RMB Holdings Limited (RMH) Earnings Call Transcript & Summary

Okay. Here we go. That's 2:02. Good morning, everybody. Thank you for taking the time to join this virtual meeting. I would like to apologize for any inconvenience that may have been caused with the change from the originally planned Chorus Call meeting to this Teams meeting. We used a similar platform for the AGM last week and for technical reasons on our side, one of our shareholders who wanted to ask a verbal question was unable to get through the land line. We didn't want to run the risk of this happening again today, and that's the reason for a change to a normal Teams meeting. I'm delighted, as I'm sure you all are that we are joined today by the Atterbury team. Allow me to introduce Armond Boshoff, the CEO of Atterbury South Africa; Louis van der Watt, the Founder and Atterbury Group CEO; and DC Kemp, the CFO of Atterbury South Africa. You will be hearing from them a little bit later. I will soon hand over to Ellen, who will take you through the results that were released yesterday. When Ellen is finished, I will take you through a couple of other matters, and then I will give you an update on Divercity and Integer. Armond, DC Kemp and Louis will give you an update on Atterbury and when they are done, we will open up the meeting for questions. When we get to question time, if you do have a question, please raise your virtual hand. [ Kiara ] will then unmute you so that you can ask the question. You would have seen yesterday when the interim results were released at a third special dividend of ZAR 327 million has been approved by the RMH Board. The ZAR 327 million equates to a gross dividend of 23.5 cents per share and will be paid on the 29th of January 2024. Here is a saying that goes, if you don't love to blow your trumpet, there may be no one who will do it for you. For this slide that's up now is us blowing our trumpet. What the slide shows you is that, if you had invested ZAR 1,000 in RMH in December 2020, when the share price was ZAR 1.31, you would have owned 763 RMH shares. By owning those 763 shares, you will have received a dividend of ZAR 610 on the 10th of May 2021. You would have received a second dividend of ZAR 1,081 on the 10th of October 2022. And you would have received a third dividend of ZAR 179 on the 29th of January 2024. The sum of these 3 special dividends is ZAR 1,870. If the market is correct, today's share price at around ZAR 0.62, the exit share price on the 30th of January 2024 will be ZAR 0.38, and your 763 shares would be worth ZAR 290. Assuming that you sold your shares the day after the dividend, the ZAR 290 you get back, plus the 3 dividends you have received translates to an annualized return on your investment of 53%. The 47.8% on the slide that you see was calculated assuming the ex-div share price of 0. This means the worst-case scenario is that, you have received a 47.8% return on your ZAR 1,000 investment over the last 3 years. I will now hand over to Ellen to take you through the financial performance.

Thank you, Brian. RMH's net asset value primarily comprised of the following items: RMH's interest in Atterbury, the Integer loans, the Divercity fair value investment, Ascencia preference shares, cash and a liability for unclaimed dividends. After the special dividend payment, cash will be around ZAR 126 million. RMH's deemed [ specification ] for liabilities and executing our monetization strategy efficiently for maximum shareholder value. Since June 2020, RMH returned ZAR 563 million from the initial ZAR 665 million raised to cover ongoing operational costs as part of the 2020 unbundling. There are no further funding commitments to investees outstanding. After the special dividend, RMH's and RMH properties net asset value will be closely aligned with Atterbury comprising 76% of RMH's net asset value. Pausing on the operational performance, regarding the ZAR 13 million of share-based payment expertise, it represents the accounting cost of shares under the forfeitable share plan. This is an estimate of what participants could receive, not an indication of actual receipts. On divesting date, the forfeitable shares undergo performance testing, and the final number of shares [indiscernible] failure to meet performance conditions could result in a reversal of their recognized accounting expense. The plan is fully hedged and [indiscernible] no dilution for shareholders if the [indiscernible]. A special mention of some once-off items included in the operational performance for this period, the reversal of ZAR 8 million provisional balance for the Section 164 demand following the repurchase of the shares. The ZAR 5 million of legal costs for the Atterbury loan matter resolution, the ZAR 34 million increase in the expected credit loss on the Integer loan. The Atterbury loan matter was legally complex. We are proud that the matter was resolved [ admittedly protecting ] shareholder value. We welcome Atterbury's management to our investor call today. And I will now hand back to Brian. Thank you.

Thank you, Ellen. There were 2 subsequent events mentioned in the financial results that I would like to highlight. With regard to the APH loan matter, RMH and Atterbury agreed on repayment terms for the ZAR 487 million in August. And by the end of November, the loan had been fully repaid in accordance with those agreed terms. As a result of the repayment, RMH is in a position to pay the dividend of 23.5 cents and RMH has increased its shareholding at APH from 27.5% to 38.5%. Integer 3 sold 2 properties. The net proceeds from the sales of ZAR 84 million were applied was repaying a portion of the disproportionate loan owning by Integer 3 to RMH. The disproportionate loan from RMH was due on the 17th of November 2023. This has been reduced over the last 8 months from an outstanding balance of ZAR 133 million as at the end of March to ZAR 34.5 million as of today. The outstanding balance of ZAR 34.5 million is now in default and will accrue interest at prime plus 10%. To date, in line with RMH's monetization strategy, RMH has declared ZAR 3.456 billion in dividends to shareholders. This is a 70% -- this is 70% of the value of the June 2020 NAV of RMH. The market environment, narrow buyer universe and limited liquidity are challenges to the monetization of the portfolio within the stated time frame. Despite these challenges, management continues to explore opportunities to monetize the remaining assets in the portfolio in a manner that best promotes value creation for its shareholders. I'd now like to give you a brief update on Divercity and Integer. On Divercity, the net asset value of Divercity decreased over the period by 12% from ZAR 1,065 million at 31 December 2022 to ZAR 953 million at the 30th of June 2023 in what can only be called a challenging environment. The challenging environment is really that often exacerbated that because of after years of neglect, the urgent work required to address the Joburg inner city's infrastructure maintenance backlog now well exceeds the capacity of the municipal-owned entities pass to that job. This same problem plays out in basic service delivery from waste collection to public safety. All these factors force landlords like Divercity to allocate additional resources to step in to supplement what should be public services and to hold the city to account through continuous engagement. Despite the challenging environment, Divercity achieved the following milestones: a 95% portfolio occupancy was achieved for the first time since the COVID-19 pandemic; they have commenced with the Barlow Park development, which remains on track for the initial launch in February 2024; Divercity is also undertaken and secured its first development in Cape Town called 9 Hopkins; the Divercity team successfully concluded an equity raise of ZAR 555 million with [indiscernible], who is a French Social Development Fund, 27Four Investment Managers from South Africa and the existing shareholders of Divercity. RMH did not participate in this capital raise. And as a result, our shareholding in Divercity has decreased to 7.17%. I have already mentioned the sale of the Integer properties. So let me take you through what is left. There are 3 properties remaining in Integer 3. The first picture is SSD, which is a call center in Cresta. There are 2 years left on the SSD lease. The bank debt gets paid to 0 at the end of the lease term, and it does not make financial sense for Integer 3 to consider selling the property before that. The warehouse in Montagu Gardens is in the middle. Montagu Gardens is in the Cape and the property is occupied by Robertson and Caine. Robertson and Caine built luxury yachts and the production line for the [ symbol ] of the yacht, the yachts spans 2 properties, of which ours is one. The tenant recently signed a new 5-year lease and much like in the case of SSD, the debt reduces at an accelerated rate over the next 5 years, which means it does not make sense for Integer to consider selling the property in the medium term. The last right asset remaining is Integer's 50% share in Millenium. Millenium, the company is developing the Big Tree residential estate in Northriding. The final phase of the project is due for completion in the third quarter of 2024. As detailed in the financial results, the expected total cost of Millenium exceeds anticipated value and completion. An expected credit loss of ZAR 37 million was recognized in respect of the recoverability of the RMH shareholder loan to Integer as a result of this negative equity. Integer's partners in Millenium are both the property developments and the property managers. They are confident that the value of the property will increase to a level that exceeds the company's liabilities over a 5-year period from completion. Integer's strategy is, therefore, to be a medium- to long-term investor in Millenium. In summary for Integer, it is unlikely that Integer will sell any of the remaining 3 assets in the next 3 years. Therefore, for RMH to execute on its strategy of monetization, if we'll need to sell its 50% share in Integer 3. RMH does not expect Integer to sell the 3 remaining assets in this environment. I would now like to hand over to Armond for the main event to update on Atterbury.

Thank you, Brian. I think in general, we are quite satisfied with the performance of the Atterbury portfolio for the year 2023, as well as the rollout of the development pipeline, and even more excited about the pipeline to come. But to summarize our performance, the Atterbury net asset value increased by ZAR 113 million for the year, mainly due to new developments, including Castle Gate and Castle Gate lifestyle. The year-on-year net operating income increased by 12.1%, and that was mainly driven by normal escalations on the leases, as well as the new developments coming online in our portfolio. In terms of expenses, you see that the property-related expenses increased by 12.6%. So quite outside of normal inflation, and that is as expected, mainly due to municipal expenses, and these generate cost due to the increased load shedding that we have been experiencing the last 12 months. And we don't expect that to decrease anytime soon. Finance costs also increased by 9.4%, and that is mainly due to the hikes in the interest rates, about 225 basis points in the year July 2022 to July 2023. Our main assets Castle Gate, Mall of Africa, Newtown, Club and The Grove make up about 60% of our portfolio with about 52% of the income being derived from retail, about 25% from commercial and then the balance coming from the industrial portion of the portfolio. In terms of trading density, you would see that our trading density showed great growth for the last year. If you compare the trading density from June 2022 to June 2023, we're standing at ZAR 3,821 per square meter, which is a 40% growth in rent to turnover. You will see the outlines there being Castle Gate retail, which is trading very close to ZAR 8,000 a square meter. In fact, if you take September numbers, you will -- that would have exceeded ZAR 8,000 a square meter. The super regionals that we've got in our portfolio in Mall of Africa and the Grove Mall of Namibia is trading exceptionally well. The convenience retail centers, The Club retail and The Village Old East, the Club [ base ] is also performing exceptionally. You will see Dunes and Dunes Phase 2, which was trading at about ZAR 2,500 a square meter, we've sold that and we transferred to Oryx Properties, a listed Namibian Property Fund in August this year. Then Africa Mall was muted in 2021, and we refurbed it, and it's trading. So that's why you would see a big increase in the trading density of Pan Africa. Newtown Retail is an asset that is under a little bit of pressure, located in Johannesburg CBD, but we are focusing on strengthening the retail there. And hopefully, we can turn around that asset. You will see rent to turnover at 6%, which is very healthy. Normally, it's somewhere between 8% and 10%. So that's an indication as well that our centers are not over traded. In terms of GLA under management, almost 550,000 square meters, up from 525,000 last year. That's due to new developments coming online. We've got a vacancy of 4.6% and 25,000 square meters. That is mainly due to a vacancy of the first floor at Newtown Junction. As of the reporting date, there was 4,000 squares vacant at Mall of Africa, which has subsequently been filled. And then the balance of that relates to 2 office components being Majestic, which is also Newtown and in Riverwalk, which is in Pretoria. Our weighted average lease expiry period is at around 3.5 years with a weighted average lease escalation north of 6%. On the right-hand side of the slide, you would see our vacancies as a percentage of asset class. So retail, we're at 6%, which, again, is mainly due to Newtown and Mall of Africa, commercial at 5.6%, which is well below the market average of 17%. And then our industrial portfolio is fully let and it has been fully let in the last 2 years. Moving on to our development pipeline. These are developments that we are currently busy with. King Air -- on King Air there's a large Truworths distribution center. King Air is right next to the Cape Town International Airport. We handed over the building to the tenant last week, Tuesday. So they are busy fitting out and they were moving soon. Castle Gate lifestyle, which is an extension of the current Castle Gate retail precinct. We're nearing completion, and we will commence trading on -- in that asset in April, May next year. We're actually opening the bridge that we constructed over the N1 that links the neighborhood out of Erasmus Kloof to this precinct now I think this morning that bridge is being opened. At Richmond Park, there were 3 developments or there are 3 developments taking place at the moment. Solar MD, which has actually commenced trading. Brights Hardware, which has also commenced trading and then the expansion of the Takealot distribution center, all of them at the Richmond Park. Barlow Park, Brian, referred to you Barlow Park when he discussed Divercity, we are the co-developer with Divercity on Barlow Park Phase 1 and 2, and it's going very well with the Curro actually opening on the 5th of January 2024 and the first tenants moving in February, the first residential tenants. The retail will open in April. Castle Gate lifestyle I discussed. Pan Africa Mall, like I mentioned, was muted in 2021. We refurbed the Phase 1 and its trading, and we are expanding the shopping center, which will hopefully open in October 2024. And that's it from Atterbury side. Thanks.

Thank you. Well, and so that would you going to answer a question. So if I'm not mistaken, there are 2 questions. So please, if you have a question, could you raise your hand and then it will be directed to the connected person, and [ Kiara ] will enter the queue. Thank you. [ Kiara ]?

[ Albie ] has got his hand up.

Can you hear me?

Yes, Albie we can hear you.

Louis -- Brian, I guess, the main question from a lot of people, investors is the concern about the high gearing of Atterbury. I think you might have seen some of the commentary on social media. Maybe the Atterbury guys can hear maybe address that concerns and maybe I can lead into that. I've -- last night, I read the Annual Report -- not Annual Report, the financial statement, and I see the strategy is now stated as an asset realization strategy probably. Is that a change in strategy? And then as a follow-on from that, can you maybe talk to the subsequent events? It seems to me that a lot of assets that were also sold was in fact sold and maybe give us an account of the total proceeds of those sales.

So the first one, I will certainly allow Armond and Louis to give their own answer. But, I mean, the gearing that we have now in the Atterbury group of below 70%. We really have to distinguish between the listed REIT sector and the private property industry, specifically developments. And, I mean, I don't have an industry average. I mean, I'm sure we could get an idea from somebody like Nedbank and RMD and Standard Bank property divisions. But from our 30 years of being in property and most of it as a banker or not into a banker. 68% is actually on the low side of the range of a private property developer in South Africa. So it may seem higher in the world of the corporate listed property companies, but the fact is, it's just -- it really isn't. And I don't think that Atterbury would target to have an LTV much lower than where we are now. And there is some work, and it's an ongoing work to reduce -- well, increase the interest cover ratios and debt service cover ratios, which I think are far more important to a private property company in LTV. But we are not remotely concerned about the -- what the social media was calling a high level of gearing. Louis, would you -- or Armond to comment?

Yes, maybe -- I mean, in the 30 years, we at Atterbury I think this is the lowest we've been get. So -- and I think that's the reason why most developers are [indiscernible]. We are used to this sort of gearing and this is how we make our money. And I think that is also the reason why property developers shouldn't be listed companies. It's -- the leads play a completely different role and if you invest in a lead, you've got a complete different mindset. If you invest in a entrepreneur or in a developer, I think the whole idea is to have high gearing in order to make as much money as possible of somebody else's money. And that's the way we've been operating over the last 30 years and then -- but in an ideal world, I would like to go to about 60%. I mean, that's the sort of the lowest -- but if we go under 60%, then we're not doing our work, then we should rather sell their assets and become a lead.

Very good, it becomes a [indiscernible].

Yes.

I mean, Albie, to add on from a balance sheet management perspective, there's 3, let's call it, KPIs that we monitor. One is the LTV. So like you said, actually something between 60% and 65%. And then also interest cover ratio, net service cover ratio because there's no use that you gear at 65%, but you can't pay the debt. So we try and get the gearing level to such a level where our equity does not become lazy, but our portfolio can still watch its on face, so that the portfolio is not a cash-consuming portfolio, but at least the cash-neutral portfolio. So if we're at the interest cover ratio of 1.25, debt service cover ratio of 1 and LTV of between 60% and 65%, I think we're comfortable as a management team.

Okay. And maybe speak to the subsequent sales of property. Can you maybe just expand a bit there? I see the instance that the Club precinct and Castle Gate 50% undivided share was constant to your company, but you're on like over 60% of that, is that true or something?

Yes. So, I have DC Kemp, maybe go into the numbers, but there were 3 asset transactions that we concluded up to today. One is the sale of Dunes Phase 1 and Phase 2, which I alluded to in my presentation. The other one is that, our 50% stake in Old Mint, which we owned with Old Mutual, which was sold to Old Mutual, and that closed very recently and then 30% of the Castle Gate precinct and the Old East precinct, which is where our office is, which we sold, but we are sold to 70%, we have still hold on our own. And so, those were the 3 main transactions and equity injections or the disposal proceeds between which we concluded this year. And then [ DC Kemp ].

Yes, I think on Old Mint, the proceeds were ZAR 110 million on Dunes 65, and then on the 30% that we sold to Twin City on Castle Gate and Club precinct, so ZAR 150 million, and we used that cash firstly, to repay the ZAR 163 million to RMH. And the second year, we had ZAR 18 million bullet on RMB preference share loan facility that we also paid. So that was the cash was used to redeem it a bit.

But I'll be maybe just more from a philosophy side. If you look at the rent to turnover, I always say that is the most important, if I evaluate the property. Now, our rent to turnover at the moment is 6%. That means that there is a lot of upside in the buildings on your renewals. So if you take Mall of Africa or even Castle Gate, we've opened a Castle Gate in the middle of COVID and we were under pressure with the rentals that we achieved there. But now the 5-year renewal period is coming up next year, the Mall of Africa just went through their 5-year renewal period. And what is nice if your rent to turnover is so low, then you know there is room on the upside to increase your rentals with more than the normal inflation. And I think that is where we're different to some of the bigger regional malls that I've seen where they've got rent to turnover ratios of 10% to 12% to 13%. Those guys took a 20%, 30% WACC on their renewals, whereby we've got more than inflation on our renewals to collect them. And with a 6%, we're still on the low side. Now, we will only sell properties once we've unlocked that value. It is -- so in the first sort of 4, 5 years, unless we've got something very good to do with the money, we won't sell a property because we usually achieve a much higher estimation after that first renewal period. Exactly what happened at Castle Gate now. We had to sell a stake there to Twin City, and then we were happy with that because it unlocked the rest of the property. The problem with property nowadays is that, the bulk infrastructure that was easily provided by the municipalities, they don't do that anymore. So you have to do that yourself. So we had to start [indiscernible] enough money to bulk service the remainder of the property. That's why we sold it at an early stage because it was right now for the redevelopment. If it -- it's not for redevelopment, further development. If it wasn't for that, we wouldn't have sold the stake. But on the other -- the bigger assets that we are selling, we always wait for that first 5-year period to get the better estimations and then only a pretty big market.

Yes. I think what you're basically saying is that, your property has a very good and high-growth vector that you need to build into your [indiscernible]. I mean, if you look at your current yield of the property 7.75%, you seem to say and it seems at least on the figures that you can increase your rates for quite some time about inflation or [indiscernible] at least that you should get that growth, too.

Yes. And especially in the properties that perform well. If you take this Old East precinct, you get a rental, but because the tenants are trading well and you see the turnover, the turnover rates are cyclically. So in your valuations going forward, you expect that to come through in the valuations. So apart from your normal rental, you also get turnover rental. And that's why we look very carefully at the turnovers of the tenants achievement. We do everything to increase the turnover because that is where our upside is.

And then just lastly, I think there's another -- the Pan African Mall was sold during the 1st of December. Is that due to 85?

Yes. Well, we haven't received -- that transaction is still ongoing. We haven't received the proceeds here. So we're expecting to receive the proceeds in February.

It's still subject to the competition commission. So -- but the deal that we've done, but it's still waiting for competition commission.

Hand up from [ Nick Cooper ].

Sorry about that. That's an opportunity to talk to Atterbury. I mean, we're still trying to get our arms around Atterbury trying to understand them. But there's a little bit of a conflict in that as RMH shareholders, we kind of aiming for a liquidation of RMH. And then Atterbury on the other hand of wanting to develop properties and maybe only realize them over a 5-year period, if I understand correctly. So how do we reconcile those 2 kind of different goals?

Nick, I think -- I mean -- and I will be [ created ] if I'm wrong, I'm sure. But I think we've said before that there's really 3 ways that we explore or look at monetization in terms of our strategy. And one is that we -- somebody could buy the whole of RMH, coming back with an offer for the company is getting smaller. So that's a possibility. 2, is to sell each of the investments like we sold Atterbury Europe. So we would have to sell our stake in the, I think, 89% share in Atterbury or our 7.17% share in Divercity or our 50% share in Integer. As I mentioned, I mean, Integer has the same mission. We can't force Integer to sell properties that are not an opportunity time because of a higher monetization strategy, but we can't sell Integer. So we have never had the positive control. We only have an element of negative control at Atterbury. So we've never been in a position at any agreements we would be to change the strategy of Atterbury. So we are fully aligned with the Atterbury's view. We're a 38% shareholder. Almost all the staff are part of the balance of the shareholdings. And Atterbury as a company has to do what's best to maximize the return and the value for everybody. So if it doesn't suit our monetization strategy that Atterbury is not in a realization of asset phase because they want to maximize their value. And it doesn't mean that it's an end or a disaster for our monetization strategy. It just limits us to the first 2 options, which I've always thought to more likely anyway, except an Integer. We thought that we had to control selling assets was easy, but we now are down to 3. So we've done a lot, and it doesn't make sense to sell that last 3. So it just limits our options as opposed to putting it into the strategy. If that makes sense.

And Nick, I just want to add there to Brian, I mean, he doesn't need after 5 years we sell the property that we're not going to reuse that money and really develop. I mean, it's not guaranteed that we will declare net profit as a dividend. If there's opportunity, and that's what we've been doing. If we don't have anything else to do with the money, then we would pay the dividend or obviously repaying debt. But we are constantly looking for new opportunities that will unlock new values and whatever money we realize, we will reinvest in the new opportunities. I mean, that's how we've grown our balance sheet.

Okay. Yes. It's difficult to me. I think our goals are slightly different. Obviously, I'm looking for distributions from Atterbury. And it seems like you -- I think you've got a CapEx budget of about ZAR 500 million for next year, capital commitments over ZAR 500 million. So you need to think about how you're going to fund those -- that capital budget, you're probably going to fund a lot of that with proceeds from sales. Would that be correct?

Yes.

And then, I thought, just a drill down in the strategy was it more for Atterbury. I mean, the Barlow Park development, it looks like a very impressive development. And I would have thought the natural path would be to sell the residential apartments that you're building, yet you're going for a -- you're not selling them, you're renting them all out. Can you just walk me through that why you decided to rent rather than to sell?

Yes. I think we actually are only doing the development for Divercity. So we're not a shareholder in the Barlow Park. So we unlock the -- we saw the opportunity. We're doing the development. We're earning development fees, but that property falls in the Divercity portfolio. And there, you have to speak to them, but their long-term strategy is to rent our property. That's what they are doing. So our involvement here is clearly putting together the deal and doing the development for them. We're not an owner in that. We obviously a shareholder like in Divercity, not only one of the shareholder there, but in Barlow, we're not a direct shareholder.

I thought you had about a 27% interest in Barlow Park development, is -- was that the effective interest through Divercity?

So [Technical Difficulty] when we started the development, we had an effective 12.5% stake in the asset. Subsequently, the Divercity bought our 12.5% from us. So we're not a shareholder in Barlow Park anymore.

But we will see the development through and finish the development for -- on behalf of...

If I may, and actually, it is an answer to your question, the reason why we chose to saw it, and I've got to be careful of saying we here because I'm not Atterbury, but I was in Divercity. The reason why Atterbury decided to sell it is because we didn't fit -- feel that it fitted into our portfolio, and we did feel that it fitted into Divercity, and Divercity actually approached us because they [indiscernible] the development and it's certainly great. And they approached us to buy their pref shares [indiscernible] [ 12.5% ]. So for the exact reasons you say is what prompted the whole transaction happening between...

Actually drawing, there was always the agreement that at a later stage [Technical Difficulty] so that was the intention from day 1 [Technical Difficulty] because like the development.

Okay. I'm going to leave it there. I might come back if no one else is taking questions.

Nick, I think your hand is still up as one.

Chris, you can go ahead? Chris, can you unmute yourself?

Hello, can you hear me?

Yes, go ahead.

Yes. Thanks for bringing along the Atterbury team. I think that's a great thing. And just I think what Nick was touching on, he was talking about this monetization, if I can just go back a bit, the history of RMH always used to be to run with great teams until recently. And obviously, it did fantastically out of that. And Brian, in the past, you said you talked to Atterbury Europe that it's run by a phenomenal team. It seems to overcome whatever challenges it's faced with. Is -- can I just ask, is this the same team -- sorry.

Shall I answer, no. No, Atterbury got -- can I answer, Nick -- Chris? Yes. we've got -- there's a Atterbury Europe and there's Atterbury South Africa, complete different teams. The Atterbury Europe team originated from the Atterbury South African personnel. So we've got a separate CEO and a separate FD and a separate team completely in Europe, and then we've got one in South Africa. The Europe team make use of the South African people on specific developments on asset management. Myself are involved in both companies Atterbury South Africa and Atterbury Europe. So I play a role in both of them. And then, they are key personnel of Atterbury South Africa, who also plays a role in Atterbury Europe, and they get a portion of the development fees, and then asset management fees from Europe. But it's 2 complete separate companies with 2 -- separate FDs and the executive teams are different in the 2. And there's 1 or 2 key personnel, which overlaps and I'm one of it.

No, sure. And it's just being somewhat forward, you haven't sent your best players offshore. And...

No. No, I think that is the younger guys that went overseas and there's some of the older guys that remained here because they don't want to move overseas. But I would rate the 2 teams equal. It's 5 years or 6 years or 10 years ago, I can't remember when we started Atterbury Europe, we had to decide who are prepared to move offshore, and these guys have been [ nearly ] there for the last 8 years. But there's no, I think, in my mind, I mean, the 2 teams are very similar the way we develop, the way we operate is all more or less on the same boat.

Okay. No, that's great. And then just the South African environment seem as hostile. And notwithstanding that you've got a very good team in SA, do you think the environment in South Africa is conducive to generating great returns over time, given the strength of your team.

So before I need to -- I won't talk specifically about Atterbury. On a more general like environment -- actually to the environment issue, I mean, the environment is tough not, as I mentioned in my -- in my one slide with regards to [ bigger ] liquidity, higher interest rate environment. But one thing that I personally take comfort from after having been in the industry for 30 years, is that there's just one -- the only certainty that we have, and we're running down the past, the only certainty that we had is cycles. So I take a lot of comfort and confidence. And in terms of the future of property industry in South Africa on the basis that, so far, we haven't been [ fully ] drawn that it goes in cycles. So we're in a bad cycle now. And historically, it's actually in the bad cycles, where you can create great opportunities when it turns. So that's my general answer on the environment. I'll just let [ Brian ] to be very specific.

I mean, without underestimating the toughness of the SA environment, I think our assets and where we locate our assets, there's still a lot of opportunities there. If you just look at, for example, our precinct, we've got 0 office vacancies with a waiting list of tenants wanting to move in here. Our trading densities are growing year-on-year. Castle Gate is the same. So is it easy to find those opportunities? Definitely not, but those opportunities are there. And we like to think that we are probably one of the best teams in South Africa to be able to capitalize on those opportunities and unlock them. If you look at our industrial portfolio, again, 0 vacancies and we've got very nice developments, blue-chip tenants, long leases, et cetera. So I think is it easy? It's definitely not easy. But where we see the opportunities, I think we really do it well. And I mean, I think that's a testament. Also another thing specifically on disposals is, I think we can -- we have been achieving our values on value, selling our assets on value because of the nature and the quality of those assets, which again is a testament to the opportunities that we unlock and the way we manage our assets.

Thanks a lot. With what's just being said, Brian, I certainly hope you don't go sell them at too big a discount too quickly.

Chris, as I said to you before, I didn't [indiscernible]. I bring opportunities to you. You guys decide to yourselves, [Technical Difficulty], that's my goal.

Question from [indiscernible].

[indiscernible] here. Could you maybe just summarize how you see yourselves? What is IPOs? Obviously, you develop a lot. But could you maybe just talk in general about your business model? Or maybe if you want to go into more detail, let's say you identified a project, how does it work on day 1? What is equity? What is [indiscernible]? Now you build it eventually its finished, you decide you're going to get better than margin. Then you decide am I going to keep it or sell it. If I sell it, what you're going to do with the cash once you get that inked. So it's a bit of a general question because you've got lots of assets and only now started to go through the financials on Page 3, I think for example. So what is IPOs, how do you see yourselves? What's your vision? And maybe just talk for your model.

[indiscernible] I think the biggest equity we have is the skills that we've got. We try to do deals, where we put in as little as possible money, but we use our skill to either negotiate the shareholding or create a shareholding for our staff. So a lot of the deals that we've done lately is where some of the bigger institutions sits on either land or they need the development skill, and they would partner with us. We will never develop purely for a fee. We want a stake in that. So that's sort of the starting point. If we really like the opportunity, we would put in cash with the stake that we negotiate for our skill, then we would develop with the partner. There's very few of the developments that we do on our own because we haven't got the balance sheet or the cash to do it on our own. So we will partner with mostly bigger institutions. And then on completion, we would keep it for a while, and then either sell to them or if it's a great asset, we will keep it a bit longer. But at some stage, we will try and sell that asset. And then with the profits we make, we will again use that with our skills to use that as equity in a new deal. From time to time, we will sell a smallish portfolio, or we would list on. I think over the last 30 years, we were involved in the Hyprop. I mean, we sold 5 or 6 lease shopping centers to Hyprop including 8 or 9. We listed Attacq with the portfolio. So at the moment, we are again building up a portfolio. If the price is right, we will sell individual assets. But at some stage, we will do something with this portfolio when the time is right. And that money, we will then either clear out or we will use it and start a new project and that's [indiscernible].

Okay. So what return on equity have you generated [indiscernible] in the last 7 years on average. And going forward, is more important, what do you target? Obviously, you keep a lot of cash in, so it all gets -- that the ROE is going to be in your NAV growth pursuing the business.

We told -- we at the [indiscernible] we target 20% to 25% every single deal.

Yes. Understood. Per deal 20% to 25%. I mean. I'm not sure...

Yes. I think the last 3 years, 4 years for obvious reasons have been less, I mean, need to go, et cetera, and somewhere between 10% and 15%. But definitely, our target is -- our price is minimum 20% return. And I think once we get rid of most of the head office stake, which we are actively dealing now, I mean, it will be easier to get there.

Okay. Just one last one, if I may. And before I finish, thanks for making your financials available. And -- but the RMH presentation yesterday, the results did show sort of a target LTV. But do you still go for your 60%, 65% because if you reduce head office stake, as you just see, it might actually go lower.

Yes. Like I mentioned earlier, I think in one of all these responses [Technical Difficulty] we've got 3 metrics that we aim to manage. One is LTV, one is interest coverage ratio, and one is debt service coverage ratio. So currently, with the high interest rate. our debt service coverage ratio is below our stated KPI. So that means we need to bring our debt lower, right, to meet those KPIs. To the extent that the interest rate drops by 5% again, 3% again, your interest coverage ratio is going to shoot up, and we need to put a little bit of the gearing capacity on your balance sheet. But all that being said, we always try and have our portfolio to be at least cash neutral and not consume cash. To give you an example, 4 years, 5 years ago, we had to put in about ZAR 350 million of cash into our portfolio to pay interest and debt because we just -- we were just so [indiscernible] at that point in time. So that is obviously not sustainable. So we went through a big capital restructure program, where we actually, for that purpose ignored value, but looked at cash flow generated out of the portfolio, and we rightsized our capital structure accordingly. So that's how we look at balance sheet management and how we manage our capital structure like that. So currently, I mean, as you mentioned, our LTV is actually without KPI. But the interest -- the cash KPIs are actually below where we want to. So that's why we need to have our debt lower than our stated KPI.

Matthew, go ahead.

Can you hear me?

Yes, Matthew, we can hear you. It's been a while.

Yes. Just a quick question. Is there any lockup or restriction on your shares in Atterbury. I mean, are you free to sell those shares to any party? Or does the other Atterbury shareholders have a veto or first right of refusal on that shareholding.

The other shareholders are preemptive, but any shareholder here are welcome to sell their shares, but the company has the first preemptive and the individual shareholders the second preemptive on...

[indiscernible].

So first, the company.

First, other shareholders in Nedford and then RMH in the company.

Okay. So if you wanted to sell those shares to the PIC, for example, it would first go to either Atterbury -- and then if there was no preemptive then you're free to sell. Okay.

Yes. Shareholders in RMH and then [indiscernible].

Nick [indiscernible] or do you have a question?

No, I have a question. I'm going to just dive into 2 of your bigger assets just to again improve my understanding of the Atterbury business. Let's start with the Mall of Africa stake. I mean, that's a big asset in your hands. The PIC came into the market and bought a whole lot of assets from Attacq. And I have to assume that they probably try to buy them all of Africa from you. Maybe you can confirm or deny that. But maybe you can just talk to me about the future of your interest in the world of Africa. Are you struggling to sell that asset because maybe a tax trading at such a big discount to book and they're the natural buyer, give me some more color on the Mall of Africa.

Okay, no problem. So Nick, I mean, we haven't had formal discussions with Attacq on buying the share. I mean, after the PIC invested in that portfolio. So just to answer that.

PIC can turn off from us?

PIC can turn on from us. The -- I mean, and our -- it's really our view. It's a large asset, which is trading well, which means it's an expensive asset. And so, there's very few people, I think, with the balance sheet to buy 20% of the Mall of Africa. So that kind of just qualifies a lot of people. And then secondly, the guys with the balance sheet, so the listed REITs, for example, which will be a natural buyer, I think they're trading at well below NAV. So is it the best for their capital allocation to buy an asset at full values firstly? And then secondly, to own a minority stake with another REIT, I think, is difficult. So...

But I think to be fair, yes, I think that is the asset or the regional board in South Africa with the highest growth both on turnover as well on -- and as I said, we think it is under rented at the moment. If it again play more of Africa's rent to turnover, we think there's a lot of upside. So we now agreeing to sell that stake. And if you look at the Attacq results presentation and you see the performance of Mall of Africa compared to the other malls, then you will understand that we think there's a couple of years of growth still there. It's doing exceptionally well. And we're not -- I mean, we don't get the value that we attached to that. We will definitely not be a seller at this stage.

And talk to me about the growth in -- I think it's in Windhoek and that's another big asset on your books. What are your -- what are the prospects for that asset and what you plan to do with it?

I mean, again, it's a very well-performing asset. If you look at the Kleine Kuppe area in Windhoek, I mean, there's massive developing -- development happening there. A lot of the corporate financial services guys are moving out of town around this. So it's a lot of development. So we believe there is -- there are still some upside in the trading of that asset. Again, it's a large asset in Namibia. So this qualifies a lot of people and a lot of potential buyers in country. We sold buildings to Oryx. And it's a far smaller asset, but raising the funds from the purchasers' perspective was not simple. So for example, they would not be a natural buyer for that asset. So the asset is performing well, and it's doing well. If we find a partner for 25%, 50% of that asset, we will consider it. We are actively talking to people on buying that asset. But again, it's a large asset on our portfolio. It's a large check for someone to sign. And it's -- I think there's one in-country institution, which a government that can buy that asset with a big enough balance sheet. I think that's just the reality.

If I may on the [indiscernible] sorry, Nick here.

So I just wanted one more on -- I'm not sure you pronounced that the Newtown about ZAR 750 million, let me get the pronunciation, right?

Newtown.

The Newtown precinct, yes. Maybe you can just talk about that asset and I'm done.

Yes. I mean, it's a precinct that consists of a shopping center, Newtown Junction and Majestic, which is a commercial space, the Nedbank office in [ town ] about 30,000 square meters of commercial space, and then a City Lodge. The retail asset has probably been struggling since inception, and we've now taken a strategic decision to move 1 -- 2 level retails to 1 level retail. So basically holding the size of the retail space to strengthen the retail that is there, and it seems to be working and then repurposing the top floor of the retail into either sharing call center space, commercial space. Majestic was actually included or signed a deal with Richfield College, which is a marketing tertiary institution that's taken up that space, and they're quite enjoying that area. The office polling is still occupied by Nedbank that is coming up for renewal in the next few years. So we are busy with discussions with them. They will probably not renew for the full space. So we're working on finding alternative tenants. And then, the City Lodge again, hasn't been trading well since inception. So we believe that they will not review their lease when that comes up for maturity in -- at the end of 2025, I think. And so again, we are -- we have done alternative design, student accommodation, resi, et cetera, that we -- that we can repurpose that building. So I mean, that is probably one of the assets, if not the asset in our portfolio that we are concerned about. But because of that concern, we've appointed a dedicated asset manager now he sits there in [ London ] and we can already see the difference. So it's something that we are actively managing on that specific asset to not only turn it around, but also to preserve value.

So -- and guys before, we -- asking more questions, I maybe need to sit here for another hour, but we did put it -- the meeting was for an hour, so I just want to make sure that the Atterbury guys might limit as much time as me, and I know want to really go.

We've got a marketing meeting, but we can just move it up by 15 minutes.

Can we do it? You're happy with that.

Let me just ask them to move.

So can we take another Atterbury specific questions for 15 minutes, any questions that are already mentioned, yes, I'm in no rush. So I think, [ Kiara ], you can go on to Chris. I think his end up next.

Yes. Chris, go head. [ Albie ].

Brian, I mean, yes, Atterbury is very important now in RMH's life. I just want to confirm maybe Ellen is here, she's not here, maybe just can you confirm after the dividend is going to be paid and maybe -- and just confirm how much cash flow RMH then be left over? Because based on my preliminary calculations, excluding the cash and the dividend Atterbury would be more than 95% or at least 95% of the value of RMH going forward. Is that correct?

I put the number 76%, and we'll have about ZAR 126 million in cash.

Post the dividend and excluding net cash...

Yes, post the dividend.

Post the dividend, well how much cash be left.

ZAR 126 million.

Okay. So -- and how much million is going to be paid in dividend, about ZAR 327 million.

ZAR 327 million.

So it's about ZAR 450 million, if you exclude that ZAR 450 million from the current [indiscernible] is ZAR 1 billion. So Atterbury will be around [ ZAR 53 ]...

[indiscernible]. Yes. So it depends whether you keep the ZAR 126 million in the NAV that we will still had.

Okay. So it's at least in the 90%. So it's definitely RMH will be a property for Atterbury going forward. Louis, maybe you can just tell me that Barlow World stake you sold into Divercity. Did you have the option to take cash for that stake? Because I see you took shares. And -- but Atterbury now owns 14% of Divercity and RMH also own about nearly 10%. The Divercity hasn't done well the last 3 years, look at RMH's result, the valuation decreased. Can you maybe talk to...

Louis will answer.

So I'll be -- it's slightly complicated. So if you saw in the capital raise that was done by Divercity. So the Divercity management secured a capital raise of ZAR 400 million [indiscernible]. And though for [indiscernible], the French firm made a conditional upon the existing shareholders putting some cash in the [ ZAR 155 million ], which made the equity raise to [ 555 ]. And Atterbury from today contributed the portion of the [ ZAR 155 million ] are putting in the -- some of their stake in the Phase 2 of Barlow. So that's how wide -- it looks like there's been a change of shares. RMH did not participate in the capital raise. And that's why we were diluted down from the 10% you mentioned now to [ 7.17% ]. So that's why there seems to be a bit of movement in shares. It was all part of the capital raise, which was a condition. So yes, it was a big discussion and a big decision for Atterbury and our RCs and our Board because it was -- we have to put our share of the [ ZAR 155 million] in order to get to the [ 400 ] and the [ 400 ] for Divercity was kind of like essential. It sounds like is creating value by putting it in.

But I'll maybe and the reason why we were happy to do that, it's the first time now that Divercity actually have cash equity to do new developments. So since the [indiscernible] deal, we've approved 2 or 3 new deals, which will be similar to the Barlow type of development, which we like. So we didn't mind to slightly increase our stake. And then, in the way of doing that, we've got another [ ZAR 400 million ] from the French company, and now we can utilize that money in new developments. So I think strategically, it was the right thing for us. And obviously, it shows commitment from the developers to the French company. They would want -- they wanted to see that Atterbury will be -- may involve, and we're happy to do that. We -- of course, we play the development role for that company. Previously, it was existing assets that were put together. It's the first time now that we actually have the cash to give new development. So I think the yields would also improve over the next couple of years in Divercity.

Okay. And then just on the Ascencia limited shares, Atterbury on 9.8% value at ZAR 372 million. Can you -- so I'm trying to understand the link preferences that RMH own that is linked to the Ascencia shares, how does this arrangement work exactly? And the pref shares is it linked to all of Ascencia shares that Atterbury property owns or just part of it? Can you just maybe explain because this is very confusing what's happening there?

Yes. So the preference shares is linked to ZAR 150 million worth of Ascencia shares. So if the Ascencia shares has been Atterbury property, if any of those shares are sold, then we redeem the preference share both to Nedford and to RMH. So initially, it was ZAR 150 million. It came down with the share price that went down to, I think, [ 19 ]. So I think outstanding now is ZAR 97 million, which is [ ZAR 27 million ] are to RMH and then [ ZAR 70 million ] due to Nedford. But it's ring-fenced to that amount of Ascencia shares, which is not in Atterbury property.

And if you might know the shares [indiscernible] Atterbury property.

[indiscernible] Atterbury properties.

But to answer you that the -- any shares that are sold is the first going towards settling the -- for shares that are owned [ 72.5 ] for Nedford, [ 27.5 ] for Atterbury. So they can't sell Ascencia shares, it's because the Ascencia shares and do something else with the money. They're large [indiscernible].

Okay. So from what you just told me, there's about [ 97 million ] inside...

APH.

APH and other...

Yes, that will come together. I don't say [indiscernible].

Okay. So the total between the company is only ZAR 372 million, is that correct? What is the liquidity like of the Ascencia limited shares on the Mauritius Stock Exchange because I see off the listing, the NAV was about [ 17 ] and dropped to [ 30 ]. It's one of those anomalies [indiscernible] company credit much higher than NAV, were you not -- was it not possible for you to sell shares at that stage? Or...

Well, we did the deal at that stage. We were hoping [indiscernible] to sell shares, but the market is very thin there. So it's trading actually now, where the NAV is, which is the [ 19 or 20 ], we were hoping to benefit of the premium. But at the moment that we've done the deal and put the shares in the market. It came down to the value, where it is now, which is [indiscernible]. So unfortunately, the provision market is not that liquid. It is great assets. I mean, we do the management of those assets as well. So we're very happy with the asset. And funny enough at the ZAR 19, ZAR 20 will ease the NAV, which is much better than what you will get in South Africa, where we're trading at huge discounts to the distant sector. But I think the [ ZAR 30 ] were unrealistic at that stage.

Yes. But the liquidity now, is it better? Is there a real [Technical Difficulty] will be a long stop [indiscernible]. And then just, Brian, just my last question. On the Atterbury valuation in the latest set of results of RMH, let's get my figures here. Yes, equity is about ZAR 500 million, and the pref share is ZAR 27 million and the base loan and convertible loan is valued at ZAR 426 million. Does that ZAR 426 million include a provision because it used to be ZAR 487 million.

Sorry. You mean the ZAR 327 million.

No, you value [indiscernible]

No, Brian, maybe I can respond. Remember, the ZAR 487 million Atterbury to [ pay ] the ZAR 65 million in August already on the base flow. So that's why the ZAR 487 million [indiscernible] to ZAR 426 million.

I see. Okay. Thank you, Ellen.

Well, Brian, there is no further questions.

Okay. Well, that's great timing. It's quarter past. And thank you very much to Armond, Louis and [ DCK ] for joining us, and it was obviously very valuable. And thank you, everybody, for attending the meeting. I now, it is a public holiday tomorrow and lot of people are going away. So I appreciate you making the time to listen to this presentation. Thank you very much.

Thanks.