Growthpoint Properties Limited (GRT) Earnings Call Transcript & Summary

Pretty sure everyone got the send announcement this morning saw that had actually improved guidance. It looks like things are on the up, right? I mean we've published a couple of reports talking about the bigger focus on the SA portfolio and how those change are definitely moving in the right direction. Obviously, just to go through the usual housekeeping here. If you guys have any questions, please feel free to just pop them into the chat box. I'll read them the management team and they'll answer the questions. And if you guys are joining late, I suppose it won't really apply here, but try to keep yourselves on mute, obviously, to avoid distractions. Without any delay, I'd like to hand over to Norbert to just give us an overview of what's happened over the last 9 months.

Thanks, Mweishö. Thanks for the introduction. And welcome, everybody. I think all I'd like to do is maybe just highlight a couple of key themes. I'm not going to go through the announcement in any detail at all. I think everybody has had the opportunity throughout the course of the day to go through the announcement. So as I said, please pass through any questions as you have them. So just at a very high level, definitely, things are feeling a bit better. We're able to tighten up guidance a little bit on the sort of upper end of 1% to 3%, narrowing that to sort of 2% to 3%. It's, I guess, attributable to continued improvement in the performance of the South African business. And I think that kind of recovery is evident from most of the key performance indicators, a couple of those [indiscernible] in the presentation. So just a continuous improvement in many of the key performance indicators that drive the South African net property income numbers and ultimately, the [indiscernible] growth. The theme of coastal regions continue to perform substantially better than the inland region continues. We undoubtedly continue to see Western Cape outperforming followed by KZN and then inland. And it's also evident, I guess, when one looks at all the various reversions, the improvement of the South African performance evident in the improvement in the various reversions with, in particular logistics, industrial and retail doing quite well. Office still negative, but significantly better than what we had seen before. The offshore investments and growth coming out of offshore investments remains a bit constrained at the moment. Growthpoint Australia reconfirming their dividend a couple of weeks back. And we're still seeing some pressure on -- from Globalworth considering the debt renewals that took place in May 2024 and the impact of a full 12 months of the higher interest costs there relative to 9 -- sorry, rather 7 months in the prior period. Relating to the strategic Trust and initiatives, we continue with the asset disposal program. So for the year, we expect about ZAR 2.3 billion worth of disposals. It will be a bit short on our original target. But then we are also continuing to invest. We got about a ZAR 2.2 billion targeted CapEx program. and that's mainly focused on logistics, warehousing and retail, particularly in the Western Cape as well as our renewable energy focus, which we continue to roll out mainly solar PVs. At the 9 months, I think we've spent about ZAR 1.2 billion of that ZAR 2.2 billion CapEx program. On the international investments, we're looking at -- continue to look to simplify the business and the international investments. We did sell Capital & Regional in December last year. And we do continue to hold the New River stake at the moment. But just to add that, that is not a long-term core investment for us. And at the right time, we will consider the [indiscernible]. Waterfront, very strong, still seeing significant potential for residential profits coming through there with the residential development that we've done. There's sort of 4 to 5 [indiscernible] enhancing the retail offering and then obviously also improving the overall hotel offering by bringing in strong international brands into the Waterfront. And then this is a key sort of the liquidity position, loan interest rate, interest cover ratios, we feel comfortable. We -- there's no doubt we have topped out on the interest rate cycle, bottomed out on the valuation cycle. We've seen 100 basis point interest rate cuts. We continue to [indiscernible] and we certainly -- when it comes to both the debt capital market as well as funding being offered from the banks, we've probably never been position than we are with the availability of debt funding, both tenure as well as margin probably as good as it's been in many, many years. So with that as a very high-level overview, highlighting a couple of the themes. Mweishö, and then I'll hand over to you for any questions.

Sure. Thanks, Norbert. [Operator Instructions] Just to kick us off, right, obviously, with the theme of SA being almost a core focus, you guys putting a bit more money towards that. I've seen you have spent about ZAR 2.2 billion on the SA portfolio, which is quite significant, right? It's basically ahead of what you'd see for most guys in SA as a proportion of total assets. Is this the kind of new normal we can expect now for there to be a higher spend on the SA portfolio?

So look, I'll maybe give a first crack and Norbert, you chip in with additional. So I think, obviously, you have to appreciate our SA portfolio is sort of the oven, right? It's the biggest part of the business. And with it being quite a sizable portfolio, there is quite a requirement for reinvestment. And then strategically, we are investing into new development specifically in the industrial side, which has meant that there have been new assets being added. And at the same time, we've been spending quite a bit of money in the retail portfolio [indiscernible] well refurbishing and generally making sure that our assets are the best quality they can be. So some of it is defensive. A quite a bit of that spend is also into solar. So we've also been investing. We've built up now quite a big energy business within Growthpoint, close to just over 60-odd meg of rooftop solar. And that speaks to our ECO 2 initiative, which Turner can chat about maybe a little bit later if there's time. But that it is a key objective. South Africa is still an investment destination, which we believe has got legs and growth. And on the back of that, we will allocate capital to ensure that it delivers on that promise.

If I add to that -- sorry, Mweishö, just to add that, I mean, that ZAR 2.2 billion is a little bit lumpy this year as well. We've got a couple of really big projects in there, which was the Table Bay or the asset Bayside Mall -- Cape Town was a number. We had the hotel project, the Hilton Canopy Hotel, I mean that's like ZAR 400 million. The big chunk of that was spent during this period. We also have 36 Hans Strijdom, the redevelopment of the old Investec head office building on the Foreshore in Cape Town, which is now being prepared for occupation by 91 on 15-year lease. So you've got a couple of chunky numbers there. Your question was sort of run rate. I would think that maybe this is a little bit heavy on the run rate, maybe 1.5 to 2 is a more sort of realistic longer-term maybe run rate is just a number that I feel comfortable with in relation to answer your question.

Okay. And then has that been sort of better yielding than going offshore over the last sort of year or 2?

So look, I think the reality is that we haven't really had the opportunity in terms of further offshore investment. I think there's 2 things. We feel that up until now, we've obviously been quite capital constrained. So we're probably better positioned now and feel a lot more comfortable with our ability to potentially allocate capital offshore. We haven't really felt that comfortable until now. And to be honest, the opportunities for further deployment into, let's say, our 2 existing investments hasn't presented itself. And we haven't been targeting any other offshore investments given the fact that part of our overall sort of strategy now simplify our equity story. So yes, I think the focus, therefore, has been on the immediate opportunities on our doorstep in SA.

Okay. So just jumping into some of the questions. We've got a question from Warren Riley. He's asked, I would like to better understand the V&A capital requirements and options being considered. Based on the FY '24 disclosure, LTV was 6.97%. Can future V&A CapEx not be funded out of debt given the lower gearing?

Okay. I'll maybe take that. So as you correctly point out, the V&A, the entity, which is jointly held between Growthpoint 50% and the GEPF 50% managed by the PIC is didn't have particularly high leverage. And we do have quite a CapEx pipeline for that asset. So developing out new hotels. There's infrastructure we're looking at V&A. We are doing a residential development. Obviously, that capital will come back because it's luxury units for sale. But the pipeline will, in the short term, be funded by using that balance sheet. And we are -- have been very successful in raising debt and the banks have actually been particularly keen to provide funding to the V&A to that balance sheet specifically. So for the medium term, that definitely is going to be the area that we'll be raising debt for all those capital requirements.

Okay. And then the target LTV for the V&A, what is the level that's...

Yes. So I mean, I think it would be sort of consistent with that of Growthpoint. So given the fact that at this stage, we don't consolidate the V&A at all. It's an equity investment. It does provide us probably a little bit more flexibility. But generally, given the fact that we've got 2 institutional kind of long-term real estate investors, we'll probably keep the debt levels at similar levels to what Growthpoint would be. So there's quite a lot of runway to that.

And happy to put the money in.

And most of those investments are delivering good growth once they delivered.

Interesting question here from [indiscernible] from Sanlam. He's asked, do you think there's an opportunity for Globalworth to have a go at mass as well?

Maybe I'll give that one to...

Let me just say that it's not being considered at the moment.

It's pretty crowded there.

There's a lot going on. Question [indiscernible] from [indiscernible]. She's asked, please remind us how much of your energy requirements are being covered by solar currently?

Werner, I don't know if you want to maybe take that for us.

Yes. I think there's 2 components that we're aiming at. The one is our rooftop solar. And currently, like Estienne mentioned that we will reach over 60 megawatts of solar installed in our rooftop solar space. And then we also have a power purchase agreement that we signed that's now going to come into fruition from September this year onwards. So the power purchase agreement, in essence, is going to actually cater for around about 32% of our energy requirements if we use the energy consumption of financial year '23 as a base. And our rooftop solar in essence, is going to be between 7% and 10% additional on top of that. So that's the penetration of renewable energy into our portfolio. And also very important to note is the power mix that we acquired from our power purchase agreement is more a 24/7 baseload type power mix. And the reason for that is to get higher penetration of renewable energy into our portfolio.

And then those penetration numbers, is that based on the entire SA portfolio or just retail?

No, the entire SA portfolio.

Strong. And then maybe just related to that, the -- how far along are you guys with regards to using up all the potential areas to actually put up solar PV on your retail and sort of parking lots because I'm finding that quite a few guys are near the end of using all the space that got available.

Yes. So there is still a few opportunities left. We're actually exploring every single roof space that's available to put rooftop solar on, taking into consideration of the regulatory constraints that is provided from not feeding back into the network at certain municipalities. So without a doubt, I can assure you that every single roof space is analyzed, and there is still a pipeline to be rolled out. And we're also doing quite innovative stuff in the solar space of how to track performance of our rooftop solar. So we're putting a lot of effort and a lot of resource capacity into that to make sure that our solar plants perform to an optimal level.

And to maybe just explore the regulatory constraint because I'm not sure everybody will be familiar. But in a perfect world, we would be able to cover everything under solar and provide power to, for instance, from our retail to our offices or vice versa, depending on when those facilities are occupied and using power or not. But in the current regulatory framework, property A, which is next door to property B, cannot supply property B. So the wheeling arrangements in the current regulatory environment is quite constricting. And I think that we've obviously done a deal with a trader, which gives us some flexibility, but it is still quite a constraint with our own generating capacity. But that -- as the industry deregulates, I think that there might be an opportunity to revisit then some of the capacity on some of the facilities because the issue is the feasibility on those if you can't utilize that power 24/7 or at least the full day and weekends. Weekends is obviously a big issue.

Yes. So I understood that there's almost some optimism with regards to the wheeling becoming available between the different buildings. I'm guessing that's can you give us like a time line and when you think that might be...

Werner closer to the regulatory side.

I think maybe to highlight that we were the first company to wheel between 2 properties within Cape Town municipality between Constanta Village Shopping Center and the 36 on the straight on the new building that we're refurbishing to 91. So that is constantly explored. So within our energy department, we actually focus on 3 things: that's rooftop solar, implementation of the PPA and internal wheeling. So internal wheeling, we are at the forefront, we're looking at opportunities. And I assure you if there's opportunities, we will explore it.

Okay. And maybe just one last one that's maybe attached to this. With regards to the suspended load shedding of last year, I understand you guys were collecting quite a bit and recovering on the diesel cost, but how much of a boost did that give for FY '25 sort of NPI number, maybe more so on the retail side?

Could you just repeat the question, sorry.

So there's been diesel consumption. less diesel consumption. So what's that sort of boost then?

Yes. I'm not -- I don't have the number, to be quite honest.

We spent less, also recovered less. Because it's really a bit of an in and out. So that wouldn't have made a significant difference.

I figured.

But maybe we'll obviously address that in our year-end results in a couple of months because then we'll have a full year's picture. We didn't actually get that number handy.

No problem. Okay. A question from Francois. He's asked, can you give a sense of the profit margin expected on the Olympus Sandton resi development? Of the ZAR 1.3 billion investment, what is Growthpoint share? Would these profits contribute to distributable income?

Yes. So maybe just to talk about Olympus. So for those that aren't aware, Olympus is a residential development that we have done in JV with a company called Tricolt in Sandton Summit, which is a precinct in and around, if you'd like, the Discovery building. And the usual sort of trend with these developments is you'll conceptualize the development and then put it into the market and see if you can presale some of those units. So what -- this specific development had 284 units in the one tower and 197 in the other. And we went to market with the first tower. And to be honest, we were a little surprised to just about sell out that first tower. So we opened the second tower to the market, and that has performed well. So we're pretty much close to where the presale requirement is now. So we're just going through the processes to, as we call it, green line those potential buyers, which means you get agreements in place and you get debt confirmation and all those kind of things, proof of funds so that you know that it's a genuine purchase that's backed by cash. And we're 50-50 in that development with Tricolt. And that development, if we press the button, it will probably be, I don't know, in the second half of -- well, maybe like first -- end of first quarter in this coming financial year, so the '26 year. And profits from that, we'll probably only see in the '27 financial year. So '27 and '28 because it's going to take a couple of years to build such a big development, right? So those profits consist of a little bit of development profit is sort of a small kind of really insignificant number kind of just covering our costs. And then the second part, which Francois alludes to is the development profits on those. So we're not going to disclose, [ Francois ], the profit margin because that just wouldn't be very clever to do. But what we will do is tell you that we think that we'll probably see most of that in the FY '28 and it will be distributable earnings, right? But it might spread over the years, depending on how we finish the 2 towers, the timing of which and how we transfer those units, they might spread over more than 1 financial year. So it might not be all in 1 year in one financial period.

I think Estienne, just I think you mentioned the word development profits twice. So I mean just to distinguish between development fees which I think, Neil, you mentioned was we should earn about 4% odd of development fees. I don't know if that's to be shared 50-50 with Tricolt, 2% each or 4%, maybe you can just clarify. But then...

Yes, it's basically 50-50. Everything is 50-50. So...

2% each.

Pretty much, yes.

And then the development profits, obviously, on top of that, those will be lumpy and bulky.

Okay. A question from Ridwaan Loonat from Nedbank. He asked, will the ZAR 500 million shortfall in disposal proceeds impact capital allocation plans for FY '26?

I don't think so. I think the reality is I think we do have significant borrowing capacity. I mean we've been repaying debt. And it's more just a timing issue. And whilst it's a shortfall for this to June '25, some of those things may come through literally a month or 2 late. So we are certainly experiencing significant delays in transfer once we have signed sale agreements, the process of getting rate clearances, the process of going through the deeds offices is taking exceptionally long and certainly significantly longer than we used to experience in the past. So it's quite difficult for us to sort of time these things. We project that they will transfer on a particular -- in a particular month or -- and then they just get delayed. As we sit here today, we've got -- what's the date today, 26, we got like 4 days to the end of the year. And we're still sitting with a significant amount of transactions in the deeds office. They've actually been lodged, but transfer should take place literally today or tomorrow. But there's never any guarantees. There's oftentimes, these things get thrown out of the deeds office because you're missing one particular document or one particular clearance certificate has expired or whatever it is. It's complex, but I don't think it impacts to my mind because it will be a month or 2 delayed, and we do have significant, let's call it, debt capacity to cover.

Okay. And maybe just related to that, Ridwaan as well. He says Growthpoint recycled about 10% of current SA portfolio valuation in the last 5 years. What are the long-term targets or total value of noncore assets that you're looking to sell?

So maybe, Neil, I don't know if you want to have a go at that one.

It's a difficult question -- yours, Neil.

But if you think of the strategic plan that we've got, and just talk to maybe the numbers that we've got between now and '28.

Yes. I mean we do have a number, and we have identified properties in each sector, and we're running it over a 5-year rolling plan. I don't know that it would be right for me to give the absolute number. It is a significant number. But at the same time, we are adding to that through developments, redevelopments. And so we are recycling a lot of that -- a lot of those proceeds from the sales back into the South African business and other parts of the business. But on a portfolio of circa 350 properties, you can well imagine that the number are a significant number of noncore properties. Typically, those are smaller in value, but they make up a large number.

I just provide sort of a big picture answer there as well to say that we -- even historically, we've almost reinvested historically as much as we've disposed. Right now, I think the disposals are exceeding the reinvestment a little bit. So net-net, the number will come down, but not dramatically. It's not as if the overall SA portfolio of 60 -- whatever the number is now, ZAR 65-odd billion will go down to ZAR 30 billion. It will come down, but it will still be a significant portfolio. But the intention is that it would be newer, more modern assets, more energy-efficient assets in better growth modes. And probably with a lighter weighting to office and a greater and an increasing weighting to both certainly logistics and warehousing and retail.

Okay. I'm sort of picking up a bit of a theme here around being maybe where the money is going and a bit of a different question. If you guys were given cash right now, would it be basically deploy within SA as opposed to going offshore right now?

Other than, I mean, we're not looking at new markets at the moment. So we definitely are keen to allocate more capital to GOZ. GOZ has always been particularly core to us. And we've got a new CEO in the seat there, and we've given him a mandate to grow the business with an emphasis and focus on equity-light, let's call it, funds management strategies. And to the extent that opportunities open up there that require some capital that GOZ might need, we would be certainly willing and able to support with some capital allocation from South Africa. I think equally with regards to Globalworth, as we try and optimize that particular investment, where we -- I think it's fair to say that the 3 shareholders have all got different strategies, different opportunities and different, let's say, approaches to capital allocation. But in order to try and solve that particular challenge that we have there, if it required additional capital allocation from the group from South Africa, we'd certainly be willing and able to do that.

So we've got 5 questions from Kabelo Moshesha from Mazi Capital. I'll start with the first one he's asked, any developments around leadership succession.

Yes. Look, I'll take that. I mean it's -- I think, yes, the Board continues to -- is in a process and continues to work on the leadership succession challenges that we have. I think in the short term, it's basically twofold. It's Gerald will be retiring in September and then myself will be retiring in, let's call it, 18 months' time. So I think there's ongoing process and work undertaken by the Board. And I think we should be in a position to make announcements in the next couple of months.

Second question, I think you've already answered. So third one is, please share color on the rising vacancies in retail plans to reverse and plans to reverse the trends.

Gavin, are you on the call right?

Yes, I am. Happy to answer the question. So the retail currently sits at about 5.8% of GLA. That includes a fair amount of offices within that space, the likes of Golden Acre that is ready for transfer. So there will be some diminishing of that. The core retail vacancy sits at about 4.3%. Where we do see vacancies from the likes of Alberton Center with the closure of Game. We are redeveloping that space, currently putting Shoprite in, taking Pick n Pay out, and we are converting some of that space to large vacancy has been in Brooklyn Mall, again, with the closure of Game. Now the upside is it has given us a good opportunity for redevelopment. Largely, the vacancies beyond the Game closure were historic to office and cinema closures previously. And that asset has been addressed through a strategic redevelopment plan we're busy with at the moment. And then we've been through some cycles of vacancies in the Northgate space. We have opened up the Shoprite yesterday, taking up a large chunk of that. So strategically, we are continually heading into the reduction of the vacancies. And looking forward, that number will decline to the number below the 4.

Okay. And question number four, he's asked, any initiatives looking at improving regional retail asset performance? You kind of answered this, but maybe you can focus more on getting the turnover up or maybe footfall or something along those lines.

Yes. The regional asset performance, we've seen a year-on-year growth of trading density sitting at about 4.5%. That's a good healthy number. In the last 3 months ending March, we saw that tick up to 5.5%. We trade on those trading densities at an average of 36 a square meter per annum. That fits [indiscernible] MSC benchmark [indiscernible] the likes of Bayside looking at investment in Paul and as we work through [indiscernible], these densities are rising. And similarly, and the tail end of that with the disposal strategy, there are assets that are being exited that aren't meeting those criteria. So the densities are fairly in the benchmark. Cost of rental sales to those trades are in line with the MSC benchmark. And regionals are continually to perform upwards as we've seen over the last year. So that should follow through the initiatives we have.

Okay. And the last one is trends around your logistics developments and capacity to absorb space. Any updates there?

Maybe pass to Errol. Errol, Are you there?

I'm here. I just want to make sure I understand your question. Do you mind just repeating it in terms of the logistics space?

Yes, what are the developments that are taking place in the logistics space? And do you have capacity to absorb more?

We do most certainly. We are in a fortunate we do have a substantial amount of land bank at our disposal, more particularly in the likes of the Central Point or Samrand node. So we've got capacity to expand quite extensively out in the Gauteng area. We also have capabilities in KZN and the demand for logistics type space across the country, without a doubt, there's opportunity for us to expand that component of the business.

Okay. Similar theme, right, from Francois Du Toit. He says in light of Growthpoint's appetite for Western Cape logistics developments and the spec build that added to vacancies in the quarter, can you discuss the expected returns on these investments, your hurdle total return rates for such investments and your outlook for finding a tenant for such a spec build?

Say that it certainly was a speculative development, and that was basically completed towards March this year. And as of July, we will only have one unit, which is still vacant. So we've managed to let all that space bar one unit. Given the demand for space, which is why I think we've timed the cycle quite nicely to ensure that we've got stock coming to the market when there is demand for such space.

To give a quick reflection on the returns. I mean, generally speaking, we'd be targeting 9.5 -- minimum 9.5% initial yields based on feasibility rentals. We often have -- we have a look back at the actual versus feasibility on a regular basis. And it's fair to say that the guys are coming in at or above their feasibilities that they present to the deal for them when we look at these opportunities. And when one considers a sort of a 7-odd percent escalation on top of that, we're typically targeting [ 15% ] to [ 16% ] IRRs as part of the approvals.

That would be a bit higher than maybe some of our competitors.

Okay. A question from [indiscernible]. Can you quantify the expected impact of the Transnet vacates on the office vacancies, I suppose maybe what the effect would be. Are you seeing any demand for the space now?

Tim? That's the last one.

It's actually about 1.25...

You put your camera on, Tim.

Sorry, I thought I had. It should be there. Apologies. Can you hear me?

Just carry on then.

Okay. Good. It actually constitutes about 1.25% of the vacancy. It's about 20 square meters. It's 2 separate buildings on a road. We do actually have interest in the buildings. They are 2 different buildings, and one is a potential residential conversion. There's quite a bit of that type of activity in the node and the other is for rental, some sort of rental opportunity going forward. So that's specifically the question and the answer.

Okay. And then just because you're actually considering residential there, again, maybe just out of left field, have you guys considered also doing anything storage related? Or is that just not something you guys will be willing to get into?

Not storage. I mean we will investigate those types of things. You must remember storage is quite technical. There's floor loading issues that are under consideration and also efficiency. So when these things are considered by the time you look at the strengthening and other requirements, that could be a different consideration. But your alternative uses, education, other things like that are all under consideration.

So every property gets assessed. If we -- if it's not meeting our kind of strategic requirements, then it gets assessed and we look at all the alternatives that it potentially can be what's going to give us the best return on exit. And what we have found obviously that the high-density developers have been pretty much on the front foot, taking quite a bit of space out the market in that space, which is obviously beneficial in terms of the demand/supply dynamics in nodes like Sandton and other places.

Okay. Next question from Francois Du Toit. How does the 22% EBIT growth from B&A compared to the EBIT growth at 31 December, I suppose at interims. Can you give a sense of the distributable income growth from the V&A up to the 31st of March or better still I suppose we can go a bit later than that. The last bit guidance for ENA distributable income contribution to FY '25.

It's a bit...

Quite a detailed question, Francois. Yes, you don't want me just give you the distribution for December next year. Jokes aside. So I mean, obviously, the numbers are reasonably consistent, right, towards the end of the year. But what we -- what has to be appreciated is that in this last quarter, we have taken the table bay out of kind of operations and that table base is being refurbished. So the -- it has impacted the growth number, I would say, negatively relative to the number you've seen to March. So that closed in end of February. So it was only in for 1 month and now it's going to be in for another 3 months in this last quarter towards the end of the year. So I think what I'm saying is you should expect the number to come down in terms of a growth rate for the B&A coming to growth point. And as a result, the distribution level is quite a bit higher than last year, but it's not going to be up kind of percentages.

Venture, just I mean the -- as to how it translates to our June to June let's say, periods is difficult. But if I'm just thinking Waterfront numbers, March to March, we should be looking at double-digit, certainly low double-digit growth out of the Waterfront into next year on a March too.

Yes. Sounds quite strong. [indiscernible] has asked, as a follow-on from Riley's V&A question, can you give an update on expansion. It will need significant investment from joint owners, PIC. When can we expect relevant provincial approvals and time frames?

Yes. So it's not so much -- it's quite a complex question. So the application is in for roughly about 440,000 square meters of bulk rights, mixed use, predominantly sort of towards the Grainger Bay side of things. That process is currently being dealt with through council. I think it has to go through about 16 different departments and each one of those departments are assessing it. So far, we've had really positive feedback. And if there -- I think in the next month, we should probably know more or less where we stand with that process. Let's say, for instance, one of the departments then gives us a negative nod on that, then we can go to municipal tribunal. That will probably take another 2 to 3 months and then it goes to the Mayoral Council and they can override all of that. So let's assume you can get through all of that, you can get your then approvals. To do what we want to do in the V&A, which is very ambitious, we will also need an environmental approval. So we've already commenced that process. But in terms of the NEMA Act, which is the Environmental Coastal Protection Act in English, the -- we would have to take that approval through parliament, and that could take effectively 2 years. So this is a long game. Some of those rights will be developed without those -- that environmental study, and that all boils down to land reclamation out of the sea. But the reality is if we go for the full hog, then it's going to take a little bit of time. And we are sort of in new territory because nobody has ever taken anything through parliament. It's a brand-new act. But it will be absolutely amazing for Cape Town, and you have supportive financially supportive shareholders in the form of both Growthpoint and the government employees pension fund, right?

Okay. No one has been really asking about the finances for -- I mean just maybe -- can you guys give us a sense of where you are writing new facilities for both SA and what you expect in Australia, right? You've been watching your average cost of debt slowly dropping. But of course, that's an average. I'm quite keen to know what's happening right now if you were to write new facilities.

So Aasha, our Treasurer, will take that.

Yes, I'll do the SA portion. So both with base rates coming down over the last year, we haven't done any new financing for this year, just given the level of disposals that we've had in the business, we've actually been reducing debt through the year. But typically, at this time of the year, we go through a refinance process with our banks, and we have seen a significant reduction in credit margins as well. I think the market has come down in general. So we are seeing the benefit of that coming through, which you'll see in '25 results because we are in that process at the moment. On the hedging the average hedges that we are doing are still a little bit more expensive than what's rolling off the book. So that kind of adds a little bit back on again. But I think in general, both with the floating rate with base rates coming down, with SIBOR coming down over the last year as well as credit margins coming down, we are seeing that coming through the book.

So then would your new facilities be higher or lower than 9.1% in SA right now? And then within Australia?

Yes. So with Australia, they're probably ticking up. that balance sheet, it's ticking up still. And just to contextualize, I mean, rates there went from circa between 50 basis points -- base rates from 50 basis points to 1% up to 4.35. They have come down 50 basis points, give or take. So they're around between 370 and 380-ish. So you are still refining on that balance sheet more expensive, which is having a negative impact on that dips. And then on our side, obviously, we have cross-currency swaps and the like and those. Aasha can...

Refinanced also at a slightly higher rate. The last year for those, if I can call them the historical cheap swaps will be FY '26. And post FY '26 should be clean after that.

The quantum of the ones that are expiring in '26.

AUD 200 million. About 900...

So it's about 1/4 of the total...

Those rates have come down a little bit, though. So they went up to about 4.5%, 4.6%, the swap rates, et cetera. And I mean the 3-year is about 320 at the moment. So they are coming down slowly. They're a little bit behind us in terms of interest rate reductions, but yes, we are seeing them starting to -- I think they've had 2 interest rate reductions by October.

I took them a while because guys are very different inflation and a very different economy.

Exactly. So I think, look, before the folks in the Middle East were throwing phones in the sort of general trend was that interest rates in South Africa as well as Australia were going to systematically come down given all the uncertainty. I mean, we were optimistic because we had quite a strong vote for the May reduction, one party that voted for basis points. So we expected maybe now another -- in August, another 25 bps. And then in Australia, they actually messaged that they were going to sort of bring it down at the next meeting again. So if they're consistent with that messaging, then you should get another interest rate reduction. The issue is that we have quite a few hedges. So we protect the balance sheet, but we are a little bit shorter. So in the context, we've gone a little bit shorter so that if rates do come down, then we'll benefit. But in this world, rates can go up again. So it's a very difficult market to take an active position, but we are a little bit shorter than we have typically been.

Okay. So another question from Francois has asked, what would be the impact on retail vacancies of the disposal of Golden Acres, given vacancies were 26% there at FY '24. What was Golden Acres vacancy at 31st of March 2025.

Okay. Gavin, maybe if you want to give that a crack.

Yes, I don't have the exact number of the vacancy as of March 25 of Golden Acre in front of me, but it does reduce the overall vacancy because Golden Acre contains a very large office component, and that contains close to 8,500 square meters of office vacancy. So it has the impact of reducing that vacancy from an office vacancy reduction in the retail portfolio as part of that scheme. It normalizes that to a large portion down to 5.4 percentage or somewhere other office vacancies in the portfolio, maybe slightly better.

Just for clarity. It's -- obviously, you've got the shopping center. You've got the tower on top of the shopping center. Then you've got the Grand Parade Center, which is adjacent and connected. And next to that is 11 Adderley, which is actually in the office portfolio. So that whole precinct is currently on prep for disposal.

Let me just add that there is no retail vacancy in the retail component of that. The vacancy is only in the office.

On both sides, 11 Adderley has a vacancy as well.

We'll try and find that.

So a question from [indiscernible] expiring South African debt in 1H '26 and ZAR 5.4 billion expiring in 2H '26 and then a total of AUD 200 million cross currency swaps expiring in FY '26 we discussed. Can you give a broad guide as to your expectations on the direction of the interest cost in FY '26? I know you've kind of answered it, but.

So there was a significant amount. I think in total for FY '26, we started off with about ZAR 9 billion. We will refinance and refinance is currently underway the bulk of that will be left probably at the end of FY '25 for FY '26 with about between ZAR 3 billion and ZAR 3.5 billion of maturities left for FY '26. We don't typically refinance everything because to the extent developments, disposals, et cetera, move during the year, we don't refinance everything. And there's also quite a few listed notes, which in the South African market, you don't typically refinance those early. So those come up December and then pretty much towards the end of next year. So we'll make a decision later on through the year how much of that we would need to refinance and come back to market. I think Estienne had mentioned earlier, we continue to see increased appetite from both institutional investors and the banks for Growthpoint debt. As a treasury, I wish we could go and borrow more, but we have been reducing debt.

Yes. So I mean we've obviously actively taken a position there that we're probably earning on the conservative side just given the volatility in the world. And we do have a strategic pipeline of disposals that we're busy working on. But at the same time, there are some interesting projects that down the line might mean that there's going to be a place for some of those -- that capital and then we can use some of those facilities again. But we have found the bond markets as well as the banks that they're very eager and specifically the V&A, which, as I've said, they're going to be using debt now pretty much for all these developments that we've spoken about. And that's been pretty good. And their margins have been tight, very tight.

There was a question in there about hedging as well. I mean we continually to what extent we want to hedge. Again, I think as mentioned, we are going a little bit shorter on our hedges, just seeing that the 3-year kind of swap rate in the South African market, we find as a sweet spot in there to be hedging now. We watch the rates carefully all the time to see because they have been quite volatile. Swap rate has been quite volatile through the year. And where opportunities come up, we think it makes sense to hedge, we do hedge. Our risk committee and Board have been flexible in terms of -- typically, we've said 75% we'd like to be hedged. We're kind of in a range of between 65% to 75%. We'll probably land at about 70% at year-end in terms of an overall hedging ratio.

Okay. Question from Suren Naidoo. We've got 8 minutes, so we still got a bit of time here. In addition to the Western Cape and V&A Waterfront and Sandton Summits in terms of investment plans, is Growthpoint considering expansion in [ Umhlanga ] considering office vacancies being lower there for several years with Growthpoint saying the coastal cities are performing better, will it consider investments further up the coast such as Sibaya node, even industrial near the airports in Ballito?

Yes. I mean I'll maybe take that question. In terms of looking for investment opportunities, I mean, it is continuous. We're always open for business. And if there are demand-driven opportunities, we'll definitely have a look at it. From an industrial perspective, we have made a commitment on land in the sort of Umhlanga area. And we do have opportunity towards the West, so inland for further development as well. So very much focused more on the industrial side, but as faith with have it, we're literally at 450 square meters vacant in an 89,000 square meters office portfolio. So we are talking to tenants if there's a good quality credit that wants a long-term office solution, I mean, we'll probably have a look at that and develop something for them. The metrics at the moment is quite interesting in that, I mean, we are seeing certainly in the past few months, quite a firming in the rental levels. And one has to understand that new developments, whether they're industrial or office come in at quite a bit of a higher rental rate, right, per square meter. So that is something that's sort of in our minds. Certainly, if you look at the context here, it makes no sense to develop and the rental levels won't justify development really. Even that there are clients that are looking for new space even in the sort of, let's call it, Sandton, Rosebank area. But we're quite sensitive to looking at those rental levels that they make sense and really that we can see -- meet those return hurdles that we have spoken about.

Okay. A question from Ridwaan Loonat. It might be the last one. What is the average yield expected on disposals and accretion or dilution on recycling this capital? Following question, I think was answered.

Look, I mean, there's a variety of different return levels. I don't think we've averaged them yet. I mean we'll obviously do it at year-end once we've got the full picture. But it's probably fair to expect that there will be a bit of a dilution in that the sort of assets that you are exiting are smaller assets. They're typically older on the industrial side. And on the retail, also the smaller sort of more CBD assets. So the yields on those are slightly higher. And initially, we put it into debt. So maybe there's, give or take, maybe a 1% differential there between what you're selling at and what you're sticking into the debt. And as I said, we are endeavoring to try and get initial yields on our developments of in and around 10%. So then that shouldn't be too materially dilutive. But there are timing issues.

Yes, 100%. This normally quite neutral. So I just make just a final question here, maybe a strategic one from Francois. He asked, says you've mentioned that you would support GOZ with capital for growth opportunities. Would you not rather buy more GOZ shares at the current price? Does the GOZ share price present a benchmark for Aussie capital allocation decisions?

Yes. I think just on that score, I think there are, I guess, various ways in which I guess we can provide that support. And certainly, one of them would be should GOZ has got some gearing constraints of its own. It's sitting at roughly 40-odd percent. So its ability to fund any meaningful opportunity would probably be requiring some equity. So as opposed to buying shares in the market, we certainly support an equity raise as one option. And secondly, one of the other alternatives we're exploring is as in terms of the growth prospects for the company being funds management, we're also considering at the moment whether we potentially allocate some capital into a fund as opposed into the head stock itself. So I think we're looking at various options and alternatives at the moment and including -- I wouldn't discount acquisition of some shares in GOZ itself, but that is one of a number of options and opportunities we're looking at.

So maybe just before handing over for final comments, it just seems as though if I'm getting this picture right, there's a big emphasis on sweating the assets in South Africa and getting a really strong performance out of that, perhaps also limiting the different areas it would go offshore and maybe just kind of focusing a bit more on Australia. It does seem like this will be easier to sort of have a clear forecast and understanding of the business going forward. So looking forward to the guidance you guys give in September. But yes, handing over to you to give closing comments.

Thanks, Mweishö. I don't think I've got anything to add really other than to say, as I started off by saying things are definitely feeling a little bit better, and we look forward to closing off the year on a positive note and engaging with you guys again post -- or at the time of release of the results.

Awesome. Thanks, guys. Appreciate your time. [indiscernible] Chat later. Bye.

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