Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

Thanks for joining us. Good afternoon. So yes, thanks for joining myself and Growthpoint management team for [indiscernible] everyone has kind of gone through all the reading materials with good details since this morning. I'm not going to hold anything up. Just kind of jump straight into questions, but just to be very clear, use the chat function on the side of the screen to type in your question, and I'll just read a debasement to the management team for them to answer or alternatively, you can put your camera and mic on and then I ask the question in go straight ahead. Just to kick things off, right? I mean... [indiscernible] if you'd like to kick things off, if you have some questions, you can go ahead.

I'm good thanks. Go ahead. Go ahead.

Okay, cool. So just jumping straight to the sort of view on FY '25 and '26. I mean I know there's no guidance for that yet, but I'd like to get into the idea of the finance cost expectations and any changes there. So this year, for FY '25, there are a couple of foreign stocks that are going to be expiring. So I was trying to get a sense of what increases on the cost of debt can we expect there. So sort of the first part. And secondly, is the bulk or the bulk of those swaps going to take place in the first half or the second half of FY '25. So you get an idea of what to expect for the next 2 years.

We [indiscernible]. I know that [indiscernible] is in the room in [indiscernible]. And I mean -- maybe at a very high level, I can just comment on the fact that I think looking forward into FY '25, we undoubtedly do still see upward pressure on funding costs, not only in South Africa and the South African business. I guess, in particular, as it relates to the cross currency interest rate swap refinancing. Obviously, there's an expectation now in South Africa that interest rates will come down in some of the latest numbers we've been looking at is some up to 125-odd basis points drop over the next 12 to 18 months. Clearly, that we see as being positive on the unhedged portion of our book. But again, it will be very important as to the timing of those decreases to the extent they can only come in after December, the impact is obviously dramatically reduced if it's only 25 bps or 50 bps for half a year. So we look forward to that interest rate drop cycle commencing and we should see some upside and benefit from that coming through. In relation to existing swaps rolling off and whether we rehedge those, there's a guess -- there's a whole plethora of them, I'd say, [indiscernible] might give a bit more color, but it's fair to say that there will be some swaps that we could probably renew at fairly similar levels to where they're expiring it. We do, however, also have a couple of older swaps that were let's call it, enter into at lower rates where there will still be some increases as we put new swaps in place. The big thing was that the noise is the CCIRS space, in the order of ZAR 3.5 billion worth of CCIRS that need to be refinanced. And there's a big delta there. The current cost is 1-odd percent on those and it's probably going to go to 4-odd percent. Exact timing, I don't know, [indiscernible], if you've got some of that color that you could maybe just add to the question.

Thanks, Norbert. I can. So I mean quite correct. It's split between from a SAR interest rate hedging perspective, like Norbert says those pretty much mature through the year. I think there's a consistent mix throughout the year. And those we don't anticipate, depending on where rates -- the swap rates end up being next financial year. Hopefully, those are not too far away from where we can potentially hedge. Like Norbert says the cross-currency interest rate swap, specifically on the AUDs growth, we really match in terms of when the dividends are received from Growthpoint Australia. So those are twice a year to half of would be around August, September and about the other half around March of next year. Those were Norbert mentioned in the number. We showed it in our interim results presentation, they expired about an average rate of about 1.18. And we know that the Australian rates haven't really come down over the last couple of months. So that's where we really see. European interest rates, those have started coming down a little bit, but we've only got one hedge that matures in FY '25 year. So there aren't too much noise from a euro perspective, but it's mostly from the AUD perspective.

Yes. So it's definitely going to [indiscernible].

Sorry, it's [indiscernible] I could just add also one needs to look through to some of the underlying investments. Fair to say that there was a very significant refinance within Global worth in May, June with that bond exchange that took place and the high -- I mean that was refinanced at 6.25% where the expiry rate was 3%. So that will impact last quarter the distributable income, I guess that one could expect from Global work. And then Aussie, Aussie printed pretty nasty looking inflation number yesterday, I think, was -- we had a 4 handle on it. And where the market was expecting it to come down and be in the low 3s. So I do think there's quite a lot of noise in the system in Aussie around potentially an interest rate increase, rather than decreases which we're seeing within the euro environment. We've seen the first drop. U.K. was put on hold earlier this week. So there's generally still, let's call it, upward pressure in relation to funding costs.

And then I don't know if you guys mentioned there need to be any sort of top up as well for the renewal of those Aussie dollar [indiscernible].

There will be, Australian dollar ones, there will be [indiscernible].

[indiscernible] idea of a quantum.

I haven't worked that number, next year for the next financial [indiscernible].

Okay. Understood. So it does seems that it'll be an impact of just for '25 and '26 for the finance costs as well. Okay. We can move on to some deal activity, right? I mean there's been a bit of noise around capital and regional and the interest from the new REITs. Can you give us a sense as to how you guys are thinking about the capital regional investments right now and maybe what the future outlook for that is?

It's difficult to answer that one. We were in the realm of a public company with U.K. panel rules, very prevalent and very limiting and restrictive on what we can say. And in a sense, I guess, we've been quite deliberately vague in our announcement in the [indiscernible] announcement, which just refers investors to the comments from C&R with the announcement that C&R have put out. I think it's fair to say that the U.K. economy is also struggling. It's very hard and difficult to find growth and growth opportunities. And the strategy, I guess from our side is to look to optimize these offshore investments of ours. And I guess depending on the outcome of discussions with the interested parties at the moment and other interested parties, we would be making a decision on whether we potentially consider disposing of that interest if the level of pricing isn't appropriate, then clearly, we would not solve sort of at any cost or at any price. It would need to make sense for -- need to make sense for us.

Okay. Just a reminder to the listeners, of course, you guys can still send in the question on the chat. And also feel free to raise your hand and we'll give you the microphone to speak. Just touching on now the operations. It seems the things moving in the right direction, you're seeing a decrease in your [indiscernible] rate and low growth trend coming through there. But let just pick that one, I know this is only just for growth point, right? [indiscernible] we've seen office versions have gotten a lot more steep since lockdown, of course, but because of the slightly longer whales there, [indiscernible] that very negative reversionary cycle is dragging on for a bit longer than maybe we first expected. So can you give us a sense for maybe how much long do you still expect to see very high office reversions before things rebase?

Yes. I'll give that to Klerk.

Sure, thank you very much. Yes. So obviously, the office market, I think generally, we're feeling a little bit more positive on the sector. So what -- we are feeling a little bit more positive on it. I mean the transaction volumes have picked up quite significantly. And I think there just big picture, you have to separate our coastal investments from the [indiscernible] investment. So for a start, if we look at the Natal area, we are seeing quite a reasonable market there. In fact, all our properties are predominantly full. And the pricing power is moving towards the landlord in those markets. The reality is it's still a reasonably competitive market, and to try and drive the rentals excessively, it isn't really in that space yet. But we are starting to see the negative reversions in those markets, specifically Capetown and Durban or [indiscernible] specifically in our case, improved quite significantly. So that's, I don't know, about short of 30% of the portfolio. The balance is in [indiscernible]. And in [indiscernible], we have a scenario that specifically Sandton, where we have 360-odd thousand square meters of office space. We had a very, very high vacancy factor at one stage. And the teams -- we've got dedicated teams. I know that a lot of folks believe that we sit back and watch the properties and hope they fix themselves. But every portfolio has a very, very dedicated team, dedicated asset management and the guys are trying to solve every problem at property, lease by lease sort of level. And we have done over just short of 115,000 square meters of letting. In Sandton, we've done close to 40,000 square meters of letting. We brought down those vacancies quite considerably. But given the, let's call it, competitive market and the oversupply still in Sandton, the market is pretty competitive, and you are still seeing negative reversions. And one has to probably contextualize that many of the leases that if you -- in a renewal cycle, those leases have been in place for 3 to 5 years just on average, and they're escalating at roughly 7.5%. So if you come to a renewal, we are still seeing a reversion because of the fact that they're escalating at that level, whereas the market given the dynamic that you have in Sandton specifically, isn't seeing that growth rate. But I think overall, the one other positive thing, if you have to think about offers is that there's very little new development and there has been some of the stock that is coming out of the market through 2 ways. One is alternate use and then other through effectively redundancy. So the office buildings in the market that really aren't fit for purpose anymore and don't really come on to the prospective tenants radar. And then there's properties that have been taken out to the market. So that does help a little bit. And then any new development, the costs of developing new quality office has gone up by more than 50%. So that means if you're looking at rental levels, you're probably in and around 260 to 320 as a range for a new office space, whereas in the market what we're operating in now, those rentals are significantly below that. And we're starting to see some tenants that historically would have just committed to the coast. They're actually starting to look at Sandton specifically, and we've done a few really nice deals in the [indiscernible] market because the cost of rentals relative now to the coast is quite materially different. And we've been able to track on it to the guys to that market. I hope that answers sort of broadly the question. In terms of timing, of that negative reversion, it's quite difficult for me to really be able to crystal ball that one. So -- it doesn't look, industrial and retail, we can sort of say we're very close to actually starting to see positive reversions. But the office, I think we -- in the [indiscernible] area, certainly, I think we still got a little bit of time to go there.

And I'll just add in to that on the timing. I think one needs to look at the -- there's a very strong correlation clearly between vacancies and these reversions. And if you look at the trajectory of the vacancies in the industrial portfolio and the retail portfolio, they have come down quite nicely as have the reversion. So we're hopeful that those negative versions in retail and industrial kind of come to an end. But with office vacancies, both nationally and within our portfolio, still being in double digit, even middle, middle double digits, I don't know [indiscernible] 15% is around number. It's very difficult to believe that you're going to be turning around into positive reversions anytime soon. To my mind, you need to get that vacancy factor to be low -- certainly below 10% into the mid-single-digit kind of numbers before the pricing power reverts back to the landlord.

I was thinking about that your sort of mid-teen reversions were kind of linked to sort of post-COVID environments where they've taken ahead of probably normalized closer to sort of mid-single digit, I suppose. Just [indiscernible].

Yes. [indiscernible], I think you can see the improvement there in that slide, right? Office has come down from minus 20 to minus 40. Again, I think a good outcome would be for that to start coming into single-digit territory as vacancies equally start dropping into the sort of either low single digit or highs. Certainly, those double-digit or high single-digit levels.

Yes. Look, I think the thing is from our perspective is that you -- if you look at your full book you've got, let's say, roughly about half of the book is growing at the escalation rate. So round numbers, let's say, 7%. Then you've got the vacancy, okay, which is a bit of a drag and then you've got your renewals. And those are -- in retail and industrial, only marginally grading back the earnings, whereas in office, it still has a bit of an impact. But at least now, we're sort of getting to a point where that negative drag isn't pulling the total portfolio into a negative territory. So in other words, where the total portfolio is a negative outcome. We're starting to move to a point where the office portfolio earnings is actually growing. And some of the selective disposals that we have made will have quite a positive impact in terms of the answer. So it is the most difficult area to dispose of properties. And it also doesn't really make sense to just sell the property at a very low price to a competitor who's going to undercut you. So we've been quite strategic in thinking about those disposals. And generally, we've been selling either for alternate use or to an actual owner tenant where they were going to buy a building anyway. So we're happy to sell them the building, they're going to occupy it. But it doesn't really make sense to sell all those assets to competitors [indiscernible] because you're just under mining and undercutting your own market really given our scale. So I think there are some positives to be taken out of that.

Awesome. So let me take a question from the chat. First one from [indiscernible] from Finland. He's asked on the let up of office space, what rental levels are these deals being done at?

So I think that's a very [indiscernible].

I'm going to answer it at a high level, just in the interest of time. So when we're doing a deal, it's really about the building, it's about the space, and it's about the relative market it is in. So -- let's go to the extremes. If you're doing a deal here in the V&A, we make the price. And in fact, tenants are prepared to pay pretty much anything that we ask for because they want to be here.

If you go to the [indiscernible].

Going at 280 at the moment here in the V&A, right? So if you want to come to the V&A at 280 without it. And if we're going to build you something new, you're going to be at 320, okay? In a, let's call it, secondary market or [indiscernible] broader, if we -- on the fringes of the main nodes, the rentals are dropping off to say, ZAR 120 gross, roughly. So it is -- it's pretty ugly there still if you've got a secondary quality property than you are on the back foot. But just to understand, it is very much deal by deal and transaction by transaction. So that's office, rental levels in retail, it's a very widespread. And I think there was a question around how do they compare to markets? And I mean, I think if you look at the rental reversions, it just kind of gives you because of the volume. It does give you quite a good insight as to how much we are above market. So it does reflect on industrial and retail. We're pretty much at market on office, we're probably 10% to 15% still above market in the current environment in counting in that book. So I think, hopefully, that answers those 2 questions.

Yes. Moving on to Nessi's question from STANLIB, he says you had a big drop in vacancies from 19% to 15%. Well, the next 4% to 5% drop in office vacancies prove more challenging. Is it too optimistic to get back to 10% even with less developments coming online?

Yes. So I mean I will be a little bit cynical and say, if Nessi can tell me what the economic growth will be, then I'll be able to answer that quite a bit more accurately because there is a -- the biggest correlation with office occupancies is the economic environment. And once again, I'll refer you to a Capetown or a [indiscernible] sort of environment, right? So the vacancies in Capetown, where we're having good economic growth, it's pretty much at parity now. So 5% to 7% sort of a normalized vacancy in [indiscernible]. Clearly, in [indiscernible] where you've got no vacancy, that's reasonably unnormal. But it's quite a unique environment there. So I think where you're seeing reasonable economic growth, then those vacancies do tend to plummet and given the inflation in construction cost, I think you can see an aggressive reduction in vacancies if you get the economic growth. If we don't get economic growth, then it's going to be a real fight which it has been and continues to be in, say, a top 10. But as I mentioned earlier, we're starting to attract clients that used to come to these coastal areas, big clients into the Sandton market. And the reality is that those are quality assets, and they present well. So the reality is we can attract those clients. And we do think that if you get a bit of economic growth. And if the sort of trend continues around the sort of coastal markets being pretty nearly, I wouldn't say overtraded, but where you've seen a lot of space being taken out the market through letting and other. I think you'll find cutting actually probably drops off a little bit quicker than we think.

I just add to that as well to Nessi's question. Nessi, you also need to just consider disposals, right? So in this reduction that we're showing there was some disposal of 16,000 squares odd of vacancy was taken out through disposals. Now getting that next 5% could be easier -- more easily achieved if there were to be a meaningful disposal of an asset that's got a big vacancy, I guess, relative to -- the reality is the letting market is still very tough guys and the very few corporates are out there beating a drum on growth and expansion and employing adding head count. Overall, I'd say step one in all of that is confidence. There's no doubt in my mind that there is -- whilst there's still a lot of uncertainty, there's quite a bit more confidence in the market post elections. Of all the potential outcomes we could have got, the one we've actually got is probably one of the better scenarios that we could have wished for and that immediately translates into some confidence and immediately translates into corporate taking longer views on the future and prepare it to do sign longer leases and propensity to be more aggressive on growing and expanding the business and adding headcount. So that's one -- that's the first ingredient almost to [indiscernible]. Add to that reduced load shedding, we have low-shedding now for [indiscernible] 3 months almost, who knows what's around the corner and both in terms of the political sensation in the [indiscernible], but also in terms of load shedding. But these are very key ingredients to getting some positivity and some economic growth going. So those will be key factors in answering that question of yours Nessi.

And maybe one other myth is you can't just sell your vacancies because I mean your property is on average, 85% full. So it makes it quite difficult to sell. So there will be properties with slightly more vacancy and slightly less, but on average, they're only 15% vacant or 85% full.

Next question is from Paolo from Clearance Capital. In the update, you mentioned the international strategy has been refocused on optimizing our international investments. Can you provide some further thoughts on this? Is this just a cap reach comment or more broad?

So I would say it's more broad than just cap reach. We referred to global work in the announcement as well and the fact that we continue to engage with and support the management team there, they certainly have been through a pretty rough time sorting out the debt refinance. I'd say the last 18 months to 2 years was almost preoccupation with sorting out the bonds with after following the bond exchange. We've now extended those bonds to 2029 and 2030. So any real risk around refinancing and liquidity issues have materially been addressed and reduced and enabling the company to be -- and the management team to be a bit more focused on finding growth opportunities, finding solutions for potentially some of the ongoing challenges within the portfolio. But I'd say it's more broad than just a capital and regional statement or reference to capital regional.

Okay. So you can't give any indication of maybe which regions or areas you guys are [indiscernible] in.

It's across all of the investments. I mean, we're looking at maximizing or let say, optimizing the position with regards to all of those international investments.

Yes. Question from [indiscernible] and she says, I have a question regarding your view on the [indiscernible] book. What is the outlook on the performance of the book from a vacancy and reversion perspective for FY '24?

FY '24. What [indiscernible] book you referring to?

I'm assuming the direct assets, I'm assuming on [indiscernible].

Direct asset of the portfolio. Okay. Look, I mean, if the company has put out its own guidance, right? And so -- we don't want to delve into too much there, given that the information that the company feels relevant that we put out to the market already. Fair to say, and I mean this goes across pretty much all the jurisdictions growth, it's just hard to find. Whether you're in Poland, whether you're in Romania, whether you're in Sydney, Melbourne, Brisbane, whether you're in London or in Johannesburg, Sandton or Capetown for that matter growth is just flip and hard to find. So the portfolio in Aussie is very well led. There are a couple of vacancies. It's in one or two buildings. And it's a very vibrant, very competitive market. But I think the space we're in with our sort of more suburban portfolio there actually doing slightly better on average than the CBDs that was confirmed by some of the numbers we looked at earlier in the week with the Board meeting. One of the challenges, I guess, is -- remains funding costs there as well. So you've got -- we saw a 6.8% valuation drop in the office portfolio off the back of higher rates and higher cap rates. Industrial was just low single-digit, 1% down with, as I said, yesterday's print on inflation in Australia was not good. I think the market yesterday was down to [indiscernible] share price. I think yesterday, it was down something like 6% off the back of this negative print. It wasn't just [indiscernible], but all the listed property REITs and listed probably stocks came under pressure. There's even talk of an interest rate increase still in Aussie. So the pressure there is, again, would be largely attributable to the outlook for funding costs. And yes, I mean, potentially still some further valuation drops looking through to December.

It might be worth just saying on the property fundamentals, the market for industrial is pretty [indiscernible]. I think it's moved from circa 2% to, let's say, average about 3% across Australia in industrial being vacant. So you're still seeing pretty strong rental growth there between 15% to 20%. But in the Aussie market, you have to watch the incentive sort of percentages quite carefully. So we are seeing -- it's becoming more competitive and to attract tenants. You're seeing those incentives roll up a little bit. On the office side, that market with high interest rates, the confidence and the economy is slowing down and demand is dropping off a little bit there, albeit that the economy is still growing and relatively better than ours here. And I think that suburban market, as Norbert has mentioned, has performed to relatively better than the office market in the CBDs. And we have managed to maintain relatively high occupancies. I mean, we have had an occupancy rate of circa 95%, so 5% vacancy. And that -- are a couple of tenants that are coming out of the portfolio, so that will deteriorate a little bit, but our team is working hard on filling up that space. So hopefully, by for next year, you'll be able to maintain those vacancy levels at sort of that level, which is actually sort of an equilibrium reasonable vacancy sort of deal.

Okay. Also. Look, I do think that talk around flow valuations and [indiscernible] general, that are quite topical, but we'll jump back to that just now. Warren has a question about the V&A. He says, please can you talk more to the statements, we seek a long-term sustainable solution to the ongoing capital requirements of the V&A, which is predicted to show significant growth in the next 3 to 5 years. What options are you considering? Okay. Let's give them a bit of time.

I mean to whilst we're waiting for them to come back on. You had asked the question on how much liquidity would be is the question. So it really depends on where you anticipate the Australian dollar rand exchange rate to be. So I mean, if you assume [indiscernible] then it's approximately ZAR 200 million that we think we'll need at around 1250 that goes up to about ZAR 300 million. Between ZAR 200 million to ZAR 300 million, I think, or just above ZAR 300 million is the estimation that we have.

I think a question about CapEx, [indiscernible]. So I mean [indiscernible] asked them how much of the earnings that is being retained through the payout ratio. Do you believe it's permitted for CapEx and development, et cetera? And do you have a sense when you will require to retain less under new earnings.

I'll maybe take that one, no issue. I think in terms of the payout ratio, I mean, we've indicated that the sort of days of 100% payout ratio are sort of gone. So in terms of what we're retaining, we look to ultimately match our CapEx requirements and obviously, together with disposals. So I think if you look at the CapEx requirements going forward, we've indicated what that pipeline looks like. So I don't believe that we would be looking to move to a higher payout ratio in the short term, but I don't know I see that back. I don't know if you want to comment there.

Yes, I'm happy to add to that [indiscernible] got the trust of the [indiscernible]. I would just say that even if we were to scale back a bit on some of the CapEx programs which we showed, I think, in the announcement, there's about ZAR 4 billion worth of development in CapEx over the next, let's say, '24, '25 period. Given where LTVs are -- it's very unlikely that we're going to be rushing to increase the payout ratio. If we don't have enough CapEx programs to spend, if you want from the money retained, and I think we have looked to reduce debt levels a little bit instead of considering increasing the payout ratio.

So maybe if we can move back to the V&A answer.

You want to go back to the V&A question. So yes, I sort of -- I didn't know when we put that comment in the announcement that it will probably sort of raise a question or 2. I think -- but in answering it on it, maybe just spend 2 minutes elaborating a little bit on the waterfront and what's going on here continues to be a very positive story, there is real growth here in terms of the underlying property, net income, rental income, operating income from a very diversified portfolio, in a more and more the waterfront is tending to take operating type of risk with some of the hotel investments and some of the -- even the time out market and the wheel and the aquarium and all sorts of things, effectively operating-type businesses, you might limit it to getting a rental escalation on a lease. So that obviously can work for and against you, depending on the environment and the cycle that you're in. But we certainly have seen some very strong overall dynamics here in terms of growth in footfall, growth in turnover spend at the waterfront. We just had a meeting earlier interesting with some of the data that we now are able to get from the retailers. We can see the mix of international spend versus local spend and from my memory, is in looking at those numbers, about half the spend in the waterfront is actually -- and the changes depending on the seasons, but pretty much half the spend is actually from international visitors and the way in which we accumulate to get this data is by reference to the actual credit card spend. You can tell by reference to the credit cards, whether the individual is an American, Britain, German, Swedish, Dutch, South African. And so that analysis is fascinating. And so there's currently in the order of just under ZAR 5 billion worth of existing development, including that the completion of the likes of Investec on the office side. But in terms of new and existing projects, roughly 4.8%, 4.7%, let's call it around. I'm going to give you around ZAR 5 billion worth of future development capital required here. Big chunk on at, sort of ZAR 900 million is broadly speaking, infrastructure, refurbishment, planning, ranger planning, spend in anticipation of getting the additional rights. So that's about ZAR 900 million. There's just short of ZAR 3 billion on residential and hotel development taking place. And then there's just around about ZAR 1 billion on the office and retail. The big chunk of that was the Investec one at about ZAR 600-odd million. So clearly, the Waterfront remains a very capital hungry animal. But having said that, the fundamentals support the level of investment. Now we have commenced funding the waterfront expansion through the usage of third-party debt at about ZAR 2 billion of facilities in place. Gearing is still pretty low. We haven't quite drawn down on the full ZAR 2 billion. I think there's about ZAR 800-odd million still remaining or undrawn, and that is on an asset base of circa ZAR 23 billion. So there's a fair bit of capacity still to gear. But what we're starting to think about is for the next 3 to 5 years, we clearly can't only consider debt and gearing as options. We need to start thinking more broadly. We haven't narrowed things down yet in terms of what it might look like, but further equity all sorts of different options, I guess, are being considered at the moment. But it's just needing to take a longer-term view on this extreme level of the investment. Bearing in mind, should we get the additional rights we've applied for from the city, which is in the order of 440,000 square meters of bulk. There's at least another 10 to 15 years' worth of future development here requiring ZAR 20 billion to ZAR 30 billion worth of future capital. And that's -- it will be tricky to certainly for maybe the PIC can sum up the half, but it will be a bit tricky for us at this particular point in time anyway to consider stumping up our half. So these are just some of the things we're starting to think about at this time.

Okay. Thanks, Norbert. And as you want to jump to your question just now. I just think I'd like to maybe speak a little bit about the LTVs quickly. And maybe just as a broader statement, it does seem as though in this current environment, you've got a very high interest rates relative to your sort of longer-term average. It's quite difficult to get a lot of valuation growth about there being a significant increase on your actual NOI line. So sort of with that in mind, Well, this is [indiscernible] question, right. Following the 4.5% decline in GOZ's values and the subsequent LTV impact on group, all the management and the Board comfortable with the current LTV levels? And maybe can you tell what the current LTV levels are at this stage?

So I'm assuming you're talking more about group is the growth group as opposed to GOZ in particular. I mean GOZ will put out their results soon, I guess. But did they put a pro forma. I think they put a pro forma out the other day to day, not about 40%. I think they said LTVs will be at about 40% for GOZ. And so look, I think again, the covenants for GOZ, I think it's 60%, if I'm not mistaken, interest cover there is still pretty solid. It is at the midpoint of the -- let's call it, the ratings that the GOZ Board are comfortable with, which is 35% to 45%. Should it go much beyond the 40%, I'd say certainly that the Board would start getting a little bit more uncomfortable. But at the sort of 40-odd level, still fine. In relation to group consolidated, we did indicate at the half year that the trajectory for LTVs is still to be going up. I don't know where our final number will come out there. I don't want to preempt that. It does feel though that the SA valuations are relatively stable and certainly not seeing decreases to the same extent to what we've seen in GOZ. Eastern Europe equally is probably a bit more stable. Maybe there's a bit of downward pressure there, but not to the same extent as we've seen in GOZ. And then C&R, I'd say, is pretty flat as well. Waterfront, we've seen a nice uptick, actually. Waterfront saw pretty strong valuation increases of the back of very strong operating results and revenue growth. So all things considered, we are at the 40 -- north of 14 does cause us to be cautious, not alone. We do -- and I think some of the initiatives in relation to especially the disposal trajectory that we've put out targeting ZAR 4 billion of disposals in the next -- in '24, '25. The bulk of that is obviously going to be used to fund the development CapEx, et cetera. But at least that shouldn't lead to further rise in LTV. The bulk of the increase in group LTV is actually coming from the offshore investments in the main GOZ actually.

I think the local balance sheet is quite conservatively geared still, so I think the Board is quite comfortable given how conservatively geared the local balance sheet is.

Yes, that's kind of been one of our views as well. That's I think the overall LTV level of [indiscernible] in a necessarily panic station at this point. You need very significant write-downs on the valuations to be in a position to breaching covenants. That's it, from an interest cover ratio perspective, I think that's trended in a very sort of steep downward trajectory for a while. And of course, a lot of companies to have a bit more room for increase in the finance cost. How are you guys thinking about your current ICR? And is it even in the rounds of thoughts that you could relax covenants of banks to make sure you have a bit more room.

I don't think that's going to be necessary, would be my view. I mean we've modeled what we think and taking the context, other than what Norbert mentioned, potentially where they're still looking at interest rate increases in Australia, which we don't believe will materialize. But I mean in South Africa and other jurisdictions now, consensus is that we -- we've sort of done with the increases, and we're probably into an environment where we should start seeing -- and certainly, if you look at the economy locally, we should start seeing interest rates reduce. So one would have expected interest cover ratios to deteriorate somewhat. But hopefully, as we move forward, the counter will be true, and we'll start seeing improvement of those interest cover ratios as we start seeing growth in the -- in the underlying portfolio on the one hand and then getting the benefit of those reduced interest rates as they come through in the market. I think our Intel is that most of the financial institutions are sort of pricing between 1% and 1.25% over the next 18 months.

Just to add to that, I think we've done a lot of scenarios analysis. And I have shown a team have run a number of scenarios. [indiscernible] So if you guys can hear me, I'll carry on, but Asha did run and her team ran a bunch of scenarios -- and it -- we certainly haven't got a scenario where we breach covenants in ICR space. I mean on the LTV side, we've got a lot of headroom [indiscernible], but tighter. We have not had any reason or cause to be talking to the banks about any relaxation of covenants or anything like that. And so yes, we -- as I said, we haven't nothing we needed -- we haven't got the scenario where we breach. Obviously, the trajectory is still a little bit down. But hopefully, as interest rates start reducing, we're bottom out and start improving on that in the next 12 months.

Okay. Great. I'll jump back to [indiscernible] question from [indiscernible] he's asked considering the large discounts to [indiscernible] that growth point is trading at, what strategies are management considering to unlock value.

Well, apart from the -- getting the market to pay more for the share.

Which is in your hands.

I think in terms of -- without -- again, you're going to appreciate that we can't be specific on the listed investments that we have. But we continue to evaluate all the different options available to us to optimize the international investments and through that process, hopefully, some of that could lead to a closing of the gap on NAV. The reality is one of the best options at the moment, I guess, would be share buyback. But the reality at this time is that given where gearing is and the LTV levels as we spoke about earlier, not something that we want to or can do, certainly not in volume. For us, I think the focus is really on simplifying the business, on optimizing their South African portfolio, disposing of nonperforming assets, recycling that capital into new more modern assets. You're taking some of those proceeds, investing them into some of our core assets that have got long-term growth prospects that need some additional capital in the short term and ultimately, chasing a path towards returning to growth in distributions.

I think there's also a context that I mean I wouldn't say that we're out of line with many of the other real estate counters in terms of discounts to NAV. And that speaks to a global context where GOZ as well as pretty much the whole Australian property sector, Europe, the U.K. and the U.S. many of the real estate stocks are trading at very comparable discounts.

And hopefully, as interest rates start coming off, there will be of a closing of the gap, not only from let's call it from the pricing side perspective as well, right? We obviously saw a little bit of that in the last couple of weeks post election. And there's confidence returns and an interest rate cycle starts turning, then hopefully, the gap will close due to, let's call it, technical factors in addition to some of the operational side, which we're busy with.

One question from Kabelo. He ask what proportion of office asset sales are targeted ZAR 4 billion for '24 and '25. I'm assuming [indiscernible].

Yes. So we've [indiscernible] some 9-month numbers on [indiscernible], which was not a big proportion. Yes. But for the full ZAR 4 billion [indiscernible], I don't know if you've got that [indiscernible].

Can't remember exactly. Actually, Neil is probably the best person to ask this. I think he is sitting there. Neil, can you remember? And I mean the reality is that we have obviously got a list of strategic assets -- nonstrategic assets we would like to dispose of. Some of those will be office. But there's no doubt that, that is the most difficult sector to dispose at the moment and remains that way. It has improved lately a little bit, to be honest. We've seen a little bit more interest in the office sector. And given the significant write-down and valuations, I think you'll see that maybe that the market does improve a little bit.

Before I hand over to [indiscernible] might have some more to add. But just in that ZAR 4 billion, if you look at the breakdown of office within the announcement, 58 was sold and transferred in the period. was another 393 awaiting transfer and another 575 approved for disposal in FY '25.

I think really what I'll add is the -- it's probably around about 1/3 of the projected number. We do have a portfolio of properties that we have identified for disposal, and we -- and that is slightly larger than the ZAR 4 billion. So we would be able to supplement some other properties from other sectors to make up that ZAR 4 billion. Probably as we stand now, about 1/3.

And then with regards to that, what is the yield on disposals come from Ashar and the estimated development yield as well by best figures.

So for the -- obviously, it varies quite substantially between the various assets. I'll maybe switch from a yield to say that we are selling pretty much at book value or marginally above generally. I mean all these sales is ZAR 665 million of sales, we sold pretty much at book value. So it sort of reflects the yields in line with what we've reflected in our financial statements. And on the development side of things, once again, every development is unique. Broadly speaking, we are trying to -- in fact, ideally, I don't want to give you that number, but -- we are trying to at least target around about 10%, 10.5%. So there's a broad sort of reference in terms of where we're trying to get our yields to, given our cost of capital.

Okay. Great. So a little bit of time left. Can you give us a view on how you guys are seeing your current exposure to [indiscernible] what do you guys think in terms of sort of outlook for further investments there.

So I mean just to contextualize, I mean, we are -- our office portfolio is literally from Schlanger Ridge and the industrial portfolio is spread through Durbin, but pretty much benefits from the port, which happens to be the largest port in the country and still absolutely strategic from a logistics perspective. And our retail, they are very, very established shopping centers in good metropolitan residential areas. So -- at this point, we haven't taken a view to dispose of assets other than what we believe is not strategic and for specific reasons relative to those assets. From a regional perspective, the -- actually, the market fundamentally has actually been strong, as I've explained earlier. And given its strategic location to the port, it remains from an industrial perspective area that requires attention and continues to be attractive from an investment perspective. Politically, the reality is that the incumbent provincial parties that have a coalition there. Probably you can perceive them to be more business-friendly. And certainly, some of the noise is that have come out post the coalition has been, I would say, a reasonably positive. So it is something we watch quite carefully. We do have strong relationships within the communities in which we operate and also close -- we get close feedback from all the security clusters, et cetera. So before the election, our team has good intel on what was happening on the ground, where the risks were, et cetera. And clearly, we have strategies for that. We've all been to a couple of floods and a couple of -- well, one very large unrest scenario. So we've got hands-on experience, which is obviously invaluable in this sort of environment. But at this stage, actually, generally, Intel is more positive than it is negative.

Awesome. And then just with regards to outlook, I think over the last like 2 years, there's been talk of Norbert, maybe stepping down and instead maybe staying for 2026. Do you have any updates on that? Or is that still sort of plan is as expected.

So I think we gave that. I forget exactly when we get to the update to the market in relation to my position. Originally, I was to step down in December '24. We have agreed with the Board that I will stay till December '26. And in relation to a replacement, the board will start-up process, I guess, towards the middle of this year with a view to appointing some of the latest I'd say, in early part of next year. And so I think at a senior management level, I think it's also important for investors to know Gerald, current Finance Director will be achieving retirement age in September next year. We have already commenced the process in terms of a search to find a replacement for Gerald. Both internal and external candidates will be considered. And there, we have to do, again, like an appointment probably early part of next year, the possibly at the end of one next year as we then lead into end of financial year, June '25, finalization, September '25, we want somebody to be in place before that, let's call it, the next year end is done.

Okay. Great. I think we are out of time. There's maybe one or two questions left, but I suppose maybe they can get to you guys directly. Do you guys have any closing statements or you can tie this up.

Just one other thing on the succession. I think -- I don't think the market always gives Growthpoint credit, but it is a proper organization with deep bench. We've got a very strong governance framework. There are -- there's proper succession plans within the organization. It's not 6 guys and a dog -- so it's a proper business with quite an established track record -- and as such, items like succession are actively discussed within our Human Resources Committee as well as in the set committee and it's quite a serious part of the way we look at our business. And yes, I'm not going to use the dog.

Maybe just again on closing from my side, I think hopefully, investor would have got a slightly more positive statement or positive sense out of this particular update. Fair to say that a lot of uncertainty in relation to both the political environment with the elections looming. There's -- everybody is feeling a bit more positive about that. If you look at the information coming through on the South African portfolio, whilst we're still seeing some negative reversions. Many of the KPIs are improving. Things are looking a bit better. With the prospect of interest rates coming down in the next 12 to 18 months, we think that equally has a positive impact. But as I said, during the course of the call, it remains, hellishly tough to find growth and hellishly tough, not only in South Africa but across all the jurisdictions that we're in and exposed to. And we still have lingering upward pressure on funding costs in particular on the Aussie dollar cross currency swap refinance that needs to take place in FY '25.

Okay. Thanks, Norbert. Thanks, [indiscernible] and to the whole team. I think we can close things off there. Thanks for your time, and enjoy the rest of your week, guys.

Thank you, everybody. Have a good day.

Thanks [indiscernible]. Bye-bye.

Thank you.