Octodec Investments Limited (OCT) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the results presentation 6 months ended 28th Feb 2022 for Octodec Investments Limited. Just a little bit of admin before we get into things, I want to introduce to you the team that will be assisting me here this morning. First of all, our Financial Director, Anabel Vieira, who will deal with capital management and the actual numbers. Charlene Conradie, who is responsible for, amongst other things, the residential sector, something I think all of you want to know what's happening with residential. And then Stephanie Ainsworth, our Risk Officer who will join us in the Q&A should the -- should there be any questions relating to items involving risk. Secondly, the way we would handle questions is that you guys understand have a facility to type in your questions. These questions will all be aggregated, and at the end of the presentation, we will call out these questions, and one of the team members will attempt to answer it. Okay. So once again, a warm welcome to this presentation. I hope you find it meaningful and enjoying it. Let's move on to Octodec at a glance, if we may. Right. For those of you that are new to Octodec, we've presented a very basic slide setting out Octodec. Perhaps 2 of the important ones that I will focus on is it's -- I think, a well diversified inner city property portfolio of 254 properties valued at ZAR 11 billion. Secondly, our property portfolio is diversified, well-balanced across all property sectors. We specialize in investing in mixed use, in many cases, mixed-use properties, next. Some numbers at a glance. Rental income, excluding recoveries, ZAR 708 million on a like-for-like basis. And I want to come back to that or Anabel, in her presentation, to deal with it. 1.2% this percent increase. This number is after we've added back the impact of the sales as well as COVID credits, which were given to us in the previous 6 months, but more details on that a bit later. As a result of the results as well as the stabilization of the market and a little bit more certainty, Octodec has decided to declare a ZAR 0.50 dividend per share distribution. Our NAV fairly consistent at ZAR 23.10, LTV pleasingly coming down slightly from 43.2% to 41%, and an all-in weighted average cost of borrowings moving downwards from 8.5% down to 8.3%. Next, please. Overview for the period at a very high level. Octodec has gone through a very tough trading times. We somehow believe we've survived and coped with many of the challenges that -- economy that COVID presented to us. But I'm pleased to report that subsequent to year end, there have been a number of changes in terms of our trading, specifically in residential, which is really pleasing for me. A weak economic environment in the absence of structural reform made historically the changes very difficult, but every dark cloud has a silver lining. the management team were forced into developing digital marketing, introducing cost efficiencies and really improving customer experience all the way rather than, more specifically, in the way that we are able now to communicate with our tenants. The easing down of lockdown regulations and the return of students to the universities, I think this is an important fact. Charlene will go into some more detail. But when you get big volume of people coming back into town not only affects the residential market but also because we're operating in some kind of in some kind of economy of return. Our residential tenants will, for example, provide a lot more turnover to our retail tenants. Accounts delivery remains an issue. Rising costs and the lack of service delivery have impacted us. Very difficult to move forward and try to combat this. Some work has been done to try regulate our relationship with council. But once again, a difficult thing to do. Pleasing to note, though, that our industry through [indiscernible] trying very hard to assist all property owners with this problem. Next, please. Rising construction costs have prevented Octodec from doing what it usually used to do, namely, the upgrade or the refurbishment and sometimes even the building of new product, but rising construction costs have prevented us from doing this in recent years. Yes. The focus on the balance sheet, as previously mentioned, LTV within the expected range and well below the bank covenants of 41% previously, 43.2%. Next, please. Portfolio analysis rental income, where we disclose to you guys the analysis of rental income. Firstly, on the left-hand side, by way of rental. And secondly, on the right-hand side, rental income by way of geographic -- geographically from a strategic point of view, we prefer it this way. In other words, a slightly higher percentage of all of income coming from the Pretoria portfolio as opposed to the Johannesburg portfolio because we're finding things in Pretoria slightly easier. Next, please. ESG, we've identified the worldwide trend to have a greater emphasis on ESG. We believe that Octodec already has a -- done a lot of work in this regard, but perhaps needs to improve its disclosure thereon. Progress to date, we've installed solar power at the Waverly plaza. We're currently at The Tannery and really close to starting Poland -- solar initiatives at our Killarney Mall. Next, please. I mentioned a few minutes ago that -- just mentioned that Octodec, I think, already plays in the ESG space. What I mean that in far as environment is concerned because we're working with buildings, existing buildings and converting them. The cost in terms of resource or Mother Earth is far less when you convert a building as opposed to building the kind of buildings that we do from start. Secondly, from a social point of view, I'm proud to advise that Octodec houses a number of people every evening of the year in very clean, secure accommodation that perhaps they wouldn't have most of this accommodation being very close to their place of work. Next, please. That concludes my presentation, high-level presentation on Octodec. I'm now going to call upon Charlene Conradie, who will drill down in some of the detail on the residential portfolio.

Thank you, Jeffrey, and good morning to everybody on the webcast. Firstly, just a little bit of background information on Octodec's residential portfolio. As you can see, we have 65 properties, and we just have just over 9,000 apartments in the portfolio. We also operate in the rental of ZAR 3,000 to ZAR 7,000 bracket per month. The important thing to note from this slide is that we're happy to report that we achieved a positive 5.6% rental income growth for this period. This was mainly due to a significant decrease in our vacancies from 24.3% to 15.4% at the end of February. I just want to highlight two properties specifically, where we have had a significant decrease in vacancies. If we can move on please. So the first property is The Fields, which is Octodec's biggest asset. We have been working actively on rolling out more of our shared and often finished accommodations to students at this building. This initiative, together with the University of Pretoria, resulted in February this year compared to March in the previous year, have [ boost ] highly successfully in decreasing our vacancies around 72% to 26.4% at the end of February. Since February, we have seen a further reduction in our vacancies, and we are now at pre-COVID vacancy levels of 7% at this property. Another one of Octodec's largest residential assets is Kempton Place, situated in Kempton Park. During most of 2021, we have experienced vacancies of around 29%. Because of the improved activity at our OR Tambo International Airport as well as in the travel industry, we have also experienced here a significant decrease in vacancies to 11% at the end of February -- sorry, at the end of March. This has had a positive impact on our rental income, and it bodes well for the future. So that's 2 main contributors in terms of vacancies, Something else that I want to report on. Sorry, Lana, you can just go back to the previous slide. Okay. Since the beginning of the year, we have received more than 5,000 leasing inquiries per month, which indicates that there is still demand in terms of affordable, quality, clean and secure accommodation. And that's something we pride ourselves on providing. We have, as Jeffrey mentioned, implemented a digital platform, which assisted greatly in processing these leasing inquiries, and the impact can be seen in our rental income results. During this period, we have also accelerated the rollout of WiFi after the challenges that we experienced during COVID the imported [indiscernible] have been resolved. We have found that WiFi is definitely an important value add as it is a deciding factor when prospective tenants choose their accommodation. We are also in the final phases of completing 2 upgrade projects into 2 properties in the Johannesburg portfolio. We are refurbishing our ride, play and common areas, and the reason for this is to attract prospective tenants to these properties as the Johannesburg markets still remains a very competitive environment. And then lastly, it's important to note that although tenants' affordability remains a concern after COVID, we have been concluding a very successful pilot projects whereby we introduced semi-furnished and shared accommodation at another of our big assets called Nedbank Plaza. So this allows prospective tenants to share accommodation at a very affordable rent of less than ZAR 3,000 per month per room. The project was very successful in that the units were occupied over a very short period of time, and it also allowed us to generate improved income per unit. So these -- for this reason, we are planning another phase. We actually visited, and there will be a further phase towards the end of the year. And in conclusion, I think this is just another example whereby we are actively working on initiatives in the background to make sure that we improve our product constantly and that we remain current and competitive in the market. So that's an update from the residential side. I'm going to hand over back to Jeffrey to take us through the rest of the portfolio. Thank you.

Thank you, Charlene. Let's continue on residential -- on retail. Octodec, as you may well know, for those that know Octodec has 2 types of retail, and the one type of retail is what we street shopping. Street shopping can be divided into 2, I guess, those that I would call high street shopping, which are those shops that are well located in the high streets of Pretoria and similarly in Johannesburg. And then we have our shopping centers, which are in the main convenience centers and they strike deal with all of those now. Retail shops, a slight decrease in the number of square meters that we brought about in the main through sales, which we will deal about later. Shops, rental income, still a little bit under pressure. We still do have [indiscernible] risks for introductions , reversionary rentals on renewal. Still tough, but certainly easing up. Pleasing to note, however, I believe -- I believe that the retailers are very important, and access to and conversations with the retailers are really important. When a retail is offered a spot and is prepared to pay you what you consider to be a market rate, a fair market rate, you know that you have a good product. It is only when a tenant starts demanding big reductions in the main, you know that the product that we have is either not well located or the quality of the particular shop is not what it perhaps should be. We followed this philosophy, and I think that we are doing a very positive stay from our retailers because they're all coming back. Next, please. Prime CBD shops still in demand and well let. Here I make the distinction between what I would call high-street shopping versus our shops slightly outside -- these are better known. On the left-hand side, we have a picture of a recent development of ours, where we installed a 1,600 square meter Mr Price. [ Information ] coming back from the retailer doing exceptionally well. This is in the heart of the Johannesburg CBD in Inner Street. Next, please. Just a little bit about, Lana, if we just go back, sorry, one page. Let us just talk a little bit about why we still believe that there are legs left in the CBD retail spaces. These are important points, I believe. Convenient locations in high foot traffic areas, if you had to visit either Johannesburg or Pretoria CBD, you will notice a lot of foot traffic generally in front of our shops and lower cost structures. We don't have to deal with air conditioning and lighting and cleaning outside our buildings. This is not the case in a traditional shopping mall with these kind of things, especially in today's time, are becoming very, very expensive to supply. However, it must be mentioned, and I mentioned it earlier. Rental growth is under pressure, more rental freezes, negative rental reversions and larger tenant installations are required. Although it definitely -- it is a feeling that this kind of pressure that we felt at the height of lockdown is a little bit more subdued. A strategic project of ours. Pleased to announce that we are now getting underway within the next week our upgrade of one of Octodec large CBD assets in Pretoria and then in Du Toit Street. That's the upgrade of a 4,000 square meter Shoprite, Checkers and the investment that we will make in there is approximately ZAR 58 million, and it will involve the complete upgrade of the Shoprite store, as well as the creation of 3 or 4 additional stores. All the big stores have been tied up. And really pleasing to note that somebody, a retailer like Shoprite, very keen to do business with us in the heart of the CBD of Pretoria. The other 2, I think I've referred to them today, as well as in the previous presentations, Inner Court, Mr Price, as well as the OK Furniture store in our Inner Street building. Royal Place, the installation of a JET Home. Next, please. Moving on to our shopping centers. Our shopping centers have all performed exceptionally well. They didn't go back -- what's -- as did many most properties, I think, in this country, were managed to hold our own ground, and we're now seeing good growth. Pleased to report in all our convenience centers, I don't think we have a signal vacancy. The vacancies that we do have, all those convenience centers. We have a little bit of office space above the shops. Next, please. There some of the -- we're disclosing some of the performance of our convenience centers. The Park, Waverley Plaza, Gezina and Blaauw, which is a 50% joint venture that we have, really happy with performance there. The performing -- the non-performing assets, as you all know, is Killarney Mall. We currently have, and we are busy exploring opportunities to improve things. I'm really confident that we may have stumbled on to something positive earlier. Next, please. Offices. Offices remain tough. But having said that, I must distinguish Octodec or clearly explain Octodec's office portfolio. It is not the traditional office space. It is divided. Offices that we do have 400 -- just over 400,000 square meters, [indiscernible]. Number one, those offices that are let to government. Government work is tricky work. It is difficult work. It requires a lot of time and effort. But those that persevere, we can come out winning. Octodec -- maybe the government may be argued maybe one of the better tenants to have to, in this tough lockdown times. The other one -- the other half are those tenants that are let -- those offices that are let to a smaller type, typically an entrepreneurial office tenant such as a tailor, driving school, a curtain maker, hair dressers, that kind of tenant. In lockdown, these tenants suffered as well. And whilst rentals were under pressure, we've been able to maintain our vacancies. Next, please. Not much more to say on this, you can read through in your own time. But we are exploring different ways of making our office slightly more -- offering slightly more attractive, such as the introduction of Wi-Fi, meetings rooms and boardrooms. Next, please. Yes, we're disclosing where our major government work is. You can see, I suppose, that there's an indication of risk because of the big numbers. The 13,000 square meters, 11,000 -- 10,000. These are all big tenants, and it hurts up to neck when we lose a tenant like this. But up to now, we've been able to successfully keep these tenants, and I don't see anything happening in the foreseeable future in this regard. The post office, however, remains a challenge with non-payment of accounts. However, exposure amounts to only one retail store and a few post boxes, which the post office rent from us. Next, please. Industrial was one that was least affected by the tough lockdown period. But certainly, once again, subsequent to the 20th of February, we are seeing quite a strong demand for retail -- our industrial space. What must be known here is that we operate, we don't operate. We're not playing with the big distribution centers that many of the listed sector counterparts are doing, but we are sticking with our small mini factories where we do have a little bit of churn, but it's not a problem with this. If somebody moves out, there's always somebody waiting in the wings to take our to take the vacating tenants' place. I think right now, our vacancies are around about 4%. There's been 5%. There's quite a change subsequent to the 28th of February. Next, please. I think I've covered this -- this slide. Once again, I can't keep stressing this overall occupants see improvement since 28th of February 2022. This -- we're well underway at this particular site at The Tannery, one of our industrial parks with the installation of solar panels. Next, please. Specialized and other. This sector was brought about by, I think, it was current stock exchange requirements to report comprehensively of each sector. We have lumped them all together in one. But for purposes of disclosure and this presentation, I will go through some of our -- some of the detail right now. But you can see the pressure on the sector reducing quite a bit, from a rent reduction of 15.4% down to a reduction of 2.9%. I think we've bottomed out here in the sector as well, and we seem to be improving nicely. Next, please. So here are the various components to the specialized sector hotels. Hotels are a problem for us. Our major tenant, City Lodge and a bit of -- under a little bit of pressure because of a virtually complete fall off in terms of visitors to their hotels. Auto dealerships, we have 3 auto dealerships, 2 of which trade very well. The third one in Midrand, transfer of this property is imminent. Louis Pasteur, this is a health care facility, a hospital, we think trading very well during COVID. Things were tough for this tenant and he struggled through those months, not being able to afford to do those medical procedures that generally hospitals thrive on. But there, once again, I think things are returning to normal. Education facilities. These were properties that probably suffered the most of all the sectors in which we operate because schools closed out. Pleased to report, however, that in recent months, the last month or two, we're seeing a lot more kids back on the street going back to school. Places of worship, well, exactly the same comment as for educational facilities mentioned earlier on places of worship, not necessarily only visited by kids, but a number of churches exist in the CBDs of both Johannesburg and Pretoria, and these are starting to open up again. Parking. As our parking, I think, is divided into 2. Those are the bigger parking lots. Some of them are operating in the buildings I've just mentioned. And as we return to normal, we find that our parking revenue starts growing quite quickly, 91% of our parkings are occupied. The other section of parkings which is as well. On the old and small number -- the smaller parking, we have typically associated with a residential block of flats. As our residential flats start filling up well, so does the parking. Next, please. Vacancies by sector. There, you can see on a like-for-like 28th February 2022 versus 31st of August 2021, a slight improvement from 16.2% down to 15.8%. In terms of core vacancies, there was some improvement. But the big movements, I think, are still to come. For example, retail disclosing a vacancy factor of 15.5% vacant. Our vacancy factor across the board, Johannesburg and Pretoria at the end of April was 9%. It's a big movement from 15.5% down to 9%. Just one comment on the growth of our residential income, which we think is going to be a feature of the next set of results or certainly thereafter, is that the reduction in rental -- the reduction in vacancies does help. But I think the big kicker comes is when we are down to low vacancy levels and our tenants start in the game of cat and mouse, right now, the tenant is the cat. But as and when the vacancy starts reducing, they will become -- they will become subject to not having the same power as they have at the moment. And I think it's at that point in time that not only will our vacancies continue to decrease, but our rentals will start to increase. Next, please. I think that this is a very important slide. There's nothing new about the slide, I've presented this a number of times before. And this depicts a very low well. In other words, let's take our lease profile at February, those leases that we're terminating in February 2023. Residential at 99.8%, Commercial at 53.5%. The bulk of Octodec's income in terms of its leases, the contractual leases terminating before February 2023. And then as the month -- as the years or by less and less and less. This is, I think, very positive for us in the sense that, number one, we've lived with this. We don't regard this as risk. And number two, as the market picks up, you want to be in a situation where you're not -- you can't take advantage of the increase in pricing because of contractual obligations. But you want to be in a situation where now your tenants are either on a monthly basis or whose leases will be terminating in a very short period of time to take advantage of the escalating rentals. Next slide, please. Yes, not much to say on this slide. However, I think for me, it's interesting to note that the average day of a residential tenant, although he's only signed a 1-year lease, is 19 months. The point being made here that even though it's a short-term lease, that doesn't mean to say that the tenant needs to vacate when this lease expires. In fact, when you look at our rental increases, which I will come to at the end, our rental escalations. We, in Residential, are enjoying a for-hire rental escalations and renewal of an existing lease than we do on a new tenancy. Whether it's when a tenant comes in and a new one comes in, the rental growth there is almost flat. Next, please. This is a brief analysis of leases expiring. Nothing here that warning us at this point in time. But here, we have an update on leases greater than 3,000 square meters. These are pre-28th of February 2022. I've given you all the detail that you need to make your own assessment, but there's nothing to our point of view that's really worrying us. Next slide. Next contains those leases greater than 3,000 square meters but expiring in this coming 6 months. Once again, I don't think that there's anything really worrying us. Perhaps the one that does worry us because it's government work, and that's the big one, the 6,568 square meters at the fields. We're not 100% certain as to where this one will go. It will go out to tender at the end of the year, but I don't think there should be much problem. Next, please. Yes. Here's -- just this slide, I think that all the slides being presented today, it is very contentious. When we talk to instinctive partners, we do speak to a number of you guys that are watching this presentation and we are given anonymous feedback. The big theme that's coming through is that you guys do want those reversions that we've enjoyed for the last period. I've not historically done that, because I know how much work is involved, but I guess, but also not exactly that comfortable with the results of -- that this will yield because especially now in a changing environment where demand is improving. I'm not sure that there's great reliance that can be placed on these new numbers. However, here, they are. Team spent a lot of time generating the numbers. These numbers are accurate. But I also want to point out that these numbers that we are presenting here relate only to a 6-month period. And so when there are 1 or 2 big leases and then they do -- they can and do affect the numbers. Just at the top there, you see new leases, and this is the point I was making earlier on. New leases coming in for Residential at almost flat, minus a 1.2% decrease, but on the Renewals. So these are the part of the 19-month stays. Those guys that stay now in our flats, we are able at this stage to give them an escalation, an average escalation for the last 6 months of 6.3%. The amount in offices decreased at 11.6%. I think this is a tail end of our leases with government that we had to renew. In most instances, the government who are -- have been retail in their landlords and given us rates applicable to report, it happens to be a [ weather ] report and so the government portion of our offices showed a decrease. But I also think that the other half of the portfolio, those smaller tenants, were also under pressure. They also suffered, although we've been able to maintain the -- we've been able to maintain the occupancies. And I think that's the last slide for me is the next one, please, Anabel. Yes. So now we're going to move into the financial results and capital management. And I'm going to call upon our Financial Director, Anabel Vieira, to take you through the numbers. Thank you.

Thank you, Jeffrey, and good morning, ladies and gentlemen. So I'm going to quickly take you through the financial results for the period of February 2022 by basically just going through a simplified income statement and also on how we've rounded our distributable earnings. So as Jeffrey has mentioned at the beginning, he touched on revenue. So there, you can see our revenues earned on a contractual basis, and that includes our rental plus our recoveries, up 2.2% on the prior year. And after taking into account the COVID-19 rental discounts, it's up by 5.1% to ZAR 944 million. So the biggest increase there is really a result of no COVID discounts or very little COVID discounts being granted in the current period, and that is obviously because the fourth wave, we didn't go into the heavy lockdowns if we were exposed to in the previous periods. Right. Okay. Our property operating expenses up by 5.2%. And the biggest contributor to the increase is really our administrative costs. Things like your assessment [ drives ], electricity, et cetera, which are way above inflation and it put pressure on our property costs. However, also included in that is our bad debts, which are really under control at 1.9% of gross receivables, competitive 2.5% in the prior year, which I think is quite good under the current economic circumstances that we find ourselves in. Then just looking at net operating profit. Before finance costs, sitting at ZAR 409 million compared to ZAR 390 million, it's a 4.9% increase on the prior year. So not a bad achievement, but our biggest achievement here is really our decrease in our finance costs. We need to bring that down by 4.3%, and this is really a function of the settlement of 2 interest rate swaps, which we settled early in the financial year as well as the settlement of debt. And in that while, we've managed to increase our distributable income to ZAR 226 million, a 13.5% increase on the prior year. We've provided for an estimate of current tax of ZAR 14 million and thereby then having ZAR 211.7 million available for distribution or 79.6% share distribution per share, a 6.4% increase on the year. All right. If we take you through the abridged, condensed, consolidated statement of financial position, our biggest line item there being our investment property, which consist of 254 properties. It's down slightly from ZAR 11.1 billion to ZAR 10.9 billion, and the major decrease is the fact that we disposed of 12 properties with a carrying value of ZAR 126 million for proceeds of ZAR 121 million. It's also been impacted by a small write-down in the value of our portfolio of ZAR 77 million, and I'll touch more on the valuation in the slides that follow. Our investments in joint ventures increased by ZAR 2.6 million, basically our share of our income in that joint venture as well as an increase in the underlying asset. And with our current assets, it really comprises our trade receivables at ZAR 135 million. That's already net of all our expected credit losses, and it also includes ZAR 159 million worth of cash at the end of February, very comparable to the prior year. And you look at our equity and liabilities, so our interest-bearing borrowings have increased considerably compared to the previous period, but that is really just a function of the refinancing of debt that is going to mature at the end of August 2022, which we've successfully refinanced for a further period and is now basically disclosed under the non-current borrowings. We've got a solid decrease in our interest rate derivatives from ZAR 85 million to ZAR 54 million, but the biggest impact is actually included under the Other in our current liabilities, where our derivatives in the prior year were ZAR 139 million included in the figure of ZAR 569 million. It's now reduced to ZAR 12 million included in the ZAR 417 million, so that really basically explains the decrease in our current liabilities. So that said, we've got a net equity of ZAR 6.089 billion. And when we take into account the adjustment for the derivatives and the dividend, which the Board has just declared, it gives a net asset value per share of ZAR 23.10 compared to ZAR 23.20 in the prior period. And the decrease is really just the adjustment of the derivatives, which was much higher in the prior period. Okay. Next, please. Right. Just a couple of highlights on our valuations. So we've got 254 properties in the Octodec portfolio. This were all internally valued, but out of those, 41 properties were valued externally. Now in February, happy to say that there were no significant differences between external and internal valuations. However, you do know that due to the short-term nature of our leases, we apply the capitalization of income method to value our properties. And that is impacted really by our capitalization rate of expense ratio as well as our long-range vacancy factor. Lana, if you can move to the next slide -- to the next slide? Thank you. Right. So these are some of the factors that go into our calculations. And as you can see from the slide, that our weighted average capitalization rate has really remained unchanged at 9.8% as well as our vacancy effect at 8.3%, and our expense ratio has ticked up slightly from 29.4% to 29.5%. So what's really contributed to the ZAR 77 million write-down is pressure on our rental income, which you have seen now from the presentation that Jeffrey and Charlene have gone through and explain the pressure on our rental income. Next slide, please. This is our cash flow analysis the period ended February 2022. And we've started off with ZAR 58 million at the beginning of the period. We've had strong operating cash flows of ZAR 403.5 billion, which we've used to repay our finance costs, ZAR 194 million, as well as the tax and the dividend relating to the prior period. We've also used some of those funds to invest into our properties in the form of the small refurbishments, which Charlene talked through, as well as a couple of TIs. We've also successfully recouped the loan advance to our JV partner of ZAR 73 million. And that, together with the proceeds on the disposal of the property, has been applied towards a reduction of our debt of ZAR 133 million, giving us ZAR 159 million at the end of the period. I just want to emphasize that one of DMTN notes with ZAR 100 million was refinanced on the 28th of February. That was obviously sitting in our bank and cash account, but that was used to repay debt on the first of March. So effectively, you would have seen a decrease in debt of ZAR 233 million and bank and cash of ZAR 59 million on the first half March. All right. Next slide, please. Just looking at our capital management, and Jeffrey's also touched on it. So our LTV has come down from 43.2% to 41%. Our hedging of our variable loans sitting at 76.7%, well within the guidance provided by our Board of 70% to 80%. Our interest cover ratio sitting at 2.25%, also way above the 1.82% required by our funders. And our unutilized banking facility sitting at ZAR 541.2 million at the end of February. That does include the ZAR 159 million worth of cash and bank balances. Okay. Next slide, please. All right. Okay. So this slide basically just depicts the funding split between our various funders. If you look at those pie charts, really no big change from one year to the other. But we have increased our exposure to ABSA slightly from 9.6% to 15.3%, and also a slight tick up in our DMTN market from 6.6% to 7.3%. And we continue to focus on diversifying our funders. Right. This slide is also with the loan expiry of our financial derivatives -- interest rate derivatives as well as our loans. As you can see there, our interest rate derivatives are sitting at 2.5 years, a little bit difficult to expand that period as most of -- we are within the range provided by the Board. But we are looking at opportunities when the interest rates improve in order to extend the expiry profile. With the loan expiry profile, we finished the year at 1.6 years. However, we -- we've just concluded the refinancing with Standard Bank with facilities that were going to mature at the end of August to the tune of ZAR 770 million. We've refinanced that for ZAR 844 million with maturity periods of 3 to 5 years. So if we take that into account, our loan expiry is then at 2.5 years. We're also negotiating the refinancing of -- negotiating for the ZAR 200 million loan to settle loans that are expiring in August '22. And also refinancing of loans expiring in 2023 for another period of 3 years. So if we take those factors into account, we would be increasing our expiry period considerably from the 2.5 years. All right. Next slide, please. With that, it brings me to the end of my presentation, and I'm going to hand over to you, Jeffrey. Thank you.

Thank you, Anabel. Although we remain very cautious for the outlook for financial year-end 2022, given the weak economic climate and uncertainty, there are signs of an improved trading environment and renewed tenant interest across all our sectors. The negative reversions are still present, but at a much slower rate. I think affordability is a major concern here. Our shopping centers are already performing well. Perhaps our strongest performing sector of them all, so there's no worries there. Hopefully, very shortly, we will be able to do something Killarney Mall to help add to this impetus. Next, please. A big question relating to distribution of earnings or payout ratios, these are obviously dependent on metro economic recovery, our capital requirements and liquidity, overall fund performance and the proceeds of the sale of our assets. And accordingly, given to -- given the uncertainty surrounding these issues, we are unfortunately not able to provide dividend guidance for financial year 2022. That really brings our presentation to the end. And we look forward to receiving your comments, your questions.

Good morning, everyone. The first question is from Tony Kirkman of Acme Financial Services. Question is, what is your targeted LTV ratio? Will you pay out at least 90% of distributable income when you have reached this ratio?

Anabel, you want to have a crack at that question?

Yes. All right. So yes, as you can see, we've managed to decrease it right down to 41%. And our short-term objective is obviously to apply the proceeds of the sale of a further couple of properties to reduce that further. So yes, if everything goes according to plan, we should be seeing a 40%, but our aim is really to just reduce it to under 40% in the medium term.

The next question is from Charles Boles of Titanium Capital. 92% of hotel rent expires in 2023. Given your comments about poor trading by hotels, do you expect these tenants to vacate?

Charlene, do you want to take at that one?

Yes. Jeffrey. So I think that refers to the one hotel we have at The Fields, which is the City Lodge lease agreement. We have extended lease agreement until the end of August this year, and we are busy with; negotiations with this group, and the early indication is that we will probably renew it for another 2 to 3 years. That's sort of the lease period that we're looking at in terms of a renewal. We're also looking at -- it would be a base of a reduced rental and then additional rental based on occupancy levels of the hotel. And that's sort of the status at the moment on that particular lease agreement.

Thanks, Charlene. The next question is from [ Anton de Rodeo of Carnation ] Two questions. One was around detail on the City Lodge extension, which I believe you've just answered. The second question was when it is -- when is it anticipated that the Capital Towers North will be vacated?

Yes. I will take that one. I -- we have been advised that there are 3 or 4 buildings that council would like to move, relocate. Capital Towers North is one of them. The reason being that they're not satisfied with the quality and accommodation. Our building is, however, in a lot better condition than that of our competitors. And it's for that reason that we've been further advised that they first want to relocate the other 3 buildings before they relocate ours. Now we do know that the council currently is currently cash strapped, and so relocation for them is a very, very difficult thing to do. So I'm anticipating, I don't know, at least another 2 years from council before we get notice of them wanting to move out of that building.

Jeffrey. The next question is also from [ Anton de Huda ] How have you treated the increase in storage charged by the city of Johannesburg? Has this passed on to tenants?

I will take that one. I think that where we can, we've passed it on. But I think the other -- the important issue for me here is the whole question of affordability. It doesn't help passing on certain of the big costs and not being able to recover it from the smaller tenants. Obviously, we've been dealing with the bigger tenants, we make sure that we recover what we will target [indiscernible].

Thanks, Jeffrey. The final question at this stage is from [ Kelly Ward of Atopy Investment Managers ] for you, probably Anabel. What is the quantum of tax losses utilized and what is remaining?

Brian. So we do have quite a lot of tax losses available in the group. Our group consists of a couple of subsidiaries and those tax losses are really ring-fencing a couple of entities, so it depends on the income generated by those particular entities that will impact the amount of tax losses that we can utilize. So at the moment, our estimate we around about ZAR 55 million worth of tax losses utilized, yes, and it should remain at that kind of level. And just in answering that, apologies, I didn't complete my answer with the very first question on the level of dividends. If you don't mind me going back there, we were asked the question of when are we going back to paying 90% of our dividends -- of our distributable income as a dividend. I'm not sure that we ever mentioned that we would be at 90%, but we certainly want to retain our REIT status, and we'll be paying, how can I say, dividends sufficient to meet the REIT status. And obviously, depending on the conditions, we will -- and depending on the outlook, we will be paying a dividend that keeps us there.

Anabel. There is one more question at this stage from Paulo De Almeida from Clearance Capital. Do you anticipate GCR to actually -- to move your credit rating outlook to stable in the coming months?

Well, based on our results and what we've done, I certainly hope so, but it's very difficult to say. We haven't engaged yet. I'm sure that they are listening. And hopefully, it's made the good impression.

I don't see any more questions on the chat, but let's perhaps give it 30 seconds and see whether anything else comes up. There is an additional question, everyone, again, from Charles Boles, Titanium. The municipal service increases over the years despite efforts by organizations such as [indiscernible] Super seem to continue unabated. Given the weak economic environment, surely, this continues to create income pressure. Any comment?

Let me take that one. It certainly does take -- does create the necessary pressure, but it is what we -- it is, we have to deal with it. I think ultimately, though, it's a question of affordability. We can keep passing these costs on to our tenants. But certainly, the smaller tenants, bigger tenants as well, you're going to get more and more pushback the tough conditions that we've been trading in at the moment.

Thanks, Jeffrey. We are wrapping up now. Any final questions before we close off? Again, I will give it a few seconds. Thank you, everybody and I think that concludes the Q&A. Jeff.