Octodec Investments Limited (OCT) Earnings Call Transcript & Summary

[Audio Gap] hosting today, but over to you, Jeffrey. Thank you so much.

Good morning, everybody. A warm welcome to this Octodec Investments Pre-close for the financial year end 31 August 2023. Anabel, I'm not seeing the slide. Thank you. If you would flip on. Octodec at a glance, I -- not much to say. I'm assuming most of you guys have seen Octodec not that much has happened in Octodec. Except to say that it is a well-diversified portfolio, although not diversified in terms of its geographical location. It is certainly diversified in the various sectors in which it operates. I will proceed to go through at a high level of the various sectors and what we're seeing and then I'm going to get the team to get into some of the granular detail relating to -- relating to each one of those sectors. We could flip on to overview for the period. It's a tough situation out there. We -- the market, the economy is still very hard and not easy to beat that as a property fund. However, having said that, I think that the portfolio has shown to be in terms of its rentals fairly resilient and that the rentals are holding up. But what is under immense pressure is our costs. We're doing our best to maintain the costs but not easy to manage costs such as those administered costs as -- put into us by the city's councils of both Johannesburg and Pretoria. I want to perhaps spend a little bit more time, which I will do at the end of my short introduction. I'm sure you're all interested in it to talk about the gas explosion. Pleased to report that we are largely unaffected by the gas explosion in Johannesburg and CBD. And I think some positives have come out of that, which I would like to talk to, but I would do that later on. I have a special slide we've put together for this. When one goes through tough times like we are now, it is really dangerous in my view anyway, to become essentially a rent collector and just focus on disposing of as many assets as you possibly can. I think that during -- even during tough times, I just -- one has to look for opportunities out there. We've -- and so a lot of my time is now being allocated to having a look at some of those opportunities that may be Octodec take. I'm not, for 1 minute, suggesting that we need to spend, bring out the big [ Octodec chip ] where we can find short wins, easy short wins, this is got to be pursued. We recently, as mentioned to you previously, completed the development of -- or rather we commenced the development of a vacant office block in Pretoria adjacent to the Louis Pasteur Hospital. The development is going well. We're spending approximately ZAR 70 million in there. And in early indications is that leasing of this medical center, it will be called Health Connect, recent indications are that -- the indications are that we are -- are going to have no problem leasing this once it becomes available, which will be early February, late January of next year. We've also now accelerated our investment into solar energy with three of our buildings where we can store solar, well in progress, two of which will be finished by the end of the month and the third one at the end of September. Moving on to our sectors. I want to give you a very short brief overview. I've mentioned before, I want the team to give you their insights some bit more detail of the various sectors. But my overview of how we're performing in each one of the sectors in which we operate. Firstly, starting off with residential. Residential is, I think, the top performer, the top-performing sector. I think many people that I talked to are recognizing this now. COVID was a -- it's a huge setback, we had a lot of people left home, but pleased to report that a lot of people are moving back into the sector and the area in which we impact into the flat and the area in which we are -- we operate. Mainly in the CBD, I see no major development. They all wanted to do [indiscernible] top investments that appeared, but it's not major certainly, given the demand relative to the supply, we're not in an oversupplied situation. So demand in the sector remains very strong. Vacancies have reduced to 3% in our residential sector. That number excludes the fields, which is a student accommodation. But on the rest, it's very good, 3%, I consider almost pretty close to fully let because it's going to always be some form of churn, but in Hatfield a student accommodation, which we anticipate -- had anticipated would be strong, has been negatively impacted by NSFAS, that's the government -- assisting with -- the government assistance for students requiring accommodation. And they've reduced their -- as you all know, at this stage, the accommodation from ZAR 60,000 to ZAR 45,000 per annum for the 10 months in which [ they're in ] occupation. Moving -- but surely we'll deal with a lot more detail than I've just given you. Moving on to industrial. Industrial is strong. Vacancies are slowly but surely coming down like residential, industrial rentals per square meters have moved nicely in the right direction. Shopping centers -- our shopping centers continue to perform exceptionally well. For those that don't know the portfolio, that really -- the convenience centers located primarily in [Audio Gap] struggling at the moment but that's not more. Core inner-city shops, very happy with performance. But just anecdotally, I was asked about yesterday that -- the day before yesterday have the Johannesburg and Pretoria and very little evidence of any problems within either CBD in the core areas. If it is true that outside those core areas, demand is tough and there is evidence of some 1 or 2 small vacancies. I think, once again, I don't want to refer too much about COVID, but as a result of COVID, our tenants in the main [indiscernible], not in the main, but tenants got used this as an opportunity to leeway their position and did push our rentals down. And so we had a situation where rentals were or reversions were at a slightly lower rental, but pleased to report that we are pushing back and no longer accepting some of these big decreases that some of the tenants are asking for now. I'm pleased to report that when we do push back, we do come to a more amicable agreement. I want to speak a little bit about offices. Offices are tough. And primarily, well, 55% occupied by government. Government remains a tricky customer to handle. But so far, so good. Nothing and towards and maybe Linda will talk a little bit about government leasing, it's been tough, but we seem to be managing. But now I want to move on to the explosion in the Johannesburg CBD Lilian Ngoyi. When the explosion happened, I want to say, perhaps I should start off by saying the following in no ways could anybody have anticipated. This explosion that came to -- came as a shock to everybody. But I can give you the assurance on the following, that the team that I work with were very fast into action. We opened up one of our vacant office blocks and escorted with security guards, all those people that was -- that felt insecure secure in their residential apartments and into the security blocks, our team went out and got them basic food and some blankets and turned on our air conditioning system but it was warm. And settle things very carefully -- very quickly. None of our attendants were injured in this bomb blast. Subsequent to the bomb blast, we obviously were in touch with our insurance people as well as our engineers. Our engineers are advising us of no evidence of any damage to the building, and the insurance people are aware of what has happened. We need to still gather more information until we're certain as to when to trigger if in any at all on the insurance policies that we do have in place. As late as Tuesday, the 22nd of this month. We met with the Department of Economic Affairs -- Economic Development, rather. And the following is it -- I'm going to give you a brief precis of what happened there and the government councilor talking about giving a concession of zero assessment rates. The start of the repair will commence sometime in March of early next year. And it is anticipated by then that the repair will last 18 months. Rubbish removal is a problem because the -- when the bomb blast happened, Council went and they put barbed wire to fence of the damaged areas. And so our cleaners cannot climb over this fence and clean the area. And a lot of people are throwing the rubbish over the fence over the barbed wire. So it doesn't look very good at the moment. Council have undertaken to remove the barbed wire shortly and put in a proper fence, so that our cleaners, government cleaners -- council cleaners rather have the ability to enter into the area and cleanup. Anecdotally, which I was pleased to see was footfall that certainly return to the areas -- to the affected areas. Our vacancies, I believe, are reasonable and brisk, area almost adjacent to the bomb blast, 10 units. And a lot of these place, it's only 18. Sorry, I think I used the word bomb blast. It's not a bomb blast, it's a gas explosion. I -- yes, so given what is -- has happened, I don't think that -- I think we must be grateful for small mercies and I'm very happy that council have done whatever they can do to remedy a very, very difficult situation. What will happen in the future where it will take 18 months, and they will start on the 15th of March. Next year, well, only time will tell. Further pleased to report that power and water has been restored to the buildings, so we don't have the pressure of a lack of service delivery on those particular buildings. One of the suggestions made by council to a few property managers is that they're considering pedestrianizing the street, but recognize that whether it's pedestrianize or whether [indiscernible] traffic back on those roads. Those roads need to be properly repaired. Yes. So that's all I really want to say, I've included a little planned street map showing where our buildings are. But the 2 buildings -- where the buildings are relative to Lilian Ngoyi. The 2 buildings that did get it were primarily did suffer, were primarily Brisk as well as Lara's place. The rest appeared to be unaffected by the explosion. I don't know what else to tell you, but obviously, something significant should happen, we would make sure that this was made available to the [indiscernible] as and when something happened. If we move on, right. I'm now going to get into some of the detail, we're now going to get into some more detail on the portfolio performance, and I'm going to ask Charlene to pick up from me and discuss residential with you.

Thank you, Jeffrey. Good morning, everyone. Okay. So let's start right getting into it. So if you look at the slide, you can see that on average, our residential vacancies for this period has been significantly lower than the previous period. And to such an extent as Jeffrey said that we achieved a 3% vacancy at the end of July, but this is, of course, excluding The Fields, which I'll talk to in the next slide. Because of our low vacancies, we have managed to increase our rentals for new deals as well as renewals and yearly renewals being done on existing tenants, which is very positive. We have also rolled out more WashBars, and this is increasingly popular, and it also assists in decreasing our vacancies at the buildings where they are being implemented. We have also completed the refurbishment of the common areas and amenities at Vuselela Place and we have another refurbishment similar planned for Ricci's Place. Ricci's which is one of our bigger buildings in Johannesburg, and it's got about 280 units, and this will be done in the new financial year. These initiatives, these refurbishment rent initiatives we undertake to make sure that our buildings remain relevant and attractive so that we can protect our market share and our competitive advantage in specifically Joburg as well. If we continue. Okay. So on this slide, you can see the detail of the vacancies in the different areas. And as you can see, the Hatfield where we have 1 building The Fields and the vacancies there are higher than what we've anticipated because of the decrease in the NSFAS allowance at the beginning of the year. We have, during the year, decreased our rentals to attract NSFAS students. But unfortunately, once students decided at the beginning of the year, where they want to stay, there's not a lot of movement during the remaining part of the academic year. We are actively engaging with industry peers to [indiscernible] with NSFAS to get an understanding of how the accommodation allowance will be impacted in 2024. However, there is no information available at this stage. In conclusion, I just want to also give a little bit of more color as to The Fields. So The Fields is a mixed-use precinct. It consists of accommodation of course, which is the biggest portion, but there's also retail, there's offices, there's gym, there's 2 hotels. And on the commercial side of the precinct, we've made quite a few changes in terms of the tenancy and that has increased the footfall to the precinct. And that, in turn, has had a positive effect on the value of this asset. We are also currently creating quite green spaces for the students as well as event center. And the idea is that we can arrange social activities and student wellbeing events in this event space to make sure that, ultimately, regardless of what NSFAS -- the outcome of NSFAS that we can still remain one of the top accommodation providers in that The Fields area. And that completes the high-level overview, we'll look forward to questions at the end. I'd like to hand over to Linda for commercial. Thank you.

Good morning, everyone. I'll be taking you through the commercial leasing aspects within the Octodec portfolio and starting with the overall vacancy, which is up by 1.1%, and the major impact has been the banks, which downsized and gave up some space together with the educational sector that has impacted on us. In terms of the office sector, our buildings are mainly tenanted by government. The parastatals and the SMM lease. And although we're seeing an improved letting in terms of the SMM lease we still are feeling the impact of the banks and the 2 major banks that vacated our premises together with the colleges. This has in turn resulted an increase of 1.5% in terms of our office sector in July 2023 compared to August 2022. In terms of the initiatives that we're taking, we realized that the biggest states takers in the CBDs other than government are the unions, the civic organizations and political parties, and we are actively targeting them on a daily basis. to take up space with us. We are -- other than marketing the vacancies that we have, as Jeffrey alluded to some of the work that we're doing in terms of the conversions with Health Connect and we've also earmarked Jeppe House, which is located in the Joburg CBD as a residential conversion. We are also looking at -- continuously looking at disposals. Of course, at the right price. And in addition to this, we are engaging with government to take up additional space with us. In terms of the shops, which are the street shops in the Joburg and the Pretoria CBD. We've seen a reduction of 1.1%. This means that it's still relevant, especially in those areas that are more attractive, that are prime and are core in the city centers, knowing that most of our vacancies are in non-prime areas because the prime areas have been taken up. We have put in place initiatives like approaching government funding houses to collaborate in terms of the concerts that they have funded, this would help us in our industrial and also on the retail side. We've also targeted online traders, and we've signed a few of leases from online tenders up -- online traders. And this works well for us because the non-prime spaces are destination spaces and these online traders have been able to then conclude the deals with us. In terms of shopping centers, we're doing well. Most of the shopping centers are almost let, sitting at 0.5% vacancy, and we continue to receive interest from the national retailers and we will speak to some of the highlights later. In terms of industrial, we're sitting at 7.7% compared to August 2022 at 7.2%. But I must say that we've already concluded some deals post July 2023, and we are hoping, with everything being constant that we will land at about 7.1% or between 7% and 7.1 million. Speaking to the leasing highlights in terms of the retail and shopping centers and as it relates to new deals, the 5-year lease was concluded with Pep Home for 296 square meters at Waverley Plaza. The tenant has taken occupation and they are trading. In terms of Waverley Plaza once again, Woolworths Edit , they've taken up space at 383 square meters. And the tenant is expected to take beneficial occupation mid-September. A 3-year lease was concluded with Dunns in the CBD of Joburg at 324 square meters at Education Center and the tenant has commenced trading. We are finalizing a 5-year lease with Vida E Cafe for Waverley in Plaza, and we anticipate that occupation will be 1 November 2023. We are also finalizing the 5-year lease with Steve Madden for 141 square meters, at Woodmead Value Mart and we anticipate the beneficial occupation to be the 1st of October 2023. We can page on. Thanks, Elona. Continuing on the leasing highlights in terms of the retail and shopping centers as it relates to renewals. We've renewed Mr Price at Praetor Forum for 2 years at an inflation-related escalation. Similarly, we've renewed Standard Bank at Praetor Forum at -- for 3 years at a rent reduction of 10%. And Bradlows and Dan -- then Bradlows at Dan's Place, 613 square meters and Cuthchurch at 675 square meters were both renewed for 3 years at a rent reduction of 1.71% and 6.46%, respectively. Foschini Group has renewed at an inflation-related escalation and Cuthchurch in the Pretoria CBD. Also Studio 88, at Jeppe House 1,546 square meters was renewed for 3 years at a rent reduction. Speaking to government renewals, a 3-year lease was concluded with DPW for Locarno House for 3,171 square meters on a rent freeze in the first year of the renewal period escalating at 6% per annum. In terms of Govpret, government occupying 5,868 square meters. This has been renewed at a rent freeze for the first year of the renewal period and escalating at 6% per annum thereafter. We are also finalizing negotiations with DPW on the renewal of leases from 2 to 5 years, including operational costs, which were not included in the past. We can move on, Elona. Speaking to lease expiries for leases that are above 3,000 square meters, Wits Technikon Building, Basa, a 5-year lease renewal was signed with a rent reduction. We previously reported that we were expecting this in the previous presentations that we've had. City Property Admin, a 5-year lease renewal is being concluded at a 4.5% increase for the first year and at an inflation-linked escalation per annum thereafter. In terms of Jeppe Education Center, which is a Jeppe House, the tenant is in arrears and will be vacating at the end of September, I've have alluded to this particular building, being earmarked for a residential conversion. In terms of Dynamech Office Park and 28 Church, both leases are being finalized with DPW and for Dynamech Office Park at a rent reversion of 7.7% but with operational costs and escalating at 6% per annum, While 28 Church Square, a 3-year lease renewal at an inflation-related escalation for the first year and at an escalation of 6% per annum thereafter is being finalized. Killarney Mall, Pick 'n Pay, a 5-year lease renewal was signed at a rent freeze for the first year and had an escalation of 6% per annum thereafter. Can we go to the next slide, Elona? Continuing on CCMA Place, which is located in Benoni. We've got CCMA as a tenant occupying 3,598 square meters. There is a tender under review, and we are negotiating for 5-year lease. Marlborough House CCMA, the list expires in October 2023 from 5,800 square meters. We are -- we have submitted a lease extension to the tenant where after it will go out on tender, and we're still negotiating. In terms of SEDA, which expires in December 2023, negotiations for a longer lease have not yet commenced as the tenant is still looking at restructuring a number of entities within the small business area with government. So the lease allows for an extension on a monthly basis for a period of 10 months and an increase of 7% per annum. In terms of the Department of Rural Development and Land Reform at Centre Walk, occupying 9,528 square meters, the tenants indicated that they will be relocating to the DPW-owned, a Department of Public Works owned building. However, department within the rural development team is looking at staying and occupying 4,204 square meters within that space. We'll continue to submit the remainder of the space and other spaces for tenders and will all -- continue to market the same. In terms of -- just a general closing comment before I get to the next slide. Even though the office sector is under pressure, and it has its own challenges. And this is not isolated to the Octodec portfolio. The letting is still healthy. The shopping centers and industrial are still attractive and relevant. We -- in spite of the challenges faced by our economy, we are still letting. And as shown in this slide, we are collecting and we're still in business. Collections for residential being at 97.9%, and 98.5% for commercial. Our arrears are stable with collections in line with historic trends. Thank you very much. Anabel, over to you.

Thank you, Linda. Thank you. Right. I'm going to deal with the strategy update as really just focusing on our balance sheet. And just giving you a summary of our financial -- the funding of Octodec. So in terms of our mortgage bonds, we've refinanced ZAR 2.9 billion of our facilities, and we've completed these to be effective over a period of between 2 to 5 years. With that then, most of our facilities have now been refinanced, and we've only got two small facilities that are due -- maturing 2024, which we are currently engaging with the fund is to also refinance. So everything basically moving out from 2025 onwards. And with that, we've increased our expiry period to around about 2.9 years. We also anticipate to refinance the DMTN note that comes up in October 2023. And with that done, we believe that our LTV levels should sort of be around the 40% or below for the short term. So that is we expect that for the end of August and possibly going over for another year or 2. Right? We've also managed to roll forward swap of ZAR 500 million that was going to mature in October. So we've extended that and also a ZAR 250 million swap that was going to expire June 2025, we extended that for a further 9 months at a rate of 7.66%. So on the swaps, we've continued to look at the rates. Obviously, the rates are extremely high at the moment, and it doesn't really make sense to hedge at this level. So we continue actively looking and looking for the right opportunity in terms of extending our swaps. We've also started engaging -- sorry, with the DMTN programme that was previously held in Premium Properties as a subsidiary of Octodec Investments. And Octodec was a guarantor of the DMTN programme. We've been successful in terms of rolling this up to Octodec. so that now Octodec holds the DMTN programme, and the process is a lot more streamlined. So basically, all the DMTN noteholders have access to the full assets of Octodec and not just a premium and then guaranteed by Octodec. So it makes it a lot clearer and transparent throughout. Next slide. Right. In terms of our property portfolio. So in terms of our disposals, we've sold 6 properties in the current year for ZAR 95 million. So these are the smaller non-core properties also outside of our notes, and we expect another one to take transfer in the coming week also to a value of ZAR 14.6 million net of the commissions. In terms of the disposals. So there is interest. But again, as we've experienced in the past, the banks are very reluctant to fund [ decels ]. They're obviously sold not to the REITs, but to the smaller investors, and they're finding a lot more difficult to find funding from the banks. In terms of our capital expenditure, I think everybody's touched on this throughout the presentation, but just the short summary. So we've obviously completed the refurbishment at Vuselela Place. We continue the rollout of the WashBars which Charlene has alluded to. And so far, we've introduced 6 WashBars in our properties, part of which are in our resi properties and another one at one of our commercial buildings where we had a little bit of the space, and we've rolled that out. So the impact of these WashBars is really how to say and not our business driver, but it's really to incentivize and to make our buildings a lot more attractive to our tenants and they're buying increase our occupancy and our rentals. In terms of the upgrade of the vacant building, so that with Health Connect, that is underway. It's going well, and we anticipate to complete it in January 2024. And as Jeffrey spoke earlier, we anticipate to let it from February onwards right. And we've also obviously accelerated the investment into our solar projects. We have 3 underway at the moment in our retail shopping centers, Blaauw Village and Woodmead Value Mart are the ones underway. And we're hoping to start with Sildale Park, which is an industrial center sometime after our financial year-end. Right. And yes, from my side, that is all on the strategy. So I'm going to hand over to Jeffrey just to look at the -- give a summary of our findings. Thank you.

Thank you, Anabel. There's not much more. I think the team have given you a fairly comprehensive assessment of what's going on in the various sectors in which we operate as well as a very brief financial overview of what is happening in our balance sheet, perhaps some closing thoughts. We continue to monitor the financial position of Octodec. We certainly don't want to -- we've done some good work in terms of sales in the past and managing our LTVs and other covenants that are in place to make sure that when the economy does eventually turn, we're able to pick up on a slightly stronger balance sheet and move forward. As to the actual property portfolio, I am still confident that the CBD remains a very viable investment alternative from a property perspective. The people are coming back. It is still occupied and frequented by many, many, many people. And we -- and I think this is all evidenced in the slide -- albeit slight revenue growth that we are seeing from our properties. The major problem that we have is the pressures coming from an expenditure side, but we will ride through this. We will get through it eventually. Not much more to comment perhaps to say, I look forward to your Q&A, which we will give out to the various team members to answer.

Brilliant. Thanks, Jeffrey and team. [Operator Instructions] Jeffrey, we've got a number of questions already, and I'll deal with the client questions first. From Rahgib, can you please provide us with like-for-like net rental growth rate achieved for the period year-to-date, considering rising vacancies, positive rental -- residential, rental uplift and rising cost.

Perhaps, Anabel? You can handle that one?

I'll take that one. So on the like-for-like basis, and that's really just comparing our results, excluding the properties sold in last year and this year, and that is at 3.5%. And the growth is really coming from our resi sector there. So the residential performing very well and contributing to that 3.5%.

Another one from Rahgib. Can you also please tell us what the new admin and corporate expense run rate is post the new ManCo agreement?

Anabel?

So the new ManCo agreement really only came into effect on the first of July 2023. So it's not going to have a major impact on our current results for 2 months and it runs on the basis as the previous period, which just increased with inflation for July and August. So that will only impact our figures going forward for next year, but we're trying to keep it, I can say, in line and also, there is a rebalancing of certain costs, which are absorbed by City property. So -- but we will be able to give you a little bit more feedback in our interim results in next year when we really see the outcomes and the projections on that.

And maybe just additional question from my side. Maybe just as a reminder to everybody, what is the general cost, the primary one, the fee on EV?

Sorry, just repeat it?

The primary fee on enterprise value.

Okay. So at the moment, our basic fee sitting at the minimum, which has been escalated by CPI over the period. So it was [ ZAR 4.161 million ]and it's now increased to ZAR 4.4 million. So that will be the other figures for July and August. And then it will reset at ZAR 5.2 million from September onwards in terms of the new management agreement.

Brilliant. We've got a question from Lloyd with regards to the developments. Can you provide a bit of color on the conversion you have undertaken in Pretoria for the medical center? How are you able to achieve this given the higher cost associated with conversions. And realistically speaking, how many other office buildings will you be able to replicate this?

I'll handle that one. I think the word conversion, I hope it's not misleading. This is not a conversion of office into residential. This is a conversion of office into medical suite. So the cost of conversion are not excessive. It's really an upgrade perhaps a better word could be used is to contemporize the building. This building is located next to our Louis Pasteur building, which shares on the top 4 floors of an 11-story building has as the Louis Pasteur Hospital, which all the small doctors, below those 4 floors of hospital, service. The -- what we've now done is we own the building -- Octodec owns the building adjacent to the Louis Pasteur hospital. And we linked the 2 -- the buildings, the hospital as well as to the health care -- new healthcare -- Health Connect building by way of two bridges. So it's not a true conversion. Perhaps it's also worthwhile mentioning, you referred to the cost, it's true that costs are also up, but the rentals in terms of what we're getting for Health Connect, are -- I consider them to be fairly good for those that know or rentals, we hope to exceed ZAR 200 per square meter.

Maybe just to finish on that one. You've mentioned it before, but just as a -- another reminder, what is the yield on that ZAR 70 million CapEx cost?

I think it's in excess at 10%.

A little bit better, sorry, because our estimates also came in a little bit lower. Yes.

And then maybe talking to the traditional office to resi conversions, the mothball stuff et cetera, which was kind of the bread and butter for a large portion of the [indiscernible] and the [ teens ], et cetera. What is the current cost of conversion now per square meter? And how is that -- how does that compare to, let's say, the mid-teens?

So I think that I haven't -- we haven't actually -- I haven't had to look at a conversion rate because we haven't done one recently. We're in a situation where rentals have remained historically fairly flat, but we know that cost of -- construction costs have escalated well in excess of CPI. And so the conversion in terms of a conversion of office to flat, it hasn't been much debated. However, we also recognize that there is potentially a new or not -- there's a new sector we want to cater for. And those are those people seeking residential accommodation, but not able to quite afford our entry level into our current conversions. So our current conversion at the low end is probably somewhere in the region of ZAR 3,700 per square meter plus utility costs. What we're busy with now, and I think are very close to finalizing is trying to develop a model that costs slightly less than our traditional conversion model, but at the same time, maintains the dignity of all the inhabitants. And this is this is a lot -- well, I don't want to comment until I see the actual numbers. The rental will be slightly lower, but certainly our costs, both in terms of CapEx as well as operating costs, we have to be able to drop that down.

We've got a question from Zinfe. Can you provide details regarding backup power coverage for your respective portfolios? What are the total diesel costs to date and the recovery rate from tenants?

Anabel, I don't realy got those numbers at hand. Perhaps what I can tell you now, we set up from backup power. We have got a task team that's been set up, and we are busy investigating the supplier of generators -- those buildings will be considered to be addressed and those tenants really demanding backup generators, and we will be threatened by way of vacancies should we not be able to supply it. This is a tall order. Yes, not much more to say, but all our shopping centers, I think are now covered other than Killarney Mall. Those that aren't are in the process of being upgraded to include both generators and solar, on solar we are spending investing, I think, in the order of about ZAR 21 million worth of solar energy located on 3 projects. The estimate so far is approximately ZAR 90 million in terms of generator power that we need to spend, but this number will be [indiscernible] we work out which projects we actually we want to go ahead with. [indiscernible] One number, I want Anabel to please give us our spend on generator diesel as well as the recovery thereof. I just want to be fair for start just to say this to you. It's an enormous cost -- the generator power it's 7x -- 6, 7x the cost of normal power has purchased from council. And you can, in some instances, past these big costs on to our tenants, but in many instances, not when you were in residential, it's very hard to do it, but we do need to supply some backup power to people for basic services and common areas. Yes. So you'll lease these factors drive down your recovery rate, but Anabel will give you that two numbers.

All right. Thank you, Jeffrey. So yes, we anticipate to spend a total of ZAR 11 million for the 2023 year. Therefore, if load shedding doesn't improve, we anticipate that to increase a little bit more in 2024 as we provide generators to more and more buildings. But we've also been successful in terms of signing [indiscernible] with our tenants in order to recover the cost of diesel as well as an availability fee. And with that in place we projected our recovery will then increase to around about 78%. This year, we ran a little bit late, so we weren't recovering as aggressively from our tenants, but we intend to -- with the things now in place to improve our recovery rate.

Cool. We've got another question from Lloyd. Kindly confirm if the 23% vacancy figure in residential includes The Fields or not?

Charlene?

Yes. So the 23% vacancy figure in the presentation is for The Fields only. That is for The Fields. So in -- so overall, the total vacancy for the whole residential portfolio at the end of July 6%, which is including The Fields. If you take out of the 6% The Fields, the impact of The Fields, the Joburg, Pretoria and Kempton brings it down to 3%. I hope that clarifies it better.

Perfect. We've got another question from Rahgib. The LTV guidance of 40% or below for the short term. What is impacting the long-term LTV? Are you expecting it to go higher or lower?

So no, we're not expecting it to go higher, unless there's any unforeseen circumstances. So we intend to keep it there at below the 40%, yes.

Maybe if I can just talk to the balancing figures here. So is it a function of developments being funded by sales and the retention ratio, what is that kind of operating CapEx that kind of keeps everything flat and assuming valuations are stable?

So valuations is possibly the biggest driver. Our funding basically is remains unchanged. Now over a period, we don't intend to increase it unless we're going to a major development or acquisitions. So that's basically a [ I haven't said ] stable. But what is going to impact it is the valuation of our portfolio. And I mean, we know that pre-COVID portfolios were growing at a range of 5% to 6%. We then obviously took a big knock, a big write-down in the COVID period, and we are starting to see a turnaround, but we certainly -- rentals are growing at 2.5% or 3% your total income, we can't expect our portfolio to grow at anything above that. So that is contributing now to a stronger LTV, but certainly, the east pressure there. And we've got to balance that very, very carefully to make sure that it doesn't -- it's not only the LTV, but it also impacts our ICR and then we've got to manage the 2 ratios critically.

From Marcus, can you comment on whether we can expect a higher second half dividend similar to last year? What is the current policy of payout ratio of the full year dividend or earnings?

Anabel?

Look, we gave no guidance in -- when we presented our interim results, and I don't think I want to give guidance now as well. But I'll say our dividend -- and our dividend policy remains unchanged. And as I mentioned, it is a fine balancing act between, [ can't say ] balancing your balance sheet. Making sure that you retain sufficient funds to keep on developing and keep on maintaining your buildings in a desirable manner. So all that -- and if it is not yield enhancing, we've got to provide that from our returned earnings, our distributable income. So yes, we do intend to hold back and definitely not going for the 100% distribution.

Fabian, I hope your question has also been answered there. He's asked something similar in that last year's Pre-close. You provided guidance on full year earnings. Going forward, could this be a standing feature for future presentations?

I've not providing guidance. No. I think it's something..

Of providing. He said last year.

No, we didn't provide any guidance in our interim and it depends -- I mean I'd say if there's certainty, certainly we can provide guidance. But if the future seems uncertain and there's lots of dark clouds in our horizon, then one can't really provide guidance. So it is all subject to the environment in which we work. But certainly, if we do have concrete -- I can say figures, and we know that we can achieve it, and there's no dark clouds looming. Certainly, we look forward to giving guidance in the future.

Question from Zinfe. Do you expect the gas explosion to affect valuations for the impacted buildings?

So at the moment, we haven't factored that in. I don't think we -- it's going to really impact us that badly. As Jeffrey pointed out, our vacancies basically remain under control. A lot remains to be seen when they start repairing the road, whether it's really going to have a more negative impact on our buildings. But at the moment, the buildings are occupied, commercial tenants are trading, maybe not at the normal levels, but they are trading. So we're hoping that this one really have a negative impact. In terms of damages as Jeffrey said, we haven't really found any structural damage so that we don't expect to spend any money with our buildings there.

And just cognizant of time, I think I'll ask the last question. I've had a few which I haven't been able to ask, but you talked about the bank refinancing that average terms of 2 to 5 years. Could you provide the sort of a range of margins on the debt over that term?

Yes. So weighted average is 2% above price.

All right. Brilliant. I think that's all the questions I have from my side and from the participants. Maybe just one last reminder, if there's any questions, last call for everybody. Otherwise, we can close the meeting off, Jeffrey, any last closing remarks?

Yes. Thank you to all of those that joined us. I hope you find it insightful. We tried to be as open and honest as we can. And to you, Nazeem, thank you for hosting the Octodec team.

No problem. Thank you. And with that, have a lovely day further and good day.

Thank you.