Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

I think most of the participants have been late into the meeting. So maybe I think let's hit it off. Good afternoon, everybody, and welcome to all participants. Special welcome to the Growthpoint team. As you can see, we have almost the entire management team online waiting to answer questions. This is the call for the operational update for the quarter ended September 2024. The SENS announcement containing all the detail and the performance year-to-date was released this morning on SENS. It has been taken as read. So we're not going to be going through the announcement in this presentation or in this discussion, and will, therefore, head straight into Q&A. Maybe just a note to all participants. If you would like to ask a question, kindly posted it in the Q&A tab. Alternatively, you can raise your hand, and I can ask a question or we'll open up the line and you can ask the question directly to the team.

I think our sort of the Q&A. And the first question from my side is, in my view, a positive, I would say, operational performance that has materialized during the first quarter from a vacancy, the trend in reversions, et cetera, that have materialized. And the question is, I mean, I know it's only been 3 months, but if you sort of look forward, given your line of sight in terms of the leases that are coming up for renewal or expiring can this operational momentum be maintained? Norbert, maybe I'll hand over to you.

So let go at a high level and there may be the individual asset managers for retail office, industrial, maybe even Neil as Head of Asset Management can offer us some views. Mahir, from my sort of high-level perspective, it's clear that the whole of South Africa is, I guess, feeling a lot better about life post the elections and the Government of National Unity coming into being. No load shedding, interest rates coming down. Yes, we've got a couple of big global macro issues playing out as well, I guess, the U.S. election and the wars on 2 fronts. But at a domestic level, on the ground, there's no doubt that from what we can see there's a much more positive sentiment. I think there was even the Confidence Index, one of the business confidence indices or something the other day which came out, which also suggested business confidence is certainly on the up. And so it's -- we've got -- we're certainly hopeful that this momentum can continue. There's a lot of rhetoric about improved economic growth coming through. In fact, we had some presentations as part of our Board process this last week from external third parties suggesting it could be on a path to perhaps achieving even 3% GDP growth, maybe not quite in '25, but as we head out of '25. So are those messages certainly are positive. We had S&P. I think it was as well, upgrade, South Africa's rating from neutral to positive. So yes, I think there's a general sense of positivity and optimism. Interest rate cycle has turned, valuations have bottomed out. The LTVs are probably topped out. So generally speaking, much more positive. And happy for any of the guys on retail office and industrial or Neil to chip in, in terms of what they're seeing and feeling on the ground.

Maybe, Gavin, if you want to chat a little bit about the retail just on the market.

Yes, I can chat. And then I think I just want to reiterate what Norbert had said. We have seen definitely since the elections, quite an increase in activity. It did drop up a little bit in I think it was October, but very definitely heightened levels of activity across the 3 sectors, definitely on a letting -- from a letting point of view across the 3 sectors as well as transactional activity around disposals. So that's obviously been very encouraging. I think there was obviously some pent-up or paused activity waiting on the outcome of the elections. But very definitely we do foresee the operational, the positive operational movements to continue into the future. We've obviously had large corrections on a number of our -- on all 3 sectors. So in some instances, is off a relatively low base, but very definitely, we believe it to be sustainable.

Neil, maybe given that you have the mic, I mean, what stood out to me and you can correct me if I'm wrong, is that there's been -- there appears to have been an increase in the run rate of trading density growth across your SA portfolio. Maybe if you can unpack a bit in terms of providing some color in terms of where the pockets of growth sort of are originating from or what's driving that?

Yes. So absolutely, and I think it's worth stating that we've had fairly consistent trading density growth over the last couple of years. So -- we're quite satisfied with that. What we have seen is we're still seeing Western Cape growing at better levels than inland in Gauteng. We have seen the regional shopping centers, which small and large regional, which is mostly what our portfolio is made up of making a comeback. So on a geographical -- from a geographical point of view, Western Cape continues to lead, but the regional centers have started to -- or have been recovering consistently over the last couple of reporting periods. In fact, quicker than we see better growth coming out of those than out of the smaller format centers in our portfolio. And then typically, we're still seeing the trading density growth being led by the likes of the essential traders, so your needs and essentials. Until such time as the benefits of the economic growth and the lower interest rates actually start to materially impact positively the consumers' pocket, you will continue to see those type of retailers leading the way. I think that there was quite a bit of emphasis put on the impact that the 2-part system would have and the release of those funds, we're waiting to see if there is a material impact on our trading density and turnover figures in relation to that. And then obviously, November is Black Friday, November, tomorrow is obviously a big day, but there's obviously been quite a lot of activity. We'll wait and see how that -- what that transpires in terms of actual trading performance. But typically, what we've seen over the last couple of years on the Black Friday impact is that it has sat in the trolley loads in terms of needs and necessities. We're starting to -- we had over the past the likes of your supermarket chains benefiting most from the Black Friday specials just because of the nature of the economy and the pressure on the consumer.

Thank you, Neil. Another question that's top of mind, specifically in the retail sector is -- and I'll ask it now is it's going to come is just a question on the Pick n Pay performance. I mean, how is that trending in terms of are you seeing an improvement in trade. I suppose it's perhaps still some way to go in terms of closing the gap from a trading density or comparative trading density perspective. But are you starting to see those operational improvements come through in the trade stats across your portfolio?

I think it's too early and definitely is probably too early in our portfolio to see marked improvement in that. What we can say is that we are engaging with them at multiple levels in terms of optimizing their space, part of the problem that they have in our -- or part of the challenge that they have in our portfolio, which is not unique to our portfolio is that they're probably quite baggy from a space point of view in a number of the premises. So in order to rightsize them, that requires us taking some space back, being able to lease that. But at the same time, it requires some CapEx spend, not only from us, but from them as well. And I think that that's part of the challenge up until now. We have engaged with them on a couple of stores that we would like to take back. And those engagements are ongoing. And we obviously have takers for the space where we are engaging with them in terms of taking space back.

I mean there has been a very successful, I would say, recapitalization sort of recently concluded. I mean, just your take on the CapEx requirement from a Pick n Pay perspective. I mean, are you willing to chip in and sort of help put that CapEx build given that there's been an underspend for some time. I mean, how do you think about CapEx when it comes to Pick n Pay specifically goingforward?

I think we'll look at each store individually. We'll look at how it relates to the market that the center serves. We'll look at what the tenant mix requires in terms of that shopping center, and we'll look at what the optimum size is for that store. We have, in the past, contributed CapEx to certain supermarket chains, but it's been on agreed commercial terms, which both parties were satisfied with. And that's what we'll have to look at and evaluate in terms of decision-making going forward.

Maybe just moving on to the office sector. There's a couple of questions that have come through. And I sort of -- yes, an interesting observation when you look at the narrative around the office sector that tenants are not asking to reduce space in the office sector. I must say that was quite surprising and encouraging at the same time to see. Is the net tenant demand coming through, i.e., tenants looking for more space to grow? Or is it sort of too soon for that? But if that is occurring, which specific commercial sectors in your view, do you see as sort of growing sectors? And the question asks about sort of renewable energy, infrastructure, financials, et cetera. Maybe you can just add some color to sort of where you've seen the optimization stop and where you're starting to see sort of growth materializing?

Yes. So what we've seen is that occupancy has gone up, not only in terms of letting more space, but if you a company let space, the occupancy of that space has improved. And on the back of that, people are giving up less space. And there's still 1 or 2 tenants who are looking at their space requirements, but it's not a trend in as much as it has been in the last couple of years. We are seeing tenants grow. But I think cautiously. I think where we see the growth is a lot of BPOs are established themselves tentatively in Gauteng, 3 specifically, and one of them is looking to grow at the moment, and we see that as a growth area. I think BPOs have almost maxed out their space in KZN and Cape Town in that there aren't huge pockets of space available to let in those nodes, and they now are looking at Johannesburg. There's quite an active BPO organization in Gauteng, which is looking specifically at American BPOs and trying to help them set up here. In terms of nodes, it's pretty widespread. So in fact, even in the first 3 months of the year, because we've got very little vacancy in the coastal regions, the reduction came in Gauteng. And we do see that trend continuing, but probably not at the same speed that -- or the same rate that we saw last year. So last year, we had a huge last financial year, we had a huge reduction in vacancy. That has slowed a bit. It's still on a downward trajectory, but it will be a little bit more bumpy as a lot of the good space is let. I think tenants are still feel that they can get a good deal. So they are looking at incentives. They're looking at trying to push down the rate. And we haven't seen rentals recover. So we're still -- although we're letting space, it's -- you have to be competitive in terms of rental and incentives. I'm saying that, of course, in the coastal regions there, we've seen actually rental growth that we have.

Just another question relating to offices. Can you provide detail on the improvement in office sector vacancies. Was any of this due to sales that have occurred in the period?

Not in the 3 months. In fact, the sales that kind of we did last year and only happened in June, July or July this year, that reduction in vacancy was already taken into account because we've given occupation. So in the numbers in the quarter, nothing relates to sales really.

And then, Paul, taking all of this, what you've said into account, I mean, the improvement in vacancies, yes, the market is still challenging. You're still expecting negative reversions to materialize for the remainder the incentives still, I suppose, top of mind from a tenant perspective. So if you take that all into account, I mean, if we look back to your FY '24 results, there was still a negative NII result on a like-for-like basis in the office sector. Do you think we're sort of at the point where we can -- we're sort of trending positively, we could trend positively for this financial year? Or is it still sort of -- are we still likely to end in negative territory? I mean what's your sense of it?

Our gut feel is that we've certainly bottomed out that we're not going to be negative, and we hope to see some growth going forward. It won't be massive growth, but we are looking at positive -- in positive territory.

Certainly if you look at the coastal regions, worth mentioning that those 2 areas, you're starting to see real rental growth. And because of the cost of new developments, the new developments that are coming to the market are at significantly higher rates. So that leaves quite a margin to improve rentals. And there, certainly, we are significantly more on the front foot. So I'm talking about Cape Town and then obviously, the [indiscernible] more specifically. So I think those -- that rental growth is probably set to continue for some time. And until you start seeing significant development come in. And even there, you've got this gap, and that's going to drive quite good growth in this sector specifically. The problem in Gauteng is just you still got surplus supply and you don't have economic growth here to soak up all that supply very quickly. But it's coming slowly, but surely.

Before we move on to the industrial sector, there's another question on Pick n Pay specifically. And Neil, maybe you can sort of address this question. Sorry, I'm just trying to get to it here. Have you contributed CapEx towards Pick n Pay's refurbs on condition of relaxing the exclusivity agreements? How has the Pick n Pay store traded post the inclusion of a Shoprite or Checkers in a particular mall?

So to answer the first question, we haven't yet contributed CapEx, but we are in negotiations with Pick n Pay. Around 1 or 2 deals, which would include the relaxation or the waiving of the exclusivity. And I'm just trying to think in terms -- it's too early to say we've just now opened a shopprite in Watercrest where there was already a Checkers, but that won't be -- sorry, that won't be impacted because that has a spa. No, we don't have any anecdotal turnover commentary on that because we haven't actually done that yet.

That's fine. Errol, just moving over to the industrial sector. Again, a sort of positive outcome in terms of the KPIs for the 3 months. My question is, again, can this be sustained for the remainder of the year, specifically the sort of outcome that you had from a reversion sort of outcome for the 3 months. You don't provide guidance in the notes. So maybe just some insight in terms of what your expectations are for the remainder of the year?

Certainly. I hope you can hear me, it seems as my mic is off. Great stuff. So without a doubt, as discussed earlier, the coastal regions are definitely blossoming. And so certainly, in those 2 sort of nodes, Cape Town, Durban, we can expect to see continuance of the positive growth going forward. Johannesburg and surround, unfortunately, still is lagging slightly. But as long as the growth in the coastal regions continues on the same vein as it is, it does give us a bit of a positive slant going forward.

And then just in terms of the reversion outcome, Errol, I mean, what's driving that? Is it sort of the tension that's been created because of, I would say, less available space? Or is it as a consequence of construction costs having increased and market rentals sort of moving up? I mean, if you can provide some color or insight to that, please.

So definitely a combination of factors. Without a doubt, it's a question of demand outstripping supply. New construction hasn't sort of materialized as we have historically enjoyed. We're very fortunate ourselves. We have been able to bring quite a number of new builds to market. And I think our timing in this regard was pretty fortuitous. So we're able to capitalize on that sort of component. And so yes, certainly, build costs have, without a doubt, inhibited new builds happening, coupled with the fact that interest rates were substantially high and therefore, cost of build was a lot more than under normal circumstances. And that coupled in the coastal regions with demand exceeding supply, given the sort of micro or local economic conditions in those areas, giving the industry a bit of a boost.

Just touching on load shedding. I mean, given that we've had a sustained period more than 200 days without load shedding, maybe if you can provide some color in terms of the positive impact that it's had, both operationally and financially. If you can provide any insight on that, Errol?

Absolutely. There's nothing more disheartening if you're a manufacturer or a person who's assembling materials and you're needing power to do this work and then you have load shedding for 3, 4, 5 hours sometimes. Your staff are totally handicapped and your production process is hampered, especially if you have any sort of heating elements associated with your manufacturing component, which just drives up your electricity costs at the end of the day, adding more sort of demand on the grid, which is already under pressure. So without having these interferences in the past 7 months, without a doubt, I think that has made -- created an opportunity for businesses to thrive in this particular environment and long may it continue.

And then Sasse, maybe from a group perspective, any insight into that, the impact of load shedding or lack of load shedding?

Yes. So obviously, I mean, the diesel cost was a little bit less. The reality is we still have a diesel cost pool because you are providing diesel to all your generators, the tanks that have to be kept full. And that diesel has a limited lifespan. So there is still a cost of this inefficiency in the system. But I mean, significant savings from that point of view. But I mean, just taking it broader to our kind of energy strategy, if you'd like, we've made very good progress with rolling out solar across the portfolio. Every year, we set specific targets. There are certain capacity constraints as to what you can do in a specific period. And it's quite complex and nuanced in a way in that every property has its unique attributes. I think one of the biggest, I would say, frustrations from our industry perspective is the fact that we don't have wheeling property right throughout the country. And to give you an idea of what implication that has is that we can't capacitate all the roof space on our industrial properties, as an example, because you can't wheel the surplus power that you would have from an industrial facility to even the next door labor property, if you want, or wheel it through the system to our other properties. And that in itself creates a challenge. Our strategy for office isn't really to put solar on the roof. It doesn't make sense. And that's where we've entered into this power purchase agreement with Etana. And the idea there is to buy wholesale cheaper green power and wheel that through the system predominantly to our Sandton properties, but we can also wheel to several of the municipalities where they have now approved wheeling. So there's a lot of plumbing that's still going in, ensuring that once that comes up and running, that everything runs smoothly, but it will be a huge benefit for Growthpoint clients, and we believe it will make our buildings more attractive and more sticky ultimately from a tenancy perspective.

Thank you. Faiz, there was a question that you had on the sort of energy initiatives and cost impacts for tenants. I'm assuming that, that sort of kind of answered your question. If not, yes, kindly revert or raise your hand and then you can sort of ask the question in a more direct manner if you wish. There's another related question from Mweishö, "Apologies if it's been asked already. Please elaborate on the e-CO 2 initiative. It sounds quite interesting given that offices have typically lagged on the upside from solar." Mweishö, again, if you would like to ask the question directly, just sort of raise your hand and we can open up the line for you. But Tim, yes, I don't know if you have any insight into that question.

Maybe I can just cover that question. So the e-CO 2 in essence, we call it e-CO 2 initiative is actually a benefit scheme, very similar to some of our other benefit schemes like Smartmove, et cetera. What we're trying to do is we're actually trying to use this power purchase agreement that we signed with Etana and use that benefit to reduce vacant space. So although the power purchase agreement in essence, aims to will to 85, 86 buildings, we earmarked 10 buildings in Sandton where there was relatively higher vacancies, and we launched this e-CO 2 initiative for only those 10 buildings. And what does it entail? It entails 2 things. The one is that we can look at a cost benefit. So the variable component of the tenant's electricity cost and the component that we will to the tenant, we can actually fix at a 7% escalation rate. And that difference every year between the escalation of Eskom or NERSA and the tenant's escalation, that difference we pay them back to the tenant as a credit on his invoice. So that is where the green benefit then comes in. We don't tackle with the utility bill, but that is actually feed back as a credit on this invoice every month. So that's the one predominant big benefit. So you can just imagine the compounding effect over a couple of years. And after, say, a 5-year lease term, that benefit can become quite big and it actually creates a stickiness to the tenant. So the tenant then will rather stay and that's what we hope that the tenant will rather stay in our premises rather than moving to a competitor due to this benefit that grew over the years. The second benefit of the e-CO 2 is also where we pass on an environmental benefit. So they call that renewable energy certificates. So that's a component where they verify that renewable energy was actually passed through to the tenant. And you can actually trade renewable energy certificates. So what we will do is we generate or we get those renewable energy certificates from Etana contractually. And we then pass that on to the tenant. We integrate that into our ERP system and the tenant then can decide if he wants to redeem that certificate or we can trade it. So what it means like if he redems it, he actually then certifies that the renewable energy came to his premises and he can reduce his Scope 2 emissions. So for larger tenants and big corporates, that will be very beneficial to show that they actually reduce their Scope 2 emissions. However, for a smaller tenant, you probably want to just put it back into the blockchain and be traded there. So we cater for both smaller tenants where it's not really applicable but -- and bigger tenants that will probably buy it up from the smaller tenants. So that's quite an innovative solution. But in essence, what we're trying to do is reduce vacant space and create stickiness for tenants to, in essence, hedge their operational costs going forward.

Very comprehensive answer. Mweishö, I'm not sure that sort of answers your question there. Maybe just moving on to the V&A. There's a question that has come through from Francois Du Toit, how much of the 20% EBIT growth came from new developments? And the second part of the question, what was the like-for-like NPI growth for the period if you can provide it?

Yes. I don't know, a detailed question, I'll try and have a go. I mean that's 20%, obviously, over the comparable period, right? So that was for the -- I think, the 3-month period in '23 versus the same 3-month period in '24 now. I think the only additional or the new non-like-for-like would have been the inclusion of Investec potentially. And yes, I don't know if you've got additional.

Give me 2 seconds. I'm frantically paging just to get that bit of information. Look, we don't do like-for-like, Francois, for quarterly, okay? So maybe just as a start. But in this quarterly number, there was timeout market, there was Investec. I'm just going on maybe there's one more that impacted the additional -- would have been -- that we've added to the growth in the V&A for this period. But predominantly, it did come from the hotel and retail turnover numbers. So our operational I think for the market to understand is that increasingly at the V&A, we're taking operational exposure. So what that means is the hotels are under management contract rather than lease. So you're effectively paying a management fee and you're getting a straight up exposure to the underlying trade of that hotel. And then the second thing is there's things like the big wheel, there's the time-out market itself, where you're actually getting operational exposure and you're paying management fees for an operator to run it. But if the thing does well, then you do really well. Clearly, if you have another COVID, then we're very exposed because then you're going to wear that exposure. But the reality is that component of our income is just short of 15% now in that -- in the period. So it gives you an idea that we're getting more leverage in that income.

There's a question from Janet also on the V&A. Can you give an update on the development plans around the V&A and how this will be funded?

Yes. So the idea -- so maybe just on the development plan. So what we have active at the moment is there's a couple of infrastructure initiatives. I'm not going to touch on that too much, replacing 100-year-old pipes and all sorts of things like that and gearing up the plant, the desalination plant, getting that working. So all those kind of aspects are sort of part of it. But the real developments, we're busy with 5 Dock Road residential development. That development will be completed between August and October next year. Then we -- that's about there's about 99 luxury residential units that will systematically come into the market. We have already sold roughly about 58 of those units, 57, I think we've mentioned here. I have to remember what I split between what's the quarter and where we are now. So let's say 57. Then the second development is we are -- we will be refurbing the Table Bay Hotel. That hotel will be closed at the end of February next year, and will be refurbished in aggregate, that's about ZAR 1 billion refurbishment on that hotel. At the same time, in front of the hotel, we will be putting in a parking deck in front of that hotel, which will create additional parking capacity. And then we are right next to the Table Bay Hotel, we're busy with a new 142-bed hotel -- luxury hotel development to an international brand, and that brand will be announced later. But that hotel is currently underway. That's also roughly about ZAR 1 billion worth of development there. And then the last kind of major sort of development would be the expansion or let's call it -- yes, the expansion of the luxury wing of the V&A shopping center. And that development will be completed in about October next year. So that is currently underway. It's a little bit tricky because it's obviously an active mall, and we're going to go through the festive season now. So that's a bit of a tricky development. Then as published, we've also made application for additional 440,000 square meters of additional pulp at the V&A, which really will accommodate a development probably about 10- to 15-year, possibly even longer development plan in the V&A, expanding it specifically towards the Granger Bay side of things.

Chip in there a little bit as well is we had -- actually had a meeting there this morning. And it's fair to say that there's about 145,000 square meters of office in the Waterfront and effectively, there's no vacancy. And there's at least, I'd say, anywhere between 3 and 6 inquiries for office space in the Waterfront. So I think it's not inconceivable that one could even see some new office development in the Waterfront in the short to medium term. There's pretty much demand across the board with 0 vacancy at the moment. On the funding side, Waterfront has got an asset base of ZAR 24 billion at the moment. We've just got over ZAR 2 billion of debt there at the moment from a consortium of banks. Even with the additional funding requirement of what Estienne referred to earlier on the 440,000 square meters of bulk. It's fair to say that for the short to medium term, there's significant debt capacity to continue to fund any of the V&A Waterfront's capital growth requirements.

I think that answers the question on funding that I had. Just on the Waterfront again, Estienne, you touched on Dock Road and that you've disposed of 57 out of the 99 properties or units that are up for development. Also I read through the announcement, there appears to be more activity occurring on the trading and development side. And what sort of comes to mind is that there is potential for some sort of lumpiness to materialize in the earnings. You can correct me if I'm wrong because of the capital profits that you generate as a consequence. Maybe if you can provide some insight or guidance in terms of how we can expect those capital profits to materialize over the next 1 or 2 years in terms of the earnings and whether you will distribute it?

I'll just give it a go. Norbert, chip in please if you want to add to that.

Sorry, Mahir, just to be clear, are you asking about the Waterfront specifically or.

So the Waterfront specifically and then also just generally in terms of T&D, there appears the narrative speaks to sort of more activity

Dealing with the Waterfront first. So at the waterfront, there's quite a lot of moving parts in the income. Clearly, if you take the hotel will pay out from there, it's got quite a material impact on the income numbers for the period that, that hotel is under construction. So some of these profits will kind of, I want to say, replace the little hole that's created in that period. So -- and as I mentioned, those units will be completed towards the end of next calendar year. So it's somewhere between August and October and hopefully transfers will be towards November, December that kind of timing. So I think that will help maybe keep the income sort of stable, if you like, through this period from that perspective. Generally, T&D, the reality is a lot of our T&D capacity is going into our own portfolio predominantly. And the idea has always been to see if we can generate in and around about ZAR 100 million of profit per year. In the reality, that number isn't that significant and shouldn't make investors particularly nervous that they can't get it to the last cent. But the reality is that it does bring a marginal amount of variability. And it's quite a difficult area to allocate time to. That's to be honest. Sitting on our side, you're busy with the transaction. It either goes super smoothly or sometimes there's a couple of hurdles and things take longer. And I mean, it's sort of maybe moving on to the conversation around the timing of disposals because it's sort of in the same sort of essence, just generally, transactions are taking longer to complete. And there are more regulatory hurdles. The banks play a role in that process. They facilitate the transactions, but also the requirements delay the transactions in certain circumstances. And yes, just given the interest rate environment that we're in at the moment, which is clearly very high, things are -- it's really difficult getting some of these transactions over the line. And -- but our development team actively continues to seek out opportunity. And as I mentioned, the idea is to kind of get in and around that number roughly per annum.

I mean just to close off perhaps on the V&A. So you previously provided distributable income guidance of mid-single digits. You've indicated in the announcement that the V&A is performing better than expected. I mean, how do we interpret that? Is it from an operational perspective? Is it from a previous guidance that you provided in terms of mid-single digits?

So I mean it is performing slightly better. And I mean that's from operational performance across the precinct. So that will will benefit Growthpoint. There's no doubt that we will benefit from that. But when looking at Growthpoint today, there's a lot of moving parts. So things are getting better. And unfortunately, the things are going less better. So generally, we're feeling a little bit more optimistic, but yes, this is just the first quarter. So maybe just to put a word of caution.

If I can just add a bit of color to that as well, Mahir. I mean, I think that statement of ours at the end of -- in the year-end results about mid-single-digit growth for Waterfront was essentially premised on their budgets. And it is fair to say that they are tracking better than budget at the moment. So we definitely would hope to achieve slightly better numbers than what we previously guided on that.

Thanks. Errol, there's another question for you from Francois. Can you give an indication of the initial yield you're aiming for on the logistics development? Phase 2 Arterial Industrial Estate?

I don't know if you want to answer that?

Yes. Francois, that's IP that we can't exactly share with you. I'm sorry. Fair to say it's market related.

And just to kind of just so that you understand why we answer it like that. It's like me giving the exact price, okay? So every competitor can then know exactly where we price, and that's not really a good thing for the company. [indiscernible]

Just looking at your distributable earnings guidance range, 2% to 5%. I mean, it's unchanged from what you provided at the year-end, but the range is still wide. Maybe if you can speak to sort of the potential swing factors to position you sort of at either end of that range?

Let me have a go at that. I think -- personally, I don't think it's that wide, 2% to 5%, but be that as it may. I think at the end of the day, the critical moving parts still remain the SA portfolio and any outcome -- final outcome on how the South African portfolio continues to perform? And can we continue this trend of improved operational performance resulting in, let's call it, improved financial performance. There's no doubt that we are and have spent a lot of time recently looking internally at our costs. So we -- it will depend on the extent to which we can achieve some of the cost reductions that we are planning on achieving internally. The likes of, I guess, Australia, GOZ's contribution is pretty fixed, I guess. They've always delivered pretty much in terms of what they've guided. So I don't see that as being a big moving part. Globalworth is definitely one of the key factors and the final outcome of their distributable income and their dividends and their results. Fair to say that this particular 12-month period for them is the first period where they've got most of the year impacted by the higher interest rate post the debt refinance. So there's pressure on dividends from Globalworth. The debt refinance remains one of the key factors. We've actually sort of held back a little bit on some of the rehedging on some of the hedges that have expired, both in terms of interest rate hedges and CCIRSs. The rate at which interest rates in Australia come down or not will definitely have an impact on the final debt cost for us. And then Capital & Regional, clearly, C&R transaction has been voted on and is now -- we're only subject to the scheme being approved by the U.K. courts on the 6th of December. I don't foresee any challenges there. We should then have settlement of the cash and the New River shares by the 10th of December. And then the final -- I guess, the final dividend that we might get from the New River shares has got a bearing. And -- but -- so those are probably some of the larger moving parts. There are 1 or 2 T&D elements as well. We've got one particular transaction in the trading and development part that if it comes through, that clearly would guide -- could take us to the lower end. But if it doesn't come through, it might -- will result in us maybe not getting to the lower end of that guidance range. I don't know if there's anything else, Gerald or Sasse or Lauren that you might want to add into that explanation.

So just on the -- there's a question around the timing of disposals. So there's a very big pipeline of disposals. Obviously, we're getting to -- we've only so far got transferred about ZAR 400 million here, and we're targeting ZAR 2.8 billion. So it's ZAR 2.4 billion worth of stuff. And yes, varying through the next 9 months, predominantly will be in the second half of the year, to be honest.

Just a final comment on that is interest rates. I think we did, I think, communicate at the end of the year or end of the last financial year that we had taken into account interest rate cuts, the 2 that have already happened as well as another one in Jan or Feb. But if that doesn't materialize for whatever reason or even for [ world ], we start seeing interest rate increases again. The world is very volatile at the moment in terms of outlook for interest rates, that could also clearly have a bearing.

Just given the sort of positive sentiment, the improvement operationally, the disposal of Capital & Regional, et cetera, I mean, what bearing will that have on your dividend payout ratio going forward? Do you still view the most recent payout ratio as being appropriate or conservative given where the business is at this point and the capital requirements? Or do you feel that there is scope to perhaps revisit that and look at increasing the payout ratio?

No, that's not under consideration at the moment. I think we're quite happy with the ratio where it's at. Obviously, what informs that is a number of factors including the rate of our capital expenditure, our CapEx, just what we call our general maintenance CapEx and maintenance CapEx programs, our development CapEx requirements, the rate of sales on the other hand and LTVs, whilst we see LTVs having peaked and having -- foresee it coming down, say, for Aussie. I think in the interim period for December half year, we do see valuations in Australia anyway still continuing to come down. Aussie has done great work in bringing its LTV down to in the pro forma 37-odd percent number now with the sale of the DXI stake and the sale of those industrial assets in the formation of the Growthpoint Logistics partnership with TPG Angelo Gordon. But that good work is going to be largely offset again with the valuation -- downward valuations at the December half year. But overall, we're confident that LTVs have sort of peaked and will come down. I think the other thing that we need to just throw in the mix, clearly, the stronger rand will also have some impact, not only on LTVs, but also probably on some of the earnings coming through. But yes, I think that -- yes, I'll just pause there.

And Norbert given that you touched on valuations, what's the expectation for valuations across your SA portfolio given the sort of positive momentum from an operational perspective?

Again, I haven't had too much insight into that in the last couple of months, but it would be my expectation that valuations would increase across all 3 sectors. I don't foresee it being anything earth shattering or material. But I think on an overall basis, certainly, with interest rates coming down and with, let's say, earnings or NPI sort of stabilizing and improving and vacancies coming down, rental growth assumptions should be a bit more positive than what they've been over the last couple of years. So all things considered, I would expect across the 3 sectors for valuations to go up. But as I said, we're not talking 5% and 10% increases here. We're probably talking low single-digit increases.

Thanks, Norbert. Errol, sorry, there was a follow-up question on the Arterial Industrial Estate from Nazeem. He says following on from Francois. Is the development or the initial yield earnings accretive or dilutive? And how long are the leases and what are the escalations, if you can provide that detail?

Yes. So Phase 1 is now fully let, thank goodness. The last unit was let quite recently. And I think when we talk about a brand-new development over here, so obviously, from a risk return point of view, you've got a quality product, and we've got quality tenants in there. And so the risk component is somewhat less compared to some of our other assets where we are getting a much higher sort of yield associated with it. So part of the rebalancing process involves substituting higher-risk properties with higher returns with better quality properties and better certainty associated with the revenue that those properties are delivering for us.

So, maybe just to answer the question more directly. I mean, it sounds like it is dilutive initially. Would that be a fair assumption?

Year 1, absolutely. It's not going to be in line with where the rest of the portfolio is given the makeup of the entire portfolio. On average, the entire portfolio is sort of more geared towards A and B type properties, and this would be an A-type property coming on board. So obviously, it's going to be slightly dilutive year 1. Going forward, however, there's a huge opportunity associated with that.

Yes. Can I just clarify then, Errol. I mean we're talking -- Errol is talking on his portfolio, I guess, where mix is blending an existing portfolio where he's got higher-yielding assets and bringing in new product. But if you consider the yields compared to what we would consider sort of incremental cost of debt, I wouldn't say it's dilutive. It's probably at best sort of neutral, I would say. So just to make that clear.

[indiscernible] year 1 because obviously, as you can hear, these things you let them up, right? They don't let. .

Errol , just some color on the leases. I mean the question was also what's the length of lease? I guess we're not doing anything under 5 years, somewhere between 5% and 7% and your escalations ranging 7%, 7.5%.

Absolutely. So some of the leases are actually quite longer. Some of them are close to 10 years, the bigger ones with some of the major sort of occupiers of the space over there. And some of them are 3 years at the minimum end, but averaging around about 5% and on average, again, between 7%, 7.5% in terms of escalations on an annual basis.

Thank you. There's a question from Fiaz relating to the '26 outlook. So I'll read the question. What is positive in '26 mean? Is there an inflation benchmark that you consider? Is it better than inflation or worse? And please unpack the assumption that get us there, I suppose the return to positive growth.

Yes. Look, I mean, I don't know what inflation numbers is he referring to. So where inflation last print was 2.8%. So look, guys, we're not going to be going there. I think we're talking about positive growth. I think fundamentally, we see obviously a recovery in SA. We see a bottoming out of Eastern Europe. We see an improved outlook for Aussie lower interest rates, all of those factors are built into that assumption. So -- and having removed, I guess, a lot of the interest rate refinance issues that are still impacting this year, which is the cross-currency interest rate swaps and some historic hedges that are needing to be rehedged at higher rates. So those are the factors that are dragging this year. And if you exclude those, then into 2026, then that translates into growth. But we're not at the point where we can be giving any color on whether it will be inflation linked or otherwise.

So we haven't bothered you much in terms of questions. So maybe given that we have a few more minutes left. Just in terms of the -- and in the announcement, you speak to the -- or you give a detail on the rolling of the swaps, interest rate swaps as well as the cross-currency swaps. So we sort of have an idea of the increase in the funding costs. Maybe if you can just confirm the sort of capital or liquidity required for your cross-currency swaps for the remainder of the year? And then secondly, if you can give us some insight in terms of where we can expect the sort of group funding costs and if you can break it down again to sort of by currency, SA, Aussie dollar, et cetera, where we expect -- can expect that to settle.

So I'll start that liquidity requirement is actually quite small at the moment. we refinanced the bulk of the AUD CCIRS, which takes up quite a bit of the liquidity when we would top that up. So in the first quarter, that was, I think, about ZAR 140-odd million is what we required for that portion. For the next lot that comes up in the first half of -- in the first quarter -- current quarter of next year, it's small. I think we made a number of about ZAR 23-odd million. And that's on an assumption of, I think, to the Aussie dollar. So that's where -- that's from a liquidity requirement perspective. And that's the AUD CCIRS is usually what the dollar ones are small in comparison. From an overall cost of funding, I think Norbert covered certain aspects on that. So we did say when we guided that on an overall basis, we expect our funding cost to increase from 24% to 25%, and that's largely because of the refinancing of some of these maturing hedges and in particular, the AUD cross-currency interest rate swaps. So from a rand perspective, you can see we had a slight reduction in the first quarter because base rates have started coming down and that resulted in the overall cost of funding for [ SENS ] starting to come down slightly. We didn't have too many hedges maturing in the first quarter. There are a few more in the next 9 months. And depending on what swap rates does, the reduction in base rates may offset where we kind of refinance it. So I don't see a huge differential for rand for the rest of the year. The big impact for us is really on those AUD cross-currency interest rate swaps. And in particular, because the market doesn't seem to -- the impact of the reducing interest rate cycle hasn't yet come through to Australia. We were initially, I think the market was expecting that, that should start early 2025. It's starting to get pushed out a little bit given that they still have quite a high inflation number coming out in Australia. So if that remains unchanged for the second half, that we have about another AUD 100 million that needs to be refinanced, and that will be -- those numbers were at quite low rates historically, and there's almost a 3% differential on average when we refinance those interest rate swaps. So that does impact the overall cost of funding. So sorry, long answer, but it will be a slight uptick on an overall basis, including foreign currency debt. There will be a slight uptick, but it won't be beyond '25, I think, will be fine because the bulk of that will have come through then.

Maybe just one last question. Just on the Capital & Regional proceeds. I mean you indicated that the effective date is going to be sometime in December. Maybe just speak about the application of the cash that's coming through. Will it be applied against SA debt, foreign debt, just sort of what it's earmarked for?

Yes, go. I think the intention would be to bring it -- to convert into rand and bring it back and settle South African rand debt. And yes, I mean, essentially, it just goes into the -- back into the overall funding pool. We've got circa ZAR 40-odd billion of debt. As was articulated earlier, we do have additional funding requirements in terms of our development program. And on the one hand, we look to fund that with -- essentially with the dividends or cash we retained from the dividend withholding. And then the proceeds of sales, it's fair to say, as Estienne says, the -- whilst the sales have been concluded, there are severe challenges just in getting the actual transactions through the process of [indiscernible] and conveyancing, et cetera, et cetera. So there's definitely an ongoing requirement for funding, but the intent would be to bring it back to settle South African debt, and it just goes into the overall funding pool.

Thank you very much. We have just run over our allocated time. So it's 1 minute past. I think it's -- we can call the meeting there. But maybe before I hand over to yourself, Norbert, I'd like to say thank you to the entire Growthpoint team. Thank you to all the participants for engaging. And to the Growthpoint team, thank you for lying up the opportunity to host this pre-close. And maybe I'll just hand over to you, Norbert, for any closing remarks before we close off the session.

Yes. Thanks, Mahir. Just to -- yes, I mean, not much to say other than, obviously, we're quite encouraged by the -- where we're at, at the moment with the new positive outlook for South Africa. And we had our AGM last week -- or sorry, earlier this week. And I'd like to thank all the shareholders for the support. We had a pretty good outcome on all the resolutions. And so we look forward to the next sort of 3 months to half year, almost there, there's only 1 month left actually. But in terms of -- from a reporting period, look forward to reengaging. We're probably entering into a close period in a couple of weeks' time, third week of December and then to reengage with half year results in March.

Thank you very much to everybody once again and enjoy your holidays.

Thanks, Mahir, likewise.