Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

All right. Good morning, everybody, and welcome to the annual results presentation for Growthpoint properties for the year ended 30 June 2020. I'm assuming all of you have seen the information that was put out in the press yesterday, and we have obviously uploaded all the different presentations in the SENS announcement: The annual financial statements, the investor analyst presentation and more on our website. So I'm assuming that, for those of you who are interested, that you've got copies of those and that you've actually had a look at them. I thought that today, given that the entire world is a little bit upside down and back to front, that I would start this presentation at the end and then come back to the beginning. So -- and the reason for that is, I guess, that in the last day or so, it's been -- we've had certainly many queries around the information that we put out around our dividend and our dividend guidance and as well as the guidance for FY '21. I know that even in the press, there are some statements which suggested that Growthpoint has suspended dividends for a couple of years to come. And I thought let me just get this out the way and make sure everybody is on the same page. It's fair to say -- this is Slide 43 of the presentation, that clearly, the world remains a very uncertain place, and South Africa remains a very uncertain place, and I don't think the pandemic is any -- is over by any stretch of the imagination. So given that backdrop, we have decided not to provide any guidance for FY '21, and we have also decided that in relation to our final dividend for FY '20, we have not declared that dividend. But I want to assure you that the Board of Growthpoint is -- does know what they're doing. They are having very intricate discussions and a lot of consideration is being given to the payment of this final dividend. In our deliberations, we are mindful of some of the ongoing industry discussions, which are taking place between the industry -- property industry group and the JSE and National Treasury relating to the current payout ratio threshold of 75%, which is a minimum requirement in order to remain a REIT. We are considering the sustainability of the historic payout ratios of 100% and the various implications of not paying 100%. We are considering shareholder feedback that we've received from one extreme to suggest that we should not pay any dividends to other extremes, which suggest we should continue to pay 100% dividend. And we are simultaneously also considering our short- and medium-term liquidity requirements and gearing ratios. It's not as simple as just deciding not to pay a dividend or to continue to pay 100% of the dividend. There are many consequences and many stakeholders in between, all of whom are implicated in different ways off the back of making this decision. So the Board has been very busy over the last -- during the lockdown period, reviewing all of our strategies. We've had a number of strategic discussions. The focus in the short and medium term, however, is on liquidity and the balance sheet strength. And this is in the context of obviously a pretty weak South African property cycle, where asset values are falling, and we expect them to continue to fall, resulting in increased gearing levels. So the Board has decided, and I think investors can expect that there will be a number of initiatives in this regard between now and the 31st of December, and the Board has decided that it will pay not less than 75% of distributable income, or in other words, 75% or more, but that -- this decision is subject to no further material, let's call it, regulatory changes or disruptions in the market that will materially negatively impact our financial position between yesterday, or the date of publication of the results, and the actual date that we declare the dividend in -- that we finally declare the dividend. Obviously, there's a 6-month period that the JSE have given us to make that declaration. Don't expect that we're going to be taking the full 6 months at all. In fact, probably be considerably shorter than that. But I want to also leave you with the message that at the end of the day, the Growthpoint Board will seek to strike a balance between a conservatively managed and sustainable business and the interest of all of our investors and stakeholders in looking at this dividend declaration and optimizing our distributions. I think hopefully, that provides a bit of clarity on this issue of the dividend and where the Board stands on that. We are expecting to get some news, I guess, out of the regulators in the short term, and we will be guided or we certainly will be taking that into account in our final decision on both the timing and the quantum of the dividend. So having started at the end, we'll go to the beginning. And just to quickly go through the agenda for this morning. I'm going to touch on the strategy and where we are on all the strategic initiatives, go through the salient features of the financials, touch on the financial results themselves. I'll give you a brief update on the international investments. Estienne will then take over and do the update on the South African business and the Funds Management and capital management. And then I'll come back on the conclusion, not that I think there's much to, sort of, conclude on given that we've already dealt with the issue of the dividend, but perhaps just touching very briefly on each one of the individual business units again. So just in a very brief update on some of the strategies, highlighting at the top there that we do -- in the short to medium term, the focus is very squarely on liquidity and strengthening the balance sheet to ensure that we are enabled to pursue our strategic initiatives, which as far as the Board concerns, all of them remain relevant. In terms of internationalization, we are focusing on refining our approach to our international investments, but we think internationalization as a strategy remains very relevant. Currently, we have about 40,8% of property assets by book value and 28.2% of our earnings before interest and tax is earned offshore. During the period, we invested an additional ZAR 1.3 billion or EUR 77,9 million into Globalworth, maintaining our, sort of, just short of 30% shareholding, 29.4%, and we invested in December last year, ZAR 2.9 billion or GBP 150 million into Capital & Regional, acquiring a 51,1% controlling interest. In the South African business, in terms of optimizing and streamlining the South African portfolio, despite the lack of liquidity and challenging sales environment that we have in South Africa at the moment, we did manage to sell ZAR 581 million worth of assets with another ZAR 84-odd million withheld for sale at year-end. In terms of new revenue streams, trading and development. We do see that the trading and development division has got an expertise that we believe gives us a competitive advantage in the market. If you look at the kind of developments that this team have been able to build and develop together with obviously the professionals and the builders over the last couple of years, the likes of a Discovery, the likes of 144 Oxford, the Exxaro building and the link between the trading and development team and the deal that we did on the Exxaro head office building, to us, is a competitive advantage, and we certainly would be very keen to obviously keep that expertise. We, however, acknowledge that the scale of activity in this market would have to decrease. And certainly, any speculative development at the moment has been suspended. Third-party development fees will continue to be earned, but we'll only distribute that to investors after the trading development's costs -- trading and development division's cost has been covered. And whilst in the past, we started paying out some trading profits as part of our distributions, in future, we no longer will be paying trading profits as part of distributions. Post-year-end, we did sell the Exxaro Corporate Centre, which was part of the entire deal we did with Exxaro at the time of getting the mandate to build a new corporate head office in Centurion. And we did sell that -- the former head office building for ZAR 243 million, realizing a profit of ZAR 106 million. On the fund management side, we -- across the 2 funds, the Africa Fund and the Healthcare Fund, we now have about ZAR 10 billion worth of assets under management. As a Board, I think the capital-light strategy -- the Board support the capital-light strategy, and we believe it particularly attractive and relevant in the current environment. We earned ZAR 34 million worth of asset management fees from the Healthcare Fund. And whilst the Africa Fund has, let's call it, reached maturity, we do believe that in FY '21, we will be earning asset management fees out of Africa Fund. And I think you're going to expect to see fees to match at least the fees that we're earning out of the Healthcare Fund. We, during the period, also did sell ZAR 288 million worth of our shares in the Healthcare Fund, reducing our stake by 11%. Moving to the salient features. 5.4% increase in revenues for the period, 14.8% decrease in distributable income to ZAR 5.5 billion. 16% decrease in distributable income per share to ZAR 1.83 a share. The reason for the slightly higher decrease -- sorry, did I say increase -- decrease per distributable income per share due to the fact that we issued about 51.5 million shares during the period with DRIP. Property assets increased by 18,7% to ZAR 166.7 billion. The group LTV increased to 43.9% from 36.7%, and our NAV decreased by 7.6% from fiscal year '19 to ZAR 23.07. Just looking at the summarized consolidated distributable income statement and SA REIT FFO. Just to highlight that, I think we, as Growthpoint, are early adopters of the SA REIT FFO and the SA REIT BPR, the best practice recommendations. So you'll see in our documentation that we have reconciled from our net property -- or net distributable income numbers down to an FFO number. And as the industry moves to broader adoption of the SA REIT FFO as a key measure, we certainly would also be doing that. And we've already given an indication of what those numbers would look like. But without looking into each number on this particular income statement, I might just again go off script a little bit and try and give you a sense of the overall impact or overall interpretation, if you want, of the set of results. You'll see from the next slide at the distributable income line, the one that's sort of bold, that FY '20 distributable income came in at ZAR 5.478 billion, that's 14.8% less than the ZAR 6.430 billion of last year. That is a reduction of ZAR 952 million. And I think what I'd want to do is just give you a broad sense of what the key issues were -- or key drivers were within that reduction of ZAR 952 million. If you look at the -- sorry, this slide again, and you take all the South African numbers, so the revenue minus property expenses minus other operating expenses for South Africa, you'll note that South Africa's contribution reduced by ZAR 600 million. So that ZAR 600 million of the ZAR 952 million effectively attributable to South Africa. And within that, it's important to note that COVID and the impact of COVID amounted to ZAR 520 million. That ZAR 520 million comes from 3 numbers. The first one is ZAR 277 million worth of discounts that we gave our tenants, bad debts and increase in bad debt provisions of ZAR 236 million, and direct expenses, direct expenses related to COVID of ZAR 7 million. So that's ZAR 520 million income statement impact of COVID-19, which is about -- which is the biggest chunk and certainly, the single-largest number that has impacted our results for this period. Two further comments on that is that of the ZAR 600 million negative, the relief that we actually gave our customers amounted in total to ZAR 435 million, ZAR 277 million by -- through rent reductions these are literally discounts that we actually gave -- discounts that we gave our tenants, and a further ZAR 158 million of deferments. So if you add the ZAR 277 million and ZAR 158 million, that's ZAR 435 million worth of relief to our customers. So I think it's very important to understand that in the context of these results, at the end of the day, our customer base were big beneficiaries. And our approach there has been obviously to look to assist our customers through this period and ensure that post-COVID, we still had a solid customer base that can continue to occupy our portfolio. The other big moving number in the income statement that has impacted the results is the interest expense number. And you can see that the interest expense has gone up from ZAR 2.603 billion to ZAR 3.106 billion. And that amounts to a movement of about ZAR 503 million. And that is a direct result of the higher levels of gearing, which you saw in one of the earlier slides where LTV has gone up, where our total South African debt has gone up from about ZAR 35.2 billion to ZAR 43.4 billion. And the big movements within that include the increased investment in Capital & Regional of ZAR 2.9 billion, the Globalworth investment of ZAR 1.3 billion, our further investment into Globalworth -- sorry, into the Africa Fund, Growthpoint Investec Africa Fund, of ZAR 600 million and then our South African CapEx, net of some disposal proceeds, et cetera, of about ZAR 1.6 billion. That gives you ZAR 41.6 billion. And then there's a ZAR 1.8 billion increase in our total rand balance of debt which is due to foreign exchange translation of some of our hard currency funding loans in the form of euro loans and dollar loans and pound loans. So hopefully, that gives you a bit of an interpretation, I think, of these numbers. There are many numbers on this particular slide. I'm not going to go through each one of them. You'll see at the bottom of this particular slide, how we get from our distributable income down to the SA REIT FFO number. That is ZAR 5.185 billion. And the SA REIT FFO per share came in at ZAR 1.707 whereas the distributable income per share, and this distributable income per share was calculated on the same basis as prior years, came in at ZAR 1.831, which is 16% down. On this slide, what we try and do, and I think I have painted the picture for you, but these numbers won't necessarily reconcile to what you see in the income statement or in the annual financial statements. But what we try to do here is allocate some of the funding costs. So where we have incurred interest, for example, for the acquisition that we made into Capital & Regional and the additional interest expense that we have, having borrowed ZAR 1.3 billion to invest more into Globalworth, we try and allocate some of those interest expenses to the actual investments. But you'll see that notwithstanding that exercise of the 14.8% drop in distributable income, 12.5% of it was due to the performance of the South African portfolio, the others all making either very small positive or very small negative contributions to the overall decrease. A few items on the balance sheet, just to highlight, the property value, property portfolio value consolidated between South Africa, GOZ and Capital & Regional, ZAR 140 billion. It's up almost 20% from the prior year. The big mover there is the GOZ, up 33%, that's mainly due to currency translation; and Capital & Regional. Obviously, Capital & Regional have been included in these numbers for the first time. So just short of ZAR 15 billion of assets attributable to Capital & Regional. The South African portfolio down 6.3%. I think there are some further comments around the devaluation and over ZAR 7 billion negative revaluation on the South African portfolio, which was about 8.8% down on the prior year. You'll see our equity investments have grown by about 13% to ZAR 17.5 billion. Waterfront down a little bit. Investment in Globalworth has increased. Again, quite a big currency movement in there as well, but also the additional investment that we made. And then our other investments where we have a decrease of 74% from ZAR 218 million to ZAR 56 million, there's a bit of a reallocation there of our investment in Growthpoint in the Africa Fund, which was previously included in other investments. It's now included in unlisted investments. And the unlisted investment number having, as a result, gone up. It also includes our stake or the stake that we have in the SA SME Fund and OneCart and an asset that Capital & Regional has that's unlisted. And then our listed investments is essentially just the 15% stake that GOZ has in ADI, a listed Australian REIT. Our borrowings number gone up by 41% from ZAR 49 billion to, call it, ZAR 70 billion. South Africa, I've touched on the increase there from ZAR 35 billion to ZAR 43 billion and what drove that increase. GOZ went up from ZAR 14 billion to ZAR 17 billion. Again, that's mainly currency driven. And then including for the first time again, numbers for Capital & Regional. That leaves shareholder interest down 9.4% from ZAR 75 billion to ZAR 68 billion. So just touching on the international investments very briefly. GOZ, we currently have 62.2% of Growthpoint Australia. The cost of that investment is about ZAR 9.6 billion against the market value at 30th June about ZAR 18.4 billion. The GOZ dividend we received this year was less than prior year, AUD 0.218 compared to AUD 0.23. In fact, not due to underperformance or bad performance from GOZ at all, but mainly due to just the decision from the Board to reduce the final dividend, taking account of generally liquidity and preserving some cash. Interesting enough, as an investment and operationally, GOZ performed particularly well. It actually outperformed the guidance that it had given prior to COVID. And we remain obviously very pleased with the performance. In our distributable income number, we obviously have the dividend and further impact on that number has been the increased dividend withholding tax, 10% for this year compared to 7.2% in FY '19. And GOZ remains a core investment market for us given our experience and knowledge of that Australian market over the last 10-odd years that we've been invested there. GOZ has got a very strong balance sheet, low gearing level, 32%. It's, in fact, below the target range. It has great access to liquidity, operates well within all of its debt covenants, and in fact, saw a slight uplift in its NAV per share due to some first half revaluation gains and some of the leasing successes that were achieved as well in the first half of the year. Its finance costs have come down by 14.6% as interest rates have come down and its average cost of debt has come down by 50 bps. Its weighted average interest rate is 3.4%, and it's got a debt maturity of 4.7 years, and 67% of its debt is fixed for 5 years at 3.6%. So on the portfolio side, very defensive portfolio, especially in terms of COVID, very little, if any, exposure to retail. It's got really good, strong tenants in the form of government and major large listed companies. Portfolio occupancy is about 93%. If you exclude Botanicca, which was the spec development that we did and a beautiful picture of it -- beg your pardon, that's not -- there is a different picture on the left, but it goes up to 97%. I think we can expect some news out of the letting, notwithstanding lockdown in Victoria, of that asset in the not-too-distant future. We got a 3.3% weighted average rent review. And the Australian team managed to sign the longest lease agreement to date, I believe, in the entire Australian market, if not just for GOZ, where we signed a New South Wales Police Force for 25 years in an asset in Parramatta. Acquisitions and developments, about AUD 42 million of acquisitions and AUD 90 million of development spent in the period, and it continues to have about AUD 50 million of commitments. AUD 203 million of development projects were delivered in the period. Just on COVID impact then on Australia, as I mentioned, very limited, 97% of the tenant base is large corporates and government. No retail. Average collections were about 97% through the period of April, May and June. And as a consequence, very limited impact on earnings from COVID, AUD 800,000 in rent abatement and AUD 2 million in rent deferrals. All major, sort of, nonessential CapEx has also been delayed. Globalworth. There, we still own 90 -- sorry, 29.4% in Globalworth. Cost of that investment, ZAR 8.4 billion; market value, ZAR 7.9 billion. In our results for the period, we have EUR 0.49 of euro dividends compared to EUR 0.57 in the year before, again, mainly driven by a reduced dividend that Globalworth declared now for the first half of its FY '20 year. It's got a December year-end, so it's not coterminous with our own. And bringing that dividend much more in line with FFO and EPRA earnings metrics. So in the past, the dividend that was paid was probably -- was actually in excess of FFO and EPRA earnings. And given the environment we're in at the moment, the Board brought the dividend back in line with what the MOI of the company dictates, which is to pay out 90% of FFO, which should equate to EPRA earnings. Globalworth continues to have a very strong balance sheet. It raised EUR 264 million of equity in October '19. It issued an inaugural green bond, raising EUR 400 million, and a coupon of 2.95% for 6 years. It was very -- it was well oversubscribed. It repurchased recently, EUR 227 million worth of its bonds, it's June 2022 Eurobond, at a premium of about 2% over par, and thereby reducing the amount that needs to be refinanced in June 2022 to EUR 323 million. It had EUR 565 million of cash available at 30 June 2020, that's cash and unutilized facilities, and remains conservatively geared. It's a phenomenal portfolio of 62 buildings, 38 of them in Poland and 24 in Romania. Portfolio values just over EUR 3 billion, up from EUR 2.8 billion last year. Very nominal valuation decreases across that portfolio. The occupancy is also in the high -- mid- to high 90s at 30 June. And during the period, there was EUR 239 million of acquisitions, so 3 standing properties and 2 under development. And we also acquired the 50% of the Renault Bucharest Connected asset that we didn't own for EUR 73 million. Number of development projects are still in the pipeline. I mean EUR 85 million remaining in the pipeline across 5 projects. We completed Globalworth Tower in January. And there are a number of smaller assets under development, which were scheduled for completion between Q3 2020 and 2 industrial projects, which we'll complete in '21 -- 2021. In Poland, we have one asset under construction, which will also be completed by year-end. Similar to GOZ, the COVID impact for -- on Globalworth was quite minimal, notwithstanding strict measures that were introduced by the authorities in Poland and Romania. Very defensive portfolio, 93-odd percent collections from January to June, limited exposure to retail, mainly confined to fix -- 3 mixed-use assets in Poland. And the standing asset CapEx program was suspended, saving about EUR 12 million, and the development program was reduced by EUR 36 million. Any new investment activity was suspended pretty much as from March this year. C&R, obviously, that's our latest investment. We made the acquisition in December 2019. We acquired 51.1%. Subsequently, with the shares that we got from the dividend, we're up at 52.1% at a cost of ZAR 2.9 billion, and the market value at the moment is ZAR 1.1 billion, the share price there obviously being under tremendous pressure. Our investment at the time was premised on a contrarian view on retail in the U.K. and the market dislocation, which we thought had arisen between the direct market and the listed market. One thing that we clearly didn't have in our investment case at the time was COVID-19. We were comfortable with the online dynamics. We were comfortable with Brexit and the Brexit dynamics, but we did not obviously foresee COVID 19, and that has had a severe impact on our investment case. CapReg did pay an 11p dividend for the second half of '19, and we received that in the way of scrip, and it has decided clearly to pay no dividend now for the first half of FY '20 given the liquidity constraints and balance sheet gearing issues that it's faced with. It still has -- Capital & Regional still effectively has all the cash that we injected as part of the transaction when we subscribed for new shares, sitting with about GBP 67 million of available cash at 30 June. Its LTVs we're at 46% at December 2019. And another sharp write-down of property values in the U.K. retail space of about 15.9% has brought that LTV ratio up to 57% and it's a net LTV ratio after the cash at 30 June 2020. There is no debt refinance due until Feb 2023, and management there have done a particularly good job negotiating with the existing lenders, effectively signing waivers for all the income covenants that have quarterly test dates in July and October 2020 on the 3 largest asset-backed loan facilities that we have there. That represents over 93% of the outstanding debt. On the portfolio side, it owns 7 needs-based retail assets. These assets are well positioned with their community center strategy and high proportion of nondiscretionary retail, 15% decline in portfolio value to GBP 611 million. And the occupancy -- commercial occupancy at 95% based on expected rental values. The COVID-19 impact obviously on a 100% retail portfolio in the U.K. has been pretty harsh. The government introduced the limit on retail to essential services only on the 27th of March. What resulted from that was that only 68 of the 651 stores across those 7 shopping centers were able to trade during the, let's call it, hard lockdown. And subsequent to May, as they've eased up on restrictions, up to 605 stores have now opened. So that's 96%. So dramatic operational change from literally 23% occupancy, or tenants by number that were open, back up to 96% today, but the 3-month shopping disruption clearly had a dramatic impact on the trading results of the retailers and the company as a whole. There is still a government moratorium on dealing with tenants that aren't paying rent. So the management are unable to take action against tenants that aren't paying. And notwithstanding that though, for the period January to August, 69% of rent has been collected. And at CapReg, we've also -- all capital projects there have been suspended. So at this point, I'm going to hand over to Estienne to deal with the South African portfolio update, and then I'll return at the end.

Thank you. For those that didn't recognize him, that was Norbert. It was obviously evident of a tough year we've had. Guy went in a young whippersnapper and came out a silver fox. This tough year was quite evident from the fact when I spoke to a mate of mine in the wealth management business, he doesn't talk about his clients, he talks about his patients. And if you look at what we've had to endure in the South African business, I have a bit of sympathy for him and his patients. So we'll start with some of the good aspects and some of the salient features for the year. To just give you a bit of scale, I mean, we managed to relet over 1.1 million square meters during the year. Unfortunately, given the market that we've been in, it wasn't -- it hasn't been enough and we've seen vacancies increase to 9.5%. That 9.5% not quite comparable with the 6.8% from the prior year because for the first time, we've actually included the development vacancies of 46 -- 32-odd thousand square meters into the vacancy number, and that would've made another 0.5%-odd difference. But vacancies certainly kicked up, and I will talk to those when we get to the different sectors. We saw the renewal growth rate in rental levels also weaken to 6.7% in this time. And as Norbert mentioned earlier, through the COVID period, we had to provide quite a lot of relief to our tenants in the amount of ZAR 436 million. Our arrears has also spiked to ZAR 511 million versus the ZAR 77 million, which was kind of a normalized level in prior years, if you'd like, and that has been as a result of mainly the COVID period and the impact it has had on the clients, and what we have also had to do is also write-off in this period, ZAR 236 million. The renewal success rate weakened marginally to 66-odd percent. When we get to the different sectors, that number was weakened somewhat by some large tenants not renewing. Our LTV, when we just take the South African balance sheet isolated, is at 39.8%. So it's under the 40-odd percent, which is our target range. And our interest cover ratio remains at 3.4x. The expense ratio has ticked up somewhat to 33.6%, but if we work on a normalized basis and exclude the COVID impact, it would have settled at 31-odd percent. If we take the composition of that expense ratio, the property expense ratio pushed up to 29.2-odd percent, and our operating expense ratio pushed up to 4.3-odd percent (sic) [ 4.5-odd percent ] in that number. Developments, we continue to be quite active through the year, and we effectively spent ZAR 2 billion on developments and CapEx. We have scaled back our development program somewhat, but we still have commitments and ongoing developments and our commitments are for ZAR 634.4 million at this stage. As earlier mentioned, we did manage to sell some assets in this market. And if we take this ZAR 581 million sale plus the disposal of the Exxaro building just after year-end and we include the disposal of the Healthcare, our disposals in aggregate raised about ZAR 1.1 billion. Our strategic acquisitions were reasonably small at ZAR 274 million. The big eye-opening number there obviously right at the bottom of the page is the reduction in our valuations and that brought about a write-down of ZAR 7 billion, which was 8.8%. The response to COVID was really pretty quick in that when we went into lockdown on the 26th of March this year, we managed to proactively organize the whole industry. And within 2 weeks, the industry came out with specific guidelines to assist landlords and tenants in negotiating relief measures across the industry. I think this really helped in improving our relationships, specifically in the retail with the big retailers where historically, some of those relationships have been pretty strained in this sort of environment where people could have relied on force majeure and all sorts of legal arguments could have gone south pretty quickly. So I think from a country perspective, I think we've dealt with the situation reasonably well and very quickly, so that within a 3-month period, most of these disputes were eliminated and transactions were concluded with the tenants and life has moved on. Clearly, the retail sector was most impacted by this. We also focused, very importantly, on the health of our staff, our security personnel and protecting the livelihoods and the salaries of our employees. We continued to pay all our suppliers and our employees through this 3-month period at the end of the year. And I think the -- certainly, a shout-out has to go out to the team in the retail business on the ground who you can imagine from month-to-month, had to adapt to the new lockdown provisions and ensuring that our patrons, both at our office buildings, our industrial properties and the retail properties, could access those properties safely with all the correct protocols. On the balance sheet side, we focused very -- a lot of focus went into the liquidity and strengthening of the balance sheet and all nonessential CapEx was reviewed in detail, and a large component was pulled back in this period. And then we also scaled back on the development program. And certainly, projects with considerable pre-lets, where construction was sustainable and where we could continue, we completed those as quickly as we could. The impact, I think Norbert's already raised the total quantum of the impact at ZAR 520 million. What we have scheduled here for you is the details. So the details where the discounts we offered obviously was a loss to the top line, so that didn't reflect in the income statement, whereas the deferred -- deferrals that were granted reflected in income. And then obviously, we accrued for the debtor on the balance sheet. Against that, we've also provided for bad debts and for provisions on those, and we've also concluded with an estimated credit loss assessment on all our arrears. And if we add all that up, that comes to the ZAR 520 million. So our arrears at ZAR 511 million. In the income statement, we had ZAR 236 million. And if we go and analyze those provisions, we provided ZAR 35 million, which was 25% of the COVID-related deferrals of ZAR 141 million, and ZAR 201 million provision is for the arrears, where 100% of arrears older than 90 days has been provided for and 50% on arrears under 90 days. So the arrears is set out on the little table below, where you can see that our balance sheet arrears was ZAR 370 million as well as the ZAR 141 million in deferments, and then the income statement charge is set out there for ZAR 236 million. These graphs, I'm not going to talk through the detail but it basically gives you a trend as to the requirement for us to continue to provide rental discounts is dissipating as time moves and as we move out of lockdown, and we've added the July number in there, just as an indication of all 3 of the sectors. As you can see, it's evident that in the rental -- the discounts in the retail side was significantly more than in the other 2 sectors. And in fact, office in this time has really outperformed when it comes to collections. And certainly, the payments that we've received in that sector has been more than in the other two. Our rental deferrals are also set out and you can see the trend there where we're already starting to collect. Those are the negative numbers on that page. We've already started to collect those rentals in this time. Arrears have obviously blossomed, and we are actively working on bringing those numbers down as best possible and as quickly as possible in this period after year-end, and you can start seeing the trend there that it started coming down somewhat. Then we've also included for you just to see the collection trend. The percentages are set out there, and you can see office with our large tenants, mostly high-end blue-chip tenants where they continued to pay through this difficult time, industrial to a slightly lesser extent and the biggest difficulty we found was in the retail space. I'll deal with each one of the sectors separately. So firstly, we'll start with retail. Our core vacancies, if we exclude offices, is at about 3.7%. So you can see the kick up to 5.1%. We've got a couple of really stubborn vacancies in what we deem to be noncore properties. And some of these properties are for sale or have been sold or in the process of being sold. And some of those vacancies, we are working on potential solutions for. We expect -- clearly, with this economy, we expect quite a few additional business rescues coming our way and potential failures will certainly increase vacancies in the future. So the economy is really difficult. It's having a distinct impact on the retail sector. And there isn't really significant demand for retail space from new tenants at this point. Our renewal success rate has marginally weakened. We still believe around about the 80% level is an acceptable level, but renewals in the short term, with independents being quite reluctant to commit for long periods of time. And certainly, national tenants are taking advantage of the current environment. Our in-force escalations continue to come under pressure in this environment and negotiations are often projected. Arrears. The arrears number, as you can see, has ballooned. A big number in that ZAR 200 million, nearly 1/4, was Edcon. And one other large retailer, which at year-end, we hadn't finalized our, let's call it, COVID-related negotiations with them, so there was another ZAR 10 million in that book. But these numbers are very fluid, and the team is actively working on bringing that down. The like-for-like number growth was obviously quite impacted by Edcon in that we didn't reflect for the past -- well, from the 1st of April, we didn't receive any rental, and we also didn't reflect any income in our numbers. So that number at 1.2% is a little bit depressed as a result of that. Trading densities, I think, as you can see, have also weakened there to 0.7%. So what we have done is for the first 9 months, we've sort of been able to give you a number there of 1.2%. And in the next 3 months, you can see that there was a weakening of 9.34%. If we take the GLA of the shops that were closed -- so the GLA of the shops that were closed during lockdown were not included in the calculation. And as such, actually, the retail sales is a better indicator. So for the year, we can reflect that retail sales were 6.9% below the previous year. And specifically for the last quarter, they were 32% below the same period, which probably speaks to a little bit of what we've seen in the GDP growth number that's come out this week. On the Edcon side, in a funny kind of a way, it's quite a good news story. We had 88,682 (sic) [ 88,680 ] in the Edcon Group. We have done deals with the 2 new acquirers, subject to the Competition Commission approval, for 79.7 -- or 79,723 thousand square meters (sic) [ 79,723 square meters ]. So 42 of the 48 stores have been renewed, if you'd like, or taken over by the acquirers. And that left us with around about 9,000 square meters, of which we've already let 1,500 of that. On the development side, we -- albeit a little bit delayed with the COVID period, we completed the Dischem and Pick n Pay development and that opened in July, and our Dischem opened at Waterfall Mall in Rustenburg, just before lockdown. No retail discussion will go without having a chat around online. Now clearly, in this environment where shops were closed, the online sector has accelerated quite a bit. So many retailers were we're quite quick to provide an online offering. I think experiences have probably been mixed between them. And there's, from our point of view, certainly, uncertainty as to how much of that shift in trade will be permanent in terms of a loss and many of those operators are still trading at a loss. We likely, we believe that the -- some -- a lot of that trade will come back to the physical property stores. And at this stage, it still remains a very small component of the total retail sales. What we have seen is quite an increase in the value category, and we've seen good demand at Bayside and La Lucia. And in certain aspects, the COVID had a massive impact on restaurants and even under the current circumstances, their trade is by no means back to where it was. And clearly, the gyms only have opened recently as well as the cinemas, and I think those will take a little while to come back to where they were. On the valuation side, the big drivers of this reduction in valuation is, round numbers, about a 1% across the board. Office, retail and industrial, about a 1% reduction in the growth rate expectations going forward in the DCF cash flows. And then obviously, in the cap rates, there have been marginal reductions in all 3 of the sectors that has resulted in this. So most pronounced has been retail, where we've seen a ZAR 3.4 billion reduction, and that worked out to about 11.3% of the portfolio value. Vacancies have spiked in office, and that number really resulted of -- as a result of a couple of things. The first is renewal success rate has deteriorated somewhat. There were a couple of really, really large tenants that have impacted that number. If you look at 51%, it looks like we're losing every second tenant that we have, which is not quite the case. So the -- by number, we still have a much higher retention rate than that. But if you take these large tenants like Deloittes and 1 or 2 tenants like Econet, where they've actually gone into liquidation, locally, those have had an impact on those numbers. We have pre-committed and let over 20,000 square meters of the vacancy in office. And hopefully, the nervousness of tenants to commit to leases and to move in the coming months will improve, and we'll be able to bring that number down quite a bit. The in-force escalations have also come under pressure and negotiations in the office sector remain difficult. Arrears have also kicked up, and the increase in liquidations and business rescues have had a significant impact on this number, and there's a few lumpy numbers in there. Like-for-like growth continues to be negative as it was in prior year. And when we look at the portfolio positioning, we only really acquired 2 rather small properties in this period, and we've managed to dispose of 6 properties worth about ZAR 320 million. Valuations have also weakened by ZAR 2.7 billion, and I've already touched on the reasons why that is. Industrial, of the 3 sectors, looks the best given the statistics. I think national vacancies are slightly lower compared to the other sectors. But even here through COVID, we've seen that several of our tenants are really struggling in this economy. So we did contribute to vacancies by developing partially let assets, and that added 34,000 square meters. And we've got additional vacancies through quite a few tenants where they have vacated due to liquidation. Renewal success rate has been marginally better. We've seen in-force escalations more or less maintained. On the arrears side, it is a tough space, and that has seen arrears increase. Like-for-like growth has also deteriorated in this period. And as you can see, that was impacted by the COVID assistance that we've offered our clients. And to give you an idea just by number, we granted relief to 420 of our 837 smaller tenants, which occupy space in 50% of our properties by GLA. We are repositioning the portfolio and trying to modernize it, and we are actively selling the smaller, older properties at this point. On the valuation side, even the industrial portfolio came under pressure. And that was mainly as a result of the 1% reduction in the growth expectation on rental. If we look at trading and development, we did generate fees through this period of ZAR 11 million on 2 main developments. Further ZAR 30 million was on rental that we received on some of these developments before we disposed them. And then on the development side, as I mentioned earlier, we've pulled back on ZAR 2.4 billion worth of developments in this period. The good news is we've completed Oxford, and that property is also fully let to the value of ZAR 1 billion. And currently, there's, round numbers, about ZAR 1 billion worth of projects under development. We look at the V&A, clearly, a tale of 3 -- 9 months and then 3 months, so pre-COVID, very strong growth, 6.5% growth. It performed well, footfall was expected to be over 26,000 -- 26 million people for the year. Hotel occupancy growth was at a growth of about 8% and double-digit growth for the office and industrial portfolios. And the cruise terminal has been a huge success. And we've seen numbers grow significantly there. Post-COVID, a totally different story. I think the V&A has been probably the most impacted. Overall, we can say that now net property income for the V&A is down 9.6%. Even at the V&A, we've had to provide rental discounts of ZAR 12 million and deferrals ZAR 58-odd-million. Arrears have spiked up to ZAR 120 million, and collections have continued to steadily increase but remain pretty weak at the shopping center of around about 65-odd-percent. Footfall. We have seen postlockdown that these numbers have improved. But as at year-end, we're still only 40%. When we look at retail specifically, retail sales fell by 16-odd-percent. And certainly, a lot of effort went into prioritizing the process and the relief that we've offered the various tenants. Once again, the large retailers were offered relief in line with the Property Industry Group. And the smaller offering, the smaller tenants at the food market and the Water craft market (sic) [ Watershed craft market ] got pretty much 100% relief in this period of time. We did decide not to take the deal on the Edgars space. So that 5,800 has just gone vacant in this month. The space has been given back, and we will be looking to let that to existing tenants in the shopping center who are looking to expand, and we believe we can do that at better rentals. Hotels, difficult space if you don't have international tourists. The Radisson Red and the City Lodge managed to stay open through this period in that they received COVID-related business in this time. Offices performed normally and no lease terminations were evident in this period. On the marine and industrial side, certainly, those tenants that weren't impacted traded normally. But those that were tourist-related, it was a very, very difficult time there. And the cruise terminal activity has not resumed at this point. Our new business, the fund management business. There, we've got the 2 funds, the Healthcare Fund and the Africa Fund. So on the Healthcare Fund, we've now raised around about ZAR 1 billion. Our stake has reduced to just under 62-odd-percent. The portfolio is valued at about ZAR 2.6 billion. And one of the properties we have expanded to -- the Busamed hospital in Hillcrest in Durban, we've expanded with extra 52 beds successfully. We are still busy developing the Cintocare Head and Neck Hospital. In fact, we've just completed that construction and handed over to Cintocare. We're fitting out at the moment, and that hospital will open in January. On the acquisition side, the acquisition of the Busamed Paardevlei Hospital was delayed in Somerset West. This fund remarkably has managed to grow distributions at 5.8% in this period. So the distribution was ZAR 0.7745 compared to the ZAR 0.733, and that translated into distributions to Growthpoint of ZAR 128.4 million. Distributable income was ZAR 25 million lower than anticipated as a result of rent deferrals. And our Funds Management income, as earlier mentioned, has grown to ZAR 34 million. We also have been discussing a transaction with Kagiso, which has been delayed, where they were going to buy into the management company to the extent of 15%. And then we are in the final stages of negotiating a transaction, equity and convertible debt package with the International Finance Corporation to come into the Healthcare Fund to help us with some development finance and opportunity finance. On the Africa side, the fund is now established. It's got an NAV of over $300 million. It manages assets over $600 million, really a quality portfolio of 11 prime offices and retail assets located in Ghana, Zambia and Nigeria with some land in Angola. The countries had different -- were differently impacted by COVID. And as these restrictions were enforced, this portfolio on the retail side certainly predominantly had essential service tenants and as such, wasn't that materially impacted. GIAP, obviously, also is in advanced discussions with quite a few additional capital providers and investors, and we are -- we've got a good pipeline of opportunity to acquire, including minorities in some of our retail and office assets, but also looking at a pipeline of other investments to come. On the capital management side, Growthpoint's debt is now at ZAR 43.4 billion. We've got liquidity as at year-end of ZAR 3.1 billion. Post '20, we've also -- post-year-end, we also concluded a transaction with Standard Chartered for additional ZAR 750 million revolving credit facility. We've got nominal debt balances that have increased due to the ZAR weakening against the euro and the pound and the U.S. dollar. ZAR 2.4 billion of our debt is maturing in the next 12 months, of which only ZAR 700 million is in bond finance, and those maturities are only in next year in May and June. The weighted average of our debt is at 3.6 years. The bulk of our debt is unsecured. Our Moody's scale rating has come under pressure as a result mainly of the sovereign downgrades. And then what we have seen is that our interest rates have improved somewhat as we have moved into this lower-interest-rate environment. We have included in the pack also schedule of the funding for foreign investments. And I'm going to just pass onto Norbert for the conclusion then.

All right. Thank you very much, Estienne. Just conscious of time, guys, we've just gone over the hour. And I think the feedback on all the different sectors have been pretty comprehensive. So in terms of the conclusion, I'll try and be brief. I don't think I need to say terribly much about South Africa and the South African environment. We're all pretty much fay with the impact that COVID has had on the economy. It was an already struggling economy before COVID. And so we certainly foresee ongoing challenging times. The GDP number, which came out 2 days ago, I have to say, initially very confusing. Seeing 51% drop in GDP, I had -- almost had a hard attack. It takes a little bit of understanding, I guess, of the numbers and interpretation. That is an annualized number. So maybe not quite as dramatic and as bad as that, but nonetheless, pretty weak. Expecting, obviously, for the year to have overall annual GDP contraction in 2020 of in excess of 10%. Waterfront and the recovery of the Waterfront very linked to the opening up of the international tourist market. I think maybe with domestic travel and border -- cross-border activity being allowed again from an internal perspective, I do see upside from the current levels with potentially some domestic cruise activity coming back and the cruise liner terminal being activated again. And just anecdotally, I try -- I've got a message from a friend of mine the other day suggested that I needed to get him hotel booking for the Lions Tour next year, July, August, the Lions rugby tour to South Africa, and I challenge you to get a hotel booking in Cape Town today. It's pretty fully booked most of the hotels. So one can only hope that international travel normalizes, international sport normalizes and -- but certainly, the well-being of the Waterfront be -- very, very linked to international travel and tourism. On GOZ, again, I think GOZ remains very solid and very stable. The portfolio mix is such that we don't think that there will be any meaningful negative impact going forward. But clearly, the Australian economy also subject to, let's call it, some weakness. First time they've been in a recession in something like 25 or 27 years. Q2 GDP was 7% down. So not isolated from the economy, but in a very good position from a liquidity perspective. GOZ has gone out with some guidance, mainly on its dividend, and committed to a dividend of at least or of AUD 0.20 per share for FY '21. Globalworth in a very similar position with its balance sheet strength and though economies of both Poland and Romania clearly also impacted by COVID, but again, to a lesser extent, I guess, everything is a bit relative to SA. Capital & Regional, with its focus on retail in the U.K., is going to remain tough. There's no doubt that the bottom of the cycle hasn't happened yet. The Intu experience, the Hammerson experience, all of those are clearly weighing heavily on the sector as a whole. We do believe management have done a phenomenal job, absolutely phenomenal job in the -- during lockdown, to manage the portfolio and the tenancies and the customer base. And clearly opening up all the way back to 96% of tenants up and trading again, a spectacular effort from management team in relation to managing that portfolio. And then I guess on the next slide is just the final conclusion, which I've dealt with at the beginning. So with that, I think it brings the formal presentation to an end. I do believe there are some questions. Estienne's got some fancy gadget there, which will tell us what the questions are and we'll try and answer.

What I'll do is I'll sort of read out the questions, and then we'll pass it around the room like a hot potato for somebody to answer. So the first one is from Francois Du Toit at Renaissance Capital. The first question is office vacancies have increased steeply in second half of the financial year. But you mentioned you have committed and pre-let space since 30 June that improves the vacancy level down to 13.9% from the 15.4% level. Do you believe that in June -- the June level is the bottom of the vacancy cycle? Or is it likely to deteriorate further? And then your second question, which I'll just -- we'll add-on and we'll answer that, will the reduction in the GWI and C&R share price impact the ability or willingness to renew your CCIRSs in hard currency debt? And then three, please explain the ZAR 2.3 billion increase in the long-term loans granted on the balance sheet. Who are the counterparties and what are the loans? So let's maybe just start maybe at that last one. So that was just a movement of the V&A debt that we have on our balance sheet. So that's a shareholder loan that we moved out of trade and receivables into long-term debt in that we had signed a formal loan agreement with them. So that's the answer to 3. I think on the office vacancies, is it the bottom of the cycle? We've got Paul here. I don't know if he wants to take a dip at it. My view would be is, I think we still -- given the economic environment, folks, I mean, it really is difficult out there. And if corporate South Africa is contracting, it's very difficult to see major letting activity going forward. So the best you can do is steal somebody else's clients in this period. And with clients, some clients being at financial risk, we don't know what's coming in the business rescue and liquidation section of this show. I don't know, anything that you would like to add to that, Paul?

Thanks, Estienne. I agree with that. I think there's a lot of uncertainty in the market. A lot of the tenants who we are speaking to at the moment, whose leases are coming up, are not ready to commit. They're waiting to see what's happening. We are, within the last 2 or 3 weeks, seeing more inquiries, but certainly not more deals. And I think the future, as we say, is uncertain at this stage.

Thanks. And then, Norbert, do you want to deal with the CCIRS question?

Yes, the CCIRS. So I mean clearly, the -- their share price is under pressure. I mean where we consolidate the entities in terms of GOZ and Capital & Regional, dare I say the share price is maybe of slightly less relevance. But with Globalworth, where we don't consolidate, treat as an investment, clearly there, it probably has a bit more relevance. It's fair to say that over the last, I'd say, 12 to 18 months, it's come up in many of our risk committee debates and discussions. 1 or 2 opportunities that we've had, especially if you look at the financing of GOZ and the -- sorry, the Capital & Regional investment in the first place, the decision at that time was taken not to fund it 100% with CCIRSs or let's call it synthetic pound debt. The day-1 position was 50-50. We do have a GBP 79 million refinance of the pound leg of that funding coming up early next year. We are already in the process of dealing with that, and the view is that we would probably refinance only half of that in pounds and the other half in rands. We have also similarly taken views, where CCIRS have come up, to refinance them in rands, effectively not extending the CCIRS per se. So let's call it, reducing our synthetic foreign currency finance. And then therefore, the slightly mismatch, if you want, with the lower interest rates there. But I know that I think one of our competitors went and canceled every single one of their CCIRSs and gone back to full rand funding. That's not our position at the moment. We'll look at, every 6 months, as we review at a Risk Committee Meeting -- sorry, rather every quarter, as we review this at a Risk Committee meeting, we'll be looking at every one that comes up for refinance and an appropriate decision will be taken based on the situation at the time. But as a trend, you probably will see slightly less use of, let's say, these cross-currency interest rate swaps and more rand -- pure-rand-denominated funding.

And then, sorry, Norbert. Just to confirm. Our group treasurer's also just confirmed, in case there's a reference to the share price and underlying shares being used as security for the CCIRSs, that is not the case. The shares are not put up as security for any foreign debt obligations.

It's a very important distinction, and we've had many queries on this and continue to receive. But in terms of our funding structures, whatever the share value is of what we hold in GOZ, in Capital & Regional and in Globalworth, the aggregate value of that, I forget right now, but those shares are completely unencumbered. We don't have any loans linked to those shares. No, what you call those loans, margin-call-type facilities with any debt arrangements on those shares.

All right. Second question -- or the, let's call it the fourth question, from Sheldon Kisten at Kagiso Asset Management. Has COVID-19 resulted at all in a change of our mindset regarding the C&R investment?

So I'll answer that. As I said, I think in the formal part of the presentation, when we made the investment decision during the course of 2019, we saw a very, let's say, apparent mismatch between the direct market and the indirect market or the listed market, where property companies were trading -- listed property companies were trading, in retail in particular, were trading at discounts to NAV of 60% to 70%. We didn't believe that the underlying assets had been impacted as much as the market was predicting at the time. And I guess from that perspective, we -- I'm personally still convinced that, that was a correct decision and indeed an opportunity that we should have taken and that we did take. The subsequent events of COVID-19 has obviously exacerbated matters. I think it's exacerbated the online dynamic and propensity of, I would guess, just generally, online shopping has got a bit of a tailwind off the back of COVID-19. And I think what it's resulted in is a lengthening of the downward cycle of revaluation of retail assets. And so the trough effectively is going to be a little bit deeper. And the recovery is going to be longer. But am I convinced of Capital & Regional's strategy on needs-based retailing community centers and the way in which the management team have repositioned those assets to serve the community? I remain totally convinced on that strategy. And so I think -- I don't know what's going to transpire between, let's say, now and the end of the year or the next sort of 12 to 18 months. As I said, I do believe that the downward cycle will continue. And we're going to -- we're obviously going to have to keep a close eye on the different covenants and debt covenants and the operational performance of the company, which we're really seeing is improving quite materially obviously off the lows. So in the fullness of time, I think we will continue to evaluate the investment. And what I can tell you is that there's a management team in place and a platform there that is really exceptional. And should there be any opportunities and should liquidity come back into the market and let's call it, funding become available, I think they're pretty good long-term opportunities to leverage that platform.

Thank you. All right. Another question is what's your thoughts on further devaluations in the next 12 months. And could you give us estimates on how this will be attributed across and changes in discount rates and cap rates and cash flow? And that was also from Sheldon. And I think then there was a further question down the bottom from [ Valhallam ] that also wants to know is, if we believe that valuations might be going lower, why haven't we written down -- written them down all the way? So I'm going to give it a crack and then you can go ahead as well?

I'm also happy to go.

Go. Go for it.

So look, I think again, that [ Valhallam's ] question came up within the different -- within the Board cycle and at the property investment committee. The fact is we don't decide to write the properties down. I mean we -- the process is an independent process, which is performed by the valuation fraternity out there. We can only provide them with the relevant information in relation to each individual property. But we, as a Board, don't have the final decision just to unilaterally write-down the value. There's a very defined process of how these values get determined. We have -- I think we've disclosed who all the valuers are. And the final result is whatever the final result is. Whilst there might be an expectation for them to go further down, they haven't decreased at this particular point in time. I think we made the comment or I personally probably made the comment prior to -- at the pre-close that we expect through the cycle. And I think it's very important to understand the cycle. Direct property, I guess, in any market goes through a cycle. And certainly, in the South African cycle with very theoretical 10-year cash flow valuations, you always clearly have a lag effect. So whilst the direct market or let's say, the listed sector might have reacted already and taken the share price, Growthpoint share price, down from levels of ZAR 22, ZAR 23, whatever it is, to ZAR 12 and ZAR 13. And NAV, our NAV is still sitting at ZAR 23. The direct market and the valuation cycle is a much more steady, slow, highly theoretical process. So we estimated that we could see a 10% to 20% downward valuation of direct property assets through the cycle. Not too many people, I think, picked up on my very specific and explicit comment at the time that we saw this happening over a 24-month and possibly even longer 36-month period. It wasn't going to happen in one go. And I would still have that view. I still believe that if you saw our valuations are down 8.8% now at this particular valuation point at 30 June, I would still see that from the starting point, we could see up to 20-odd percent -- 10% to 20% total downward revaluation. So 8.8%'s already happened, and you can see more to come. I don't know if there was another part to that question.

Just the discount rates and cap rates and cash flow.

Discount rates, yes, yes. So again, we made the point at the time that bulk of the change in assumptions would relate to income. And I think that has indeed transpired. If we look at the valuation change that we saw, there wasn't a huge amount in cap rates and discount rates. It was all really driven by income assumptions. And cap rates, discount rates, to my mind, very dependent clearly on the inputs that go into these discount rates. So if you're doing a 10-year discounted cash flow and your discount rate is made up of the risk-free rate plus market risk premium, plus liquidity risk premium plus whatever else goes into it, if the South African 10-year bond rate is going to go from 9.30% to 10.30%, then definitely a big impact on valuations. With a higher discount rate, if it's going to go from 9.30% to 8.30%, it might offset any weakness on income and you might have -- end up with a pretty stable or not a big, dramatic impact on valuations.

Sheldon also asked, which kind of retailers got the most relief. And -- or was it spread? And then what was the GLA on the Edgars and V&A? So I think we mentioned that the Edgars, V&A was 5,800 square meters. And that the retail sector -- or in the retail -- those that we -- obviously the smaller ones got more relief. And certainly, a big component of that was the restaurant sector, certainly was an area that we had to provide quite a lot of relief to. Neil, any other specific sector? That's about it. Okay. Fine. Let's move on. We've got Ross Krige from JPMorgan. He's got 4 questions. Would you be able to provide any insight into August collections and arrears? A large proportion of the retail leases are expiring in FY '21, what do your negotiations so far suggest in terms of the renewal success, length of leases and the likely reversions in FY '21 and -- versus FY '20? Are you seeing a pickup in the transaction volumes in the SA market? I presume that's the capital side of things, the trade and assets. What does it imply on the cap rates and where -- to where will the market -- sorry, to where the market was a year ago? And how likely do you compare the cap rates used by Growthpoint's latest valuations? And then will Growthpoint need to inject more capital into C&R? And what is the quantum? So Ross, some of those questions are a bit tricky, mate, because they're like really forward-looking and in theory, they're not audited. So I think -- do you want to consider some of those so we can answer some? I can answer some of them. And Neil, do you want to talk about this?

They're for Neil. It sort of sounded like Neil and the retail.

We're going to pass it to retail on the retail because he's obviously right in the mix there, maybe give him the microphone. You're on. Okay.

Okay. Yes. I'll answer the question on the retail expiries and negotiations. I think what we need to bear in mind is that there has been a, call it, a pause for about 3 or 4 months where there was no letting activity. And that has obviously impacted some of the numbers going forward and concluding deals. But the overriding factor that is governing any negotiations at the moment is the outlook for the economy. And we are trying to balance obviously renewing leases on a long-term basis, at the moment, in a very bad operating environment where retailers are trying to lock in long term, some very low rates. So we would be looking at, in a number of instances, concluding shorter-term deals to ride out the storm and obviously get to a position of normality in the future where the leases and the lease terms reflect that normality.

Perfect. Then the capital side, I mean, obviously liquidity in the South African market has, I wouldn't say dried up, but certainly has significantly reduced. So on the capital side, there haven't been that many transactions. We're clearly busy with a couple of transactions at the moment, negotiating on a few portfolios. And I believe that the valuations and the sort of level where we're talking, there is a resemblance in that. So I think that I believe our valuations are very reasonable. And one -- I think where I would refer you to is there's an annexure in our documents, which you can download, which is annexure 4, which is quite a nice snapshot, specifically of the South African portfolio. And one of the key numbers would -- that you can have a look at is your valuation per square meter, excluding bulk, and you'll notice that if you compare to new developments, there's a significant discount still in that -- in those numbers, which help a little at least relative to new. And then the Capital & Regional question?

Yes. Maybe if I answer that. Just my comment on cap rates is -- it's almost impossible at the moment to determine what the cap rates are or should be because you don't really know what the income is. I mean the real issue at the moment and for the next, to my mind, 6 to 12 to maybe 18 months, is, well, what is the income? We've seen the Edcon play out. And Estienne said, in a weird way, it's actually I think, a positive at this point in time because 88,000 square meters could have gone vacant, and we've only got 9,000 square meters going vacant. There have been market-related resets on the rentals. But that is a very significant outcome, and we believe that the 2 buyers of that business are good operators. So that is a big positive. But the income number in the process for the center will have reset. There's clearly the relief that was granted, whether it was in the form of reduction or whether it was in the form of deferment, that has to play itself out over the next 6 -- the term for the repayment was anywhere between 3 and sort of 12 months. Now that has to wash its way through the numbers before one can truly get, again, a feel for what's the sustainable level of rental, what's the sustainable level of trade at the shopping center, what is -- you'll appreciate that rent-to-turnover ratios, which were the guide that we -- is still the guide that we follow. At the moment, you actually probably can't even begin to understand what that number means because turnover was 0 for 3 months, and rentals are being changed. So I think -- I personally would be very uncomfortable commenting on cap rates. Discount rate is a different one. I've already given my view on that. Cap rates, I don't have a clue what those could be. For now, it's about the income and finding what the real income is and what the sustainable income is for the center. And only then can you sort of get a better view on the, let's call it, the transactional side of things. On CapReg, again, to reiterate, I think there's a phenomenal management team there. There's an exceptional platform there. The guys really know what they're doing. They know their market inside out. They know their customers. The product offering, I think, is still very relevant today, probably more so than ever before in terms of the community focus. And certainly, we remain, as Growthpoint, very supportive of management, of the company, of their strategy. And we'll have to see, I guess, where the valuation cycle ends up and what happens in terms of the, let's say, further discussions with the banks, et cetera, et cetera. But I don't believe you need a fortune of capital to be injected. If you wanted to bring in equity to sort out in the short term, short to medium term, let's say, keep the wolves from the door in terms of LTVs and covenant breaches, I don't think you need a fortune of equity. And we're going to evaluate at the appropriate time, depending where the ultimate values go and where the covenants end up coming out at and where the discussions with the funders, the banks end up, we'll make our decision at that time. But we remain very supportive of management in the business.

And the dividend, by when does the dividend need to be declared to comply with the statutory 75% requirement? So I think, Norbert.

The answer to that is by the end of December, so 30th of December -- 31st of December, 6 months is what JSE have granted. And maybe just a quick comment on that. I think I spoke about that a bit at the beginning of the presentation. But there are a couple of levers that are very important to understand with this final decision on the dividend. If you don't pay the dividend, whatever you retain, you're going to pay tax. 28% -- literally every cent that you retain and don't pay out, it's a small buffer, but essentially, you pay 28% tax as the company. On the other hand, you do -- there are liquidity considerations that need to be taken into account. There are consequences to whether you don't pay or pay more or pay less. So it's quite a delicate position. And as I said, some shareholders are categoric. They don't mind if we don't pay a dividend at all and pay hundreds of millions of tax. Other shareholders have approached us and said, "You are a REIT. A fundamental principle of a REIT is you must pay your dividend. It's like a flow-through vehicle. So you got to stick to your 75% payout ratio as an absolute minimum. We urge you to actually continue to pay as much as you possibly can." So I think the message from our side has been pretty clear and consistent that Growthpoint -- the current regulations are, you have to pay 75% to remain a REIT. And Growthpoint is going to remain a REIT and wants to remain a REIT. So currently, we will be paying, based on that, the 75%. Now something may change regulatory-wise or otherwise in the next couple of months, and that will have a bearing on our final decision in relation to the dividend.

Okay. Then we've got another question from Kirstin Govindasamy. And she asks, albeit unlikely, please, can you provide us the subsequent or sequence of events should covenants be breached? I presume those are debt covenants. What are the likely options? And how supportive do you gauge debt holders to be? And Bandile, shortly after that, asked the question, what responses are you getting from the DCM market? And are you concerned about renewals? And secondly, will funders used the new BPR SA REIT LTV as a measure of LTV going forward?

So I'll maybe start with Bandile's question. My understanding is that some of the funders are obviously closely looking at that new ratio and will ultimately probably want to bring that into the language of the different loans and loan covenants. From our side, that has obviously had a bit of a negative impact. I think the inclusion of the derivatives in the calculation made about a 1.7% impact. So the 43.9% is up by about 1.7% just because of the inclusion of the mark-to-market of the derivatives in that calculation. Now it's not in the loan documentation. At the moment, derivatives is not included in the LTV calculation with the banks. Equally, I thought there was another comment. I mean if you look at the actual debt movement on the South African debt portfolio, ZAR 1.8 billion is merely currency-related. So the nominal value of the underlying pound and euro and dollar debt that we have didn't change at all. But there's ZAR 1.8 billion of additional rand debt just because of the rand weakening to those currencies. Admittedly, on the asset side, you would have probably got a benefit as well. The question on the covenants, I wasn't sure whether that was Growthpoint's covenants or CapReg covenants or whose covenants and the process.

Yes, well, I'll presume it'd be Growthpoint's. Yes, I think they're talking to covenants of Growthpoint.

Look, we are still very far off from coming at Growthpoint. I saw -- I don't know if it was in any of these questions or something I saw in the last day or 2 on the increasing covenant to 55%. Our covenants have always been 55%. Our most stringent covenant, I know redefined recently, got relaxation from their bond investors to go up to 55% LTV. But our covenants have always been 55%. In fact, some of them are higher at 60%. In fact, 1 or 2 of them at 65%. But the most stringent one is at 55% and 2x interest cover. And with our current levels of LTV, we believe that there's a pretty substantial headroom still between where we are and those covenants. On the bond market, I think we were very successful, right in the midst of lockdown in a month of July, I think it was. We tapped the bond market for ZAR 800 million on a refinance of an existing facility. In fact, the refi was only about ZAR 400 million, if I'm not mistaken, and we're able to actually upsize that particular bond to ZAR 800 million. There was a further small issue as well in the bond market. I -- I mean -- so -- and that was just a month or 2 ago. So I do think that the bond market is still pretty constrained. And I don't believe that it's -- anybody or any issuer, a real estate issuer can just rush off to the bond market and see that as a guaranteed source of finance. It's definitely becoming tougher. But I do believe for Growthpoint, there is still some access to funding in the bond market.

Okay. There's a question from Murray Moore at Aylett, and he wants to know what's the latest news regarding Globalworth's management changes.

I mean it's pretty much status quo for now. I mean Ioannis is still very involved with the business, and him and Dimitris are clearly running the business. He -- Ioannis did indicate to the Board that towards the end of the year into 2021, that he may wish to -- maybe -- that he's going to be stepping aside. But in my personal discussions with him, he's again confirmed that he remains available, he remains available to consult to the company should the need be there. But in the interim, obviously we've got Dimitris running the show.

Okay. Murray also asked, would you consider repositioning vacant toll -- what is it, tail -- sorry, tail-end properties into other property types, residential, self-storage, et cetera? I'll maybe give that a crack. Murray, look, we -- obviously every single property that gets -- goes vacant and where we're struggling to let it, we look at all sorts of alternatives. And that's where trading and development team also play a big role in looking at alternative uses and optimizing value ultimately for the company. So I think that's, in short, the answer to that. And then [ Charlotte ] at Nedbank has asked what would new buildings cost per square meter in this market, so retail, office and industrial? Maybe I'll give that a stab. You guys must maybe just check me if I'm wrong. So I would say a new retail shopping center, depending obviously if it's strip or if it's a closed mall, but you're probably looking at about ZAR 25,000 to ZAR 30,000 as a range for that sort of asset. Office, I mean, the new, let's say, Oxford, you can go and do the numbers there, but you're in for over ZAR 30,000, ZAR 32,000 a square meter for that sort of finish office. And industrial, I think land included, you're probably at about ZAR 8,500 to ZAR 9,500 depending on the office component and the finish and this whole million and two different things that move the price, but that gives you a range, ZAR 8,500 to ZAR 9,500. Then Sheldon Kisten again. Sheldon, you only get 5 questions, okay, then you run out, okay? We've got to go home at some point here. Right. So this is the last question, okay? It's do you see these current market conditions as an opportunity for asset portfolio growth? And if yes, do you have a preference for direct or for listed?

Look, I think my view on it is that we need to see a stabilization in the -- in the South African economy first. I spoke earlier about finding the income levels that are sustainable, that one can then take a view on in your final analysis of pricing. We've got a phenomenal portfolio of 440 properties. I would say that we are -- we're not actively going out and seeking more investment in the domestic market at the moment. I think the short term, as I've reiterated a number of times, the focus is on liquidity and balance sheet strength. So to go and raise debt and/or equity, certainly debt in this market, further debt is probably not prudent to raise equity at these levels for acquisition of new assets. I would suggest that the priority, if one were to consider raising equity, should be strengthening the balance sheet rather than deploying it for acquiring further assets. I'd say that the focus -- we said earlier at the outset, the strategy remains intact at the Board, I think, currently still very favor -- in favor of the internationalization strategy and then the equity-light strategy. So we've got the fund management business, which I think is perfect for this environment. The Board are very supportive of the fund management or inverted commerce equity-light strategy, where we would seek to bring in co-investors into either funds or possibly even directly into property assets and effectively deploy less equity ourselves, but leverage our own platform. I spoke about the strength of the platform that Capital & Regional has. It's fair to say that in every investment that we have from CapReg to Globalworth to GOZ to the Waterfront, the core underlying strength of the business lies in the management and the management platform. And in South Africa, probably even more so. I mean we have 630 dedicated property professionals, to my mind, the best in their respective fields of expertise, whether that be retail, office, industrial development, treasury, it doesn't matter, finance, whatever it is. And that asset, we need to leverage and -- in preferably in a sort of an equity-light model or equity-light strategy in this environment, where equity is expensive and difficult to come by.

And Sheldon just said, "Thanks, guys. I'm done."

On that note, maybe we are.

We are, yes. I think we're done. There were 1 or 2 other questions, but I think we've covered them in the commentary that Norbert gave on some of the other questions. So if you have further questions, please do direct it to us, and we'll come back to you and answer all questions we can.

Thank you very much, everybody. I hope you guys are still out there, and we haven't just been talking to ourselves for the last hour and 45 minutes, but we look forward to -- Sheldon, he's been listening. We look forward to engaging with you in due course. I know there's many conferences set up in the next couple of weeks, et cetera. So thank you all very much for your time, and we look forward to hopefully next time meeting in person again. Thank you.