Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

All right. Brilliant. I think in the interest of time, I think that's best if we get going. So firstly, thank you, and good afternoon, everyone, and welcome to the Growthpoint investor update for the first quarter for 2024 financial year. We have a number of members from the Growthpoint team here today. We've got the Group CEO, Norbert Sasse; South African CEO, Estienne de Klerk; we've got Lauren sitting on the right there, the Head of ESG and Strategy; Gerald is there as well; and if I'm not mistaken, that's [ Asha ] on the left as well. Good afternoon. How are you? So there are lots of questions today, and there's enough people to answer many of them. So just the fund published its first quarter update on SENS earlier today, and this virtual meeting will primarily be a Q&A session. [Operator Instructions] Just a quick thank you to the Growthpoint team for giving us this opportunity to host today.

And maybe I will kick off the session with -- from my side. Firstly, we just come off a roadshow, and there seems to be a lot of questions on the internationalization strategy, and if it would be possible maybe to run through some options or strategy with regards to the individual parts. Maybe we can kick off with Globalworth. Look, I think it would be a fair assumption that there's an oversupply in the C office market, and this could or would result in operational sort of underperformance or challenges over the medium term as well as rising debt cost. What are your options available to Growthpoint? We've got more people joining as a team. Just with regards to the expectations of your earnings being under pressure going forward, what are the options available to you to try to mitigate this risk or manage this risk over the the medium term?

Yes. Thanks, Nazeem. I have to say, just generally speaking, given that these entities are separately listed and the -- in particular, the 2 of them are listed on LSE, I find it very difficult to talk about potential strategic initiatives. I mean clearly, the management teams are available and are probably best placed to answer some of the detailed questions. They do provide regular updates to the market. And certainly we've got a year-end coming up, I think, both Capital & Regional and Globalworth at December year-end. And I'm sure they'll be updating the market accordingly. But I'll try to answer it as best as I can, Nazeem, without sort of -- whilst being pretty sensitive around the -- what I can and can't say. So I mean the fact of the matter is I think Globalworth, as you pointed out, is in a market, both in Poland and Romania, where you do have, let's call it, I guess, a relative oversupply, certainly by comparison to what we've seen in Johannesburg or in the Sandton, Greater Sandton and Johannesburg area, an office sector in South Africa. I don't think the oversupply is as marked or as dramatic. So Warsaw itself is probably relatively well -- relatively balanced. Bucharest itself is in balance, where we're seeing probably the greatest oversupply is in some of the smaller markets within Poland. So those are the smaller towns of Katowice, Vrotslav, Gudang and Krakow, where you've seen a number of new developments was started, let's say, just before COVID. Some of them were delayed during COVID and a lot of them have now sort of been completed. And whilst there hasn't been much growth in those markets, you've now got this additional supply. So I think in one of those markets, I forget exactly which one, you've got a vacancy factor in the order of 50-odd percent. And that is definitely adding to pressure on renewals and incentives and rent levels more generally. So there has been the buffer in the last sort of 12 to 24 months. We have had a buffer from rental escalations where most of the rentals in those markets are escalating in terms of CPI clause. This is a euro basket of CPI, and I think the last numbers published was in the order of sort of 7, 8-odd percent escalations that the company was able to pass through to its tenants. But I think it's -- there's a view that it's not necessarily sustainable in the long term. So some of the really large major global international companies like Microsoft, Amazon, Google, there is definitely a trend for these guys in recent 12 months to, let's say, reduce space where they have options in their leases or where leases are renewing. They're not renewing the same amount of space that they were letting before. So that is placing upward pressure on vacancies in those node or in those regions and then in those markets. Liquidity in terms of disposals of assets, I guess, in that market is equally, I'd say, relatively constrained. It's not -- it's never been and certainly isn't at the moment one of the most liquid markets. Warsaw once again more liquid than in any of the other markets. But there is definitely scope for some asset disposals in terms of looking to deal with the, let's say, debt refinance that is coming forward. I think the -- there are 2 major debt maturities in the bond market, there is March '25 and June '26. So management team with systems and input from the Board are looking at a range of sort of options at the moment to generate liquidity, to bring down debt loss or to be able to potentially go back into the market and do some bond purchases like they did before. I think they bought back about EUR 100 million worth of bonds 6 or 9 months ago at a discount, stand to be corrected, now I recall 17%. So that kind of opportunity is -- does remain. So through a combination of look, trying to find debt from, let's call it, traditional banking sources because it's -- currently the financing yourself in the bond market is not conducive. I mean we certainly at the kind of rates on offer for 3- and 5-year debt in the debt capital bond markets, there is not attractive, getting much better deals from the banks. So management are trying to secure liquidity by going bilateral with the banks and by looking at -- trying to find asset disposal opportunities with a view to refinancing those maturities that are unfortunately still 12 -- where are we now sort of probably 18 months out away before the first one comes forward. Nazeem, I don't know if there's -- if that gives you a bit of a sense.

And just -- this is a bit specific, but it seems like you answered some of it. Just so we can understand on the refinance of debt, it doesn't seem as like a liquidity issue. It's really of access to a different pool being the bank debt versus bond. And are sales contingent upon refinancing of the bank debt? Or do you think that the current balance sheet levels are fine? It's just a function of cost thereafter. Is that a fair assessment? Or is it a bit more aggressive that...

No, I think generally, the level of LTV is probably within the comfort level of the Board. And certainly, if you consider where covenants are both in terms of interest cover and LTVs, there doesn't -- there's no real stress there. The disposals that the company is undertaking are not conditional. More often, they are not conditional on raising finance by the purchaser. And again, it is -- it's a tough market. I mean there's no doubt that -- as I said, liquidity is a bit constrained there, and obtaining a bank debt for acquisition of office at the moment is tough. But we definitely are seeing some interest, and we'll continue to work through some of those disposal opportunities. So it's more about just positioning the company to be able to successfully deal with the debt expiry when it comes in March '25. So have we got enough cash to be able to settle some of that debt? Can we raise cash from normal banking lines so as to be able to deal with the refi? There's no doubt that from an income statement perspective, Nazeem, I think we've seen it right across the world. As debt reprices, interest costs are going up significantly. And the cost of debt today or euro-denominated debt is probably in the 5.5-odd percent mark, and the company has been paying 3-odd percent on the bonds. So that will definitely put pressure on distributions, not for this financial year and possibly to only a limited extent for the next financial year through to December '24 because those bonds only refi in March '25. So the December '24 year should still be largely unaffected by repricing of debt. So I think that's more or less the focus at the moment is to position the company to be able to deal with those refinance issues.

And then just with regards to a question, and maybe this will be the last one in Globalworth while Myer's got got one as well. There has been a news article with regards to the potential sale of the logistics portfolio to Fortius. There you go. You're back, Norbert. Are you able to provide any comments on that?

I'm afraid I can't, no. I'm not able to provide any insight on that.

Yes, brilliant. So maybe just to kick off from the chat from Mahir at Absa. Where do you expect office property valuations to trend in Central and Eastern Europe, given the challenging operating environment and lack of transactional [indiscernible]?

Nazeem, I would see -- I mean obviously, the downward revaluation trend started in the last valuation cycle. I think December '22, there was maybe a marginal write-down. June '23, there was a further write-down. The increase in, let's say, cap rates and discount rates has largely been buffered by, let's call it, the rental -- underlying sort of rental growth and escalations that the company has been able to achieve. And this is not company specific. This is in the region actually, which, as I explained earlier, were linked to CPI. So getting these sort of 8-odd percent rental increases and building those assumptions into the valuations appear to have, let's say, mitigated a large proportion of the negative impact of higher discount rates and cap rates. But having said that, I would still guess that the trajectory should be down. To take a guess, I can only really take a guess, maybe it's another 2% or 3% down at the next mark. But as I said, that would be just a wild guess that at this time.

And then just maybe moving on to GOZ. It definitely seems like the pressure, it's a function of rising funding costs. Operationally, the office portfolio has got a government very long leases. I think the last time I checked, the value was over 10 years, and there's 4% of income up renewal. So from an operational standpoint, this is a bit of a different one. Are you still comfortable operationally with regards to the mix there? And do you anticipate maybe another leg down on the funding cost side of things? Or is that mostly out of the way come 2024? Or is there still a significant repricing of that debt?

Yes. Look, I think the dynamics there in Australia, very similar to, I guess, the South African dynamics that we've experienced here. So with 70% of the debt hedged, it's mainly that floating piece, the 30% unhedged that has been materially impacted by these higher interest rates. But the floating rate there has probably percentage-wise increased greater than what it has in South Africa. So that we think there was obviously when we were in Aussie last week, I think it was either last week or the week just before we arrived there, there's a further 25 bp increase in Aussie. Australia, to my mind, has lagged the world in terms of the pace and the rate at which they increased interest rates. And there's still speculation that perhaps they haven't quite hit the peak yet. Some of the other markets, there's a lot of talk that we've hit the peak, and we're starting to maybe hold for a period and then start seeing decreases come through towards the middle and end of '24. Aussie, to my mind, will probably lag. So -- but yes, I think operationally, again, as I said, we were there last week. There is -- operationally, things are very, very sound certainly in the industrial portfolio, where I think you're still seeing currently 15% to 20% positive reversions on lease renewals as a broad statement. It is fair to say, though, that, that will moderate. And the next to my mind, 12 to 24 months, that kind of growth will moderate. It can't continue at that level. Maybe it will go down to the 10s and maybe high single-digit or low 10 type numbers. But the Aussie industrial segment remains a very robust with extremely low vacancies nationally and certainly GOZ's own portfolio is 100% let. And in fact, I think we sold a small industrial asset at a very significant premium to book value just recently there as well. The sentiment towards office is still -- this is obviously, in my mind, a global sentiment driven mainly out of the U.S. where the sentiment towards office remains very negative. And that is sort of spilling over into Aussie and the Aussie market, but on the ground, vacancies are very well contained. I think the vacancy factor in GOZ's office portfolio is only about 5-odd percent, 5- or 6-odd percent, mainly 1 or 2 assets. To your point, yes, the WALE is very long. I think the office WALE -- some of the government lease piece is probably about 10 years. But overall, I think it's -- the WALE of GOZ, including office and industrial, is over 6 years. So it remains firm, but a tough market. There's no doubt that incentives, which is very characteristic of that Aussie market, are sticky and quite high. So depending on which market you're in, those incentives are anywhere between 25% and 40% and whilst the demand is there, and certainly, I'd say the regional metropolitan-type offices that GOZ has is well bid. There is certainly no, let's say, fireworks in terms of growth -- underlying growth coming out of the rentals in the short to medium term until, to my mind, the sentiment towards office and the return to office of the employees normalizes in a large way.

We've got a question from [ Xian ], and then I'll elaborate a bit further. But she just wants a general comment on the current group LTV. I assume if whether you're comfortable on the current level? Or are there plans to either reduce that or keep it as is?

Yes. So we're sitting at just over 40, right? I think the last one is [ 40,1 ]. The trajectory, I guess it depends on the various elements of the business in the jurisdictions. Aussie office, to my mind, will continue to probably see some downward pressure. Eastern European office will see some downward pressure. I think V&A will see upward reversions. The balance of the SA portfolio across retail office and industrial, flattish to marginally uppish. Cap Reg, we wouldn't see much coming out of there, but I think, again, probably flattish, maybe marginally uppish. So the valuation trajectory, obviously, drives in a large way the LTV. Add to that, the absolute debt levels that we have to make up the calculation. I think it's fair to say that we're comfortable where we're at the moment, but we would be a little bit more comfortable if we could just bring it below the 40% mark through, I guess, a combination of asset disposals. We'll see what the revaluation number brings. We think on an overall level, it's probably quite benign. We don't see that as having a major impact in pushing LTVs up 4% or 5% by no stretch of the imagination. So we think it's -- we're comfortable, but we prefer to bring it down a tad.

And then just on the LTV, and it's less about the IFRS group LTV given the consolidation of the 2 businesses. Is your funders for corporate Growthpoint SA, do they look at those listed investments at NAV, market value or fair value? How do they assess that risk? Maybe just -- and this includes, I guess, Globalworth, Cap & Regional and GOZ.

I suspect you must ask them. Some of them are probably on the call. But, Nazeem, I suspect they do all of those calls. I think they look at the book value, they look at the market value and they look at -- they perhaps even apply their own valuation metrics. Our covenants, on the other hand, talk to the IFRS calculation essentially. So the [ 40,1% ] is essentially what the banks work on when we look through to our covenants, a consolidated group LTV. And so there, again, the most stringent covenant we have, I think, is 55%. The most stringent covenant we have on interest cover's 2x. So we're currently sitting up in the 2.8-ish. So perhaps to answer your question, I can just refer to the recent activities that we've had in the debt markets, whether those be the bank debt directly, bilateral loans with some of the big 4 banks, 5 banks in South Africa. But more particularly, the activity in the bond market. And our press release today talks to the fact that we issued literally last week, we closed a private placement of ZAR 1 billion bond with IFC, where we're actually getting 10-year -- I think ZAR 650 million of that ZAR 1 billion bond was in the 10-year space at margins of [ 190 ] which is -- these are some of the best terms we've seen in the last 10 years. So we have -- we had to refinance ZAR 7 billion worth of debt with the Euro bond refi. That was the 350-odd million euro debt or the U.S. dollar bond that we refi-ed. Again, 5 banks, bilateral, euro loans with them at -- turning out, I think, sort of 4, I think, 4-1/2-odd years by the end of the process. And so, Nazeem, we seem to have really great liquidity and access to both debt from the salary and banking -- bank market but also more specifically the debt capital markets, the bond markets but also private placements with what we call it institutional-type investors.

And maybe just sticking on the debt topic before we go on to the other questions in the chat. In the announcement this morning, there was the Australian dollar cross-currency maturing of which you've just kind of extended it. That's about 300 million of the 970 million. Is there a sense of how -- when that other portion, the 670 million, will mature? Is it quite near? Is it the next 12 months or actually the FY '25 period? Or is it quite spread out?

Nazeem, I'm going to try and defer that to [ Asha ]. We have committed to try and improve our disclosure on cross currencies and the, let's say, refi of these, the quantum of them, the timing of the refi, the average, let's say, maturity and the average cost, which I thought we included in this particular press release. I don't think we went beyond the June '24 year in terms of the information we provided. That might be something that we can provide in a half year or year-end sort of release to the results release. It wasn't something that we thought we would bring into the quarterly numbers. [ Asha ], I don't know if you've got maybe just a short answer to the...

Yes, a little bit. I mean in the press release, we did say -- we gave the March '24 maturities of the cross-currency interest rate, which was about AUD 161 million. We -- I think in the year-end results we made with the average tenor of the Australian dollar funding, which is at about between 1.9 to 2 years. So Nazeem, that gives you some feel for it's not in one lump sum. It's an average tenure. So they come up probably one -- twice a year. We have refinanced those cross currency interest rate swap spread over a period.

Yes because I'm just kind of thinking about the weighted average cost of debt. The ZAR side of things at 9.6 implies that there's not much to go before you get to like the variable cost of debt. So it seems like a lot of the pressure is the timing of the offshore piece that sits in corporate SA, which the Australian dollar piece is a significant one. So it seems like there's going to be that piece of pain coming through '24 and '25 and maybe even a bit of '26 if RBA rates stay as is. Even a 50 bps improvement is still going to be 200 to 300 bps on base rate, I would assume.

Yes. I mean you can see -- so it does differ from period to period. The one's coming up in March '24, we'd obviously hedge at really, really low interest rates. So they will take a bit of pain, but each period differs from kind of what that average cost of hedging actually means.

So it's not fair to assume the 1.6 and the 2 is a fair number to apply throughout?

No because there would be varying interest rates as the market conditions have changed over a period.

Brilliant.

Nazeem, I think AUD 1 at 1.4 repricing to 4-point-something if I've got the numbers right in my head. That would not be indicative for the ones that are still to [indiscernible]. But again as I said, maybe at the half year, we can provide a bit more color on that on what the weighted average cost of those expiring in the next 12, 24 and 36-odd months whatever it will be.

We've got a question from Chris on the chat. What were the cap rates for the sale of City Mall, City View plus the 721 worth of sales in the pipeline in the retail sector?

When we disclose that, we normally disclose that stuff in the half year numbers. But look at -- I would say City Mall, City View would be somewhere between 12% and 14% would be the, let's call it, yields that we sold those at. It's obviously a big chunk of it, right? City Mall is ZAR 200-odd million and City View ZAR 260-odd million, so it's a big chunk of the total disposals. As for the rest, I don't actually know which ones they were and what those cap rates were. But as a broad range, I would say it's anywhere between -- and these things are really deceptive because I can tell you that it's a 14% yield, but we know that on -- in a year's time, let's say, as an example, Edgars are paying 150, and they're going to reprice down to 100. So the forward yield beyond this expiry for something like that Edgars might make it a 10 and not at 12 or a 14. So it's at that point in time. Obviously, we don't just look at next year's number. We've got a pretty robust disposal process, looking at historic IRRs, forward IRRs, value per square meter, yields and the more, but also historic and forward yields. And oftentimes, the perceived high selling yield is the yield on the running income at that time, but the forward might be 20% or 30% lower than that.

Perfect. Sticking on Edgars, we'll skip [indiscernible] question and go to Chris. We'll come back. What are plans to follow the space of the Game in Edgars stores? Is there an active asset management plan to rationalize and fill these spaces within new centers?

So Nazeem, I'm going to defer. One of the rooms we have Neil Schloss, I think, and Gavin, I don't know if Gavin's in there, but certainly Neil...

He's still sort of king.

Still king. If you're happy to go for it, you're welcome.

I think you pass it to Neil. He's much more -- he'll play with it. And I think there's multiple answers to the question. So Neil, you maybe give it a crack.

Yes. So what I can tell you is that we've been through our entire portfolio with the Edgars. And we've got a road map of which premises they are looking at reducing from a size point of view and timelines on that. And we have an asset management strategy per property on how we're going to deal with that. Most instances, we are negotiating with them in terms of the exact space that they give back because we would want it to be eligible. But in some instances, there are 1 or 2 scenarios where we are going to have to take back a floor, an upper floor of a particular trading block box, which would be much harder to let. But absolutely, every single one of those boxes across our portfolio has been dealt with -- together with Edgar. And we've also discussed a number of renewals with them in order to right -- when we rightsize them, that will also be on the back of a renewal on that space. With regard to Game, we are also working very closely with them. We do have certain Game stores which are not going to be renewed on expiry of those leases, and we are working on redevelopments of those premises in order to accommodate new retailers in those spaces. And we are also talking to Game on a number of their existing stores in our portfolio to see where we can either take space back for them where we have retailers, we believe, are better suited to the current and future tenant mix of the centers as well as where we can rightsize them so that the densities are improved. And that's across our entire portfolio where we sit with it.

And just a question from my side, the ones where the Game is kind of leaving. Are some of those centers really double anchored with grocers? Or is the first opportunity to potentially double anchor with the grocer?

Definitely one of them. We have only one supermarket anchor, and that supermarket anchor does not have exclusivity. So very definitely, there's an opportunity there to introduce a second supermarket anchor. And then the -- yes, the other one that we're looking at also has the opportunity to introduce a second supermarket anchor. However, we don't believe this space is necessarily exactly right for that, and we're looking at other possible uses.

Thank you. If I can just add to that, Nazeem. We've had some real live examples over the last 2 years where these changes have happened. And we've recycled a lot of that Edgars and Game space to the likes of Builders Warehouse [indiscernible] food, Checkers supermarkets. So we have found uses for the vast majority of those sites that are recycling, quite creative banners. And you've got variable additional uses, some in gym formats and alternative supermarkets. And in one particular case, quite a lot of value type tenants on the fashion range. It will take that space at vastly improved rentals. So it does come with some capital rejuggling, but your rental upliftment is very strong in most of those instances.

So just getting back to Ridwaan's question with regards to Office. There's an SA. Do you see Office reversion rates improving in 2H for the FY '24 or remain at similar levels? And can you talk to arrears and ongoing discussions with tenant in GHPH Healthcare Fund?

All right. Let me see. I don't know if, Paul, do you want to take the Office comment? Or is Paul in a meeting with you guys, Neil?

Yes, he is.

So on offices, we are still seeing reversions and certainly double-digit reversions. I think we're up at about 18% at the moment. The reversions, specifically in the first quarter are quite lumpy. There are a couple of big reversions, but we do believe that reversions will persist for a while. We're hoping it will reduce slightly, but certainly not -- we're not going to get down to single digits this year.

And then -- sorry, Nazeem, there's a second leg or second element of your question was...

With regards -- yes, the arrears for GHPH.

So look, I think one of the tenants in the healthcare fund, I guess, for a number of operational but also extraneous reasons to do with rates and taxes doubling in the markets that they're operating in have put the entity under some financial pressure. And we're in active discussions and negotiations at the moment to finding a long-term solution with regards not only to the space that they occupy, but I think on a more broad level or a higher level, looking at the group as a whole and try to fund a long-term sustainable level at which both the rentals work but at which the funding structure of the entity is also optimized.

So obviously, does the operational outcomes from just not only the healthcare but also the student side of things, but the real or the potential growth really is the third-party sort of funding and growing these businesses larger and Growthpoint obviously generating fee income. Are those targets still relevant today with regards to that, I think it was 50 billion over 5 years? Do you still feel that they are achievable?

Nazeem, yes. So look, obviously, we're looking at adding to the fund management platform perhaps another asset class. And those activities, I think, continue a pace. And George Mitchell and his team are out in the market scouring for more opportunities. It's fair to say that in the short term, the, let's call it, negative impact of the NSFAS impact on the student accommodation fund is going to have, I would guess, an impact in the short term on the ability to raise additional funding. The pipeline of opportunities is immense. And I do think the investors are -- still fundamentally believe in the investment case of the student accommodation fund, given the acute, let's call it, shortage of supply. And it's probably one of the only segments in the market where we see that particular mismatch where demand far exceeds supply. So there's great growth opportunity to bring more assets into the fund, but there probably needs to be a period of a year or so where things just need to settle with regards to NSFAS restructure of the business to be less reliant on NSFAS students and NSFAS funding. I think the team are actively working on reconfiguring 1 or 2 of the assets that were badly impacted so can one densify some of those assets and improve the revenues that can be generated through more bids rather than trying to fight for the rate. So a number of activities. I think equally on the healthcare fund, I think that once the -- again, you can see some of the fundamentals of that fund with the recent lease renewal of 20 years to Netcare. That's what that kind of product is all about, nice long leases, steadily escalating. I think trying to find more of those types of opportunities is probably the constraint rather than the capital itself.

Great. A question from Chris Reddy from [indiscernible]. Given the derating of GOZ, how are you viewing corporate activity opportunities to unlock the value there?

Again, this is where I'm going to claim the fifth I'm afraid. This is a separately listed entity. All I can say, our history I think has shown that we always evaluate pretty much any and all opportunity and where it makes sense and where the opportunity arises and where the funding is available. Any opportunities, M&A and otherwise, will be considered. But I'm very nervous to be talking about these entities and given the public nature of those companies.

We've got an unknown user. Where do you forecast ICRs to drop to following the increase in the Australian dollar cross currency cost of debt? That's for FY '24. Is there a range you can provide or...

Yes, Nazeem, I wouldn't hazard a guess. I don't know if Asha's prepared to hazard a guess. I think bearing in mind the Aussie dollar refi is relatively small in the overall pool of debt. I think if you think about 40-odd billion pool of debt, I'm not sure, Asha, what the total Aussie dollar pool is. It's not likely to be -- to have a material impact on the ICR. I think what would be -- what will have a greater impact on ICR is the actual, let's say, in-country debt of GOZ, given we consolidate GOZ. And that has got 30% of its debt is, let's call it, unhedged, their average rate going up. So their ICR will come down. Growthpoint's own balance sheet rand-denominated debt equally, obviously, we've seen the increase. You mentioned the 9.6 average rate from -- I think the previous print was a 9.1-ish. So that will have an impact, but I'm not going to hazard a guess at the number.

Then moving on to Lango from Ridwaan. Can you talk to challenges experienced in Lango? I think we've dealt with the student side of things already. What is Growthpoint doing to mitigate these risks, specifically in Lango? And IFC, are they converting their $20 million to equity?

Let me deal with the second one first. I think they've got the option to do so. And certainly, we're in discussions with them at the moment. There's no -- we won't know the outcome for a couple of months, I think, to come. So we have got various discussions on the go with IFC in relation into that particular tranche of debt. And obviously, that was a package of debt. There was a total of $60 million of debt attached to that, the 3 tranches of $20 million. So there's ongoing discussions with IFC in relation to their total funding mix or funding package to the healthcare fund. On Lango, it certainly is operationally pretty challenging out there. We mentioned in the press statement today, obviously, what the various challenges are. There's certainly -- management are doing whatever they can at the moment to improve the operating performance through increased letting of the office space, mainly in Nigeria. And -- but it's fair to say that the wheel turns slowly in those markets and that it's probably going to be a relatively -- or a slow recovery linked to some of the corporate restructure and redomiciliation. Again, management are well down the line in progressing a potential redomiciliation of that entity from Mauritius to another jurisdiction, which would be, let's call it, more tax-friendly and/or, let's say, less restrictive in terms of the ability of the entity to pay dividends going forward. So it's going to be challenging, I'd say, for the next 6 to 12 months. And hopefully, at the end of the day, the management team there can improve on the operational side through improved letting and driving the top line revenue and NPI numbers.

All right. Brilliant. I've got a quick one from [indiscernible]. I don't know if you want to handle this one, Asha. On the 2.5 billion of swaps, it's the stuff in '24 at 8% on being refinanced at 8% to 8.5%, is that the all-in cost? Or do we have to add margin to that?

That's the base rate only. So that's base rate.

Perfect. From [indiscernible], the first part of the question was already attended to by Paul. But maybe just with regards to how much space was let to office recently. And maybe a general observation from my side is that office vacancies, what we were expecting 18 months, 2 years ago was to continue to rise, but it's actually been, in aggregate, slowly coming down across almost all the REITs. What can you attribute that to? And would it be wise to say we've seen the worst? Or is there potentially another leg down here?

Paul, I don't know -- I mean I'm happy to maybe give it a stab, and then you can add to that. Our sense is definitely that we're feeling that things have peaked. And you've seen our numbers have come down from, I think, at the high, it was 22% office vacancy, recent prints were 19, now just below 19-point something, below 19, 18.9 or something. So obviously, there's a -- it's a combination of multiple strategies, some of it talk to disposal. I mean there's no doubt that not only ourselves but many of our peers have all been -- to dispose of some office assets that have significant vacancies. Some of those have been converted to residential. We have sold -- have got one resi conversion on the go in the [indiscernible]. So there are multiple strategies to try and reduce the office vacancy numbers. On the letting side, the stats, I think we did include the stats in the -- in this particular presentation. Paul, you might help me on that. Was it 55,000 odd that we let in this quarter? New let?

[indiscernible] renewals of 33.

So over 80-odd thousand square meters of letting in the quarter in office, resulting in a net reduction of vacancy. As Paul said earlier, there's no doubt that there's still pressure on renewals. So the rentals are reverting negatively. We do see that moderating. But it's going to be a gradual -- we do see it as being a gradual improvement rather than something which is just going to fill up overnight or in the next sort of 6 to 12 months.

Thanks, Norbert. But just to add to that, Nazeem. So we're doing good letting. And you would have expected our vacancy to come down by more, given that we let 58,000 square meters. But we're still seeing tenants downsizing. So it's a -- net-net, we're coming down, but there are tenants who are giving up space along the way.

Okay.

Also worth mentioning that regionally the [indiscernible] is quite different for office, right? And if you -- in Cape Town, then -- and you're looking for 3,000 square meters, you're in a little bit of trouble today, I would suggest. And I think that we probably would be expecting to see rental increases starting to flow into that market pretty soon. And you might even be astonished that there might even be office development starting in that market, given what's happened -- happening there. Our portfolio in KwaZulu-Natal is just on the [indiscernible] Ridge, and that portfolio is also full. And on the back of that, I think maybe not quite as strong as the Cape Town market, but certainly, there also the sort of pressure should start coming through on rentals. And if you're looking at new rentals, there has been significant inflation in construction costs. So it's a scenario if you want to go to a new building, then your rental is going to be at least 40% higher. And I think that opens up a bit of an opportunity for existing landlords once the supply demand dynamics have sort of evened out that you can actually start seeing rental growth in this sector.

Looks like we've got a follow-up question on the Game from Mahir. What is the expected vacancy impact of Game [indiscernible] closure downsizing? I assume that would be net of the asset management activities. Is there going to be a net loss of GLA?

Yes. I think I'll answer that. And if I'm understanding correct, what will the vacancies be post all of the letting interventions on the space that's going and Edgars do give up. And I think that we can only -- there'll only be one site which is [indiscernible], the upper level of [indiscernible], which will probably have an extended vacancy because it will require an intervention in the way of redeveloping that in order to access it because it sits on a different level to the rest of the mall.

That's...

And that's about 2,500 square meters. The rest of the space is that we're dealing with them, all of them are eligible. As Gavin said, there will be a little bit of CapEx required. But what we're seeing is interest from a whole host of retailers. And ultimately, we will be placing better tenants in there on much more sustainable leases and trading conditions and turnovers, which will make it far more sustainable.

Brilliant. [indiscernible] go for it.

Sorry, just to add to that, there are some enlargements to those things because some of the builders that we're doing are taking more than the original space that Edgars are giving up in some instances. So the -- while we might have that long-term loss at [indiscernible], which was a space built in the original construction of the mall, we are gaining some area in some of the other redevelopments. So the net effect should be ultimately very, very low GLA loss [indiscernible] ourselves.

Equally, I want -- the question is also linked to vacancy, Gavin. I would say once those spaces are on one data point to the next, 1 quarter to the next or half year to the next, you might see a slight increase before you -- as they vacate before you relet them. But fundamentally, the vacancy should come down from the 6-odd percent level that it's currently at would be [indiscernible].

And again, Norbert, we're almost ahead of that transition because you're going to see a lot of that vacancy [indiscernible] out of base side come in June next year. So we've got big [indiscernible] we'll see at River Square now, we're seeing a big vacancy of that on Game coming right out of it. So I think you're going to see a bit of a cut to fill as we transition through because we've had an early start in some of these projects.

Then we've got a follow-up question from Chris with regards to the yield or the cap rates. But on the industrial property sales during the quarter, can you provide some color on the yields with regards to the sales from the industrial portfolio and those approved for sale?

Yes, I don't have those in front of me, I'm afraid. I don't know if [indiscernible], you've got some data there or not.

Yes. It's not consistent because obviously, a lot of the transactions are [indiscernible] owner occupiers, which is not based on an income basis. But I think on average, one can talk about -- around about circa 13% as a number.

Brilliant. Question from [indiscernible]. Is there any view risk of a GOZ drop, given where the share price is trading? And if so, how do you think about that option relative to your cash flow and CapEx requirements? I guess it's an assumption that the drop sits in your earnings. And obviously, there's a cash outflow from your side.

Look, we don't -- I don't expect a GOZ drip in the near future. Again, GOZ is well capitalized. LTV is obviously edged up a little bit to 37-odd percent. I think the beauty about GOZ in Australia is that there is -- at a price point, there's [indiscernible] like in some of the other markets, include SA in that, sometimes, it's difficult to find a price point where you can actually unlock liquidity. But the Aussie market is very well build. It's truly international market. At least half the assets that trade there is international money, whether it's direct by international investors or indirect via Aussie fund managers that have got big mandates from the big third-party capital providers out of Canada, out of Singapore. These guys invest or provide the Aussie fund managers like a Charter Hall and Adexus with a big check. And these guys then going to deploy the capital. So it's actually international money, but it screens as an Aussie buyer. So I would -- we're not contemplating at the moment drip out of Australia.

Maybe just to wrap up the final question from Mahir from Absa. You've highlighted a few projects in progress in trading and development. Can you provide an indication of how much this will contribute to distributable earnings in FY '24? Cash position -- but differently, you've obviously given a range of trading and development as proportion of earnings. Would it be sitting at the upper or lower end of that? Maybe to...

Just trying to think if they can answer that one. Relative to last year, yes, I mean is it a fairly similar number? Just trying to [indiscernible] up our report.

I think it will be sort of similar.

In terms or as a proportion of earnings?

In absolute terms.

We always said, what, between 100 and 200, right? So I think it was a little bit less than that last year. So...

It was 117 versus 146 in FY '22.

Be similar.

Yes, there's a couple of other things, other projects also on the go, yes. So there's -- we'll have to see. It just depends on the timing. And I'll give you idea, let's say, for instance, the residential projects that we had, we were hoping that would have been actually coming through in the prior year. But because of a delay within HPRC, for instance, you get thrown out by a whole bunch of months. And so there's always -- it's quite difficult to get the timing perfect. And -- but we have been fortunate that we haven't lost money yet, which is the biggest thing. And it's a -- it's always a contributor area to the bottom line.

Brilliant. And with that, I think we are just about at 5:00. We've actually finished something on time. I don't know if you have any closing comments from yourself, Norbert, before we close the call.

I don't have anything further to add from my side, Nazeem. I don't know if Estienne or anybody out of the room in [indiscernible] got anything else to add. Nothing more from me.

All right. Brilliant.

Thank you for your time.

So thank you for allowing us to host, and thanks to all those dialing in. Hope you have a lovely day, and chat soon. Have a good festive period.

Thanks very much.

Thanks, Nazeem. You, too. Thanks all.

Thanks. Bye.