Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

And it's 1:30 exactly. So I think without further ado, thank you all very much for being here today. It is a little bit of deja vu almost. It's exactly 2 years almost to the day, I think it was the Friday. Today's a Thursday, but 2 years to the day that we were standing here delivering the half year results for the period up to December '19. And that was the Friday. On the Sunday -- we were still saying, okay, we are on track to make our distributions of ZAR 2.18. We were giving forecast, and we were coming in with like literally to the second decimal. And that was -- yes, on the Sunday evening, the President put the country into a state of disaster, and I think it was the Monday or the Tuesday, we went into lockdown level 5. And, man, how the world has changed. So it's been a very rocky ride over the last sort of 2 years. We're feeling a little bit more positive about these results. I think certainly, I think there are some positives to take from it. If nothing else, the fact that you are here in person is already a testament to the fact that things are normalizing. Last night, we were at the convention center. There were 2 functions going on. '91, we're having a 30-year celebration, and we had -- I think Liberty had a 2-day conference, which they were finishing up with a black tie function. So there's no doubt things are feeling a lot more -- a lot better. Things are feeling a lot more positive. And I think our results probably also reflect some of that. So I'm going to go through the sections 1 to 4 of the agenda. Estienne's going to do sections 5, 6 and 7, I'll come back to try and conclude and draw some concluding remarks. And then starting off, as in the past, just touching on an update on some of the strategies. It's fair to say that the last 2 years has been very much about focusing on balance sheet strength and liquidity, and -- in order for us to pursue our goals and our strategies. So we are continuing at the moment with our 80% payout ratio. We're retaining about ZAR 524 million worth of cash, that's the equivalent of the 20% we're not paying out. At balance sheet date, we had ZAR 516 million of cash on the balance sheet, and we have over ZAR 6 billion worth of precommitted approved facilities from our banking partners ready for drawdown in South Africa. On the internationalization front, I guess a relatively quiet period. We invested a further ZAR 480 million into capital and regional, another ZAR 11-odd million or $700,000 into Lango, and approximately 43% of our assets today are effectively offshore, located offshore, and 28% of our earnings before interest and tax is earned offshore. Looking at the South African portfolio, we continue to optimize and streamline the portfolio, selling noncore assets. During the 6-month period, we sold ZAR 1 billion worth of assets, 19 assets in total, at a small profit to book. At balance sheet date, there were another 3 properties held for sale for ZAR 30-odd million, small industrial assets. We feel confident that between now and 30 June, we would be able to sell probably another ZAR 500-odd million, between ZAR 500 million and ZAR 1 billion worth of assets. Cumulatively, since FY '17, we've sold ZAR 8.6 billion worth of assets. And then looking at generating new revenue streams. We continue to make great strides with our Growthpoint Investment Partners strategy. That's sort of the new brand name that we've adopted for our fund management business. We have circa ZAR 15 billion worth of assets under management now across those 3 funds, which is essentially what we set out to achieve when we started the funds management strategy, and we've continued to see pretty good opportunities there to grow that even further. It is a capital-light strategy, and considering the expense of capital that we're faced with at the moment, we're finding that is very attractive in this current environment. Late last year in December, we launched the Student Accommodation Fund. In total, for the period, 6 months, we've generated just over ZAR 20 million worth of fees. And then obviously, we are earning the income from the investments. The whole premise and the whole model is premised on co-investment, and hence, the Growthpoint Investment Partners name that we've given that business. Trading and development for the 6 months generated trading profit of ZAR 43 million. Development fees of ZAR 1.6 million and net property income of just short of ZAR 33 million. This essentially relates to rental income earned on properties that the trading and development team have on their balance sheet. So touching on some of the salient features for the period. The SA REIT FFO grew 17.6% to ZAR 2.6 billion. The FFO per share grew 17.4% to ZAR 0.774. The distributable income per share was up to over 5% to ZAR 0.769 and the distribution per share at 80% payout ratio, ZAR 0.615, also just over 5% increase from the comparable prior period. Group property assets grew at 7.7% to ZAR 164.6 billion. Our LTV has remained at roughly the 40% mark, just a shade under, group consolidated LTV. And our NAV grew by 6.2% to ZAR 21.48, that's per share. Looking at the financial results and trying to unpack, I guess, what drove the 5% growth or ZAR 128 million odd worth of increase in distributable income. In the first instance, South Africa actually was a negative contributor, about ZAR 68 million down on net property income, I mean, largely impacted by, I guess, the weak office environment, still seeing negative reversions on lease renewals, so the income line continues to be under pressure. On the expense line, obviously, significant improvement there with substantially less COVID relief that we had to provide and also substantially lower amounts of bad debts that had to be provided for or written off. On the upside, on the finance line in the South African business, given the equity raise that we did in November last year, the bulk of the proceeds were used to settle debt. So we achieved about ZAR 124 million saving on interest, and that was one of the big positive contributors to the increase. The V&A had a spectacular turnaround, and David and his team are here. And also, I'm sorry, I forgot right at the outset to just welcome some of our former directors, Hugh Herman and Lynette Finlay are here today. And obviously, not -- lot of the Waterfront representatives are here as well today. But yes, the Waterfront had a great turnaround, and ZAR 94 million improved contribution from the V&A Waterfront. It's -- I'll talk to that a little bit more when we get to the details. Distribution from GOZ was ZAR 32 million, up about a 4% growth in dividend from GOZ and slightly lower dividend withholding tax. Globalworth, their dividend reduced from EUR 0.15 to EUR 0.13, so the bottom line of that is ZAR 36 million less contribution from Globalworth. Capital and Regional, still not really contributing. Things are definitely looking better there, but still no dividend. I think they did, in their results 2 weeks ago, indicate that they would look to pay a dividend towards the end of the FY '22 financial year for them. And then the next sort of 5 or 6 line items are all linked to the Growthpoint Investment Partners. These are either our direct stakes into the different funds and/or the management companies, so those all contributed positively, albeit quite smallish numbers. And then the last line item there refers to trading and development where, compared to the prior period, we're ZAR 52 million less, and that is due to the fact that in the prior period, we actually had pretty bulky disposal -- profit on disposal from the sale of the former Exxaro head office building in Pretoria. So a very brief look at the income statement to sort of extract, if you want. Gross property income grew at -- sorry, it was down by 2.4% to ZAR 6.421 billion. Property expenses, I'm not going to go through each one of them. I mean, you can see the South Africa GOZ, Capital and Regional, the Healthcare fund, the Student Resi fund and trading and development all separately listed. But in total, gross income was down 2.4%. Property expenses were 11.2% lower. So expenses at the property level, I guess, also impacted by, again, bad debts, COVID relief, et cetera. Those numbers are looking a lot better. That leaves us with net property income up 1.3%, ZAR 4.684 billion. Other property expenses were up 27.8% to ZAR 418 million, and at the bottom there leaves us with net property income after operating expenses, up -- sorry, down 0.7% to ZAR 4.66 billion (sic) [ ZAR 4.266 billion ]. Our finance costs were 6% lower, ZAR 1.64 billion of interest across the different entities. And finance and other income was 34.5% higher at ZAR 535 million. And then after the adjustments for non-controlling interest, exchange control, profits -- sorry, exchange -- foreign exchange profits and losses, antecedent dividends and tax, we're left with distributable income up 5.1% at ZAR 2.623 billion. Taking that distributable income and then translating that into SA REIT FFO, there are a number of company-specific adjustments that are made to the numbers. In aggregate, they add about ZAR 12 million to the distributable income number. And the SA REIT FFO number then comes in at ZAR 2.635 billion. That's 17.6% up on the prior comparable period. On a per share level, ZAR 0.774. Distributable income per share is ZAR 0.769 and the dividend per share, ZAR 0.615, that's 5% up. A brief look at the balance sheet and just a few extracts here. The total property portfolio asset values increased in total by 8.7%, ZAR 139.9 billion worth of property assets. Again, you can see the individual movement of South Africa, GOZ and Capital & Regional. I think the set of results have been characterized by 2 key sort of elements to understand. Certainly, as it relates to the international investments, the year-end exchange rates, the rand was particularly weak, so the conversion at balance sheet date of the Aussie assets, the Capital and Regional assets, and Globalworth saw quite a significant increase into rands. However, if you look at the income statement, through the income statement, if you look at the average exchange rate, we do have notes at the bottom of the page here. The average exchange rate for FY -- this particular reporting period, half year '22, was actually lower than the average exchange rate for the comparable period. So you've got sort of 2 contrasting sort of impacts, if you want. The income statement is showing lower average sort of conversion into rand. The balance sheet is showing a very elevated conversion into rand. So our equity investments, up by about 1.3% to ZAR 15.2 billion. Loans granted up 22.5% to ZAR 3.1 billion. That's mainly a dynamic as it relates to the V&A and accounting for the V&A loan that the Waterfront -- that Growthpoint has made to the V&A. Our listed investments grew by 77% to just short of ZAR 2 billion, ZAR 1.992 billion, driven mainly by the increased investment that GOZ made into the Dexus Industrial fund. We have the unlisted investment in Lango at ZAR 852 million. And then our nominal borrowings, up 6.6% at ZAR 64.5 billion. That leaves us with shareholders' interest to NAV up 6.3% at ZAR 73.5 billion. I was accused of stealing Estienne's time last time, so I'm going to try and stick to the program. So just briefly then having a look at the international investments. GOZ. I'm not quite sure what to say about GOZ. It really is performing and continues to perform exceptionally well. It's like the -- I don't know where the phrase really comes from, the gift that keeps on giving. And so we've got 62% of it. The cost of the investment is ZAR 9.6 billion, the market cap -- market value is about ZAR 24.2 billion. The dividend grew at 4%. It remains very much core to Growthpoint's core investment, especially considering our experience and knowledge in that market, having been there since 2009. GOZ's balance sheet is in great shape. LTV is below 30%. They've got great access to liquidity. They refinanced quite a bit of their debt during the period and, in fact, in attracting new loan facilities, they attracted the lowest pricing all-in cost of debt on that new $150 million facility in its history since -- literally since 2009. It's debt expiries, the nearest one is December, but it's not significant amount. NAV per share grew healthily at 9%, and 58% of all the debt exposure there is fixed for a period of 4.1 years at an average rate of 3%. At the portfolio level, the portfolio -- property portfolio value grew at 11%. It's a combination of acquisitions and revaluation. Like-for-like revaluations were up by 6.6%, adding over ZAR 300 million (sic) [ AUD 300 million ] to the asset portfolio. 97% of the portfolio is leased to government-listed companies and large organizations. Portfolio is 97% let. It's got a 5% weighted average cap rate in terms of valuations, 6.3-year weighted average lease length. 106,000 square meters of space was let during the period, and the acquisitions, there were 3 acquisitions amounting to about $261 million during the period. And then as I mentioned a bit earlier, they invested another $60 million, maintaining our 15% shareholding in the Dexus Industrial Fund. Globalworth, on the other hand, we have 29.4% interest in that particular company. The cost of our investment is ZAR 8.4 billion; market value, ZAR 7 billion. Share price clearly not really reflective. It's not an actively traded share. Four shareholders own 95% of the shares, so there's 0 liquidity in the share. We would much rather refer to underlying net asset value as a marker rather than share price, but nonetheless, that's the number. The dividend did decrease from EUR 0.15 to EUR 0.13. The operational bottom line, FFO and distributable profit performance still impacted by the high cash balances, so there's still over EUR 400 million of cash that the company has been sitting with on its balance sheet. And we refer to that more broadly as a cash burn. Earning 0 on that cash, in fact paying 3-odd-percent, 3.5-odd-percent interest on the one hand and paying the bank 50-odd basis points to hold your euros. So the -- that having a negative impact on the bottom line dividend. The balance sheet remains pretty robust, as I said, EUR 418 million of cash, EUR 215 million of undrawn facilities. Gearing net of cash is about 40%. And there's some near-term debt expiries, ZAR 323 million -- EUR 323 million, rather, of debt maturities in the next 12 months. On the development side, relatively modest development activity compared to, let's say, the last -- was less at pre-COVID times. At the moment, the 5 logistics facilities being developed in Romania, about just short of 100,000 square meters. And in Poland, the bulk of the development activity is focused around 2 assets, the Renoma asset and the Super Sam asset, where these were mixed-use properties where, funny enough, the retail element was really struggling, and we've converted a lot of that retail into offices. And the bulk of the investment activity or redevelopment activity taking place in Poland is in relation to those 2 assets. The company has about EUR 3.2 billion worth of assets, 37 in Poland and 29 in Romania. Some pretty decent letting took place during the period, 285,000 squares, about 91,000 in the second half. Vacancy is just over 11%. The portfolio is a very high-quality portfolio with 99% of rent collections during the FY '21 financial year. Their financial year-end is December. At this time, there's not much impact of the conflict across the border. So obviously, both Poland and Romania border the Ukraine. I spoke to the CEO of the business just yesterday, and he tells me that on the ground, things are normal. Things are business as usual. What's evident is the -- obviously, the humanitarian side of things where you're seeing, obviously, refugees. Over 1 million refugees into Poland, obviously, into Warsaw, and about 100,000 into Romania, a lot of them also finding their way into Bucharest. So that is visible on the ground, but operationally in terms of the portfolio, the tenants, the letting, very little impact at this time. Who knows how things escalate and what happens over the next couple of months as this unfolds, but for now, things are pretty stable. Capital & Regional. We own 60.8% of Cap Reg. Cost of our investment, ZAR 3.5 billion, market value ZAR 1.3 billion. Capital and Regional undertook a GBP 30 million equity raise during the period late last year, which Growthpoint underwrote, and we ended up investing a further GBP 24 million. As I mentioned, no dividend, but they have guided for a dividend later this year. We continue to believe in the value of that platform and the management team, and the pretty narrow focus that they have on community centers and needs-based retailing. The balance sheet is looking a lot better. They -- obviously, there was the recapitalization, the equity raise last year, together with The Mall facility debt restructure as well as the reclassification of 2 of the assets, Hemel Hempstead and Luton, which are held for sale or designated as managed assets, and that effect has had the effect of reducing gearing from 72% to 49%. And there's every prospect that the 49% could come down by another 200-odd basis points once we receive the proceeds from the sale of the residential land at Walthamstow. We sold a small office for GBP 7 million. Company's got high cash reserves of GBP 58 million, and property valuations for the assets that are shown as owned at GBP 380 million have remained stable for the last 6 months. And that is a massive turnaround in and of itself. I mean since we invested there in December '19, between December '19 and now, we have seen 50% write-down in property values in the U.K. retail portfolio. So to go through 2 quarters or 6 months with no further write-downs is, to our mind, a signal that we have bottomed out. And that, hopefully, from here on forward, I mean, nobody is projecting stellar returns or stellar upward revaluations, but certainly the ongoing destruction of value with the valuation write-downs is hopefully at an end. And on the portfolio side, pretty robust letting, 143 leases. Occupancy is at about 93%. Very strong footfall in the centers, over 47 million people visited those centers in the 12 months to December '21. And then the residential sale of GBP 20 million is progressing well and should hopefully receive the funds in the next couple of months. I'm going to hand it to Estienne, and then I'll come back on the conclusion. Just checking the time.

Sorry, Norbert. Well, yes, what a difference 2 years makes. So I think the last time I was here, I made reference to the view behind me which, at that stage, were these very, very large dark clouds that had formed, for those that were here may remember that. I think the analogy now, based on the same logic, would be, it is a little bit obscured, but the view looks a little bit bluer and more clear, so hopefully, that truth flows through to the South African property market going forward. If we look at the business, the salient features for the 6 months. We've had good success in collecting our deferred rentals, and things across the board in the tenant base in terms of collections are looking significantly better. Vacancies are starting to come down in certainly retail and office, and that brought down the overall vacancy down to 10.5%. Lots of activity in terms of letting. We've let over 758,000 square meters of space at a 77.3% renewal rate, which has also improved. That has come at a cost, unfortunately. We are still seeing that there's significant negative reversion, specifically in the office side of things that has improved in industrial. And hopefully, we'll start seeing as the market improves in the various sectors that that should narrow. Arrears have remained quite sticky but have improved marginally, and we've got a couple of large arrears that we're busy working with that remain in the book they have been provided for. And we'll just have to work through those processes in respect of liquidations and business rescues before those numbers will correct. Valuations have kind of stabilized, just the marginal decrease in valuations. And then on the asset sales side, we've had quite some success in the 6 months where we've sold noncore assets to the extent of ZAR 1 billion. We've continued to invest in development. We've spent ZAR 480 million there, and our commitments in terms of future developments at ZAR 425 million. So continuing investing into the portfolio, trying to improve the offering for our clients. And then we made a strategic acquisition in terms of our Growthpoint Property partners business in terms of the Student Accommodation Fund. Just a summary on the discounts, deferments. You can see from the slide that in the 6 months, the amount of discounts that we've had to offer significantly reduced to ZAR 12 million. We've only had to also provide additional deferments of about ZAR 5 million, still incurring expenses on the -- all the stuff related to COVID of ZAR 10 million. So that would certainly help if some of the measures that we have in terms of masks and sanitizers and all these kind of things are lifted from a cost perspective for us. So the total impact was ZAR 23-odd million in the period. And if we look at the arrears and provisions, we can see that the arrears are starting to improve somewhat, and that the impact on the income statement for -- with bad debts was only ZAR 10 million in the period. And our total provisions, we've reduced marginally from ZAR 174-odd million down to ZAR 165-odd million, so very well provided in terms of the arrears. And as I mentioned, a couple of sticky ones in there, which I'll touch on as we go through. On the retail side, the portfolio today has reduced to 43-odd properties. It's 1.3 million square meters of space. The valuation has been written down to ZAR 24.7 billion. The portfolio seems to be improving from a fundamental perspective. We see vacancies reduced to 4.7%. In that 4.7%, there's quite a component of offices, which if you took those out, will leave you about 3.8% odd. There's a couple of big vacancies that we've got in 1 or 2 of our assets, one specifically in Bayside on Milnerton way, and then in 2 assets in River Square and The Avenues, The Avenues being on the For Sales list, and we're actually in the process of selling that asset at the moment. Renewal success rate has improved significantly, but that has come at the cost of the rental line and at the cost of the escalations that come with that. So those fundamentals, in my mind, still need to improve before we can say that the sector has turned for the better entirely. But that is encouraging signs. Arrears, as I mentioned, there are a few big tenants in there. We've got Ster Kinekor, which is at ZAR 37-odd million, and that number continues to tick up until the business rescue practitioners transaction with the new buyer is concluded, and then we'll be able to write that off. It's fully provided for. And then CNA is another big number in that. If we look at the total like-for-like income, that -- as a result of all these negative renewals, that reduced by 5.7%. What was encouraging was trading density growth is back, and we can see that that's up at 7%. So the smaller centers are still performing better, but we are starting to see the regional shopping centers improve their trade. And we're effectively seeing basket sizes have increased, albeit that the footfall hasn't returned to pre-COVID levels. When we look at the valuation side, I think it's the first half that we've had in probably 3 or 4 halves that we haven't written down properties, so a marginal increase there. And then I think retailer performance remains reasonably robust. And it looks like that, that, hopefully, if that continues to improve, we'll start seeing that coming through in the rental side of things. The difficult sector remains office. Vacancies are -- have increased, and some of them are very, very sticky. It's a very competitive market. It's quite oversupplied, but it's in specific nodes. So if we got to look at the Cape Town and Durban markets, actually, our vacancies here are significantly lower at around about 16-odd percent, probably going closer to 10% towards the end of the financial year. And then in Durban, it's below 10% already, so significantly better than the Gauteng market. The Gauteng economy has been very, very badly affected by the economy, and specifically, Sandton where we've got a big exposure. And certainly there, we're competing not only with other vacancies in the market, but even with some of our tenants, which are subletting what we call ghost vacancies in the market in that specific space. So our view is that the economy will have to improve quite a bit to take up the slack, and I think I was quoted that I thought that would probably take probably 3 to 5 years to probably take up that slack in the market. Renewal success rate is 55-odd percent, so marginally better, but it is a very, very competitive market out there. And that's putting fundamental pressure on the growth rate on renewals as well as the escalations on renewals. Arrears have shown a steady decline. And certainly, the amount of deferrals that we've had to provide in that space is significantly less. Like-for-like growth reflects what's happening in the renewal space, and on that the like-for-like growth is negative 9.8%. And then what we are seeing is that the work-from-home sort of trend, certainly, when we speak to management teams of many of our clients, they don't believe it's sustainable and that many staff are looking to come back to the office and work but have some flexibility. So I think the way that we're thinking about the office space is that tenants are focused more on the quality of the building, the quality of the environment that they are working in, the sustainability of that offering, and that they have flexibility, and those facilities must basically accommodate those flexible working environment. Valuations, albeit negative, certainly, the rate at which they're being written down has reduced significantly. On the industrial side, so here, things have certainly perked up quite a bit. We've seen vacancies come down from 9.4% to 6.5%. And in the Western Cape and KwaZulu-Natal, those vacancies are below 1% now. And if we take out certainly certain structural vacancies in Gauteng, that vacancy should be around about 6.5%. Renewal success rate has also kicked up significantly, and the only sort of real negative factor there that still needs to come into line then is the actual renewal growth rates. The escalations, in-force escalations. We -- I did have a look at this number, where on renewal, it reflects 6.4%, but it's obviously only for a 6-month period. And there was one very large lease that had quite a negative impact on that. So I do see that renewal number probably being a little bit higher by year-end. And then arrears, we still have a couple of large tenants that are in trouble that we're trying to work through. And these things do take a little bit of time, but the trend there is also positive. Like-for-like growth is positive at 4.5%. And then in this market, certainly the industrial team have taken the opportunity to use the strong demand to be able to sell properties into the space. Valuations are still reflecting the decline in the rental line. When we look at our ESG initiatives, we have been quite busy. We've spent ZAR 3.4 million on solar investment. That investment is set to continue in that we -- with the restrictions being lifted from 1 meg to 100 meg, certainly on our properties, it gives us a bit more scope to be able to roll out some of the solar initiatives a little bit more aggressively. And we will be spending a little bit of money in that space. We've got 99 green buildings today. We've got a Level 1 B-BBEE rating. We have undertaken a survey amongst ourselves in respect of ethics, and we'll be developing an ethics strategy, which the Board will approve within this financial year. We also have 6 focus areas in respect of the UN Sustainable Development Goals, and many of these initiatives are really market leaders. And certainly, I can highlight Property Point and our Growsmart Initiative as 2 of those, which really we've been able to even find some of our competitors and partners in the property industry now participating in those initiatives in terms of the good that they are doing. On the Waterfront, here, it's very nice. You can see things are looking much more rosy and bright. We've managed -- the team have managed to reconfigure the Edgars space. Zara is in the trading and looking very, very nice. The construction, if you look out the window, you might even just be able to see the construction happening here on the new Investec Bank offices that will be complete in the next 2 years. And then the net property income, as Norbert mentioned earlier, has kicked up significantly with 62%, and we've seen a large reduction in the COVID relief that we've been having to pass through to our tenants. So really, we're looking at the tenants that are very exposed to tourism, and I think that probably is towards the end now given what we are seeing in the hotels and around if you walk. So I think hopefully, we will see the end of these relief measures. And then we've been very blessed to finally win our rates appeal with the city, and the municipal rates [ bill ] has come down significantly. And as a result, we've been able to refund very aptly in December, when many of the tenants needed it with that new Omicron announcement. We refunded tenants over ZAR 77.5 million in rates payments. And the contribution to our income statement at the V&A is ZAR 28.5 million. Arrears on balance is about ZAR 172 million, and we've got ZAR 65.9 million of doubtful debt provisions there. Our collections at 93%, and in the current period, it's moved up to 98%. The visitor numbers have increased, but are still down on pre-COVID levels. But I do see that also improving as we move on. Retail has recovered. Certainly, the strong sales in the luxury goods sector is evident of that. And then vacancy levels remain very low. There's strong demand from tenants for additional space in the V&A. And it's really just, as I mentioned, the tourist-dependent tenants that we are still offering relief there. On the office side, the V&A has always had a very, very quality tenant base, with more than 65% of the tenants here being blue-chip. And the demand is strong, and the vacancies of 2.7% is -- remains very, very low. The hotel side is where we -- it's been pretty heavy lifting for the past 2 years. Certainly, feedback from the past week, I've been speaking to some of the hotel managers directly here, they have indicated the hotels are significantly fuller and certainly, if you're trying to get into the Red today, you can't get into the Radisson Red, which is a very good thing for -- as a sort of a sign of things improving. And then there was a significant oversupply in the residential stock in this catchment area, but the vacancy there was at 30% for December, but that's also improved to 20-odd percent. And then the tenants in the fishing industry continue to trade normally. And the cruise terminal has opened, but demand is slowly coming back. Travel, there's still a lot of friction with travel coming to South Africa in terms of having to have tests, the requirements for tests, the requirements for masks, the uncertainty. So I think as that improves, hopefully, we'll see marked improvement in the cruise industry. If we look at the Growthpoint Investment Partners, and the new name does reflect the very essence of what differentiates us from other asset managers where we co-invest with our investors into these property investments. Our first fund was the Healthcare fund. We still own 55.9% of the fund. It consists of 6 hospitals and 1 medical chambers building. The fund has performed incredibly well through this period. I mean, the distribution, I think, last year was about 11.3-odd percent if memory serves me right. And for the 6 months, it's at 7.5%, which certainly is significantly uncorrelated from the rest of the commercial portfolio. Our asset management fees were at ZAR 19.4 million. And then the -- we have had success in securing a transaction with the IFC, which was a combination of equity finance into the vehicle as well as a convertible debt package, which is a road to equity for the IFC into this fund. The fund acquired the Cintocare Hospital in August, and certainly has a very, very good long pipeline of opportunity that will hopefully grow this fund over the next year. Lango is our African property fund that we're in JV with Ninety One on. We own 16.3% into this fund at a cost of ZAR 739 million. It's valued at ZAR 852 million. The NAV, so the equity of the fund is at ZAR 327-odd million. The fund had its first interim distribution there of ZAR 6.5 million (sic) [ $6.5 million ], and that translated to ZAR 16.6 million for Growthpoint. The distribution from the Manco is done annually, and we expect that before the end of the year. So today, the fund has $600-odd million worth of assets in Ghana, Nigeria and Zambia, and then 2 tracks of land in Angola. I think the idea would be obviously to sell those potentially if we could find a buyer for those 2 pieces of land. The -- Lango is in advanced discussions to raise additional capital, so with additional capital partners there. And then the fund will be looking to expand into other jurisdictions as well to diversify across the continent. And the Circle Mall, which was damaged with the riots in Nigeria, will be up and running in the third quarter. On the Student Accommodation Fund, so this fund was launched in December 2001. We own 16.8% of the fund at a cost of ZAR 240 million. It consists of 7 properties and -- which is 4,979 beds worth ZAR 2 billion. And it's effectively a JV between ourselves and the Feenstra Group, this portfolio being the seed portfolio, mainly owned by the Feenstra Group, which was injected into the fund where we raised in aggregate ZAR 1.5 billion if we include the ZAR 160 million from Feenstra and the ZAR 240 million from Growthpoint. So the ultimate idea here is to grow this fund and expand it to ZAR 12 billion and potentially if the market will be conducive in 7-odd years, list the portfolio. On the capital management side, a lot of work has been done by our treasury team here. So the total nominal debt for Growthpoint on a consolidated basis is ZAR 38.7 billion. So this is the South African debt specifically, consolidated with all the funds that we have, excluding Lango. So in that process, I've already mentioned the $60 million convertible loan that we secured from IFC. We further raised another ZAR 550 million bridging loan from Investec for the Student Accommodation Fund. The weighted average term of the debt has shortened marginally to 2.7 years, and the unsecured component of that is 54.3%. Moody's rating is currently Ba2, and our national scale rating is Aa1. So the ZAR 2.4 billion of debt maturing in the next 12 months has ZAR 1.1 billion of that being bond finance. So the company, obviously, continually on a monthly basis, we have a treasury committee, we review all the debt, the maturities of this debt profile. And we strategize exactly as to which action will be most appropriate for which debt tranche given the market. So clearly, in the current environment, things are a little bit tight in the local and international debt markets given the uncertainty, so we are looking at various strategies to address that. On the liquidity side, the company is very, very well positioned. We've got over ZAR 6.2 billion of available facilities and ZAR 500-odd million of cash, so to ensure that we're ready for any eventuality because every presentation, a week later, something happens. So you're getting a bit neurotic about these things, right? So we're making sure we're well covered there. And then on the interest rate side, we've hedged our debt to the extent of 81.4%, and that is at a weighted average cost of 7.6%. And then our foreign investments are funded through CCIRS for GOZ. Capital & Regional has no foreign debt to it or CCIRS, and the Globalworth and Lango is funded with the U.S. dollar bond and CCIRS. And that is then your turn.

Thanks, Es. At this rate, we might even finish a little bit early, which will be a first. So just in conclusion, trying to draw a bit of conclusion looking at the different aspects of the business. I think South Africa remains a bit of a problem child. Things are still tough. The economy is not quite back at pre-COVID levels, perhaps even by the end of 2022, it's still unlikely to be ahead of pre-COVID levels. And that will pose ongoing challenges, I guess, for the business. We have seen, obviously, a bit of an improvement in the retail and industrial side, and that's obviously very encouraging. Office likely to remain challenging for a while still to come. The balance sheet is in great shape. I mean, with the LTV levels of just below 40% and the level of liquidity that Estienne highlighted there earlier, we've got ample liquidity. We remain focused on streamlining the South African portfolio and growing the business of Growthpoint Investment Partners. The V&A Waterfront has staged a remarkable turnaround. We're pretty confident actually that through to the end of the year, again, obviously, barring any COVID curve balls, but I mean, from what's evident at the moment, looks like we -- the international tourists have returned with a vengeance. And so we think that that's been the only component or case of the Waterfront that hasn't really returned to pre-COVID levels. I mean the actual retail trade, David was saying, in February and March, we're back at literally pre-COVID levels in the retail trade. Restaurants, not 100% there yet, and the hotel sector is still lagging. But as the international tourists start coming through, the odd cruise liner does appear every now and again, it's mainly domestic cruise, the international cruise is not there yet. Cape Town Airport is certainly a lot busier in terms of international travel with about 40% -- I think, David, you said earlier that it's up to 60% of pre-COVID sort of capacity, international flights coming in. So we're confident that that's going to sort of flow through and then continue through to the end of the year, so we continue to look for improved contribution from the Waterfront. Clearly going to take -- it's a bit of a stretch to get back to pre-COVID levels of distributable income, I think was ZAR 1.2 billion, ZAR 1.3 billion in total. We certainly are targeting to get well above ZAR 1 billion or above ZAR 1 billion again, and hopefully, through to the end of the year and into next year, we'll get back to pre-COVID numbers. GOZ, almost really -- not much to say really about GOZ. It's -- it really is performing extremely well. I think one of its challenges is actually finding growth opportunities. The market is exceptionally competitive. Buying new properties or investing in new properties is extremely expensive, and even on the fund management side, we have aspirations to grow funds management business within GOZ, but those opportunities are few and far between, and as I said, very, very competitive. So the GOZ share price, I think, is a shade under $4.40, trading close to NTA and a shade under all-time record high. So hopefully, that can continue. Globalworth, relatively unaffected by the pandemic. I mean, vacancies did tick up a little bit. In the last sort of quarter, vacancies did come down. But overall, for the year, vacancies did tick up a bit. The tenant base is obviously a very international tenant-base, multinational companies. The company does have large cash holdings on balance sheet and -- but also has a bond that needs to be refinanced or repaid in June 2022. And we continue to look for options to maximize the value from that investment. It's fair to say that it's probably suboptimal for us to sit with a 30% shareholding and new controlling shareholders between Aroundtown and CPI, owning just over 60%. We used to be the largest shareholder and the shareholder of reference. We're now a true minority, and it's not an ideal position for us. It's not our investment style. So we continue to look for opportunities to maximize value from that investment. As I said, the share price is a technical listing. There's no real trade, and there's no actual purpose being served by having that entity listed. Capital and Regional valuations have bottomed out. Income seems to be pretty robust and letting seems to be pretty good. We're quite confident that C&R and the U.K. retail space has bottomed out. And we've seen increased investment activity now back into the sector, and we certainly still subscribe to and remain confident in the strategy of investing into community centers. So I guess that brings us to the conclusion or the guidance. Now, this is not much of a guidance, as you'll see. We're still not confident, I guess, in giving guidance like we used to do in -- 2 years ago or in the past. We will definitely continue to pay a dividend, at least 75% of distributable income. We have got the sort of the liquidity and the balance sheet strength and the cash flows to obviously -- to maintain this dividend strategy. Where's [ Kundai ]? We're sort of posing the question on whether this is the start of the next bull run in listed property in South Africa, and have we bottomed out? I'll put that out there with a little bit of a smile, but [ Kundai ] and I were speculating last night. And so look, I mean, certainly, we feel a lot more optimistic. When things are open and operating and restaurants are open and flying is okay and getting together like this is fine and companies are going back to the office in a meaningful way, I mean, all of you that are here, I'm not sure what you're experiencing in your own offices, but I mean, there's definitely, I think, a need -- people need and want to get back into the office. So yes, there'll be flexibility, and not everybody is going to rush back day 1, and not everybody is probably going to rush back from 6 till 7 every single -- look, it doesn't really happen in Cape Town anyway, but maybe from 9 till 4:30 about 5 days a week. But -- so I think that we're definitely feeling a lot more positive, and we hope that this can continue. And we look forward to being here again in 6 months' time, hopefully, sharing a bit more positive news with you. We have got a very big component of our team here, a lot of our asset managers, retail, office, industrial are all represented here. Cape Town office represented here, Treasury, Dirkje is here. And so, obviously, the Finance team as well and also the Waterfront team. So please feel free to stick around, guys, have something to eat and drink. Feel free to ask some of the more detailed questions, perhaps, of those individuals. And, okay, we're going to go to questions. Yes, I forgot the questions. We're going to go to questions, and the -- Diana has got the microphone there. I don't know if there are questions on the -- coming from the live web feed.

So these are questions received online, and then Max will do a quick roundabout with any questions from the floor. You've stated a strategy to further internationalize. However, this strategy is not being lauded by the South African markets, but rather penalized. As an example, GOZ trades on a 4.5% yield in Australia, yet its cash flows are valued an implied 10% yield within Growthpoint. I calculated today, for instance, there is a ZAR 16 billion holding company discount in Growthpoint. At what point do you think you'll relook at the strategy given the increasing opportunity cost?

So I guess this talks to GOZ and the discount, the implied discount, the -- I mean we're trading at a share price of whatever it is, ZAR 13.50, NAV is ZAR 21.45, so it's a massive discount. 40-odd percent, 2 different ways of calculating that. But -- so the question is at what point will we review the strategy? It's obviously quite topical. We saw PSG unbundled just recently, unlocking the discount that they were trading at as a holdco. I think Growthpoint, there is -- perhaps, there is some merit in looking at Growthpoint as some sort of a holdco or of investment trust. Those things always trade at a discount. Maybe not as simple as a PSG. All their subsidiaries are directly -- are listed here in South Africa, so it's very easy to just unbundle those to your shareholders. Our investments are not all listed, yes. C&R is, Globalworth isn't and GOZ isn't. You can't just unbundle that and give them to your South African shareholders. They need exchange control, approval and foreign exchange approvals to hold those shares. Some of the institutionals can, but certainly, individuals can't without getting that approval. So one can inward list, obviously, GOZ, and then unbundle as unbundling makes sense when potentially you could sell it at a premium. You lose your control premium if you could sell it. So look, I think the question is at what point? The answer is we continuously look at it. We have a Board strategy at the end of the month in 2 weeks' time, end of March. It will again be raised and discussed, so it's an ongoing evaluation throughout the year and certainly, at the very least, annually at the Board sort of strategy sessions.

Another question. Do you visage stepping up the payout ratio between 80% to 90%? And if so, is there any tax leakage?

So at the moment, we haven't fiddled with the 80% payout ratio. We are aware, clearly, of the fact that the sort of withholding -- unwithholding almost. So GOZ is only paying out 78%, and now we're paying out 80%. So effectively, the GOZ payout is something like a 64-odd percent, so we're acutely aware of that. We -- again, I think, as part of the ongoing strategic evaluation, looking at the strength of the balance sheet, the prospects, it is something which will come up for discussion. At this particular point in time, we are not inclined to fiddle with 80%. But if things remain positive and continue to improve from where we are today, I think it is something that the Board could consider. We are also obviously very aware of the tax leakage or -- linked to the withholding or to the 20% withholding. We had a little internal session just a few days ago to, again, try and find solutions for that. We think we may be on to something. But it's not something that's going to be ready in the next 2 or 3 months. Perhaps it takes because it does evolve some regulatory, involve through the JSE and possibly even through the revenue services. There'll have to be some engagement with them to try and find a solution for this tax leakage, but it is being reviewed again also all the time.

Okay. It appears that majority of GOZ rerating of its assets is attributable to lower cap rates. Now that the Aussie curve has moved back up to pre-COVID levels, should we expect the cap rates to follow the curve higher and the NAV to reduce?

So this talks to GOZ's valuations. I mean, it's been quite incredible. I mean, they had a 6.6% like-for-like upward revaluation in the last 6 months and the prior 6 months was similar. So with interest rates moving, it doesn't appear like the Aussie central bank are in a hurry to raise interest rates in Aussie, though. So -- but eventually, I think if everybody, the Fed, yesterday, the Fed announced the 25 bps increase, and they're talking about 6 further increases. So ECB are tomorrow, if I'm not mistaken -- sorry, no, not the ECB, the Bank of England. So globally, interest rates are rising. Eventually, Aussie rates, I guess, would have to rise. It might not be in the next 6 months or the next 12 months. But eventually, yes, and that will definitely have an impact on property values, yes. Yes, I think Estienne just points out that one of the factors we are seeing at the moment, certainly in the industrial sector, is real rental growth has returned in Aussie, in the industrial sector, in particular. Offices, not so much. And the Aussie market is a little bit confusing with this incentive story. So face rents and net effective rent, and so you don't really see the rents moving, you just see the incentives reducing. So they're not 40% anymore, they go to 30% or 25%, so it's a bit of a confusing market that way. But yes, that does -- that will have a sort of a countervailing impact on -- as rentals start rising, that will be positive, negating, I guess, some of the cap rate expansion.

Are there any preferred options for the 2023 Eurobond maturity? Would Growthpoint likely to settle or refinance the Eurobond?

Diana, just repeat that. The 323?

Are there any options to...

Is that the Growthpoint bond or the Globalworth?

The euro -- the Growthpoint one. Growthpoint.

Growthpoint one. Yes. Look, again, we haven't made any final decisions yet on refinancing that bond and exactly how to go about that. You will notice that we're sitting with an extreme liquidity position of over ZAR 6 billion. The thinking there is we need to cover, obviously, any debt that expires domestically. The number there we've quoted was ZAR 2.4 billion. So even if we aren't able to refinance any of that in the bond market, we've got the facilities in place to draw down and repay that debt. Half of that roughly was in the bond market. And then also linked to the international bond, should at the end of the day, we decide not to refinance it, it could be -- we have got liquidity to cover that in the facilities that we have.

Are you expecting Globalworth to reduce its cash holdings, given the reduced risks surrounding COVID-19?

So I suspect -- I can't talk for Globalworth, really, at the end of the day in terms of the final decision, but they've got that EUR 400-odd million of cash on balance sheet. They've got EUR 350 million bond to be repaid in June 2022. Instinct, to my mind, would say to use the cash to settle the bond. The bond market is looking -- certainly right now in the last couple of weeks since the war in the Ukraine started, the bond markets are not that liquid, are not that supportive. So I suspect that they might use some of the cash to settle the bond. But that's not -- there's no formal decision on that.

Okay. Last question from the line. If retail and office reversions are negative in mid- to high teens, how are you -- how are your evaluations? As far as I can tell from a like-for-like basis on property values, basically flat.

Yes. So I guess the question is like-for-like rental reversions. Rental reversions are still negative, circa 15%. Like-for-like net property income growth is negative in office and industrial, sorry, office and retail. So how come valuations have sort of, let's say, not kept track with a downward trajectory? I do think -- my personal view is I think that the valuation write-downs that we saw, we've taken over 16%, I think, valuation write-down since the onset of COVID. My personal view is that the values were probably a bit extreme in the assumptions early on. And that effectively there, yes, right now, there's still continuing weakness in rental growth or lack thereof. But that -- some of that was already baked in, in terms of the conservative valuations that were formed through the COVID period. And I think somebody asked me earlier, do I personally think that we are more or less at the bottom or at the end of the, let's call it, downward revaluation cycle? I would say that our feeling is that we are and -- but clearly, if we continue to see ongoing negative property fundamentals, ongoing negative reversions, ongoing increases in vacancies, that kind of stuff, then perhaps there would have to be a further write-down in the next 6 to 12 to 18 months. But it's very data dependent on what's actually happening then with the underlying net income growth or lack thereof in the portfolio.

Again, on office, have you been able to measure the level of gray vacancies in the office portfolio, specifically within Sandton?

Question is whether we measure the gray vacancies or ghost vacancies, whatever they're referred to. This is sort of sublet space, if you want. Whether we measure them, whether we have a feeling for that, Estienne and Paul are both nodding. Have we got a sense of the quantum?

Just going to check, about 200,000, yes. So we've got about 200,000 square meters of space available from sublet.

From sublet. So that's not just in our portfolio. That is in Sandton across all the owners.

Other -- existing vacancy is around 400,000 plus the 200,000. So 600,000.

Yes.

And that's over total market of [ speaking the correction ] about 1.7, right? Yes. 1.7 is the total market.

Size of the market. Okay.

If we were to exit Globalworth, what would you envisage using the proceeds for? Would you consider share buybacks?

Look, we first -- I mean, we've obviously got the debt. We've got the Eurobond or the U.S. bond, which is still outstanding. So one would have you consider if you were to exit Globalworth, do you use the proceeds to settle the bond. That doesn't really help your internationalization story much. Can you find an alternate investment for it? I think to keep euro debt and use the proceeds to buy back your rand asset, maybe not. Buying back shares is definitely something one should be thinking about. But bearing in mind, we just recently issued shares, so there's so many things that go round and round when one discusses these structures and alternatives. I think we're looking forward to a robust discussion with our Board in 2 weeks' time to assess and discuss some of these options and alternatives. But instinctively, selling Globalworth to buyback our own shares is not, I think, one that's really something we've been thinking about too much, to be honest.

Share, at this level, must be the best real estate in South Africa.

Yes, I think it's [ important ]. I mean we haven't spoken about that much. But I mean, it does -- certainly the way we're feeling about how things have changed over the last, certainly, 12-odd months or certainly more pronounced in the last 6-odd months, that the share price is looking very cheap relative to NAV. One can try and find ways to unlock the discount. We will continue to explore ways to unlock the discount. Obviously, one way is for the share price to just rise. So -- but we definitely think that at the moment, the share is, to our mind, offering value. And we don't often talk about whether the share is overvalued or undervalued, that's for you guys to decide. But certainly, all options are considered, and buyback would be the most logical thing to do. But if your balance sheet is still sitting at close to 40%, maybe not -- you can't be doing it in any meaningful numbers. All right. So nothing more online.

No. If anyone has questions, I can just pass around the mic.

If anyone in the audience here has got any questions, happy to take those. Nothing. All right. So thank you very much, everybody. I think it was great seeing you here again in person. Hopefully, we can do so again in a few months' time. I think we've been working on an idea that we'll do the half year presentation in person here in Cape Town and the year-end one in person in Johannesburg, and we'll see how things evolve. We used to obviously do both in Cape Town and Joburg every 6 months, so we see how things evolve. But we're probably more likely to just do the physical presentation in September in Johannesburg. So thanks again for your time. You're welcome to join us, and look forward to seeing you again soon. Thank you.