Octodec Investments Limited (OCT) Earnings Call Transcript & Summary

Okay. Great. Thanks, everyone, for joining us, and we apologize for the Zoom glitch and the delay. But I think everyone is -- we're good to go and we're ready to start. So let's -- shall we begin? It's a few minutes after 9. So hello, and good morning, ladies and gentlemen, and welcome to Octodec's FY '21 Pre-Closing Investor update. On behalf of Anchor Stockbrokers, we would like to thank Octodec for giving us this opportunity to host them today. We are joined by Octodec's management team, Jeffrey Wapnick, CEO; Anthony Stein, outgoing Financial Director; Anabel Vieira, our incoming Financial Director; and the rest of the team. So with regards to all of events, I'll shortly hand over to Jeffrey and the team, who will take you through the pre-close presentation and will be followed by a Q&A session. [Operator Instructions] I would like now to hand over to Jeffrey. Go ahead. Thank you, Jeffrey.

Good morning, everybody. Welcome to the Octodec pre-close for the year-ended, financial year-ended 31st of August 2021. A big thank you to Anchor for hosting us, inviting us to be hosted here this morning. Before I kick off, I want to warmly welcome Anabel to -- Anabel Vieira to the Octodec team. Anabel has been with us, I think it's at least 6 years, as a supporting member to Anthony. So we have absolutely no doubt that Anabel will seamlessly start into her new position. Anthony's retirement after 18 or 19 years with the group. Anthony is, however, not leaving us entirely. He will be with us until mid-October. And there afterwards, upon his immigration to Australia has agreed to stay with us until the end of the year. So I apologize also that we had a bit of a technical issue. So without further much ado, let us get into it. I want to -- can I just ask, is the screen -- is my agenda up, Yesh? Thank you very much. Thank you. Thank you. So I want to start off. I thought it would be appropriate to start off with some very high-level discussion or thoughts relating to the civil unrest that this country experienced last month, dealing a little bit with COVID as well as the impact of the weak economy in South Africa. Strategically, I think the team, myself, my Board have always believed that Octodec has been strategically very strong in the sense that it has -- it is diversified in the sense that it has exposure to many sectors, namely retail, residential, industrial and office. It has a very granular income. We -- Octodec is not, in the main, reliant on any 1 or 2 tenants to -- that comprise of the bulk of the income. We have, I think it's about 14,000 tenants that contribute to Octodec's total income. Buildings that we have are very multiuse. So if you lose a small tenant, it's easily replaced with another tenant without having to reconfigure the particular building. And lastly, I think that Octodec has benefited from, historically, a very strong management team who have kept us from -- kept the ball going, but also been able to provide the senior team with strong information as and when it unfolds. However, having said that, I think it's very important that we give a very balanced message here this morning. And the impact of the weak economy, COVID, recent looting has had a severe impact on Octodec. Having said that, I do still believe that Octodec has a really resilient portfolio and some that keeps bouncing back. What do I mean by that is that stiff lockdown measures are mentioned. Immediately, you see the impact reflecting in the number of deals that we're doing, leasing deals. And you see that in our cash collection. As and when the lockdown measures are relaxed, and people have very short memories, and to an extent the impact of one of our sad president's speeches are forgotten, we noticed that Octodec comes back very, very strongly. But the continuous impact of this, together with the looting, together with the weak economy is causing havoc in Octodec in the sense that we are witnessing a sliding of rentals. So whilst our tenancy, our vacancy or occupancy factor is remaining fairly stable, although on average you're starting to see it slide a bit, but every time we have one of these events, it is going down. What is the impact of this is that it does impact, albeit fairly slowly, Octodec's results and accordingly on the valuation number that the accountants are obviously calculating as we talk. Add to this the very -- the environment in which we face ourselves with very tough increases. And what makes it extra tough is that we are facing with increases in costs. So a sliding of rental, albeit fairly slowly, together with an increase in costs, starts making very tough operating conditions within Octodec. However, having said all that, I still remain confident that Octodec will pull through as and when we get to finally deal with this COVID and the economic conditions in the South Africa do improve. I think it's worthwhile noting that the traditional sectors within the country, such as offices, we don't have exposure to those offices. I suspect that there could be structural changes that may occur within the office sector. If you are a big occupier of space in a building, you've now learned, we've all learned that tenants can perhaps do with slightly less. And in a tough economy, there seems to be no chance of those landlords recovering from this kind of dynamic. I think, similarly, our thoughts with regards to big shopping centers, the bigger malls particularly, I suspect that trading conditions are very tough there as well. Why am I -- why I am raising this at this particular point in time is because Octodec doesn't have any of these problems that I've just alluded to. There's still a need for people to have a roof over their heads. There's still a need for the entrepreneurial ones to come to the city centers and apply their trade in smaller offices, offices that are of reasonable quality. And we haven't seen a fall off of this kind of demand, although it is true that when we experience a lockdown or a looting like we experienced in the month of July, we do have a month or 2 where this -- where this still affects demand. I think, to a large extent, that is influenced by perceptions. People are worried, so they don't want to commit themselves and sign leases when this happens. On a, I guess, anecdotal perspective, the -- what I'm telling you now is experience not only in terms of what we see on our leasing boards, but also in the street. As and when lockdowns start getting easier, people start becoming more relaxed and, I guess, to an extent, forget about what has happened in the last few months, you see people coming back on to the street. This is, to a large extent, evidenced by an increased number of taxis and foot traffic on the streets of both the Johannesburg and the CBD of Pretoria. However, it is nowhere near back to its previous levels. One of the main issues, I think, is office space, primarily government office space, I don't think government office space is being occupied. Our government haven't -- government as well as in Pretoria as well as council haven't brought the people back yet. It's still, at best, on a rotational basis. And that affects the number of people that are shopping and require attention -- require accommodation within the CBDs. Turning a little bit to -- before I do that, I do want to talk a little bit about retail. I've always been of the opinion that when determining where to invest, the people -- the smart people are really the retailers, because the retailers know exactly where trade is strong. And so you just need to listen carefully to the retailers, and you will see -- you will hear rather, where the demand -- strong demand really is. And in that respect, it is pleasing to note that certainly the nationals haven't given up hope in the CBD. They are still knocking on our door, asking for space. And if I have a look at the prime sites within the Pretoria as well as the Johannesburg CBD, our vacancy factor remains, say, for maybe 1 big building remains fairly constant, recently having concluded or in the process of concluded -- concluding a lease with one of the big supermarkets, prime location. We were not given everybody's concern about cash flows. We were not going to give it away. We wanted to make sure that we afforded the opportunity to earn a reasonable return on the money invested. And I think that the 2 parties came together and worked something out that was fair on both sides. It is not only this one, but there are another, I guess, 4 or 5, that we've concluded -- the leasing team have concluded in the CBDs. We -- for me, it's very comforting to note that these people still recognize the benefit of trade within the city centers of Johannesburg and Pretoria. I think it is also worth noting debt morality of our tenants, all our tenants in the main, remains fairly strong. Pleasing to note when I look at the results of any of the other counties and they're seeing the same thing, that people that are in lease, people that are remaining there in occupation, recognize the need to pay whatever was agreed. Some instances, whatever within the agreement of lease. But I think that, that's an important point to note. We don't have any problems with regards to that issue and our collection rates remain high. Turning now to, as I usually do, to a little bit more thoughts on the various types of sectors in which Octodec operates. First of all, residential. At the beginning of the year, the financial year, I think that the vacancy factors were very high. We've noticed a quite a decent decrease in vacancies to our overall position of approximately 15%. Admittedly, a big driver of this has been the performance of The Fields, our student accommodation. Once again, it's not student accommodation, it's a block of flats that caters for students. As of the 28th of February of this year, halfway through this current financial year, we had a vacancy factor of 76%. That same vacancy factor is down, I think, to below 15%. Admittedly, to a large extent, there was a decision that was taken to introduce shared and furnished apartments at The Fields. And this has gone, I think, really well for us. We've recognized the need to remain competitive within that sector. Hatfield itself is a very competitive market. We're busy calculating at the moment to the extent of the number of beds within that Field area, but it's enormous. And so I think that the only way out for us is to remain competitive by providing these value adds. So these kind of value adds would include, I've mentioned to you, furnished apartment, shared apartments, WiFi. Provisional WiFi seems is really simple, but it's very tricky given that every student we estimate or estimating based on the stats coming through, that each student has about 3 or 4 devices that is connecting to wirelessly. So that means, at the moment, we've calculated, we are have -- or we have to manage about 1,600 devices in 1 building. It's not simple to do and it's got technical issues. Fortunately, however, we've got it right. Why I'm saying fortunately, because as a result of lockdown, our suppliers have advised us that they can't continue with the rollout of WiFi because there are certain chips that they need, certain pieces of equipment, which is not yet freely available in the country at the moment. But that, too, I'm sure, will pass. Fortunate that we've managed to get through that. So that the students now know that we can give them properly managed, secure accommodation with WiFi. With regards to the rest, we continue to be faced with rental pressure. The same, however thoughts are true. We have to supply some form of value add within the buildings. These value adds and these kind of buildings may include playgrounds for kids to play, WiFi once again. We dare not drop our level of management expertise within the building. I think we have created a brand that people recognize and we've become a supplier of choice within both Pretoria as well as Johannesburg. But having said all that, affordability continues to play a major role. As employment levels in this country fall, so does affordability become a major issue. And we are finding that to keep tenants and/or to attract tenants, there is a price war that is happening. Not only a price war, I guess, but we have to reduce our rentals to levels that people can actually afford. Probably not a good thing in the short term, but I've been through the cycles before, where tenants have -- where the market, specifically in Johannesburg, has dumped a whole lot of extra units on to the market. And it takes a while for those extra units to be mopped up. But as they are mopped up and the vacancies start shrinking, only then do we anticipate an increase in the individual units. But in summary, people are paying. The vacancy levels are starting to improve. But I have with us in -- on the panelists, and please give the panelists, which will be answered by [ Salem Conradi ], who will talk about some more detail with regards to residential. Pretoria still seems to be the more stable in terms of demand than those at Johannesburg for whatever reason other than the obvious one, the increased competition. Moving on to retail. Retail, once again, I think we are seeing a difference in Johannesburg and Pretoria. I'm now talking about high street in Pretoria, the high street shops continue to remain strong. People need accommodation, but they also need to shop. And so our vacancy levels in Pretoria remained at acceptable levels. I spoke earlier on about times when people started forgetting about COVID and forgetting about the looting that was experienced. And when this happens, you see people return to the streets, and I think that those people, they're shopping. I also mentioned to you earlier on the fact that we are doing deals with major tenants, really big deals we are doing. So that certainly gives us a lot of comfort that there's plenty of legs left in the CBD. The other type of retail that Octodec owns is the shopping center. In the main, we have convenience centers, and I'm pleased to report that all our convenience centers are performing very well. Yes, like every shopping center do have 1 or 2 tenants that continuously the business struggles. And I think the management team is doing well in identifying those kind of tenants and dealing with them before you wake up and you realize, hey, this tenant owes you a lot of money and there's no way of recovery. So a lot of switching is -- I won't say a lot, but there is switching that is happening, improving the tenant mix, it is ongoing all the time in the shopping centers. Moving on to offices. As you well know, there are 2 types of offices at the moment. The one type of offices is government. Government historically has been -- has probably been the best tenant to have given what seems to be happening in the country. But in recent months, government has been battling with regards to payment. The amounts outstanding got as high as ZAR 27 million, ZAR 30 million. But now we are down to -- significantly down to ZAR 13 million. The feedback from government PWD (sic) [ DPW ] is that it's a technical issue, they have problems with their systems. That may well be the case, I suspect it's the fact that they've been on lockdown and they haven't coped well with working from home. I hope I'm right. And then as with the passage of time, this too will increase -- will improve. The other kind of office is the smaller office modules of 20 square meters, not typical traditional office space whereby people like dressmakers, tailors, driving schools, debt collectors, that kind of commercial tenant, I think there's still demand a lot of demand coming from that sector. I think people realize that they can no longer, in this country, rely on the corporates. Corporates are shedding staff, not increasing. And so they are being forced, to a large extent, to become entrepreneurial in nature. And I think we're experiencing some of that. However, when we have a -- once again, a lockdown or looting and just general fear on the street, well, then demand starts drying up in terms of new deals. But perhaps at a later stage, Daniel, who is with us, can tell you a little bit more detail about deal making. During that period where things ease up a little bit, pleasing to note that we're doing more deals in this sector this time of the year than we were 2 years ago. So there's definitely some movement over there. One of the big issues certainly in Pretoria is the closing of the court, not closing, but rather the virtual court cases that's happening there at the moment. I think when the courts do open up and then move off Teams and Zoom, I think that demand levels will return to normal fairly quickly. Industrial. Industrial has been very stable. Just to remind everybody that we don't have industrial distribution centers, DCs. we don't have any of that sophisticated industrial stuff. Our industrial are what I would describe as, being in the main, mini factories. And I think one of the benefits of these mini factories is that, firstly, it's not purpose-built, and there are many uses for a particular unit. But in addition to that, in the main, these people, these units are occupied by individuals, not corporates. And so this -- these guys typically have to fight for survival, and that's what they seem to be doing. When you're dealing with the corporate, I suspect you're going to get a lot of notices because there's a resizing or reengineering, call it what you want, but they want to give you a notice. This hasn't been the case in our industrial sector. People in the main have stayed put and continue to pay their rental. The other sector that I want to spend a little bit of time on, I say a little bit of time because I think it only comprises about 4% in revenue of Octodec's total revenue, are those that include smaller sectors. The stock exchange, at some stage, asked us to -- requested us that we disclose this information. But we have in that sector schools, restaurants and churches. All of these sectors were heavily hammered as a result of COVID. Interesting to note that in our last Octodec Exco meeting, we saw 1 or 2 of the schools starting to open up. Typically, during the COVID period, they closed down. Not many of these -- when I say schools, it's really private schools. Many of them don't have balance sheets. And so they can't continue to pay. I think this, together with the fact that the government grants were under a bit of pressure, and not all our schools got the government grants when they wanted to. But there seems to be some movement in there and 1 or 2 as mentioned are paying and returning to fairly full occupancy. There's one area in particular where we accommodate a large number of most of our schools. And it's good to see that kids in uniforms returning to the school. And perhaps the last one, which is also a bit of a worry is -- are the gyms. The gyms are in sense are under severe pressure. But the gym that we have is -- has been very decent in our negotiations, and we've continued to receive what is due in terms of the lease. And perhaps the last sector that's worthy of a mention is the hotel sector. I think that the hotel sector is going through tough times. We have 2 hotels in Hatfield and both of them are experiencing severe pressure. In the financial year-ended 31st of August 2020, it was disclosed in there that we wrote off ZAR 104 million by way of COVID credits. We took the decision, given the granular nature of the bulk of our portfolio, we didn't want to be in a situation where a few months later, we'd be -- our credit controllers would be battling to recover deferred income. And so we typically hit immediately. I think that our -- it was the right decision to have taken, the benefit of hindsight. And -- as our books today are fairly clean from a debtor's point of view. We obviously have our problem tenants, we all have those. But they are at a high level, when I look at them, fairly clean. There was a point I wanted to make here about this, and that is -- sorry, I've just lost my train of thought for a second. Yes, I started off by telling you about COVID credits at one stage or last year I mentioned a figure of ZAR 104 million. But this year, the corresponding number, it is roughly about 25%, ZAR 25 million worth of COVID credits that we've given for this year. However, when processing that kind of information, I guess it must be measured -- it must be mentioned that the definitions have changed slightly. In the times when we deviated, we gave credit in terms of an agreement to lease that credit. Those were called -- we defined them as COVID credits. However, subsequent to the 31st of August 2020, a lot of these leases have expired, and they were renewed. I did mention to you at the beginning of this presentation, my presentation to you, that some of these rentals or a lot of these rentals came down at -- to slightly lower levels. And so these new levels are levels which tenants are, at this stage, they're comfortable in -- they're comfortable with. So you may not be reflecting -- we may not be reflecting a charge to the income statement of ZAR 104 million, but we are experiencing slightly lower income levels, I think, directly attributed to COVID. Yes, so that ends my presentation. In short summary, there is a lot of pressure out there, a resetting of rentals. To remind you also perhaps of a low well way to leverage lease expiry, which means that Octodec's current monthly debit is attainable. Under pressure to an extent, but it is attainable. We don't have leases, there may be 1 or 2, but in the main, the pressure of the reset is over. What I'm saying is that if you had long leases and these leases still have a year or 2 to run, when those leases come to an end, there's a real chance that in those kind of investments, there would be very big decreases in rental. We're through that. I don't think that, that poses much of a threat. Yes. So that concludes that part of my presentation. I want to move on to something else, and that is recycling of capital. I think when for -- it is for some time now, for the last year or 2, that Octodec has recognized the importance of disposing of some underperforming assets, but also the vacant buildings or the mothballed buildings. It, perhaps, must be remembered that when these buildings were acquired, they were acquired at a time when we bought them on a yield that was calculated only on retail, but not upstairs offices because the offices were empty. So what I'm saying to you, we didn't pay much, and the holding costs are not much. However, if the market can turn and we are finding people to buy these kind of properties, and that time will come, then the real cost of that is -- well, what I want to say that whilst it didn't cost us much, there's still a value attributed to that kind of empty space. And at the moment, these empty spaces are not generating revenue at all. So we, as a group, I think, would like to get rid of them, but to dispose of assets at this time in the history of our economy in this country is exceptionally difficult. We do have 1 or 2 bargain hunters that are floating around, but they want to pay you substantially less than what you think that or we think what the true value of the properties are. But we continue to leave no stone unturned in an attempt to sell those properties. The banks, I think, are getting tough out there, and they're not providing the potential sellers with the necessary finance to buy them. But I can understand all of this doesn't matter within our hands or somebody else's hands. It's difficult to show a yield on buying these properties with a view to increasing returns unless your initial return is so sweet because of the low purchase price. So that concludes my presentation to you. I'm going to ask the outgoing Financial Director, Anthony Stein, to talk about collections and give you a very brief finance update, some numbers. And thereafter, we hopefully will have some time over for some questions and answers. So over to you, Anthony. Anthony, you may be on mute.

Yes, hi, everyone. Let's begin with collection. So the collections since we last reported in April for the 6 months, February reporting period, have been strong. we've collected more than 100% on the residential side, and that's largely because we are clawing back some of the arrears that were in place at the end of Feb. So residential collections are good. Commercial collections are good as well. Overall, the collections are in around about 99% from March until the end of July -- sorry, the end of June. In July, collections were down a little bit, down to 96.5% overall. And that is mainly 2 -- 3 reasons. Firstly, the government's arrear amounted ZAR 27 million that Jeffrey was talking about. Part of that. There's -- there were additional lockdowns that were introduced in early July and also the civil unrest that took place in that period. So yes, collections were down for July, but we seem to be picking up again now in August. Just some clarity on the government arrears. It's for DPW. And it's -- It was ZAR 27 million, as mentioned by Jeffrey, down to ZAR 13 million now, which represents roughly 75% of 1 month's billings. And when I talk about billings, I'm talking about not only the rentals but also the recoveries of electricity and water. So that is under control. And I think it's largely due to the, I guess, the hard work that the team puts in to manage these areas. We've always said that if you only operate within the government space and deal with government leases, it just takes a serious amount of effort, but it's -- I don't think it's a complete crisis. At my discussions with 1 or 2 people, I think it comes down to administrative issues in the department. So everything that Jeffrey has been talking about has taken us through the various sectors that all translates into pressure, a little bit of pressure on the balance sheet. We are seeing rentals that are not grown. In fact, the rentals are going backwards, the various sectors. Just from a billings point of view, from January this year, our billings are actually moving in the right direction, which is positive, but not significantly up from January to July, not enough to compensate us for the increased expenditure over the period. We are still seeing quite a lot of pressure on the expenditure side, and it's mainly as a result of administrative costs. I think it's widely understood and known by everyone that there's a lot of pressure when it comes to [ counsel-related ] costs. The one that's impacting us in a big way is assessment rates. So from a valuation's point of view, there is this pressure on profitability, pressure on our net property income level. And that is translating into a downward revaluations of our property valuations. At the end of the February reporting period, the valuations were down overall by 4%, it's the fair value adjustment. For the 6-month period, we are expecting the downward revaluation to be a little bit less than -- lower than 4%. So at this stage, we're looking at approximately 6% to 8% decrease for the full financial year, maybe slightly better than that. So a bit of valuation pressure, and that obviously puts -- or the NPL that's going back slightly backwards puts pressure on our different financial metrics, for example, the LTV and ICR. Loan-to-value levels, I'm happy to report that we -- that the 44% at the end of Feb is most likely expected to remain at similar levels for the full financial year. That's at the end of August. But yes, valuations are going down, but there are some wins in terms of our derivative liability. The revaluation of our derivative liability will assist in reducing the LTV a little bit. So expected LTV at the end of August, similar levels to that in February. In terms of our ICR covenant, we were at 2x at the end of Feb. We are expecting that to be slightly better for the full financial year, that's full 12 months, slightly better than the 2x cover and largely as a result of us managing to achieve some savings in finance costs. So the levels of liquidity in the portfolio remain healthy. We've got around about ZAR 300 million of available cash and banking resources. We are currently working with 2 banks to put in place an additional ZAR 250 million of facilities, which -- it's done, the deal is done, it's just doing the paperwork, the resolutions and bond registrations and so on. And then we look in 1 or 2 months, we've been looking at a further new facility of ZAR 120 million. And these new facilities will be utilized to pay some of the potential expiring bonds that are coming up potentially and also to repay some of our more expensive debt. And we've always said that one of our intentions is to diversify and bank with some more of the South African or the local banks. So yes, in terms of banking relationships, remain very, very strong. This relationship goes [ low lease ] banking relationships go back approximately 40 years for Octodec. Debt refinancing, all the refinancing for the 2021 financial year has been done. 2022 financial year, there's ZAR 1.9 billion of debt that's expiring. We've already done -- sorted out ZAR 500 million of those expiries. And at a very advanced stage with -- with the remainder of the facilities that expire in May and August next year. We've got some notes that are expiring in August and October, and I'm reasonably confident that just based on some feedback that I've received over the last couple of days, reasonably confident that there's something that we can do there in terms of rolling those for 12 months to 18 months, for 12 to 18 months tenors. Jeffrey spoke a little bit about the recycling of capital. It has been slow for the reasons mentioned by Jeffrey. We have, to date, received ZAR 34 million, that's for the full financial year, proceeds from recycling. The money is being used to pay back debt. The deals that are in progress, we've got around about ZAR 200 million of deals that are at a very advanced stage, but the big challenge is these purchases, putting together the necessary funding. But I do believe over the short to medium term, if market conditions improve, then we'll be able to secure a lot of the proceeds from these transactions. But it largely depends on market conditions improving and the ability of the seller or the purchasers to put in place -- get the necessary funding in place. Yes, I think I've mentioned everything other than -- yes, in terms of guidance going forward, so we -- because of the uncertainty that we have been experiencing in the market for some time, we haven't given investors any guidance on distributions and dividends. And yes, that's not the intention to -- it's certainly not our intention to give any guidance at this point in time. And I think, yes, that's it from me. I think lastly, I just wanted to say thank you very much to all the investors, all you guys that I've been working with for many, many years. And I think our relationships are so important, and there's some strong relationships that have been built up over time. And I'd like to thank you, guys, for all your support over the years. And I am confident in Anabel's abilities. Anabel has been working with me for -- in the offices of Octodec for around about 5.5 years. And prior to that, Anabel was involved as the auditor of the -- as Senior Partner at Premium Properties, which merged with Octodec. So Anabel has quite a long history with Octodec. And I wish Anabel all the success in the future. And yes, thank you very much.

Thank you, Jeffrey, and team for their informative update. [Operator Instructions] If the management team allows for maybe 10 or 15 minutes of questions, if that's fine. Great. So there's a question from Nazeem Samsodien, who's asking to the panel. Has there been a deterioration in disposable income from new applications and current tenants on renewal? You mentioned the reduction in rental to what tenants can afford.

I think I'll answer that. I think it's related to the section Jeffrey spoke about [indiscernible]. So in terms of affordability, we've definitely seen in the quality of cash that we see from residential perspective the -- definitely the affordability pressure, they're over indebted, they choose to share or maybe tackle more affordable units. There's definitely a deterioration of disposable income currently. And in order to attract prospective tenants to our properties, we have decreased our market rentals to make sure that we can facilitate into new tenants in the market. We decreased the different percentages depending on [indiscernible] and [indiscernible]. In terms of existing tenants on renewals, when we get to a 1-year lease expiry, it's default on a month-to-month basis. But we do try to renew tenants, and this is where we apply our rewards to get things in for another year. However, with the uncertain times at the end, the [indiscernible] remain on a month-to-month basis. And generally, we don't currently increase our rentals on these expiry at the moment just due to the affordability and the pressure that we currently experience. I hope that answers that question.

Also a follow-up question from Nazeem. He's asking what were average rentals being marketed at The Fields and how does this compare prior to COVID?

Okay, I'll answer that one as well. So at The Fields, we have various options. So we have shared options and unfurnished, furnished. You can rent private room. You can rent a whole apartment. So in terms of average mortgage rent, it's very difficult to give a number because there's just so many options and depending on what will suit a tenant's needs, that would speak to what the tenant chooses. So it is difficult to calculate that. But in terms of how it compares to pre-COVID, so in 2020, we started to look at these different options for tenants to share furnished, unfurnished, private apartments. So -- and then we did some value adds like the WiFi costs. We've included water into that -- into those rentals. Recently to the new year, we plan to include laundry into rental. So overall, the rentals at The Fields have increased because of all these value adds and all these different options that we do have. So that is the one area where the rental student decreased, but actually increased slightly but there's a lot more value adds included.

Thanks, [indiscernible]. Maybe just a question from me. Could you please provide some views or thoughts on your progress on the office conversion to residential spaces? Maybe some color on that.

So in terms of projects with full office blocks are being competitive. We have reported previously construction costs of quite high at the moment, the cost of funding. So think of this being our [indiscernible] to achieve a reasonable yield. So there's no plans to bid any big projects in the short to medium period. But what we are doing is looking at some of the school mainly and reasonable yield. We are exploring innovative things. And we're looking possibly at affordable accommodations has made a little bit more affordable than where we currently are, but it's still very much in the investigation research phase offering. So yes, but it's small things that we are looking at the market.

Thanks, Sharlene. [Operator Instructions] In the meantime, I'll ask another question maybe to Jeffrey. Do you feel you have an optimal mix in your portfolio? Or is this something you like to change in that portfolio? Jeffrey, if you could answer please?

It may be, thank you, a little bit of an academic question because for us to change it in today's time is not easy. It would involve either buying or selling. Not an easy thing to do in today's time. But having said that, I think, on average, we are happy with our portfolio, the balance between resi, between commercial the -- within retail, the number of shopping centers, convenient shopping centers, we're happy. There's nothing sticking out in the portfolio that really would like to do. The only thing I would like to do is see if we could drive some or accelerate some of the sales.