maybe just talk to the investment side. So obviously, we see the public markets, there's huge levels of volatility. And increasingly, my view would be that the valuations on many of -- whether they're in real estate or other, many of these valuations on the stocks aren't actually determined by the fundamentals or the underlying factors, albeit that they're reasonably bleak here. General international flows, risk on, risk off, viruses, trade talks or disputes have much bigger impact on the actual valuations of the underlying stocks. I mean Growthpoint, if you strip out -- looked earlier on a historical basis, our forward yield now over 14%. So you can rush over to the bank, pull down your overdraft at prime and buy Growthpoint and assuming those distributions are maintained on a historical basis, you're going to still have some money for quite a couple of years afterwards. So the reality is there's a level of unnatural movement in the investment markets. When it comes to the physical property markets, clearly, the fundamentals do come into our valuations. And those valuations are externally performed, as Norbert pointed out, and they will be -- all our assets will be revalued as at year-end. So I think that we'll be able to give a very clear guide as to where the value is. I think on top of that, what is evidenced is also when we do sell assets, it's not like we're taking massive haircuts on the valuations relative to book value. So our valuations have never been particularly steamy in any way, shape or form. We've always been very conservative. We've never pushed them in any way, and we never try and influence our values. They're totally independent. They come, they give us a view of where they're at. We obviously have a look-through them to make sure that there's no mistakes or issues. But generally, those valuations, I think, they don't -- they're not as reactive as what one would see the physical listed market to be. There's one more question here from Murray at Elliott. He said, could you remind us if your anchored grocery tenants pay a percentage of turnover only, or is it a base rental plus turnover percentage? Any other meaningful tenants that paid percentage of turnover rentals? So I mean we can probably -- do you want to just...

Yes. So I think every single one of our tenants has got a turnover clause in their leases.

In the retail portfolio.

In the retail portfolio, so nothing in office or industrial. And it's fair to say that as, let's say, trading densities over the last 4 years have grown at rates lower than the escalation, the cost-to-income ratios have been rising. And effectively, as the base resets, so they've all got base rental, I think other than Woolworths. So Woolworths might be the only tenant in the retail portfolio where we don't really have a base rental, it's mainly turnover-driven. But for the rest, everybody has got a base rental. Their base rental escalates by whatever we publish here, 6%, 7%, 7% per annum. And if your turnovers aren't growing at that same level, then obviously, you incrementally are going to find it more difficult to hit the turnover threshold. 4, 5 years ago, 3% of our gross income of our retail portfolio came from turnover rent. Today, I'd argue it's close to 0, with only -- but that we effectively get is whatever the Woolworths rental is. But other than that, we don't have any exposure to -- we're not doing deals with other tenants at the moment. On a turnover-only basis, I know that in Europe and, to an extent, in the U.K. retail environment, you're hearing that at the moment where landlords are doing turnover-only deals with both tenants and occupiers. We don't have that in South Africa. Neil, you guys haven't signed any turnover deals earlier?

There are 1 or 2 with some of the international retailers, and that's it, but none of the South African retailers.

All right. And there was a question at the back.

With respect to 144 Oxford at 100% occupancy, to what extent was the asset full with existing tenants in your portfolio? Can you just unpack that tenant mix?

Yes. So other than one tenant, one of the investment banks, which was -- which happened to be across the road, no other tenant. And that tenant was, I think, the 800, and they're moving to around about 1,000 square meters. Paul, am I right? So fortunately, for us, that's a net benefit, they're not just moving the deck chairs for a change.

All right. I think, guys, given the time, we've already done well over 1.5 hours. There are no more questions online. We are around for at least another, I'd say, 0.5 hour, 45 minutes, so please feel free to join us for a drink and something to eat. We thank you for your time and attendance once again. And we'll hopefully see you back in 6 months' time. Thank you very much.