Octodec Investments Limited (OCT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. A warm welcome to the interim results for the 6 months ended 28 February 2025 of Octodec Investments. The format of our presentation will be very similar to that of prior year. I will do an overview. I will then hand over to our Chief Operating Officer, Charlene Conradie, who will deal with the various sectors in which we operate. I will then call on our Financial Director, as well as our Deputy CEO, Riaan Erasmus, to talk to us about the financial performance up to now. I will come in after that and talk a little bit about the outlook. And then hopefully, we have time on hand to deal with questions and answers that you guys may have. We can move on. For those of you that don't know Riaan, Riaan is our Chief Executive Officer and Financial Director; Charlene Conradie, who's been with us a long time. She is our Chief Operating Officer. Thank you. Octodec at a glance. Octodec, for those of you that don't know Octodec or are new to Octodec, comprises a portfolio of properties that operate in Gauteng, approximately 50% of those properties within the CBDs of Pretoria and Johannesburg, and approximately 50% outside the CBDs. We still believe in the nature of our portfolio. However, I think we're reaching a point in Octodec's life where 1 or 2 little changes need to be made, and I will talk to those a little bit later. Next slide, please, Ilona. We move on to salient features and performance highlights. Pleased to announce that most metrics that we use to analyze the business or any property business for that matter, are looking positive. Previously, very disappointing to note that they're all pointing in a negative direction. But this time, a lot better. Increase in revenue of 5.2%, distributable income up from ZAR 219.5 million to ZAR 221 million, distributable income per share, slightly up to ZAR 833. Dividend per share, up by 3%. Cash generated from operations up from ZAR 214.7 million to ZAR 269.4 million. Our portfolio value, including 100% of equity accounted for in the joint venture, slightly up to ZAR 11.3 billion. loan-to-value down to 38.5%, previously 39.2%. Net asset value slightly improved from ZAR 24.11 to ZAR 24.6 per share, and all-in weighted cost slightly up at 9.4%, previously 9.2%. Core vacancies, which I will talk a little bit about at the end of my presentation, down from 15.3% down to 13.7%. Collection still strong at 97.7%. Acquisition, just for the sake of completeness, there was only 1 very small property that we bought, which was an extension to an existing building of ZAR 8 million. The launch of Year 2 City on Tsulu successfully completed. I will spend a little bit of time on that at the end of the presentation, disposals of 10 non-core properties for 51.4% at an exit yield of 8.4%, and a number of completed solar installations at both the Park and year 2 cities. Ilona, if we could move on. Thank you. Not much changed on this slide compared to previous years. I think the important point for me is the strong presence of residential. Although residential under a little bit of pressure at the moment, Saline will deal with this shortly, it's stable. But I think importantly is some of the other sectors in which we operate also starting to show a little bit of strength. Of consequences is in the CBD versus non-CBD slide, a 54% portion is in the CBD and the remainder, the 46% outside the CBD. So a lot of Octodec's information out there would indicate that Octodec is primarily a CBD operator. I'm not sure that, that's entirely correct given the slide presented over there. Next one, please. We now move on to the detailed analysis of performance, starting with residential, for which I'm going to call upon Charlene to take you through some of the detail. Over to you.

Thank you, Jeffrey. So as Jeffrey mentioned, we will start with an overview of the performance in the residential portfolio. So first, I want to highlight that we've achieved 5.1% rental income growth, and this is above inflation and in line with the prior year, which I think is very, very positive. Although we've seen a slight increase in our vacancies to 8.4%, our quality accommodation still continues to be in demand and attract quality tenants in our portfolio. The vacancies have mainly been impacted due to affordability constraints by our tenants, and in Johannesburg, additionally, the residential portfolio continues to be impacted by the unrepaired damage on Lilian Ngonyi Street. Therefore, we are very excited about the launch of Yethu City, which is co-living accommodation at a lower market rental. And we think that this will address some of the tenant affordability challenges that we find. Jeffrey, however, will talk a little bit later in the presentation about this. If we move over. Right, in this slide, we wanted to show you 3 of our buildings in the residential portfolio. These buildings are in the heart of the CBD of Tshwane. And what we would like to showcase is the quality of our building and our amenities, which continue to attract quality tenants, as I've mentioned before. You can also see there the average rental, which just gives you an indication that we offer different market rental options to address different market rental needs in the portfolio. If we move on. These 2 buildings have been refurbished on the internals and in the common areas in the last financial year, Corner Place and Rick Place. And why we show them here is to explain that we continue to maintain our properties. We keep them in a high standard to ensure that we can protect our market share and remain relevant and attractive to our residential tenants. Next slide. Right. Moving on to the commercial portfolio. Our retail shopping centers continue to perform very well. Previously, we've reported that there was a focus on improving the tenant mix, which has resulted in the impact that we wanted in that we've achieved 6.2% rental income growth and 99.2% occupancy. This is if you exclude Ngonyi, which, as we've reported, has been identified for asset recycling. Moving on. Our retail street shops portfolio. So, these shops are mainly situated in the high foot traffic areas of the Tshwane and Johannesburg CBDs, and they continue to be attractive to retailers and national tenants. The low rental income growth in this portfolio was mainly due to the retailers situated around the Lilian Ngonyi Street in Johannesburg, and that was mainly the reason for the lower income growth. In terms of core vacancies, the material decrease that you see there was due to a large asset on E Street that was Mos Build and has been identified for disposal. Next slide. So in this slide, you can just see an example of some of the quality and the top retailers that we have across our retail portfolio. Next slide. Offices. So our offices portfolio consists of government tenants as well as your smaller office spaces that's occupied by professionals and small businesses. We typically don't have large corporate office space in our portfolio. The rental growth there has been slightly distorted by net lease adjustments on some of the government leases. And if this is excluded, the rental growth amounts to 6.4%. It is also important to note that we have previously reported that we have a large government tenant who was on a monthly tenancy. They gave us notice to vacate at the end of May. And this tenant is situated at Capital Towers North and occupies 12,086 square meters. We are actively working on reletting or repurposing or disposing of this property. Next slide. Our industrial portfolio consists of smaller warehouses and many industrial units. This portfolio continued to receive good demand, which resulted in positive rental growth of 5.1% and decreased vacancies. Next slide. Right. As we normally do, here we list our material leases that expired as of the end of February 2025. And as you can see on the second line, there's the Capital Towers North tenant, who I said before, will vacate at the end of May. And then the other tenant in this list who also gave notice to vacate is Transform at our Tshwane building, which will be vacating at the end of July. This property is not in our core zones, and it has been identified as a disposal asset. Next slide. Nothing changed much in terms of our lease expiry profile. It remains in line with historic trends. However, despite our shorter WALE on the right-hand side, you can see the average length of stay of our tenants in the portfolio. If you look, for instance, at retail street shops and industrial, it's positive to note that our tenants remain in occupancy for almost 5 years. It is also positive to note that compared to the prior period, our average length of stay have increased in all the sectors in the portfolio. Next slide. Right. In this slide, you can see the rental increases or reversions that was achieved for the period in terms of new leases and renewals concluded. However, it's very important to note that this analysis is a small portion of all the new leases and renewals concluded, but it's provided to give you an idea of what was achieved on a like-for-like basis. Next slide. As we normally end the performance overview in terms of operations. This gives you the information in terms of collections, which is in line with previous trends, and it remains strong. And that concludes the overview. Thank you very much. I'm going to hand over to Riaan to take us through his portion of the presentation.

Thank you, Charlene, and good morning to everyone. So I'm going to start off with our distributable earnings for the period. So as we can see there, our revenue increased by 5.2% to ZAR 1.06 billion. And most of that growth came from our office sector and our shopping center sector, that both performed very well. I think that's been contributed with the rest of the portfolio, that has also performed decently. In terms of our property expenses, that's increased by 7.1% to ZAR 582.6 million. Unfortunately, I think the 2 big items there to highlight is that on the bad debt provision side, we had a ZAR 6.9 million increase when we compare it to the previous year. Some of those tenants that we had to provide for are directly exposed to the Lilian Ngonyi Street that's currently under repair and the trading conditions has been extremely difficult for them. And as a result, we've had to provide for those arrears. In addition to that, we've also had 1 or 2 tenant failures in the educational space. And then we also have a tenant that's currently under business rescue. This tenant is one of our largest tenants, and he continues to pay the rent. However, our debt policy, anything that is -- or any tenant that is under business rescue we provide for the full amount that's in arrears. The other big item there in our property expenses is, of course, the utilities. And I think is well known, this is an expense line that increases exponentially when you compare it to inflation or any other costs. So our utilities increased by 11.8%. And although we pass most of that on to our tenants, it does create sustainability issues for our tenants. For the rest of the expenses, they remain well in line with our inflationary increases and they're under control. In terms of our administration and corporate costs, this increased by 5.4% to ZAR 55.4 million. And the increase there is really driven by the top-up fee that we had to pay to City Property, the amount there being just short of ZAR 800,000, and that's really driven by the increase in our share price. The next item there that I would like to highlight is our net finance cost. So you can see there that that expense line increased by just short of ZAR 11 million. So the increase there is really because of the interest rate swaps that we had in the past that was well priced and a lot of those swaps are now maturing. And of course, we're not receiving the benefit of those. Then moving to the bottom line, that ends our distributable profit increasing by 1%, and our distribution per share or distributable income per share then increased by 1% to ZAR 0.83 per share. And consequently, we also declared a dividend of ZAR 0.62, which is a 3.3% increase when you compare it to the prior year. Then on this slide, we're just showing the expenses there, and you can really see that all the expenses there remain well under control, and with bad debts and the utilities really the 2 expense line items that are increasing well above the inflationary rates. Next slide. On our balance sheet, so as at the end of February, we had 226 properties and the portfolio value there increasing by 0.3% to just to ZAR 11.3 billion when you include the joint venture property, which is Blaauw Village. When you break it down to a like-for-like basis, the average value of our properties is around ZAR 50 million, and that increased by 3.7%. Then, just on the next slide, on the liability side and equity side. So our borrowings remained fairly stable at ZAR 4.4 billion, which is in line with what we reported at August 2024 as well as in February of 2024. And you can see there that we successfully refinanced ZAR 970 million worth of borrowings as at the end of November. And that line you can see moving from the interest-bearing borrowings under current liabilities to the noncurrent liabilities of interest-bearing borrowings. So our loan-to-value ratio reduced from 39.2% to 38.5% at the end of our reporting period. Next slide. In terms of our capital allocation, so in this 6-month period, we've sold 10 properties for ZAR 49 million after payment of commissions. Post the reporting period, we've sold another 2 properties. They're all small properties, and this really talks to the tail end of our portfolio that we are trying to dispose off. Killarney Mall, this property is one of our largest assets. We continue to hold this asset for sale. We are in negotiation with more than 1 party to dispose of this asset. But of course, it is a complicated asset. It's got both a shopping center and a large office component, which makes it a little bit complicated, so it will take time to dispose of the asset. But we believe that we are progressing well with this. And then just in terms of strategically, our objective is to dispose of all our smaller assets below the ZAR 10 million value. We've got quite a number of those, and then we've got a couple of properties where we do not see or believe that Octodec got the capacity to redevelop those. So our objective is to sell those and recycle the capital. In terms of the deployment of how we spend some of the capital during the period, so we've completed the Yethu City project, we spent ZAR 29 million during the period, completing that ZAR 50 million overall project. The return there we expect to be between 11% and 12%. We've also spent some money on solar projects with the largest being the Fields, and that project is expected to be completed during the month of July, and we believe that that will be a good return for Octodec. And then we've also spent a further ZAR 35 million on various property upgrades, compliances in terms of fire life and safety, et cetera. And as Jeffrey mentioned, we've acquired a small property, which is very strategically located next to one of our other larger assets. Looking at the future, for the next 6 months, we're expecting to spend another ZAR 64 million also on property upgrades. We're going to start the project at Casino where we're going to expand the property, and that's going to cost us about ZAR 70 million, and it's also going to include some solar installations there. We're excited about this. This property will increase in value as well as it will be earnings enhancing for the portfolio. And it is a nice 10-year lease agreement that that will support this expansion. And then looking at the following 12 months. So if you look at 2026, we're expecting to spend another ZAR 200 million on various projects within our portfolio. And we will be funding all of these capital expenditures from properties that we expect to sell as well as through the profits that we will retain for the year. Next slide. On this slide, so we're just showing the movement of our cash flows. So as we can see, I think the slide speaks for itself, but as we can see, the biggest movements there that we are generating good cash from our portfolio of ZAR 476 million, and then we spent obviously some funds on the net finance costs. We've paid out dividend in November, and then we spent about ZAR 92 million on capital expenditures and developments. And then we've recovered some ZAR 49 million in proceeds from the disposal. So, increasing our cash balance from ZAR 69 million from August to ZAR 116 million at the end of February 2025. Next slide. So here is just the breakdown of our borrowings. So our loan-to-value in terms of our covenant calculation metrics sitting there at 39.5%. We've improved our interest cover ratio to 2.14x for the period. It's up slightly from our year-end reported last year. We've got sufficient available facility. So that remained fairly stable when you compare it to August, so sitting at ZAR 692 million. We've refinanced ZAR 970 million of bank funding. So that's sitting there in our secured loans, and that increased our tenure borrowings from 2.4 years to 2.6 years as of the end of this period. We've also extended some swaps, and that the tenure of those swaps increased to 1.2 years. Next slide. So on this slide, we're just showing the various sources of our funding. So as you can see, we are well diversified in our sources of funding. So we're banking or borrowing from 3 large banks. And then we've also got some paper in the debt capital markets. So all those refinances have been done at improved margins. So between the Absa and the Standard Bank, we've improved the margin by about 33 basis points. And then with the corporate bond that we repay or issued in February to pay the maturing corporate bond, we saved 23 basis points with that refinance process. Just next slide. So, just looking at our expiry profile, as I've mentioned, we've increased the tenors of both our borrowings and our interest rate swaps. Our hedging position as at the end of February is sitting at 51.1%. We are currently busy looking at or refinancing our facility, which is a revolving credit facility that matures at the end of August. We've got the agreements in hand, and we are busy just finalizing those agreements with our lender. And then in terms of our hedging strategy, we continue to watch the swap curve. The uncertainties in the interest rate interest rate market makes it very difficult to manage this process, but it is our strategy to maintain the hedging position between 50% and 60%, and that is really to get the benefit of any potential further interest rate cuts that might happen, but also to protect ourselves against any future interest rate blowouts that might occur. Post the period, we've also placed ZAR 650 million worth of forward-starting swaps for a period of 2 years. Next slide. Then we're just moving to our ESG side of the business. No next slide, please. So to date, we -- let's go back 1 slide. So to date, we have installed 10 solar plants at a total investment of ZAR 65 million. And we are seeing very good benefit of these installations. For the period, we have saved approximately ZAR 4 million in electricity costs. So as you can see there, the biggest installation we are busy with is at the fields, and we're very excited about the return that this will yield. The average payback period for these solar installations of ours is between 4 and 5 years. Next slide. On this slide, we're just demonstrating the values that Octodec and City property live. So we continue to participate in our communities. So we participate in the Reach for a Dream schemes, in the Feed the Future schemes that we have, as well as being part of the supply development programs. And you can also see there at the bottom, there's some quite nice examples of how our teams walk the streets and help clean the streets in the areas where we operate. Next slide. Jeffrey, with that, I hand over to you. Thank you.

Thank you, Riaan. Outlook and prospects. I think on the surface, we are seeing for the last month or 2, a strong demand for the properties that Octodec has got to offer. I was speaking specifically about the commercial properties. This obviously has a big effect on the top line. What is, however, difficult is to achieve an increase in rates per square meter that continues to remain a challenge, but would appear that people are starting to return to some of our properties, and we're seeing a decrease in the vacancy rate. Also noteworthy is the increase in demand from potential buyers of properties earmarked for sale. What is also exciting for us is the completion of Yethu City, and I'll talk a little bit more in detail about that, which is a pilot project, which is not purely an attempt to create a big development pipeline, but also a way in which potentially, if we're able to raise the necessary funding to sell some of our properties that otherwise would be very difficult to sell -- to sell, excuse me. We are currently undertaking a strategic review of all our properties and have identified a number of buildings, primarily the smaller underperforming buildings, that we think the non-core and should be disposed of. As a result of the loss of 1 or 2 tenants, I think that Charlene spoke about, which are now giving us notice to vacate sooner rather than later, we want to advise that we want to revise our distributable income growth to between 2% and 4%. I now want to move on to, if you got 3 slides, we want to spend a few minutes just talking about Yethu City, because it certainly does provide some positive stuff happening within Yethu City. What this is, is a product that we've created to cater for those people that can't quite afford the entry level of the rest of our portfolio. So, currently, I would guess it's somewhere in the region of ZAR 4,000 to ZAR 5,000 a month. We were able to bring something to the market at an average price of somewhere between ZAR 3.0 and 3.5, fully inclusive of all electricity and water. The take-up of this has been good. We were given the keys from the contractor on the 15th of February and pleased to report that the 200 beds, which we have on offer will be fully contracted for by the end of May, on the 1st of June. We think we have 100% occupancy. For those of you that are in this game, specifically in residential, will know that 3.5 months to take up, lease out such a number of units is well done. So there's definitely an opportunity that appears to be -- we've worked out. Ilona, if you could just go back 1 slide, I just want to Yes. So whilst we were able to reduce -- thank you, IIona. Whilst we're able to reduce the rental to in the region of somewhere between ZAR 3,000 to ZAR 3,500. You can see from the images the little collage that we presented over here. This is not slum material. At this stage, Octodec is maintaining a certain standard. And although this is cheap, I'm repeating myself, it doesn't necessarily mean that we have to reduce the standard to below certain levels. Not else to report on Yethu City, perhaps to mention that the yield of Yethu City is somewhere in the region of 11% to 12% initial yield. Normally, I would distinguish a first-year yield from the rest, but there's almost an argument that you don't really have to do that because in this pilot project, the rental take-up went so quickly. What are the opportunities besides this initial yield, which is attractive. But I think it's once again it provides us with an opportunity to build out something in those areas that have now taken a turn for the worst. We've seen plenty evidence of this by other property developers where they develop large tracks of urban areas and they put something down that's of high demand, and the area simply changes. I think that's what we're witnessing here. Pleasing to note that it's not only residential that's done well here, but also retail. I think there are 11 units to rent. And so far, we don't anticipate full occupancy by the end of this month. But I think already to date, we have secured 7 out of the 11 units that are available. And that really concludes our presentation for today. But myself, together with the rest of the team make themselves available for any questions that you guys may have. Thank you for your time.

Jeffrey, we've got a couple of questions on the webcast. Can you hear me all right?

We're fine. We can hear you.

Perfect. The first one comes from Jack Eberle of Aluwani Capital. He has asked, how should we view the distribution payout ratio going forward? LTV is conservative, yet the payout ratio is low. Is there an opportunity to move towards 80% to 85% payout ratio in the near term?

I think I'm going to ask Riaan to handle that one. Over to you, Riaan.

Thank you, Jeffrey. Yes, I think so in terms of our payout ratio, we do remain conservative in that. But I think, given where the share price is and the limited opportunity we have to call it IP as an alternative, we've chosen to keep this payout ratio quite conservative. We also do have a lot of capital expenditures that is required to invest in our portfolio. So we're using this mechanism, obviously, as the best way to do that. So I think in the short term, we'll keep the payout ratio at the lower end of the allowed ratio of 75%. But in the longer term, there's obviously an opportunity as we improve the LTV and our interest cover ratio to increase that payout ratio.

We have a couple of questions from Keith McLachlan of Integral Asset Management. The first one, speak through water access, storage, and plans to manage the sustainability of water across your portfolio. What have you done? And what can you do? What do you still intend to do?

I'll talk a little bit about it. It's not my area of expertise, but a lot of work has gone into building storage tanks for water. In many cases, it's been driven by a lack of water pressure. The consequence of that is that there is no water that gets pumped up to the roof. And so we've had to do a number of installations, bore holes. I think there are 20-odd 23-odd of these holes have now been built. We find the sufficient water, we will create storage tanks to make sure that there is sufficient water to the building. I hope that answers the question.

Another question from Keith McLachlan. Speak through municipal valuations and related rates and taxes that have been significant or that have seen significant inflation rather. And then what, if any, is the strategy to mitigate these?

Riaan will give that one to you.

Sure. Thank you, Jeffrey. Yes. So Keith, I think as we know, the valuation rules came out, and as all municipalities do, they like to increase the values of the property as well as the rates that they will charge. For us, we obviously take the whole portfolio and we compare it what we believe is the value of the asset and we compare it to that of what the municipality provides us with. We go through a strenuous process with a person that is specialized in municipal valuations, and more than half the cases that we deal with, we actually object to those valuations. And I think we can say for most of them that we are fairly successful in that. So that is our mechanism, obviously, to mitigate these increases. In some instances, it's obviously very difficult because you can't manage the rate that they charge. And the valuation side is really the side that we focus on to mitigate this.

We do have a third question from Keith. What is the range or average cap rate on your property valuations currently?

So the weighted average cap rate of our portfolio is 9.9%.

Then we have a few different questions from Trinity Ngobeni of Anchor Stockbrokers. He says, thanks for the presentation. And just starting with the first couple of questions. Almost half of vacant space is held for redevelopment. What would be the cost of these and expected yield?

Difficult to answer. I'm not quite sure what the question is. Is it what is the cost of those assets that are being held for redevelopment? Or what would the potential capital required be to redevelop it? If some of you could let us know which way we want to do it. Just as we've done some preliminary thoughts of calculations on how much we would want to spend if we did a full rollout of the intercity concept, and that potentially is worth approximately ZAR 1 billion.

Did you have any further comments on that, or can we move to the next question?

Maybe just to add, I think the cost of redeveloping those vacant spaces, as Jeffrey mentioned, is probably in excess of ZAR 1 billion. Of course, we're not expecting to go to market and ask for funds at this point in time to do any of those redevelopments.

And a follow-on question, another question from Trinity. What is the anticipated impact of repairs to Lilian Ngonyi? And what is the current vacancy rate there? And in your view, what is the probability of getting the remaining 80% insurance payout on the affected properties?

Yes. So, I think the vacancies, it's been fairly stable. It's obviously increased, and some of our properties that are exposed to the Lilian Ngonyi Street that's under repair, it varies. Some of them have high vacancies, others have low vacancies. I think the part that we struggle with is really if you're trying to attract a new tenant, it makes it very difficult for a person to say I want to be in this building at this point in time. There is, of course, interest in the space because it's a great area to be in once everything will be fixed. So, we do get inquiries for it. But we find that it's more -- a person would move out, but they wouldn't necessarily move in at this stage. The repair to the road, I think, there was a period where it seemed to not move forward. But since the beginning of this year, and I think together with the announcement of the G20 happening, things have definitely started to progress, and it seems to be progressing fairly well. And so, we are excited that that project or repairs, if you will, can get completed and that our properties can get back to operating to normal levels. The provision for bad debts on those properties is quite high. In terms of the revenue we generate, at this moment, we have to provide for almost 10% of the revenue we generate. So, it does hurt Octodec in one way, in some way. And then in terms of collecting the remaining 80% of the insurance payout, it is a back-and-forth that we have with the insurer. The period for which we are covered is 36 months. So, it is a moving target, but we continue to provide information to the insurer, and we are confident that we have a claim for the remaining 80% of that payout.

The next question from Trinity as well, is why not buy back shares in light of the 16% DI yield?

Yes. So I think for us to buy back shares at this point in time, I think our balance sheet is not in a position to do that. I think if we had to reduce our loan-to-value to below the 35% level and our interest cover ratio has improved to closer to the 2.3x levels, then it would make more sense. But at this time, we don't believe that our balance sheet is strong enough to do a buyback.

Another question from Trinity. The Tshwane City upgrade is costing ZAR 70 million, including solar. What is the expected yield on this investment?

So, in terms of the solar, it's a little bit higher. But on a combined basis, you're looking at around the 11.5%.

Then he has a couple of questions related to solar. What percentage of tenant electricity requirements are generated using solar? And what is the potential percentage that can economically be met with solar installations? And then what is the yield on current solar investments? And how much do you expect to invest into solar over the next year?

Sure. I think it's a little bit difficult to say how much of what percentage of the total electricity requirements we can generate across the portfolio. I think one needs to be cognizant of the fact that a lot of our buildings are tall buildings in the CBD. So, they are not really conducive to large solar installations. Our focus is, of course, to look at the buildings that are the highest users of electricity. So in the coming year or 2, there's further investigations into those properties where we believe we can install solar. In terms of the payback period, yes, so it does depend on a property-by-property basis. But in general, we find that the payback period is between 4 and 5 years.

The last question was just whether you have an expected amount that you look to invest into over the next year.

I don't think we're not -- we don't have a clear line of sight in terms of the amount, but we try and focus around ZAR 20 million, or I would say, 20% of our capital allocation. So we will probably look at about ZAR 20 million to ZAR 30 million in the next year.

The next question is from Charles Boles of Titanium Capital, and he's asking about Yethu City. Wanted clarity around whether the model has shared kitchens and bathroom facilities together with communal areas.

Yes. I'll handle that one. Yethu City has only communal bathrooms and kitchens. What you read from us for the ZAR 3,000 to ZAR 3,500 a month is really a room, and for your bathroom requirements and kitchen requirements, it's communal. I think one of the pros that's come out from this particular design is that the kitchen has become a social meeting place for most of these people that cook together. One guy does the meat, the other one will be the rice. And you actually see it happening in the kitchens. And I'm pleased to report that the other concern would be the cleanliness of the kitchen. The tenants seem to be getting into the habit of cleaning up after they have been cooking.

Another question from Charles Boles of Titanium Capital, this time regarding Killarney Mall. He's asked, would you be able to share your insights as to why this property investment underperformed over the time it was held, compared for example, to Woodmead Value Mart, which is reasonably close in proximity.

I think a difficult question, but there's some obvious answers. Firstly, Woodmead is completely different -- Value Mart -- is different to that of Killarney. The choice of tenant mix in Woodmead is smack on the button. It's tenants that produce -- that sell branded products at slightly discounted prices, something that attracts the mass market. Everybody wants a deal. Whereas Killarney is a bit more of a traditional shopping center. I think we've been let down by 1 or 2 of the retailers there who let their business slide. But I guess, pleased to report that our discussions with these tenants is positive, and there seems to be some movement to get these retailers up and running again. Yes, I personally have a concern about shopping centers. I don't think they are as popular as they used to be, other than the convenient shopping centers or the strip mall that -- and I would put Woodmead Value Mart into that category of shopping center. But the other thing is we mustn't forget is that over time, a number of competition has grown in the area and certainly taken away some of our customers. And I guess that the center is due for a revamp. Octodec doesn't have the balance sheet to fix a shopping center like that up. What the yield will be or the increase in return, that's the big question. But I don't think we want to threaten Octodec by spending serious money in Killarney Mall without any certainty of a decent return. That would be difficult, creating difficulties for the Octodec balance sheet.

The next question is from Paulo De Almeida of Clearance Capital. He says there have been previous talks about weighing up the merits of internalization. Has there been any further progress on this?

I think maybe Riaan, you're the right guy to talk about this.

Sure. Yes. So, I think -- thank you, Louise. So, there's about 3 years left on the management agreement that's currently in place. In our engagement with shareholders, some shareholders understand that there will be a price to pay for an internalization, and some shareholders don't want to pay for an internalization. So, when you're engaging, you need to listen to shareholders' views as well. What we are busy with is, of course, to assess the merits thereof and whether we need to internalize the whole of the management company or certain parts of it. So, it is a process. We want to do it very carefully to make sure that whatever the end conclusion is that it's the right thing for Octodec. And whatever price we pay, it is also the right price.

Next, we have a couple of questions from Nicolette Plaatjies of Momentum Asset Management. The first question, what is -- there's a couple of questions regarding Lilian & Ngonyi. And I think we may have addressed them to some extent, but in case we haven't. What is expected completion of the Lilian & Ngonyi Street? Have you had cancellations in this regard? I assume that is related to leases. And have you made any rental concessions in this regard?

Well, very quickly, the revised date for completion is now the end of August, but I give the updated information in a cautious way because it has moved in the past, and there's nothing to say that it's not going to happen again that they'll push out the date. Visually, there is improvement in the area that was affected. We've seen also that they put up lights, street lights, or flat lights so that they can fix during the day -- sorry, they can repair doing construction work in the evening. Yes, we have had 1 or 2 tenants that have lost their business or given up or not renewed, which is understandable because the main problem of the explosion is that it's changed footfall patterns. So, people are no longer walking past the shops, whilst the payments are not -- are still there, they've been reduced in size the width and so people don't walk past them. Have we given concessions? Yes, we have. If you want to keep the tenant, you have to give a concession. New tenants coming in, and there are new tenants that are inquiring about the space, but they're saying that they want to come in at lower rentals. Given that the estimated completion date is sometime towards the end of August, is that something we want to do, sign a lease on the basis of a soft basic rental, is something we're debating on it.

A few more questions from Nicolette Plaatjies. The first one is given the exposure to CBD, do you have any building hijacking? And then related to that, how do you safeguard that you lost 3 property against decay or hijacking? And then she's asked, what is the value of this property?

So, I'm assuming that you're talking about the old Shoprite, big Shoprite building Ngonyi Street. I just think that we -- whilst it is mothballed, we do look after our buildings, and we are visiting the buildings. And so, I think the trick in preventing hijacking of a building is to visit and make sure that nothing is happening there that shouldn't be happening. The building is on our for-sale list, but it's a big building. I think it's approximately 22,000 square meters. Riaan, I don't know whether you have that information, what is the value, our book value of our Shoprite Ngonyi Street?

Yes. So, Jeffrey, maybe just for clarity, also, Shoprite is not the only vacant and mothballed building we've got. We do have a couple in hand. And we, of course, do have necessary controls and procedures in place to make sure that the security is in place and that there's no undue access into those buildings. So, most of those buildings are also visited on a daily basis by our property team. In terms of the size and value of the buildings is just over 30,000 square meters, and it's valued at about ZAR 30 million.

The last question also from Nicolette Plaatjies at this stage is how significant is your exposure to government entities as tenants?

Charlene, maybe you must handle this one.

So in the office portfolio, our government tenants make up just about under 50% of the portfolio. So if you look at the slide where we indicate our offices as a percentage of rental, it makes up in Octodec 19.2% is the office portfolio, and then about 50% of that is government.

There don't appear to be any further questions on the webcast.

Okay. Thanks, Louise. Thank you to all of you for attending, making time to attend to this webcast. Thank you to the organizers of the webcast. Thank you to Instinctif for their support and assisting us in putting this presentation together. Thank you to the team, our team at Octodec for putting this together. I hope to see you guys again sometime towards the end of the year with year-end results. Thank you.

Thank you, everyone.