Octodec Investments Limited (OCT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. A warm welcome to the Octodec Results Presentation for the 6 months Ended 28th of February 2023. Today, I am joined by Anabel Vieira, our Financial Director; as well as Charlene Conradie, our Chief Operating Officer; and Linda Chabula, our Head of Department, Leasing. The format of today, very similar to what we've done in the past. I will introduce the business. I will then speak about some key performance indicators and then pass on to Charlene, who will talk to you, I'm sure you're all wanting to hear, about our residential sector that's performed well for us over the last 6 months, who will, in turn, pass on to Linda to talk about some commercial activities in the business. And then she, in turn, will pass on to Anabel to talk about the finances within the business. I will come back to talk a little bit about the outlook on the future. And hopefully, after this, we will all join again and talk -- answer any questions that you may have. I look forward to interacting with you then. Octodec is a property portfolio located well diversified and well balanced across all property sectors. We are specialists in investing in mixed-use properties. Next, please. Some of the performance indicators I'm sure you're going to find interesting: our rental income, up 3.2%; like-for-like growth, what I mean here is we've adjusted for buildings that we've sold along the year, up by 4.1%; our distributable income after tax, ZAR 234 million, an increase of 10.7%; attributable income percent -- per share, at 0.881, an increase of 10.7%; cash generated from activities before dividend payment, ZAR 239 million, up by 23%; all-in weighted average cost of funding, 9%; our loan-to-value coming down slightly from 39.7% down to 38.8%; net asset value increasing slightly by 3.1% (sic) [ 3.9% ] up to ZAR 24.1 (sic) [ ZAR 24.01 ]; and the big one, our dividend per share, up 20% to ZAR 0.60 per share. Our rental income, very similar -- analysis of our rental income, very similar to that in the past. I'm not going to go through the detail, but I want to advise that -- well, I'm happy to advise that a big chunk of income, in fact, the majority of the income, 32.8% in -- is sitting in residential, and the further 24.1% sitting in retail, both sectors performing particularly well. With that, I'm going to pass on to Charlene Conradie to talk about residential.

Good morning, everyone. If we can just move on, on the slide. Okay. Thank you. All right. So on this slide, you can just see a little bit more information about the residential portfolio, specifically the size and the 2 areas that we operate in, being the CBDs of Johannesburg and Tshwane. If we can move on, thank you. The highlight for the residential portfolio is that we achieved a 10.4% like-for-like rental growth. This was mainly achieved due to a significant decrease in vacancies. As you can see, our vacancies at the end of February was at 6.9% compared to 15.4% in February 2022. At the bottom of the slide, you can see how our vacancies decreased in the different areas that we operate in, being Tshwane, Hatfield, Johannesburg and then also Kempton Place. If we can move on. So as I've said, the highlight being the 10.4% like-for-like growth in rental, except for the vacancies that decreased significantly, we have also started to increase our market rentals towards the end of 2022. And this also had a small impact on this growth that we've achieved. And The Fields, as you know, is Octodec's largest asset and situated in Hatfield, which is mainly occupied by students. Our vacancies have remained quite similar to last year, February 2022. But during the month of February, NSFAS announced that they will be decreasing their accommodation allowance from ZAR 60,000 annually to ZAR 45,000 annually. This caused a lot of uncertainty in the student market. And after February 2023, our vacancies have not decreased in line with what we anticipated initially. How we are mitigating against this is we have decreased our market rentals on selected units at The Fields in order to attract students who may live for the same amount in rent in line with the allowance at less desirable buildings. We have also increased our marketing campaigns and efforts to promote the special rates that we have now in place to attract the students to our building in Hatfield. At Kempton Place, our vacancies are stable. And then just lastly, we are still continuing to receive leasing inquiries through all our digital platforms, which helps us to decrease our vacancies and manage them at a stable level. On this slide, you can see some detail on our tenant profile analysis, which we always provide. In terms of the Joburg CBD, as I previously reported, we have achieved equilibrium between the supply and demand, and our vacancies there are very stable. We have also started with the refurbishment of the common area and amenities at one of our Johannesburg buildings called Vuselela Place. Then lastly, in terms of the prospects for the residential portfolio, based on the success achieved in our shared and semi-furnished accommodation at Nedbank Plaza as well as The Fields, we are exploring conversion opportunities in the current portfolio to provide a different product to the lower alleys in markets but at the same quality that we are well known for. So it will be a shared offering with shared amenities. In terms of WiFi, we've completed the rollout to all our larger buildings in the portfolio. And then we've also accelerated the rollout of our cashless WashBars, which is very popular and very successful value-add to our tenants. And that concludes the residential overview. I'm going to hand over to Linda to take us through commercial. Thank you.

Thank you, Charlene. Good morning, everyone. It is my pleasure to take you through our commercial portfolio performance for the period February 2023. We will start with the shopping centers. As reflected in terms of GLA, we will see -- we see a slight increase in terms of the GLA. And I think it's important for us to report that in order to improve on our reporting, we've reclassified spaces that would have previously fallen under specialized and other. And we've consolidated them into the 5 main sectors. In terms of our rental income growth, we're seeing a like-for-like growth at 3.6%. In terms of vacancies, we're seeing a nice reduction in terms of our vacancies from 7.4% at the comparable period in 2022 to 6.4%. Our centers are located within the Tshwane and Pretoria regions. With 4 of the centers in Tshwane, these assets have shown a very strong performance, and they are sitting at a combined occupancy rate of 99.6%. And this is exciting because the -- that contributed to the combined rental income growth of 4.5%. One of the exciting news in terms of Waverley Plaza, we are at an advanced stage in negotiations with Woolworths for a new Woolworths Edit shop at the center. Same as with Dischem, who will be increasing their space from about 400 square meters to double the size. We've also signed a new Pep Home, which is 296 square meters, replacing it -- replacing a nonperforming national retailer with a Pep Home, and this is exciting for the center. In terms of Blaauw Village and solar, it's exciting for us that we have stepped into the additional power installation that has been finalized in terms of the design aspects and we anticipate to start installation in June 2023. Thank you, [ Ilona ]. We -- as mentioned previously, our centers are spread between Tshwane and Joburg. The 2 centers that are located in the Joburg region, it's Woodmead Value Mart, which is sitting at a growth of 5.9% in terms of rental income and sitting at 100%. It's 100% let. This is a very attractive center to both national brands and international brands, and it's also attractive to the public in general. And mainly because of the authentic brands sold at the center at great value. The design aspects for solar power installation have been finalized, and we anticipate once again to start with the installation in June 2023. In terms of Killarney Mall, the rental income increased by 5.3%. We are at an advanced stage in terms of redevelopment plans in this particular center, redevelopment with the aim of improving on our tenant mix, increasing the space for the anchor tenant; also, looking at the space that the banks are currently occupying and planning in terms of reduction in that space; and also improving the food access into the center for the shoppers to improve occupancy. Coming to retail shops. We once again see a rental income growth like-for-like at 3.2%. These are shops that are mainly located in the Joburg and Pretoria CBDs. The vacancies, we're seeing a slight increase from 17.8% to 19.4%. And this one remain affected by the banks that have since reduced their space post August 2022. In terms of retail shops in the CBDs, they are still in demand. There's still a blast on the streets. And mainly because these are convenient locations with high foot traffic. And this is made possible by the fact that there's a number of sectors that operate within the CBDs, the religious, educational sectors, the government and parastatals. And also, because the CBDs are destination points and also connecting roads into other areas within the province. We find that there is -- as we've mentioned, that there is continued interest in the CBDs. We see this reflected in us having signed and concluded the lease with shop -- with OK Furniture for 847 square meters at Shoprite Lilian Ngoyi Building. We've also signed a lease with Dunns at Arlington House in the Joburg CBD and Education Centre in the Joburg CBD. In terms of our strategic capital projects, we take pleasure in reporting that the building upgrade at Shoprite was concluded and completed successfully in December 2022. And a 10-year lease renewal effective from October 2022 was signed with Shoprite. And Shoprite is trading and continue to trade well. In terms of offices, once again, we're seeing rental income having decrease on like-for-like at 5.3%. It's important also to mention, ladies and gentlemen, that their vacancies in terms of the offices slightly reduced at 0.3%. And this is a phenomenon that has been experienced throughout the country. However, having said that, we continue to look at opportunities to turn things around in terms of offices knowing that -- knowing the challenges that we face. Also in this space, we have SMMEs occupying 53.3% of the office sector and the balance thereof being let to government and parastatals. Thank you, [ Ilona ]. As mentioned, the space is occupied by government and parastatals together with SMMEs. The tenants continue to be under pressure. However, the occupancy levels remain stable, as reflected in the previous slide. In terms of the working model, they have adopted a hybrid working model. And we also are pleased to report that there's still continued demand for smaller offices. In terms of continued improvement in the sector, we've signed 2 major leases with government department and the parastatal, approximately 2,000 square meters with the parastatal and approximately 800 square meters with government departments. It is important also for us to report that there's continued requirements from departments for additional space, and we continue to engage with them in this regard, as reflected in the 2 leases that have been signed post 2022 August. In terms of our strategic capital projects in this sector, we -- in trying to improve the occupancy and also trying to improve the rental income within the office sector, we are currently on site in terms of the redevelopment and conversion of Ina Building to medical suites. And this is informed by the increased demand for medical suites in an adjacent building at Louis Pasteur Medical building. The anticipated completion date for this project is January 2024. This is exciting for us, ladies and gentlemen, because it gives us an opportunity to improve on the occupancy and rental income, as mentioned before. Thanks, [ Ilona ]. In terms of the leases with government, we once again report that they have adopted a hybrid working model. The operating environment is challenging, however, it is manageable. And this is made possible by the strong relationships that we hold with the government departments and parastatals. In terms of their payment obligations, they continue to meet those without any problems. The top 6 of our government and parastatals -- sorry, [ Ilona ] -- are reflected in the slide. We can go to the next one. Thanks, [ Ilona ]. In terms of our industrial sector, we're seeing a great performance, as reflected in our rental income increase on like-for-like at 7.8%, with the total vacancies and core vacancies have been reduced in this current period compared to the previous period in 2022. We still are proud that we provide affordable rental options to the market. We provide security and access control to industrial parks. And this is what is attractive to the market as well. We're also seeing our renewals achieving inflationary increases of 7% with escalations of between 6% to 7%, with arrears under control and stable. And as reflected in the previous slide and as alluded to by Jeffrey, there's continued demand in the space, and our tenants are happy with the products that we provide to the market. In terms of the strategic projects, we're happy to announce that the installation of solar panels at The Tannery have been completed. And we're planning an installation at Sildale Industrial Park. Thanks, [ Ilona ]. This next slide speaks to the core vacancies and total vacancies and the picture, as alluded to in the previous slides. Thanks, [ Ilona ]. In terms of the lease expiry profile, as reflected in this slide, we want to report that we are not concerned about the picture that we see on the slide, and we will speak to the reasons thereof in this next slide. Thanks, [ Ilona ]. The reason why we mentioned our comfort with the lease expiry profile, this is based -- the profile thereof is based and is in line with historical trends and expectations. You will find that in terms of the average stay of our residential tenants, we are at 23.3 months; with the commercial tenants, the retail shopping centers' tenants staying in excess of 5 years; together with the retail shops in the CBDs staying in excess of 5 years in our premises, offices in excess of 3 years and industrial setting in excess of 40 months. We see that also with national and retail tenants, they sign between 10 -- 3 to 10 years in terms of their lease terms. Thanks, [ Ilona ].

In terms of leases that are greater than 3,000 square meters that have expired pre-Feb 2023, the lease at Govpret, lease terms for this lease have been concluded at a rent freeze in year 1 of the lease of the renewal period escalating at 6%, and this would be for a 3-year lease. We are waiting a signed lease. In terms of Wits Technikon, we've renewed the lease for 5 years at a rent reduction of 25%. We previously record that -- or you remember that we've reported that we were expecting a 50% reduction for this lease. However, we've agreed only 25% reduction. We can go to the next slide. In terms of the 2 public works leases, which is the Dynamech Office Park and 28 Church Square, the offers have been made to the tenant, and they are -- their Board is currently renewing -- reviewing the leases. And they are under consideration for 3-year leases. The Killarney Mall Pick n Pay lease has been renewed for 5 years at a rent freeze in year 1 of the renewal period, escalating in line with CPI. In terms of the CPA House lease with City Property, the lease is to be renewed following the conclusion of the management agreement. At Scott's Corner, Shoprite Checkers, 4,489 square meters of retail space have been renewed for 5 years, commencing at a rent freeze in year 1 of the renewal period, escalating at CPI. In terms of Gezina, Mediapost, we've done an early renewal until June 2028, and it's escalating at CPI. Looking into the reversions by sector, I will speak to the reversions as they relate to renewals in the retail street shops. We've seen a negative in the reversion at 12.5%, and this is on the main, between the gym and the hotels. However, having said that, we're pleased to announce that we are now billing them at the turnover. And where they had started at 30% occupancy, they have now increased that occupancy to about 55%. And as I've mentioned before, we're billing at turnover. Thanks, [ Ilona ]. In terms of our collections. In terms of the total collections, we're sitting at 98%, 97.9% to be exact. In terms of the split between residential and commercial, we're sitting at 95.6% on residential and 98.6% for commercial. Thank you very much, ladies and gentlemen. Over to you, Anabel.

Thank you, Linda. Good morning, ladies and gentlemen. I'm happy to take you through the financial results of Octodec, and I'm going to start with the distributable earnings. Jeffrey has highlighted a couple of the line items already in his opening statement, but I will just try and add some more clarity to this. So our revenue increased by 2.2% to ZAR 974 million compared to the same period last year, bearing in mind that we do come from a low period of first 6 months of the last year. Our property operating expenses increased by 1.1%. So we've managed to contain this, and the small increase in property expenses is really attributable to the lower assessment rates and some utility costs in terms of electricity and water. So in the prior year, we were killing a number of municipal valuations, and we did provide or pay -- for the worst-possible scenario. We were successful in our appeals. So the benefit of those credits have come through now in the first 6 months, and that has helped us contain those property costs. The same thing applies to some water and electricity billings, where councils having incorrectly billed us. And we were successful in reversing those overbillings as well. We've also benefited from lower bad debts compared to the same period last year. So that altogether generated a lower increase in our property expenses. That has obviously been offset by some high costs such as the generator costs. Cost of fuel and maintaining our generators on has, I would say, creeped up, and that is also included in that cost. That's given us a net property income of ZAR 471 million, a 5.5% increase on last year. Our administrative and corporate costs have also increased slightly to 21.3 -- by 21.3%. And that is really due to the fact that included in our corporate expenses is a ZAR 6.7 million incentive fee paid to City Property for them having to achieve the hurdle rate in the prior year. So if we exclude that from that figure, basically, our administrative and corporate expenses are increasing in line with inflation of 6%. These are obviously all our professional services, which normally carry a much-higher level -- a higher rate of inflation. And that gives us distributable profit before finance costs of ZAR 426 million and a 4.1% increase on the prior period. We've managed to contain our finance costs with a small increase of 3.2% up to ZAR 189 million. And this is really due to the higher interest rate environment, which is impacted by our unhedged portion of our portfolio. So we're hedging about 80.6% at the end of February. And basically throughout the 6 months, we've carried a 80% hedge, but 20% of that is exposed. And with the increase in interest rates, that's had an impact on our finance costs. And our distributable profit before and after tax. Before tax, at ZAR 236 million with a small provision for income tax, leaving us with distributable income after tax of ZAR 234.5 million or ZAR 0.881 per share compared to the ZAR 0.796 per share for last year, an increase of 10.7% on the prior period. Next, [ Ilona ]. Looking at our balance sheet, our biggest asset obviously on our balance sheet is our investment property portfolio, and that's gone up slightly from ZAR 10.9 billion to ZAR 11 billion. And basically, the increase is really a result of our revaluation of the portfolio, which went up by 1.2%. Other than that disposals and capital developments have really canceled out, so the benefits coming through from the revaluation of the portfolio. And current assets, slightly up from ZAR 261 million to ZAR 280 million. And that includes some derivatives there which have really changed from a liability to a current asset as a result of the higher interest rate environment. Next, [ Ilona ]. Looking at the balance sheet. The biggest component of our debt is our interest-bearing borrowings, and there's not been a major change other than just a reclassification from noncurrent to current. Otherwise, the amounts moved slightly by ZAR 13 million, which is really a repayment of borrowing costs. I will deal with the refinancing aspects in the following slides. But other than that, our other big line item on our balance sheet is our trade and other payables, and that really contains our tenant deposits to the amount of about ZAR 85 million, also consist of payments in advance from our tenants of ZAR 48 million. And the rest is attributable to trade and other payables, a big chunk of it being related to our CapEx expenditure and tenant installations that were due at the end of the period. And with that, our equity is sitting at ZAR 6.5 million range. And if we calculate our net asset value in terms of SA REIT best practice, it comes to ZAR 0.2401 (sic) [ ZAR 24.01 ] compared to the ZAR 0.2328 (sic) [ ZAR 23.28 ] of a similar period last year, so the small increase in the NAV. Thank you. So in terms of our investment property valuation, so Octodec consists of a portfolio of 240 buildings. Each 6 months, these buildings are internally valued and once thereof is externally valued every year. And we also split that valuation between August and February. So in the current cycle, 49 properties were externally valued with a value of ZAR 1.4 billion. That represents about 12.3% of our portfolio. So as I mentioned earlier, our valuations did increase slightly, and that is really on the basis of increased rentals. So as our increased leases come through, that has really played into our valuation and resulted in the small increase. Other inputs into our valuation is obviously our capitalization rate and our long-range vacancy factor as well as our expense ratio. There's been -- those remain pretty constant, with our vacancy factor basically remaining unchanged from August to now. You can see that our vacancies, based on the other graphs that Linda presented earlier on, haven't really changed drastically. So that's remained unchanged. Our cap rates prices remained really unchanged other than maybe a small factor resulting from our sold buildings, which carried a high cap rate. And our expense ratio has just changed 1 or 2 basis points upwards. Yes. Looking at our cash flow. We started the year with ZAR 66.5 billion -- ZAR 66.5 million on hand. And we landed up with ZAR 94 million of cash available at the end of the period. And this was the result of cash from operations of ZAR 428.7 million. From there, we've paid our finance costs of ZAR 189 million. We've also paid a dividend relating to the prior period in November last year amounting to ZAR 213 million. The proceeds and the reinvestment into our property portfolio, so we sold 5 buildings for a tune of ZAR 76 million. And we've currently spent, so not incurred but spent ZAR 65 million on some of our developments, which obviously included our big Shoprite development. And there's a little bit of movement in our net borrowings of ZAR 13 million, leaving us with ZAR 94 million at the end of February. Looking at our borrowings. Our borrowings really consist of bank loans, reaching up almost ZAR 3.7 million -- ZAR 3.7 billion. And the rest is in our DMTN market with unsecured loans at ZAR 330 million and secured loans of ZAR 370 million and with a weighted borrowing cost of 9.5% but, obviously, with a hedging impact reducing it by 0.5% with our total cost of borrowings at 9%. Our LTV has improved slightly from 39.7% to 38.8%. As I mentioned earlier, obviously, that is on the strength of the positive revaluation of our portfolio. And our interest cover ratio at the end of February is at 2.28x, also very well within our covenant levels. Looking at our funding split. So we are well diversified between 3 major lenders, being Nedbank, Standard Bank and ABSA, with Nedbank and Standard Bank being almost on par and ABSA. And the balance are attributable to the DMTN market. We're also looking at, obviously, refinancing our short-term debt. So all our debt with Nedbank is currently being refinanced. So we currently have ZAR 2 million facilities or approximately that. And we're looking at refinancing these facilities for a period between 2 to 5 years. Also, got a loan and a DMTN note held by Standard Bank and also looking at refinancing this, which is almost finalized, with a period between 4 and 5 years. And as our DMTN notes mature, we also roll them. That is obviously depending on pricing at that point in time. So if we take our refinancing into account, we're looking at 2.9 years weighted average expiry period, which is currently sitting at 1.7. But having finalized all of this, we will be sitting at 2.9 years. We're also looking at our hedging. Obviously, our financing is now extended to 2028, so we're looking at opportunities of also extending our hedging. We've currently purchased the forward starting swap of ZAR 500 million replace one of the swaps that's maturing in October 2023, and that will increase our period to 2 years. But we keep on actively looking at this obviously with interest rates currently quite high. It's not providing us with good opportunities, but we are obviously always looking at those opportunities to see where we can hedge accordingly. Right. And with that, I come to the end of my presentation, and I'm going to hand over to Jeffrey to deal with the outlook and some closing remarks. Thank you very much.

Thank you very much. I've deliberately chosen to not focus on the negative. We are, as a management team, acutely aware of all the headwinds that we face, but it's truly better for us as a team to focus on those positives that we can do. In this regard, I'm pleased once again with these results. And when one that breaks the portfolio down into the various sectors, I think that the team responsible for each sector has done particularly well. I -- some thoughts about residential. At one stage, we were the market leaders in the city accommodation. I think the competition increased. And as a result, we have lost that position. But I think we are -- as the new stuff came back onto the market and was marked up, I think we're regaining our position as market leaders. I think a lot of work has been done to add, to introduce new value-adds into our product offering. And these will include shared accommodation, WashBars, WiFi. And I think the exciting new one that we are busy with is trying to introduce something into the market that the -- so that the entry-level point is a lot lower or slightly lower than currently what is the case. I think that there's a big market out there that are bankable and able to do -- to rent from us on a sustainable level. This process is fairly far advanced, and we hope to be able to release this into the market in due course. My thoughts around the shopping centers. I think all our shopping centers are good. Our demand is continuous. We are aware through our various systems on the time of inquiries that are coming in for our shopping centers. And I think that's very good. The one problem that we have to deal with is Killarney Mall. We have heard as a management team, we have heard of the concerns of the various investors out there that something needs to be done. I'm not saying we're going to get to the answer, but I think we are very close to finding an answer. Once we have this and it's fully clustered and we can assess the viability of this kind of expenditure, we will once again reduce it into the market. Generally, when I started off, I mentioned to you people that I -- there's a real risk of living in South Africa at the moment, what can become very understandably so, I guess, very negative. But that becomes self-prophesizing in the sense that one then doesn't look at new opportunities which are out there, which are always out there. And as a result, we formed a little task team that's pulled out and dusted off all the old developments that potentially we thought of a few months prior to COVID. And we're going through them one by one to try to find some low-hanging fruit. In this regard, I'm pleased to announce that we have a building, we call it Ina Building, located adjacent to our Louis Pasteur Building, which is it is an empty building previously occupied by government, approximately 4,000 square meters in size. And this is currently, we're on site with the contractors converting this empty building into a medical facility -- medical suites rather, and linking the 2 buildings via bridges, 2 bridges that will enable easy movement between the 2 buildings. This was done on the strength of our knowledge of what happens in our Louis Pasteur Building. We know that there's huge demand for medical suites and hope to have this ready for occupation by the end of the year, to start letting at the beginning of 2024. The other one I want to comment on, which we agonized over a long time, I think, and that was the revamp of our Shoprite Checkers. And this has been done. Certainly, the first phase has been done, and things went off very well. So my message out there is that we need to not be negative. We need to start looking at some opportunities but very mindful of some of the headwinds out there and not do anything that will put the current balance sheet of Octodec at risk. I think the fact that Octodec has sold a good number of its buildings over the last 2 to 3 years is positive, and in a way, that's given us a little bit of firepower to go ahead and tackle some of the opportunities Octodec has within its portfolio. So on that note, I want to thank you for joining us this morning. Thank you for your attendance. And hope to engage with you right now. I have the team with me that are responsible for these results answer any questions that you may have relating to these results as well as some outlook on the future. When I thought about my outlook on the future, I'm not running away from the fact of how difficult it is in this -- at the moment to predict because I don't know what this evening will bring, what news this evening will bring. I don't know what tomorrow will bring. But once again, I'm really -- I think we need to be positive and do what we can where we can. Thank you.

Thank you, Jeffrey. The first question, if I may jump straight into it, is from Charles Boles, Titanium Capital. If you could just expand a bit and give some more clarity on plans for Killarney Mall. Expanding an anchor seems unlikely to remedy a mall with high vacancies and footfall. Perhaps you can give a bit more color on that process.

Yes. Thank you, Charles. I can't disagree with you, but I wanted to tell you this. On Sunday afternoon at 3:00, I was in Killarney Mall myself and struggled to find parking. Yes, it is true, it was Mother's Day, but it -- that old lady still has got a lot of stuff inside. And we've just got to work out what it is to make her sing. And I don't want to go through detail because we haven't engaged properly with retailers concerned, but some of the problems that we've identified through research, I professionally paid for research as well as that of our own property management team, is the following. I still think we -- it is located in the high LSM node. I think that access into the center of the highway is still good. But the question then remains is why are we not getting the kind of footfall that we want to get. I agree with the notion that we need to talk to 1 or 2 of those retailers to expand their footprint. If we were able to get this right, well, it can solve another problem of ours. It is not a secret in property circles that all the banks are reducing their footprint as a result of the digitalization of their product offerings. They no longer need these big-format branches the way they did in the past. And the possibility exists to shrink those buildings and take on and move some bigger tenants into the space. The other area where I do think we have identified and needs a little bit of attention is the access -- foot access from Killarney Mall, where we estimate approximately 2,000 people are living in those flats. How do we make access for them a lot easier than currently is in that case. But once again, as and when these answers to these questions have been answered, we will advise accordingly. I sincerely hope I've answered your question. Not sure I am in agreement with your contention that footfall is necessarily always low.

Thanks, Jeffrey. Another question from [ Aldi ] of Selandia Capital. Perhaps you, Anabel, can tackle this. The Killarney Mall vacancy sits at 16%. How does that compare to the long-range vacancy factor used to calculate its valuation that Octodec carries as part of its NAV calculations?

Thank you, Bryan. So the 2 are related, but they're also sort of not completely the same because in terms of our valuations, we don't look at the factoring term, but we've got to look at the long term. We don't just look at the current vacancy, we project what would the vacancy be within the next 5 years. So applying almost the same model as you do in a DCF with your current-year high vacancies and lower down. So it is slightly lower than that. I haven't got the figure in front of me at the moment to give you the exact answer on which figure we've used, but we've certainly used a much higher level than what is our weighted average, yes.

Thank you, Anabel. The next question from [ Aldi] again. You've said that at this stage, you will not be providing any future guidance. Can you perhaps give any indication around distributable income and dividends for the second half of FY '23 relative to the previous year?

So we -- look, we've had a very good first 6 months. And we really -- how can I say, we hope for of another second half that is good. But we live in very uncertain times. And for as much as one day we're optimistic, the next day, we do see some dark clouds. And if it's not, how can I say, a load shedding, it's a rocking ship that stopped on our shores and changes the whole picture. So there is, at the moment, a lot of political uncertainty, poor economic environment, and it's very difficult to give exact guidance on what our figures are going to be in August under the current circumstances. But one thing I can say is that Octodec's got a strong balance sheet and that we are working hard in terms of trying to maintain our figures and our good occupancies. And I'm sure that, that will bring forward some very good results in August.

Thank you, Anabel. Next question from [ Marcus ] is on the ZAR 6.7 million incentive paid to City Property, can we expect a similar payment in the second half? And just another question on that. This is from Luqman from Ninety One. What was the performance hurdle achieved by City Property to earn that performance fee?

So in terms of the asset and property management agreement between City Property and Octodec, City Property was entitled to an incentive bonus if its results for the year exceeded its budgeted income, distributable income by more than 2%. So if it was between 1% and 2%, it would have been ZAR 3 million incentive. And if it was between -- greater than 2%, it was double the ZAR 3 million, which brought us to ZAR 6 million. That ZAR 6 million was established at the date of signing the agreement in 2018 and would have escalated with CPI. And as a result, with the CPI escalation, that brought us closer to ZAR 6.7 million bonus, okay? And this was really the very first time during the 5-year period that City Property earned its hurdle rate.

Thank you, Anabel.