Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

Good afternoon, and welcome, everyone, to Growthpoint's Investor Update, hosted by Nedbank CIB. With me representing Growthpoint, we have Norbert Sasse, Estienne de Klerk, Lauren Turner, Gerald Völkel and Dirkje Bouma. Just a few housekeeping items before we get started. [Operator Instructions] If you are experiencing any issues, feel free to e-mail them to me. Today's call is being recorded. Should the screen freeze due to any bandwidth issues, simply refresh in Page 5, and you'll be able to follow the session again. Thank you. With that, I hand over to Norbert. Norbert?

Thank you very much, everyone, and good afternoon, ladies and gentlemen. I thought that to start off with, I know that the intention is that this just be a sort of a Q&A session following the release of our quarterly update. I think that was published on the 11th of November. But perhaps it's appropriate for me to start off by just spending a few minutes giving you all a bit of an insight into some of the strategic direction of the group and some of the strategic discussions which took place and have been taking place all along, certainly during the period of lockdown and then also to touch base on the equity raise. I'm assuming that there will be a number of questions in relation to the equity raise. So just to provide everybody with a bit of insight into the way in which the Board was thinking about the equity raise and the timing of it, et cetera. So I'll start off by just briefly touching on the strategic initiatives of the group. It's fair to say that during the last couple of months, there have been numerous engagements with the Board in relation to strategy. Not only reviewing existing strategies, testing the thinking and the different strategies that we have, but also, we've had a number of new appointments to the Board of Directors. So a number of the directors also found it very useful to participate in the broader discussions around strategy. I'll touch on 4 elements of the strategy. In the first instance, the internationalization strategy that we adopted a number of years back. It's fair to say that the Board as a whole remain very supportive of internationalization and of growth when having an international business. There is definitely a view that we continue to look to expand and grow our international representation. But there is clearly also a very acute awareness that the current environment will restrict our ability to grow offshore meaningfully given the -- let's call it, the state of the balance sheet, with loan-to-value ratios or access to capital just more generally. And in that regard, there's again an appreciation that whilst we have already achieved, let's call it, our initial target of 30% of assets offshore and 30% of earnings before interest and tax coming from offshore, perhaps what would be more appropriate in the short term is a greater sense of focus in relation to our international assets. In that regard, again, it was acknowledged that our Australian subsidiary has performed very well and continues to perform very well, that Australia as a jurisdiction or as a country and an economy continues to perform well relative to some of the other economies that we've invested in and, in particular, relative to the South African economy. So the intention would be to have a more narrow focus and a more focused approach to the Australian investment. It is also fair to say that the Australian investment is seen as the -- let's call it, the core of our offshore business and effectively, the jewel in the crown. In looking at the other 2 offshore businesses, Capital & Regional and Globalworth, let's touch on Globalworth first. There's an acknowledgment that Globalworth continues to perform well. It's in the office and industrial sectors which have performed well during COVID. The economies of Poland and Romania are doing reasonably well. And whilst the share price might have taken a big dip, operationally, the business is performing very well. It's got very little issues in relation to liquidity. It doesn't have any major debt refinancing in the short term. So if anything, the business is performing very well. Unfortunately, the founder, Ioannis Papalekas, has sold his shares. He will be exiting the business at the end of the year, but we do have a very competent management team and the joint co-CEO, Dimitris Raptis, has stepped up to the plate. And we will provide you with some support, especially in country in Romania, where obviously, Ioannis leaving will leave a pretty big gap in terms of the local knowledge of the market and the context in that Romanian market and we will advance in making some appointment there. So the -- structurally, I guess from a shareholder perspective, it's not optimal having ourselves and CPI and Aroundtown owning collectively almost 90% of the shares. And it's probably fair to say that in the next 6, 12, possibly even 18 months, something might evolve. There's no urgency for anything to happen. But it's -- the entity being listed as effectively, let's call it, a technical listing is not going to be tapping the equity markets for any equity in any time soon. So it strategically doesn't really make sense for the entity to remain listed. And one could potentially foresee that there will be a change in the, let's call it, the eventual ownership of the group in the next 12 to 18 months. In relation to Capital & Regional, I think that would be the more challenging investment at the moment. Fair to say that at the time we made the investment in December 2019, we didn't have visibility on COVID. And whilst we were fully aware of the challenges of retail in the U.K. and the challenges of valuations in retail assets in the U.K., and we were actually playing into that theme when we made the investment at a significant discount to NAV in December '19, COVID has unfortunately had a much more detrimental impact on the retail sector in the U.K. and valuations have dropped by more than what we had contemplated that they might do. And in the next -- in the short term, I would guess in the next 6 to 12 months, I guess something would have to give in relation to CapReg. There is -- the Boards are acutely aware of the situation. And the Board have -- in the process of undergoing a number of, let's say, strategic reviews on the different alternatives and options that are available to the company. And as a major shareholder, we would respond to any, let's say, strategic initiatives that the Board put forward to, to shareholders for consideration. There is no, let's say, hard and fast rules on whether we will invest more money. Certainly, any approach to the shareholders, we will be evaluating the investment case based on its merits. And it's too early to make any determination at the moment on what the outcome of such -- of those initiatives from the Board might look like. Moving along then to Funds Management. Fair to say that the Board -- Growthpoint Board again supports the Fund Management initiative. We made good progress with the 2 funds that we have, the Africa Fund and the Healthcare Fund. Just more generally as an equity-light strategy, the Board are very supportive of, let's say, resourcing the Fund Management business appropriately. We probably stand to be criticized that we haven't resourced that particular business unit appropriately. And -- but going forward, we certainly are minded to point appropriate resources to run the Funds Management business more aggressively. We would seek to add new funds onto the platform. And we could potentially even see the introduction of some core -- some of our core assets could potentially also be placed into a fund with a view to, at the end of the day, raising some capital and addressing LTV and balance sheet issues going forward. On the trading and development side, a number of the new directors on the Board questioning the strategy of trading and development and having trading and development as a business unit. We spent a lot of time in the last couple of weeks going into a deep dive and explaining to the Board the benefits of having the development team, explaining and showing the deep level of skills and knowledge that development team has as well as the way in which that development team interacts with the rest of the business, retail office and -- across the retail office and industrial sectors and also linking into the Funds Management side. And if you consider the kind of product and skills that the development team have got and what they've developed over the last couple of years, the likes of Discovery and the Exxaro head office building and 144 Oxford, more recently also the new Pretoria Head and Neck Hospital in Mainland, these are skills which are very hard to come by. And whilst there's an acknowledgment that the development activity will be reduced in the next couple of years, there is also an acknowledgment that the level of skills that sits within this development -- trading and development team are of such a nature that we would want to retain them for the benefit of the group. Just a very quick example of how this development team interacts with the rest of the other business units, in particular, the office sector. We lost Deloitte as a tenant in the Woodmead Office Park about 1.5 years ago now, 2 years ago almost, and that was a 40,000 square meter user. The development team were in the process of responding to an RFP from Altron. And through their skills, we're able to convince Altron and produce a product for the Altron group to introduce a campus-style head office development for them in some of the buildings that Deloitte were occupying in that office park. Similarly, DRA Global was another client of the development team. And we secured them to occupy in order of about 12,000 square meters also in Woodlands Office Park. So there's significant benefit, to our minds, on retaining the development team. We accept that it needs to be rightsized and fit for purpose but we certainly do see ourselves keeping that business. On the trading side, historically, over the last couple of years, we articulated that we would look to pay out some trading profits in an effort to boost, let's call it, distributions. We have communicated to the market that we will continue to pursue trading opportunities but we will no longer be paying those profits out as distributions. We'll retain them and use that in our normal capital recycling -- recycle program. And then just focusing on the domestic portfolio lastly and optimizing the South African portfolio remains a priority. These 3 sectors presented to the Board 3 weeks ago on their strategies for the next 3 to 5 years. I think to try and encapsulate it, there's certainly a confirmation that we're going to continue to have an exposure to retail office in industrial sectors across South Africa. We will be focusing more on improving the quality of the portfolio. And in the process, one could potentially see the office and retail portfolio shrink a little bit and potentially see the industrial portfolio expand a little bit. The difficulty with the optimization in the South African portfolio right now is the fact that liquidity in the domestic market is very challenged. We have articulated a few years back the fact that we had a noncore portfolio of circa ZAR 4 billion to ZAR 5 billion that we were looking to sell. We have had mixed success, I'd say, probably on balance. The lack of success that we have experienced is due to the lack of funding available in the domestic market. The banks are generally not that keen to be lending to new participants in the market and certainly not to be lending against assets that existing clients of theirs in the form of ourselves as Growthpoint are disposing. So we often get approached for significant discounts. And whilst we're open to providing and offering discounts, even with the discounts, the buyers aren't able to raise the funding. And they then approach us for vendor finance. And by the time you're having to provide discounts of 20% to 25% and then provide vendor finance of another 25% and the possible return you can get on the vendor finance in the form of [ missed ] debt is akin to that of senior debt, the whole deal just doesn't stack up. And we've had 3 deals in excess of ZAR 1 billion not materialize in the last 12 months. So that remains challenging but we remain focused on optimizing the South African portfolio. So I'll pause there on the, let's call it, strategic update and move straight into a bit of background on the equity issue, obviously, very topical. And I'm assuming there are many questions in relation to the fact that we decided to raise some equity a week or so ago. And I just want to give everybody a bit of a sense of the approach the Board took in considering equity as an option. I want to take you back to, I guess, when we released our results, half year results, in March this year. It was the second week in March. It was a Friday. We were down in Cape Town. We had just released the results. We were -- we had just projected that we would still -- we would make our guidance that we had put out to the market. For the full year, we would achieve circa ZAR 2.18, which was what we had done the year before. That was on a Friday. On the Sunday, the President announced the state of disaster. And the Sunday following that, the President announced the lockdown level 5. We had -- as part of our results, declared our dividend ZAR 3.4 billion and had provided the timetable for the dividend to be paid. Within a week of the results and declaring the dividend, we were in level -- 10 days rather, we were in level lockdown 5 -- lockdown level 5. And it's fair to say that everybody got a little bit of a shock. The dividend had to be paid. We were looking at our liquidity position and we were a little bit concerned about our liquidity position. We approached a number of the banks for additional banking lines. They were all pretty accommodating. But where we asked for ZAR 1 billion facility, we were offered ZAR 500 million. Where we asked for ZAR 1.5 billion, we were offered ZAR 700 million. And it's probably the first time in the current management team's history that we ever were faced with, let's call it, challenges in relation to liquidity. And generally, whether that be debt or equity, the bond market was pretty shut. And I think it was the -- at that time that the Board took a view that in the short term, it needed to focus on the balance sheet. It needed to focus on balance sheet strength and it needed to be proactive about managing the balance sheet. Prior to the year-end pre-close or at the time of the year in pre-close messaging, we messaged the fact that we saw property valuations dropping by between 10% and 20% over the next 12 to 24 months. And certainly, that did materialize when we released our year-end results in September. We had taken about an 8.8% write-down on the South African portfolio. That was over ZAR 7 billion as a write-down. And again, that probably -- whilst we were projecting the 10% to 20% over a 2-year period, the initial write-down was probably a little bit more than what we had expected. And consequently, LTVs obviously rose a little bit above where we had expected them to be as well. We printed a number of 43.9% LTV at the time. So again, the Board felt that we needed to focus on, on the measures that were in our control, on measures that would have a beneficial impact on liquidity and the balance sheet. And in an ideal world, we were also trying to focus on measures that would have a limited impact on, let's call it, the key financial metrics being NAV and earnings per share dilution. The easy one, I guess, was the dividend. So for the year-end dividend, we declared a dividend -- we communicated that we would pay out at least 75% of distributable income, thereby, I think, effectively retaining in the order of ZAR 1.25 billion to ZAR 1.5 billion of cash. Now whilst that is very useful and good for liquidity, it's not necessarily enough to address, let's say, LTVs certainly in the short to medium term. So the other alternatives that we considered and levers that we had to pull was to consider asset disposal domestically. I've already articulated the challenges in that regard. We also spoke about potentially disposal of assets offshore. We -- certainly, Capital & Regional and Globalworth are not particularly liquid. And the only asset that was liquid was Growthpoint Australia. And whilst that does remain an asset that could be sold, the Board took a view that it was not prepared to consider selling any of GOZ at this time given the fact that it essentially represented the core of our offshore business and that we wanted to support that business going forward and the growth of that business going forward and didn't want to dilute to levels where we could potentially sort of lose control in the next year or so as that business expands. So we did communicate as part of the year-end results, let's say, feedback that equity had to remain an option. And it's fair to say that the windows to issue equity are generally very short. And the only -- we were aware that a window was going to be opening up before December. We did not as a Board want to wait till next year. So the view was that doing nothing was not an option. And the fact that we could miss this window pre-December and be faced with a situation where we perhaps needed to come to the market in March, April next year, when there would have been another data print which would be the half year results, where -- again, we expect valuations to come under pressure and some of the key metrics continue to remain -- to sort of print negatively. We did not want to find ourselves in that position as a Board to be faced with a situation where perhaps we needed to now have a pretty significant equity raise in the form of a deeply discounted rights offer and which could potentially have the, let's say, negative connotations around it that it would be seen as almost like a rescue equity raise or a rescue rights offer. Instead, the Board decided to be proactive. The Board decided to be -- to go on the front foot in terms of managing the balance sheet, positioning ourselves, but through this equity raise, which, by all accounts, in terms of percentage of shares and issued is relatively modest, 12-odd percent of shares in issue -- were issued. We -- the Board were fully appreciative of the fact that the financial metrics were negative. But in the final analysis, the Board felt that it would rather live with those -- the negative impact and have a strong balance sheet and be able to be in a position of strength and manage LTVs in the low 40s than potentially do nothing and wait for what might transpire and for another window in the new year. So hopefully, that gives you a little bit of insight into the way in which the Board thought about the equity raise and the timing of it. And I'm happy now, Ridwaan, to take a pause and then obviously answer any specific questions that there might be.

Thanks, Norbert. So the first question is coming through. Has your view around asset devaluation changed just given both equity -- the equity raise? Are you still thinking that negative 10% to negative 20% over the next 12 to 24 months is still in the cards or fearful that there could be potentially more?

I think our view is that prediction, if you want to call it that, is still intact. I think what surprised us, I guess, was having made that statement in June that at the first data print that sort of occurred post June, which was the -- let's say, in September, where we released our results for June that we took an 8.8% write-down. So clearly, this is not in our control. Whilst we have some input into the way in which value has generally approach the valuations, at the end of the day, the valuations are done by independent third-party valuers and we're unable to exert any sort of influence one way or the other. So we were probably a little bit surprised. I would have expected personally -- I'm talking from my own personal view here. I would have expected perhaps a more gradual decline, maybe a 5% to 6% write-down in the first instance and another 5% to 6% perhaps in the second -- the next data point. So I was a bit surprised to see an 8.8% write-down first up. But I think the view remains from our perspective that -- we're now sort of 6 months into that 24 months' period, that over the full 24-month period, we could still see that 10% to 20% range. I did make the point at the time that whether you're in the 10% to 15% or 15% to 20% range will depend on, I guess, how aggressive your valuations were to start with. And it was interesting to see that some of our competitors who also published results in September for a June year-end, in fact, took -- I think I stand to be corrected, Ridwaan, you know better than me. But I think the highest write-down percentage was somewhere just short of 13% if I'm not mistaken.

Yes.

We continue to remain of the view that over the period, yes, the 10% to 20% is still relevant. Sorry, Estienne.

Yes. If I can just add, I mean, the privilege of being on one of these webinars with Rode, the property economist, and now also on the panel for our valuations. And certainly, listening to Erwin, his impression is -- and what we saw in June was the thing that hurt the valuations, the moats was, in fact, the view on growth and rental growth over the next 10-year period or certainly the foreseeable period. And that has a very close correlation to their views on the economy to a large extent. So generally, the view is that the economy is soft and will remain soft. And on the back of that, there will be pressure on the growth component in their models in respect of the valuations. So I think that's going to be a factor that we'll have to face.

And then sticking to the equity issue, why go through a use of a book build and not a rights issue?

So again, I mean this is maybe an unfair opinion but it's my opinion, nonetheless. Certainly, rights issues are, at the best of time, very time-consuming, very -- it takes a very long time. From the minute you decide to do a rights offer till the minute you ultimately get the money in the bank can be up to 3 months. And during that period, you're taking market risk pretty much all that time. Whilst you can get the rights issue sort of underwritten and certainly in approaching investment banks to help us on the equity raise, every one of them put a write-off as an alternative forward. Invariably, the pricing on a rights issue was pitched at between 30% and 40% discount to the TERP, theoretical ex-rights price. We felt that, that came with materially negative reading and interpretation of, let's call it, desperation and that there was -- there were real issues and that there was a rescue-type situation. We did not want any of that connotation. There is no -- that level of stress is not evident in the -- in our portfolio. And at the end of the day, we felt that accelerated book build is very, very efficient and very quick. We accept that there are some shareholders who, unfortunately, due to the process might not be able to participate. But the other issue for us that we considered long and hard was the -- let's call it, the discount that we were able to -- that there was clearly a limit on the discount that we were able to issue the shares at. In the final analysis, we actually ended up issuing the shares at a 6.3% premium to the 30-day VWAP, whereas our authority allowed us to issue up to a maximum of a 5% discount to the 30-day VWAP. So we just felt that given the relative modest size of the issue in terms of percentage of shares in issue; given the fact that we didn't want to, we seem to be issuing shares at a 30% to 40% discount to theoretical ex price and all the negative messaging that goes with that; and given the speed of execution and the fact that we wanted to effectively conclude this before 31 December, before, let's call it, the next balance sheet date and the next reporting date, where pretend we've got no idea really what valuations may do and what LTVs may do or result in, we wanted to do it before December. And the window is very short. Ridwaan, are you there?

Sorry. So just on -- just to clarify on the loan obligations linked to the Capital & Regional acquisition and the need to pay down the apps of facility in the announcement. Was this linked to the equity raise by any chance?

It was. And as much as -- we had 2 authorities in terms of which we could issue shares. One of them was the 10% shares under the control of the Director for vendor consideration placements and to settle debt in relation to any acquisition. So the -- in terms of using that approval, the acquisition in question was the investment we made into Capital & Regional. And the debt that we settled, again, linked to that specific resolution and authority from shareholders was the debt that we incurred for the acquisition of the Capital & Regional stake. So the other resolution we had was the 5% shares for cash resolution. And as the -- and the 2 combined effectively gave us the ability to issue up to 15% of shares in issue. In fact, it was a hard-coded number in the resolution. It was 15% of the shares in issue. As at November 2019, the actual specific number was referenced. But the ability to use the 10% resolution was linked to settling debt that we incurred in relation to the Capital & Regional transaction. So subsequently, we have obviously -- we received the ZAR 4.3 billion that we raised in the equity raise. We have settled the ZAR 3 billion worth of debt that we incurred for the acquisition of Capital & Regional. The balance of ZAR 1.3 billion will -- is probably still sitting in cash today but will be utilized to settle further borrowing in the next week or 2. And I know that there have been a number of questions as to the use of proceeds. We have to stress that the use of proceeds in this instance is to strengthen the balance sheet, is to settle debt, is to provide operational efficiency and flexibility. It's not -- money is not earmarked to go out on a spending spree to go and buy assets, having -- considering we raised equity at such a deep discount to our own NAV.

And just coming to talk about the scrip. Why not issue a scrip alternative at a bigger discount to incentivize participation? And then also just on the topic...

I'm assuming you're talking here about the DRIP, Ridwaan?

Yes. And then also while we're on the job, what's your thinking going forward?

Yes. So look, I mean, again, talking to what's in management's control, certainly, the DRIP and offering the DRIP remains an option and remains an alternative for us to use. More recently, we just announced the pricing of the DRIP as recently as yesterday, I think. And the pricing there is, in fact, pretty similar. Slight discount actually to the pricing of the equity raise. I think the price is [ ZAR 11.55 ]. And that remains an option for management to continue to manage, let's say, leverage in the longer term. As I said before, just withholding the dividend or paying -- reducing the payout ratio to 75%, whatever you end up retaining from that is not enough, to our minds, to sort out LTV. It's good for liquidity and provide some liquidity to fund CapEx and potentially some development CapEx and potentially some smaller refinance obligations that you might have in the short term. But if you are going to be seeing LTVs move up because of asset value write-downs, you got to do more than just retain some of the dividend. So the 75% that we are paying out, certainly, the option there to offer the DRIP remains. And certainly, we did do that in this instance. And it's likely that, that remains an option going forward.

Are you more comfortable on coming devaluations for office in the retail center? I know you spoke about devaluations earlier, but specifically, anything -- any specific comments on the office and retail space.

Yes. I don't think, Ridwaan, our view has changed much. I think the comment we made last time around was that office had been under pressure probably for the last sort of 3 to 4 years and has shown very little, if any, growth. In fact, it probably had negative write-downs in office even before this last round of valuation. So the valuations in the office sector, to my mind, are generally -- have not seen any material increase and, in fact, has seen a write-down for more than 1 period already certainly in our own portfolio. Our view is that retail -- the retail write-downs would be more exaggerated, considering, I think, the fact that they had probably been written up more aggressively over time and that the negative impact of both the online retailing as well as COVID and more recently, obviously, having the impact of Edcon, et cetera, on retail is relatively new compared to the -- let's say, the negative impact on offices which has been prevalent for a while. So -- and I think that did transpire. If you look at our own valuations at June, I think if I recall correctly, retail was down over 11% on our portfolio. And one of the other reference points, one of our competitors, which I think was a pure retail fund, they had over 13% write-down there or thereabout. So I think that there's still a bit of catch-up to be done and that retail will probably still be written down a bit more aggressively, certainly in the next valuation cycle, now in December and possibly even in June next year. So you'd see retail continued to underperform for the next sort of 2 reporting periods.

With regard to disposals, would that not be an opportunity to raise capital as maybe offering bigger discounts to book [indiscernible] the equity range?

Ridwaan, just repeat that for me if you wouldn't mind.

So with regards to looking at selling assets, would you rather look to reduce the selling price and maybe incorporate a larger discount to book value instead of raising equity?

Yes, absolutely. I mean we appreciate the fact that selling assets at a 10% or 15% discount to book value is less dilutive than raising the equity that we did on the basis that we did. But I think I mentioned to you the challenges that we are facing in that regard. No doubt that we continue to sell assets. We sold, I think, ZAR 500 million to ZAR 600-odd million worth of assets in the last financial year, FY '20. In fact, over the last 3 years, we sold over ZAR 7 billion worth of assets, which is almost 10% of the total value of the portfolio. But it's incrementally become more and more difficult to sell. And as I tried to explain earlier, by the time -- if you consider that you've got circa 40% gearing on an asset, you now ask for a discount of 20% to 25% on the asset, you -- not only are you being asked for a discount but you now also ask to provide vendor finance in the form of a vendor loan or a mezzanine loan for another 20% to 25-odd percent of the value of the asset. If you -- and you're not able to get an appropriate return on that mezzanine finance because the numbers just don't stack up, then you got to question the logic of actually following through with that transaction. There's a point at which, certainly to our minds, it becomes nonsensical and you're probably better off just holding on to the asset. So we do remain open to disposing of assets. We remain open to disposing assets at discounts. But if you're now being asked to provide the vendor funding at ridiculous rates, not -- there's a point at which it just becomes nonsensical.

Maybe just 1 other -- 2 other points, Norbert. I think we have had some success even at premiums to our book value on small assets. So I would say stuff below ZAR 150 million and probably more predominantly in the range between, say, ZAR 10 million to, I don't know, maybe ZAR 50 million, ZAR 60 million, we've seen there's -- it's possible to sell those buildings, smaller industrial properties, et cetera, to the tenants and to investors. And in that space, we have seen the banks still being prepared to fund. On some of the bigger deals, the feedback has been that funding from the financial institutions becomes quite difficult. They have typically moved the LTV level that they prepared to go to as the sort of senior funder down quite a bit. I presume in the expectation of maybe changing valuations potentially coming under pressure. So we are -- the bigger deals are the ones that are proving to be more difficult. But there's quite a lot of action down the bottom end but it's quite labor intensive. And you're not doing billions at a time. You're doing a couple of hundred million. So it is -- and certainly, we're doing at the moment what we can do.

Again, not necessarily enough to move the needle on sort of an LTV issue.

Sure. Just on your comment that you will be looking to introduce some core assets into your Fund Management and raise capital towards those LTV issues. I think linked to that also, could you -- could the V&A ever be listed separately or put into the Funds Management business?

I'd say, Ridwaan, yes, everything is up for discussion. Obviously, we have not raised this with our partner, the PIC, in relation to the V&A specifically. But maybe just a little bit more color on the, let's say, core assets. So one of the thoughts we have is whether we can effectively raise capital or dispose of some assets at book value. Here, we're talking probably some of our better-quality core type assets. Sell down some of that on -- at or about book value. Continue to manage the assets. So introduce some fees in the form of asset management and/or property management fees with a view to ultimately going a bit more down equity-light strategy, utilizing some of those proceeds obviously, again, to repay debt and strengthen the balance sheet. So I think everything is up for discussion at the moment. And the difficulty or the challenge for us, I think, is twofold. One is I don't think we have appropriately resourced the Fund Management's, let's say, team. Much of what's being done is being done by myself and Estienne and Gerald on a -- let's call it, always a bit of a part-time basis. We believe given the success of the Africa Fund and the Healthcare Fund, we had 1 or 2 other initiatives that we're working very hard on at the moment in terms of different asset classes, that we're at the point where we need to resource that business appropriately, a point ahead of Funds Management. Get somebody to assist that individual in a focused approach to targeting the different pools of capital. Whether that be institutional pension funds, life companies, potentially even retail, who knows? But that certainly is going to be a short-term focus of the group in the next 12 to 24 months.

And then can you expand on the strategic reviews that are being taken -- that are being undertaken in Capital & Regional? What are the options on the table?

Yes. Ridwaan, I think the short answer is, unfortunately, I can't. Obviously, this is within the control of the Capital & Regional Board. But I think whatever -- it's fair to say that there wouldn't be 2 dozen options. There might be half a dozen options, maybe a bit less. Those would be the obvious options. So we're not -- I'm just very sensitive about the fact that CapReg is separately listed. There's a Board that's got its own responsibilities that it needs to fulfill. And so I would just, I guess, urge you to wait to see what the Board comes up with. But it's fair to say that there aren't -- there's no magic here. There's only literally maybe 3 or 4 options that are commercially feasible or viable. And I'll leave it at that.

We want to see magic movement.

You want to see what?

I want to see magic. Just on the comment that you said you're looking to increase exposure to industrial assets. What specific industrial assets are you looking at? And then also -- yes. So basically, what type of industrial assets are you looking to increase your exposure to?

Yes. So these would be, I think, typically in any logistics, 3PL, logistics-type assets, it's fair to say that we'd like to modernize our portfolio. We probably have too much of a waiting in some of the older manufacturing-style assets. And we'd like to invest more into more modern 3PL logistics warehousing-type facilities. We are a bit nervous in as much as there's a lot of hype around the superior returns that are theoretically being generated from these assets at the moment. We worry about the kind of rental levels that are needed for one to achieve a decent yield of, let's say, I don't know, 9%, 9.5%, 10% on development. With the current cost of building and the cost of land, you need rentals in the high 70s, possibly even into the 80s today and you're building at ZAR 7,000, ZAR 8,000 a square meter. We do worry about that a little bit because we've seen too many instances where the tenants aren't keen to sign 10-year leases so they're signing 5-year leases. And 5 years down the line, your [ semi-ZAR 5 ] has escalated to ZAR 95 and you've got a new renewal after 5 years. And you find yourself back at ZAR 55 and ZAR 60 and ZAR 65 a square meter. But generally, we're talking to more modern warehousing and logistics facilities. It talks a bit to, I guess, the change in the nature of retail and online, the distribution requirements for that. And then we do also believe that, let's call it, data centers. There's certainly -- we've seen a strong demand for data center-type warehousing facilities. And in fact, we're actually busy with at least 2 of those at the moment as we speak. And so those -- yes, that's sort of the area of industrial, I think, that we would be keen on.

Just a last few questions now. With regards to tenant years, it increased 16% in Q1. What's your view on recoverability? And are you looking to increase your provisioning and ECL ratios?

Excuse me, I just needed to open for the dog. So I don't know if Gerald or Estienne want to comment some -- share in this regard. I guess, clearly, there has been an increase. The latest number that I think we reported was just short of ZAR 600 million. I'm trying to remember what the number was now [indiscernible] ZAR 594 million. And whilst collection rates are improving, it's fair to say that, obviously, the absolute amount of billings has reduced a bit as vacancies have risen. I would say that we're probably reasonably comfortable with our provisioning. If I recall at year-end, we had in excess of 50% provisions against the normal areas and 25% provisions on the deferrals. We've done quite well in collecting on the deferrals. And I would argue that, that level of provision of 50-odd percent is probably -- remains appropriate at this time. I don't know if Gerald and/or Estienne have anything to add there.

Yes. So I mean, obviously, we review every single -- at a granular level, we review every single area independently. So it's sort of built from the bottom up, if you'd like. And those are assessed on a monthly basis. And then clearly, at a group level, we look again at these high-level provisions. But the reality is, is that I think, as Norbert mentioned, at this stage, probably -- and that's obviously subject to a further assessment on the half year-end numbers again because, clearly, we're going to be reporting then again to everyone. We'll have a very careful look at many of these numbers. There are a couple of lumpy numbers in there. I mean Edcon remains a big number for retail and it was close to ZAR [ 80-odd ] million, I think, in these numbers. So the reality is that every single area gets assessed and there are 1 or 2 lumpy ones. And unfortunately on the ground, specifically, we're seeing in our industrial portfolio a lot of business rescues emerging. And unfortunately, the economy is actually not [indiscernible] until at all. So it is a concern.

Yes. Can I just check -- and again, Gerald can chip in. But I'm sure that Edcon will actually write off by December. I'm not sure exactly where the process is on liquidation, et cetera. But that ZAR 74 million, whatever the number was, would probably be written off for the December number.

Right. We are...

Yes. So at this stage, the numbers that we reported in the trading update, there's been no clean-out or write-off of any outstanding receivables at this point. So together with credit control and the SA finance team, they will be doing, let's call it, a major clean-out of areas that are actually totally irrecoverable by the time we do our half year reporting and Edcon is one of those. So...

Because the anticipation there is a ZAR 0.07 liquidation and I know that's still the case. But off the back of that, I'm sure there's no point in keep on carrying a ZAR 74 million debt if we can just write down either all of it or down to the ZAR 0.07 equivalent.

But it was important to have those numbers accrue in terms of the post commencement finance or the business rescue, et cetera, et cetera, et cetera. So albeit that we've provided it fully, we had to reflect that number in [indiscernible] so that you can obviously put in your claim in terms of business rescue.

And then just in the interest of time, last question. Would you expect double-digit reversions in Q1 to continue for the rest of the financial year?

That's a million-dollar question there.

I think the first point to make is that there were a couple of really big lumpy ones in this quarter. I mean I think we reported on some of the bigger deals that we've done that have been quite good for the listings and/or to secure tenants but has come at a bit of a cost. Not all of the deals are quite as negative as that. But at the moment, unfortunately, we are a little bit on the back foot. There's material oversupply in office. There's industrial also not that strong given the weakness in the economy. And on the retail side, you've got certain retailers performing reasonably but they're very aggressive on the rental discussions. So there are 1 or 2 of them that -- due to their own mismanagement and issues that we're having to deal with. And that's -- that does mean that you are taking a bit of a haircut on the rentals. Actual percentage, it's difficult to say whether it's going to be a change in trend.

If I can just add there, Ridwaan. Obviously, that number is a trade-off for -- let's call it, for term or duration on the renewal and for escalation. So if we -- it's -- at the end of the day, it's a decision that the team -- the respective teams are taking to say, "Look, am I prepared to take a double-digit reversion in return for a new 5-year lease at 7% escalation? Or if all I can get is a -- is potentially a 2-year lease or a 3-year lease and the guys are driving the escalation down to 5% or 6%, then I'm not going to necessarily be prepared to take such a big upfront discount on the rentals." So it is -- it's an integral part of the -- its approach to each individual asset, each individual property. And the strategy for that property, considering the broad, let's say, demand and supply dynamics in whichever region you're at. As Estienne pointed out, that double-digit negative reversion print for the first quarter was a little bit, let's say, negative, considering -- for example, we had signed new 10-year leases with one of the big banking groups over a very significant amount of space, [ 35-odd-thousand ] square meters. So instinctively, my gut feel is that perhaps it shouldn't be double digits. It's certainly going to be high single digit. But it all also depends on, I guess, if and how the economy improves now that we're back to sort of level 1 and moving out of 2020 and into 2021.

Perfect. Thanks. So yes, with that, we'll just bring it to a conclusion. Thanks, Growthpoint. Thank you to the Growthpoint management team and everyone that has joined. Enjoy the rest of your day.

Thank you very much, and goodbye.