Spear Reit Limited (SEA) Earnings Call Transcript & Summary

Great. Welcome, everyone, to the Spear half year results presentation. I really appreciate you taking the time to join us. It's definitely a welcomed feature to actually have people looking at me instead of just a camera frame. So I'm really happy to be back doing this. We love what we do, and it's just nice to also do this, people receiving it as well. Today, as we mentioned in the pre-close, the first half of the year certainly has flown by in a blink of an eye. Standing here now, obviously, reflecting on the first 6 months of the year, and we're really standing at the front door of Christmas, does feel pretty surreal. It's been about 3 years since our in-person -- last in-person presentation. But I do believe that over the last 3 years, we have done our best to keep the market up-to-date with our performance and how we've navigated into COVID, through COVID and out of COVID-19. So for those that are joining us online, welcome. We appreciate you all just taking the time to log on today. During the presentation, if you have any questions, there will be a roaming mic after the presentation for in-person attendance. And then if you want to e-mail any questions to info@spearprop.co.za, we will ask -- we'll deal with those questions also at the end of the presentation. Before I start, I just want to just take this opportunity to thank our Chairman Mr. Abu Varachhia, and our Board of Directors, some that are also here today, for your ongoing support, insight, and assistance in navigating the greater business through the last couple of years. And also to my formidable team, some that are here and some that are in the engine room today. Today's results really are a reflection of just their commitment, hard work and also their buy-in to the mission of our business. To date, Spear remains the only regionally focused REIT listed on the JSE. We obtained our specialization through the investment into the Western Cape only and our diversification through investing into high-quality industrial, commercial, retail and mixed-use assets across the province. So the first 6 months of the year really have traded very much in line with management's forecast, and I'm really looking forward to taking you through the results today. I'm also joined here by my executive team, our Chief Operations Officer Cliff Toerien, Chief Financial Officer Christiaan Barnard, and our Chief Investment Officer Kim Pfaff-Karg. So if there are any questions after the presentation, there will be some snacks and stuff afterwards, which also we can have a nice engaging discussion post the Q&A session. All right. So just getting into the presentation, what I'll be covering over the next hour or so, I'll be sure to try and entertain you as much as I can. But yes, some good data coming through for Spear. So the age of saying for us is, in the real estate space is, location, location, location. And I think the Western Cape really does stand out as the place to own real estate in South Africa. Western Cape only strategy has really started to pay off handsomely as both the Western Cape economy and the real estate sector starts to improve the impact of semigration as well as the localization of supply chain initiatives have also created a lot of growth opportunities for Spear, which I'll talk about in our development and project slide during the course of the morning. I honestly believe where we conduct our business really is a critical aspect of our success. The Western Cape government, the city of Cape Town and all the DA governed municipalities really must be applauded for their focus in terms of political will as well as the execution of service delivery. I believe the capital and resources flow where there is good infrastructure investment, whether it's proper policymaking and implementation. And just to take you through a couple of points, where I believe the Western Cape is a province and further underpins Spear's investment case. So if you look in June 2021, the Moody's revised City of Cape Town's rating to investment grade with a positive outlook, a stable outlook. In June 2022, Ratings Afrika provided the city of Cape Town as the only financially sustainable metro in South Africa. The city of Cape Town has a 98.5% collection rate on revenue, which is important because if you look at the establishment of central city improvement districts, they are heavily reliant on the city of Cape Town collecting the CCID or the CID levies on behalf of the respective improvement districts. And if you look around Cape Town, how those have further underpinned the quality of novel development. It's an important collection stat. City of Cape Town is the only metro that pays 99% of its suppliers within 30 days. According to John Luce, the economist for F&B, the Western Cape economy is poised to outperform the rest of South Africa, which will drive development growth as well as job and income growth. 90% of the municipalities in the Western Cape received clean or unqualified audits for the 2021 financial period. Plans to the value of ZAR 17.3 billion were approved in the first 6 months of this year, of which over ZAR 10.5 billion of those plans were residential. ZAR 2.5 billion were nonresidential and the balance were alterations and improvements. Which again tells you that from a Spear perspective, we can take advantage of these nodal growth or growth nodes that are being established all the way through from the West Coast to the [ Freesantocrol ] to the N1 [ hall ] Somerset West, et cetera, et cetera. A huge amount of tech firms, over 500, employing 10,000-plus people as well as the establishment of data centers by Vantage, Teraco, Africa data centers and Amazon. We are the second largest financial hub in Africa, which if you want to know, Casablanca, Morocco is the largest, but we're hot on their heels. We've also jumped up in the global financial index from 62 position to 54th position in the last year. And that is predominantly influenced by the business environment, by human capital infrastructure, financial sector development and reputation. And I think we can all agree that the Western Cape provincial government must be applauded for having a solid reputation. The city of Cape Town invested heavily in fiber and mobile infrastructure and hot off the press Conde Nast has rated Cape Town as the ninth best city in the world. And I'm sure that there are many other accolades that we can attribute to the city and the province but these are just a few. But as many of you might agree, demand for real estate within the Western Cape continues to grow. The Western Cape population will increase by another 1.4 million people by 2030. Those people need to shop. They need to sleep, they need to eat, they need to work, and we will do our best to make sure that their money goes into our rental accounts. Now many people ask me what about office? And I think the global return to office momentum has started to emerge. I think there will be an augmentation of what office looks like. But just given the rate of demand for space within the Western Cape, I do believe that we won't be stuck with, call it, stubborn vacancies, for a prolonged period of time. Just moving on to the mission. So our mission is to be the leading Western Cape REIT focused in the -- focusing on growing our distribution per share ahead of inflation and also to be the landlord of choice. And I think today's results is a testament as to how we've executed on that mission statement. And just looking at the HY '23 operating environment, it was our view that FY '23 would be the commencement of a restorative view for the real estate sector coming out of COVID. And we have seen that to a large degree as demand for real estate across property types has continued to increase. However, that momentum has been slightly curved by the impact of load shedding and the rising of interest rates. However, amidst -- amongst all of those, we just need to learn to bob and weave. And as you can see, the portfolio is 100% fixed income, we've maintained income statement consistency over the period. We have recovered over 97.5% of our rental amidst inflationary and cost pressures. We -- and we spoke about it in the pre-close and we'll touch on it today that the impact of load shedding has created cost creep on the operational side, which is a bit of a perfect storm because you had quite a steep increase in diesel as well as the increase in load shedding, which obviously has had a bit of an impact on the expense side. From a portfolio occupancy perspective, it's always been a hallmark of our business to have a high occupancy rate. And I believe it's as a result of our focused hands-on asset management approach with a 94% occupancy rate with and our relet and renewal program very much being forecast aligned. Portfolio reversions for the half year have yielded improved metrics, which we'll talk to in a slide further down in the presentation compared to the prior corresponding period. Our debtors book is very much under control and continue to shrink. We have a formidable debtor strategy, which is being executed on a day-to-day basis and which is yielding great results. We're also seeing that our tenants were able to continuously reduce their arrears, if applicable, together with servicing their monthly rental. And that, to us, points to quite a nice recovery story in the operating environment. We've also successfully disposed of 3 noncore assets, which were Number 6 Talana Road, and Number 5 Fitzmaurice and Island Business Park in Paarden Eiland. All 3 were disposed of at a premium to our book value, generating around ZAR 179 million of capital to be redeployed into the portfolio, which we have done with our most recently announced acquisition at The Island. Also, PV solar for us is a key part of our strategy for us to place less reliance on fossil fuel generated electricity supply, but also to do our part to lower demand on the grid. And we have achieved our initial strategy of covering 50% plus of our portfolio in solar, and we anticipate with the implementation of our -- of one other system that we should be north of 54% prior to the end of the year. Our group LTV very much on the lower end of our range. Our LTV range, we like to operate between 38% and 43%. And we do believe that, obviously, we're in a rising interest rate cycle right now. So we want to be smart as to how we kind of manage that balance sheet. But entrepreneur near me always looks to kind of make that balance sheet work a little bit harder than what it is at the moment. But that's why we're a team, and we work together. So from an ICR perspective, notable improvement. We've gone through a real journey of income restoration across the portfolio. Compared to the prior half year, a ICR of 2.15x. Today, we have an ICR of 2.54x and that is as a result of the fixed income lease that we concluded at 15 on Orange, together with escalations that have come through in the portfolio as well as there not being any more tenant support measures in place because of COVID-19. So we'll see that on a nice stabilized footing. And also, we've initiated the 16,000 square meter redevelopment of Blackheath Park for Bravo Brands, which will see them occupy the entire property in the fullness of time of 42,000 square meters. Moving on to our salient details. Spear owns 30 high-quality assets within the Western Cape with an asset value of ZAR 4.48 billion. Asset value has increased by 0.12% compared to the FY '22 year. Our average property value has increased to ZAR 148 million per property and a rate per square meter of around ZAR 10,003 per square meter. Our in-force escalations are at 6.34% with a portfolio size of 443,155 square meters, almost had a dizzy moment there. Occupancy at just under 94% and our weighted average lease expiry of 27 months. We always aim to push this expiry profile higher and higher. But believe you me, coming out of COVID, the real focus was rent preservation and income restoration. And we did enter into some of our shorter-term leases, but we also it see it as an opportunistic time for us to renegotiate those leases aligned with the market recovery. But also in the last 6 months, we have implemented much more 10-year triple-net leases with the likes of Pepco, Bravo Brands, Grindrod Logistics, et cetera, et cetera. So we will start to see that well lift up over a period of time. Average rental across the portfolio, ZAR 101.64 per square meter. That's a gross rental, including rates and taxes. And a great stat is our rental recovery of 97.56%. That's as at 10 October that has continued to improve. And in the collection slide, I'll talk to just how it looks like on a sectoral basis. After we've paid everybody, after all our shareholders have received their money, we still have ZAR 29 million worth of net cash from our operating activities to redeploy into the portfolio. Having a look at the financial metrics. As announced on SENS, Spear has grown its distribution per share by 12.33% for the half year period. Our distributable income per share has grown by 6.09%, which is the mid road between our forecast of 5% to 7% that we disclosed to the market in May 2022. The distribution per share is ZAR 0.3714, and our distributable income per share is ZAR 0.4126 per share. That is based upon -- the DPS is based upon a 90% payout ratio. This is something that we're continuously reviewing. As you can see, recoveries of rentals are close to 98%. And from an optimized taxation and capital allocation perspective, we continue to review that payout ratio with our Board. Our SA REIT cost-to-income ratio, interesting enough has come down. For FY '22, it was at 44.30%. Today, it's at 43.71%, and that's really down to very prudent financial management on the part of the finance team and our SA REIT admin cost to income ratio has also come down from 6.86% to 6.61%. Our tangible net asset value per share is at ZAR 11.36 per share, which is a -- about a 53 bps increase from FY '22. And our tangible net asset value per share based upon the SA REIT ex div is ZAR 10.9 per share. As I mentioned earlier, LTV is at 38.69%. Our fixed debt ratio is almost at the mid road of where we'd like to operate between 65% and 75% of our debt hedged at any given time for up to about 3 years. We are looking to see how we can increase that ratio without incurring really expensive fixed charges. So we do have our bankers here today. So hopefully, we will be able to negotiate something to the benefit of all shareholders. Our weighted average debt expiry period is 21 months with the average cost of debt as at 31 August prior to any increases post the period, 7.79%. Average cost of fixed debt, 8.34%, and our average cost of variable debt at 31 August was 7%. We do anticipate that to increase to about 7.75% post these interim results. Having a look at our collections, we built just under ZAR 290 million. We recovered just under ZAR 283 million, about a 97.56% collection rate. And you'll see on a sectoral basis, we collected 95% of our industrial rent, 98% of our commercial rent, 96% of our retail rent and 96% of our hospitality rent. Now you may ask why the industrial is slightly lower. We do have arrangements with the likes of Nampak, console, Mambo, et cetera, that pay very large electricity accounts at month end. So they pay their rental within the first 7 days of the beginning of the month, but the utility charges are settled at month end. That's why there's always a bit of a lag, particularly on the industrial side. Year-to-date, collections really have been in line with our forecast. We are working extremely hard to get that as close to 100% as possible. But across 480-plus tenants, it is a bit of an art form. Debt receivables for the half year was at ZAR 7 million. And in that receivables is approximately ZAR 3 million worth of utility charges. So we do believe that that is very much under control and will continue to shrink over a period of time. Okay. Moving on to our financial performance. We're reporting a growth of 6.95% in revenue for the half year. As I mentioned earlier, the improvement of our ICR to 2.54x compared to 2.15x for the prior corresponding period. Net operating profit growth of just under 6%. So we'll just have a look at the -- moving into the revenue. So revenue of about ZAR 294 million with property operating expenses of around ZAR 101 million. We had a net property income of -- just under ZAR 193 million with administrative expenses of around ZAR 18.8 million. Net property operating profit, ZAR 174 million with noncash items, fair value adjustments of ZAR 4 million coming through the income statement as well as the expense of amortization and depreciation of around ZAR 7 million, share-based payment expense of around ZAR 4 million, giving us a post-tax -- sorry, a profit from operations of ZAR 167 million. Net interest for the period was just on ZAR 66 million and pretax profits around ZAR 100.2 million and a taxation of ZAR 1.7 million, giving us a profit for the period of ZAR 98.5 million. So our metric for measurement in terms of performance is distribution per share based upon that 90% payout ratio, which brings us to the ZAR 0.3714 per share for this reporting period. Having a look at the reconciliation of funds from operation, the ZAR 98.5 million. There are some accounting adjustments in the sum of ZAR 8.3 million, which reduces that ZAR 98.5 million to about ZAR 90.1 million. Some add-backs of ZAR 5.8 million, which takes it back up to about ZAR 96 million. And based upon the total shares in issue net of treasury brings us to a distributable income per share of ZAR 0.4126 per share. As we mentioned, our payout ratio is currently at 90%, which gives us a total part for distribution of ZAR 86.4 million, and that is a ZAR 0.3714 distribution per share. There is some tax that we'll have to pay. And again, we're constantly looking at either taking advantage of tax shields within the business and deductions that we can make. And as we see that collection rates and the cash collections improve, we'll review that payout ratio so we can rather pass on the benefit to our shareholders. Having a look at the balance sheet. One of the hallmarks also of our business is a relatively simple income statement and an easy-to-understand balance sheet. So total assets of ZAR 4.5 billion, total liabilities of ZAR 1.8 billion. We do have noncurrent liabilities of just under ZAR 1 billion with current liabilities at ZAR 874 million. That does seem like it's quite high, but we are in the final stages of a refinancing package of approximately ZAR 610 million, which we will finalize prior to the end of the FY '23 financial year. We have also, in this reporting period, paid down around ZAR 50 million worth of debt to the banks. We currently have about 244.8 million shares in issue, net of treasury brings us to the 232.6 million shares. Our net asset -- tangible asset value per share is ZAR 11.36. So moving on to the TNAV bridge. At the end of the prior financial year, and tangible asset value was at ZAR 11.30. It was increased by the profit for the year by ZAR 0.41. There was obviously the distribution paid of -- for the final 6 months of FY '22 took it down by ZAR 0.35. And then there was ZAR 0.02 times 3 for fair value adjustments, acquisition of treasury shares as well as the IFRS-2 expense for the future CSP. The issue of treasury shares for the CSP, which is issued to staff of a deduction of ZAR 0.05 and giving us a tangible net asset value per share at the interim period of ZAR 11.36. This distribution that will be paid in November will reduce that by ZAR 0.37 per share, giving us a SA REIT NAV at August 2022 of ZAR 10.99. Having a look at the funding, we have seen an increase of about 47 basis points in our average cost of funding, which is currently at 7.79% on a 38.69% loan-to-value. Our funders, Nedbank and Standard Bank have been hugely supportive of our strategy and continue to do so, as we look to grow the business, we look at always to strategically finance specific assets, and it's been an absolute pleasure having them as our real estate and funding partners over the years. And when you look at our total net debt, as mentioned, 68% of our debt is fixed for a weighted average period of 25 months at an all-in cost of 8.34%. Variable debt is 32% of our debt portfolio at a cost of 7%, which is a weighted -- with a weighted average maturity of around 29 months. These are obviously figures as at the half year. Having a look at our debt expiry profile, we believe that it's relatively well spread out. There's no refinancing concerns. And as I mentioned, we should be able to finance this by the end of the year, ZAR 610 million will be refinanced for the business. So when we look at the balance sheet, our 2 covenants within our funding structures. Strictest covenants on LTV is 50% and interest cover ratio of 2x. We are well, well within those particular covenants. And as we navigate into the next 6 months of the year, we believe that we would possibly get some more fair value adjustments coming through in the portfolio, we should see a positive impact on the LTV. And we believe that ICR will continue to be relatively stable at that level or see some marginal improvements. Liquidity availability of ZAR 250 million and then the debt refinancing negotiations underway of ZAR 610 million with the ZAR 50 million debt settled during the period. Having a look at the LTV forecast, and this is maybe where I can maybe get my way of pushing the balance sheet a little bit and -- but still kind of maintaining a bit more of a conservative approach. As at August 38.69% we disposed of 5 Fitzmaurice, which saw the LTE drop by 1.18% with the initiation of the Blackheath redevelopment that is going to up the LTV by 1.4%. The payment of the interim distribution per share would increase it by 1.94%. The Island acquisition, which is 50% debt funded, 50% equity funded would increase it to 2.50%. And then which I will -- another item I'll talk to you further in the presentation is our George Industrial Park development, which we intend on starting the bulk infrastructure early next year, which will have an impact of 0.26% and 0.10% on our LTV. We -- this is a 12-month forecast. So we do anticipate by the end of HY '24 that we would have traded out of the 15 on Orange asset, which would then have a reduction of 2.98% on our LTV still operating within the mid-range of our 38% to 43% LTV strategy. Moving on to our portfolio review. So these are Spear's top 5 assets. Since inception, we've also taken the view of less is more. So we'd own fewer assets, but assets of higher value. We, as a management team, as an executive team, we like to touch specific parts of the business at any given time. We'd like to kick the tires. And this way, we can be really hands-on in the asset management approach. Currently, our top 5 assets make up about ZAR 2.13 billion of the portfolio value across 177,000 square meters. It's a great depiction of diversification. It's also, if you have a look at our largest asset, Mega Park, it's a 86,000 square-meter multi-tenanted industrial park. We literally have 2,500 square meters of vacant space. And that just talks to just the demand for industrial real estate, not just new builds, within the Western Cape. And we continue to be net beneficiaries of quite a large solar expansion taking place on that property. Number two, Long Street in the heart of the financial district of Cape Town, it's a 22-story high-rise, multi-let office building. The anchor tenant there is Spear REIT's head office. We'd like to keep an eye on things. So we are based there. But truth be told, we've seen a notable increase in activity within the CBD, which is also great because you've seen a real recovery of retail. You've seen a recovery of office. In this particular building, we do have possibly in the market, some naysayers about return to office, but this building is currently outperforming its budget by a relative margin, not just because of the actual office space, but also because this building has got the highest parking ratio in that foreshore district of about 3.7 bays per 100 square meters. And as Investec has started bringing more and more people back to the office, we've actually managed to let out about 100-plus parking bays to invest it. And the other knock-on effect is that our colleagues in the REIT industry accelerate. They have managed to fill up their buildings, so they had to give investing notice on some of the parking. So there's been a net beneficiary is obviously the real estate sector and the office sector in the Cape Town CBD as we've seen vacancies decline. You've seen stubborn vacancies in the CBD and other office nodes, more with B and C grade offices, as opposed to, call it, A to premium-grade offices, in my opinion. Sable Square, which really is moving towards its destiny of becoming a mixed-use precinct, high occupancy rate, great location, destination -- convenience retail center. We have lots of inquiries for space. And even after period end, that vacancy of 1,600 square meters have been reduced by about 500 square meters. Liberty Life Building in Century City anchored by Liberty Life, Liberty Health Standard Bank Wealth, also a great performer within the portfolio. And then Northgate Park, which is just off of the N1 coming in and out of town. Initially, when COVID hit, this property probably took the biggest strain. And it's actually been remarkable, and we talk about it often, just how quickly this recovery, within this park has taken place. Having a look at the portfolio segmentation, about ZAR 4.48 billion worth of real estate, 6% hospitality, 15% retail, 29% industrial and 49% commercial by value. In terms of revenue, 6% in hospitality, 16%; retail, 32% industrial and 47% commercial. Now, my favorite slide out of this is the middle one, 56% of our portfolio is industrial, and I'll continue to say that this has been a great move to run our business. Pre-COVID, during COVID, a lot of our tenants had continued to trade right through COVID from Stage 5 lockdown all the way through to coming out of lockdown as well as in our retail portfolio. 29% of our GLA is office, 11% is retail and 4% hospitality. We do have a strategy to augment that slightly over time, but that does take time and money. Just having a look at the commercial portfolio by value, revenue, GLA and occupancy, you'll note and just facts of facts that we are seeing a lower occupancy rate in this particular property, but that 51% will now increase to just under 60% as we've just let about 9900 square meters of space in this building to the Hilton Global call center. On Industrial, we segmented between manufacturing and logistics. With the acquisition of The Island, you'll see a third icon appear next to logistics in the next presentation, which will include urban logistics. And those 3 will really be the kind of focus areas where we find ourselves seeking growth opportunities within the Western Cape valued about ZAR 1.2 billion. Revenue for the period about ZAR 91 million, gross lettable area of 247,000 square meters with an occupancy of 98%. Having a look at retail. Another investment area where we do feel like we are underweight, and it's an area where we would like to grow the portfolio, but we are value investors, and we've always invested into the convenience retail subsector of the real estate market. And just given where valuations are at for convenience retail assets at the moment it's just not at a level where we'd be willing to participate. We do look to create accretion within the portfolio with every deal that we do for Spear. I guess that's also one of the benefits of still owning about 28% of the business as founders. We want -- if it's good for us, it's generally good for shareholders, and we don't like to overpay for things. Then in terms of letting activity, we report in line with the SA REIT BPR, we've seen a consistent improvement of our rental reversions. We had at the prior reporting period had in excess of a 5% negative reversion on a portfolio level. That has continued to improve. Industrial positive at 1.97%, retail positive at 4.51% and commercial moving towards what I believe to be a flatter reversionary schedule within the next 6 to 8 months of negative 3.62%. During the period, we had about 65,000 square meters of space coming up for renewal and relet. Our leasing team and portfolio management team have done an exceptional job renewing and reletting about 62,800 square meters. The closing rental was around ZAR 74 and the average new gross rental was around ZAR 71. And I think the -- again, the hands on an early tenant engagement strategies that we implement across the portfolio allows us to maintain these high occupancy rates as well as probably I would argue on a kind of benchmark, probably outperforming the benchmark of where reversions are at within the sector on a diversified basis. And we look at the vacancy profile as of the reporting period, we had just under 29,000 square meters vacant in the portfolio, which is about 6.47% of GLA predominantly around the office sector. We decided to insert a post-reporting period slide, which shows you that there's been some subsequent net letting activity that's taken place in the commercial sector, about just under 1,600 square meters and industrial just under 470 square meters, which would have us to reduce our vacancy rate from 6.47% to 6.01%. And we do believe that by year-end, that vacancy rates should be below 6% and we'll work very hard to maintain that high occupancy rate. Just our lease expiry by GLA. Very -- not a high-risk GLA expiry schedule, especially with the -- just the demand in industrial within the Western Cape, you'll see that there is a higher than normal industrial expiry from September onwards. We're already in advanced negotiations with a lot of these tenants to enter into early renewals, and we're pretty comfortable that we're going to get them all over the line without too much hassle. Hospitality, we do obviously report until post 2026, but it's highly unlikely that's, that bar would be there post the HY '24. In terms of valuations, we also take an extremely conservative approach on valuations. Our average discount rate is around 13.03%. Our average exit cap rate, 9.53% compared to the prior year of 9.30%. Our average rental growth rate of 4%. Our average expense growth rate around 6%. Our structural vacancy of 0.5 to 2 months and a void period of 2 to 4 months. Now many people would say, but is this realistic? The way we forecast into our budgets is that every single lease that comes up for renewal and relet, whether it gets -- whether -- even though it gets renewed, we always budget for a 2-month vacancy period, irrespective of whether they stay on or not. So that gives us some scope to be able to negotiate maybe a slightly lower escalation, but maintain the income -- sustained income cash flows. Therefore, we believe that the valuation model that we've built is incredibly sound and depicts the fair value of the portfolio. We've seen an increase of ZAR 4 million. If you look on an average value per property, our average industrial value is around ZAR 129 million, average commercial value around ZAR 168 million, retail around ZAR 112 million and in hospitality, around ZAR 279 million. We're obviously holding that at the core auction price plus the penthouse call option price of ZAR 2.67 and the penthouse at around ZAR 12 million. But on a diversified basis, can one replace this portfolio for ZAR 10,000 a square meter, I don't -- it's impossible. So I do believe that our valuations are conservative even on a per asset type basis, ZAR 5,200 a square meter for industrial, 16,000 square meters for commercial, 13,000 square meters for retail and 16,000 square meters rand per square meter for hospitality. Many of you in the room and some of you online have done personal visits of the portfolio. So I don't need to stand here and try and sell you the quality of the assets. Moving on to sustainability. We have adopted a People Planet Profit approach to our business. We believe that a PV solar strategy is a key part of our operating strategy for any business, especially in South Africa, just given the impact of the -- of Eskom on our daily lives. We set out in 2018 to implement a solar strategy, which I believe we've really executed on with a great -- 2 great solar partners. Currently, we have 15 PV solar plants across the portfolio and one future plant that awaits embedded generation approval, which will take us to 16 systems. We had a strategy of covering 50% plus of our portfolio in solar panels. We've done 50%, and the future 3% is what awaits once we get the embedded generation approval from the city of Cape Town. Our current average penetration rate, which is effectively what we actually generate ourselves of electricity on our properties is around 22% with a future of 27%. As you can see on the next bubble, the future kilowatt peak installation is quite a big plant of 2,150 kilowatt peak. And that's why you'll see that future percentage jump up quite nicely. We've taken a 3-pronged approach when it comes to solar. So we've taken a roof rental model. We've taken an installment sale model and a CapEx model. We have effectively created a 25-year cash flow with the roof rental model with a French and South African IPP called CVE as well as with Emergent Energy. We currently have 7 roof rental plants with 2 future ones underway, giving us a total of 9. And we have one CapEx plant, which is the 800 kilowatt peak system at Sable Square, which is also in the process of being increased in capacity. And then we have an installment sale model of 6 units, which gives us a total of 7. But as you can see in the slide, we started with a target of producing about 307,000 kilowatt hours of electricity in 2018, we came very close. We produced 297,000 -- and that has just -- as we've just scaled the PV solar system, we've started to just generate more and more and more. Now this forecast here at the end of the bar is effectively still periods to come. Cape Town -- Cape Town has got a complex billing system because you pay more or less. It depends on what type of business you're in, also what time of the year, but we believe that working with the city and having somebody in our office that is a specialist in terms of utilities, we're able to use this strategy of PV solar rollouts, as I said, for People, Planet and for Profit. So moving into our sectoral performance. I think what testament or what's come through, hopefully, in the presentation is the resilience of the overall portfolio. If you look at our retail portfolio, it's about 48,000 square meters of GLA. It's convenience retail and destination retail. The predominant destination retail assets are in Paarden Eiland, home improvement, camping, gear, motor, coffee shops and car rentals and our largest convenience retail center is Sable Square. 41% of our tenants across our retail portfolio are nationals. So we know that our rent will be paid and they'll be paid on time. We have no reliance on local or international tourism, which really does provide us with a buffer unlike places like the [ VNA ] that took quite a lot of strain during COVID. And Canal Walk as an example, who is another center that is reliant on local tourism. Occupancy at 95%, collections strong at 96%. Our renewals have been in line with our forecast. And what's also been encouraging is that the larger retailers are now both doing some M&A activities. So they're looking at adding more stores to their portfolio. And we have recently just opened up a PEP at Sable Square. Ackermans Mobile is looking at one of our other vacancies. And what's great about them is that they've got the CapEx to install great stores, and they have the ability to really kind of take a multipronged approach across your retail portfolio, which is really encouraging for us. On the commercial side, it's obviously been a tough going, but we are yielding the results; occupancy currently at 84%, collections at 98%. The return to office momentum, there hasn't like been a clear strategy, I think, across the world because different geographies, in my opinion, are very different. And the hybrid regime is not a one size fits all. So I think we're still going to -- everybody is still trying to kind of settle into what works and what doesn't work. I do think that there will be a measure of augmentation when it comes to office occupancies and how much space companies utilize. But as I said, given the demand for space within the Western Cape, and it's not just what I say. I mean, yesterday, there was a report on Business Day that decentralized office rental growth for the third quarter was around 8% compared to negative 3% in Pretoria, 3% growth in Johannesburg, 1% growth in Durban. So it's proven in the numbers that there is relative demand returning for office space. We have, as I mentioned, just concluded a great deal with Hilton Worldwide in this building for just under 1,900 square meters on a new 3-year lease. As I mentioned in the pre-close, we concluded a new 10-year lease with DHL at Number 2, Long Street. Cumulatively, it's over 1,000 square meters, which includes retail space and office space. And we've also successfully disposed of The Island Business Park for ZAR 22.5 million at a net premium to book value. And maybe I'll just kind of segue into something separate here, is that 2 of the 3 disposals that we did in this reporting period with 2 KZN-based real estate investors. And these gentlemen and firms are looking at diversifying outside of KZN the third asset we sold was to an owner occupier, Rex TrueForm, as that business is going through its own augmentation, we sought an opportunity to dispose of that asset also at a premium to our book value. And one of the things that Kim made a point of even in our Board report was that different to many other property companies, we own 100% of our assets in the Western Cape. Currently, more property companies are looking at owning assets in the Western Cape but then owning assets outside of the Western Cape. So it does give us the ability to dispose of a noncore asset base currently, especially with shares trading at a discount to NAV, we are able to dispose of assets at a premium, we deploy the capital into larger strategy-aligned assets. Having a look at the industrial portfolio, 247,000 square meters of space, robust performance. All our assets are really well located in nodes that are in high demand, occupancy at 98%, collections at 95%. Deglobalization and localization will be a major tailwind for Spear. It's not just within our portfolio. [ Fusini ] with the acquisition of [ Manati ] and the merger of Prestige and Manati into one facility, they've just been acquiring additional warehousing for their own manufacturing ends, looking to invest over ZAR 2 billion into manufacturing capacity within South Africa over the next couple of years. We disposed of 5 Fitzmaurice in Talana, as I mentioned, and also we initiated the redevelopment of Blackheath Park for Bravo Brands. On the hospitality front, not too much to report in terms of the financial metrics because it's 100% fixed income, triple net lease. We do not get involved in the running or the management of the property. The hotel operator continues to invest its own capital in the upgrading of the property. They've just spent around ZAR 2 million or ZAR 3 million in addition to the ZAR 20 million already spent on the property, redoing the spa. So if you're ever in town needing some R&R, please go to 15 on Orange and visit the new spa, there's even a spa bar, where you can have a couple of cocktails. Airlines, for many of you that have traveled recently, you've seen the exorbitant prices of air tickets, I think that has had a bit of a negative impact on the hospitality -- the pace of the last recovery within Cape Town, with domestic flights just being ridiculously high. We've seen obviously a notable increase in international travelers, which has been led by the U.S. market. If you just have a walk around this particular hotel, you can see and hear a lot of foreign accents. And meetings and conferences, yesterday, we had Saab here, today, we have Microsoft, and that's just been a continual theme about meetings and conferences and exhibitions returning strongly to venues like this. And just having a look at the general business update, the operating environment does remain challenging, but I think that we are up for the challenge. It's not all great, but nobody promised us a bed of roses. Industrial and retail portfolio does remain a resilient trader within the portfolio. The office portfolio recovery is underway. As I mentioned, rental collections have been strong. Receivables have been acceptable and under control. The persistent load shedding is a challenge for us. There's a cost -- your tenants have got a kind of cost of occupancy limit that you can kind of labor them with. And we also understand that recoverability to -- beyond a certain point is not always possible. Our recycling of capital, as I mentioned, ZAR 179 million, and we have a clear strategy to divest out of hospitality by half year 2024. On to some exciting slides. So I apologize that we don't have a better image than this. But once the property is fully complete and upgraded, I assure you that you'll see some better imagery, but this is Bravo Park in Blackheath, where we are busy with the redevelopment of 50% of the Park for Bravo Brands, a new 10-year lease, it's a GLA of 16,000 square meters, and the development cost -- redevelopment cost is about ZAR 74 million, and the initial yield is around 9.81%. And again, this is just -- if you look at our portfolio value, we don't value any bulk within our portfolio. So we believe that we want to unlock that NAV as we grow the portfolio, which will then become a kind of a net beneficiary of our shareholders and the growth in the net asset value of the share. Acquisitive growth, as announced on SENS, we have acquired the Urban Logistics Park called The Island, GLA of 21,000 square meters, a WALE of 29 months, acquisition cost of ZAR 185 million, an initial yield of 9.75% with anticipated transfer date around February 2023. We -- and then you would have seen the GAT reference in the LTV slide. So George Aerotropolis, we own a 70,000 square meter site right next to the George Airport. So we're in the final stages of receiving our right of development from the George municipality. We will have available bulk of up to 42,000 square meters, but we believe that we'll probably initiate up to around 35,000 square meters of industrial GLA, which will be a mix of small industrial units, storage facilities, cold storage facilities and bulk warehousing. If some of you follow just what's happening up in the Southern Cape, just the growth of the agri logistics sector investment into avocados, cashew nuts, macadamia nuts, table snails, strawberries, et cetera, cheese. [ Lancelot ] has got a massive facility up in George. We believe that the location of the site will attract many of those users together with your typical warehousing and logistics operators. The development cost is around ZAR 300 million for our precinct, our neighbors. We are in a cooperation agreement. So our neighbors, a company called Twin Cities Developments. So they do own a large retail portfolio across South Africa. Also a strong balance sheet. So it's great to have them as a partner on their individual land, not legal partners, but call it co-developers in this precinct with a targeted yield of around 9%. As mentioned, the bulk infrastructure should commence around the beginning of next year. And then our big project, Marine Place. My gut tells me that we are moving closer and closer to a point where this development will become a reality. Post COVID, we sat down with the team and had a look at the basket of rights that we've been awarded. So the property has been rezoned. It's a consolidation of 3 urban, which gives us about 18,000 square meter contiguous IRF with uninterrupted ocean views. And initially, there was plans for a hotel, which doesn't align with our strategy anymore. So we've thrown that one out the window. And there was also quite a large office component together with a residential component and a convenience retail component. On a kind of post-COVID reflection, the strategy now is to retain the 11,000 square meters of convenience retail and then to effectively increase residential units, just given the demand for residential between West Coast and the Cape Town CBD. So we probably end up with about 621 residential units, and we will still have an office component, but that office component will really look to service the kind of organism that we create here, things like doctors rooms, child minding facilities, gym facilities as well as collaborative office space just given the proximity and the amount of residential that we're going to have on site. By all accounts, our retail is pretty much accounted for from current portfolio tenants that have said that they want a presence in this node. And -- it's a big development, ZAR 1.4 billion, which is quite a large chunk of our market cap. So we generally won't go this alone, and we've been approached by numerous, both listed and unlisted, companies to co-develop with us. And if we find alignment with the right partner, then I think we'll follow that route. But watch this space, it's going to be a great project to be involved in. So let me look at our outlook. So I believe that the Western Cape real estate sector will continue its resilience. I think as the national government continue to score own goals, I'm not saying that the DA is a silver bullet, but I do believe that there's an attraction to this province that doesn't exist in any other provinces, which would have a net benefit for any real estate owner. The good governance, both on the provincial and metro level does enhance the investment appetite. As I said, capital flows to places of certainty. Cape Town will be the first load shedding free metropolis in Africa. I would also love to see the province and the city take control of our rail infrastructure, which could help with the impact of people getting to work in a more affordable manner. We'll maintain our investment bias towards industrial warehousing, retail assets within the Western Cape. And we would continue to seek out organic and inorganic growth opportunities as we've done through redevelopment and through acquisition. We remain committed to grow our NAV through that strategy. And if we can just maintain our course, we will be the net beneficiaries of the effect of semigration within the Western Cape. And yes, we remain confident that our hands-on management approach will continue to propel the business forward into our destiny to achieve our market guidance year-on-year. So just in summary. Proximity for us to our assets has been and remains a key pillar of our operating strategy, and that will not change. We roll up our sleeves, we get dust on our shoes, and we make sure that the portfolio works the way it's intended to. Our guidance, as advised to the market in May 2022, is on track for a DIPS growth of between 5% and 7% on the FY '22 DIPS. There are a couple of caveats, which is important to note that there will be no further COVID-related lockdowns. Vacancies are reduced in line with management's forecast. Our lease renewals are concluded per our forecast, there's no major tenant failures during the period. Any further increases in interest rates are mitigated and absorbed. And to date, we have been very prudent in how we forecasted interest rate movements from an interest rate cost perspective. Our tenants are able to successfully absorb rising cost of occupancy and load shedding does not consistently go beyond Stage 4. So any changes to those assumptions could have an impact on our forecast. But right now, we believe that we're on track. Other than that, from a management team perspective, we remain available and engageable if that is even a word, to the market. And we consider it really an honor and a privilege to both be stewards and owners of this business, and we look forward to achieving its guidance. That brings us to the end of the presentation. And thank you all for your attendance and also for those that are online, we're going to just open it up for maybe some questions, both – well, first we'll do in-attendance questions, and then we'll do any questions that may have come through on the website. So yes, thank you.

[Audio Gap] prior period to now of about ZAR 2 million. And you're quite right. We have got that as a strategy towards buying back those shares. The second part is obviously acquiring high-quality income opportunities. And from an asset management approach, assets as we acquire, we may be acquiring at 9.75% yet buying back our shares, we could be buying it back at, say, 10.5%. But from an annuitized basis, we will -- as value investors, when we acquire a property like The Island as an example, we have identified certain asset management opportunities that may give us both increased yield as well as portfolio scale aligned with our strategy. And the second -- obviously, the third leg of that capital allocation strategy is reinvesting into organic redevelopment of the portfolio. So that we really have a 3-pronged approach to how we deploy our capital.

Yes. Sorry, you mentioned The Island and potential, I guess, opportunities to enhance the yield. Can you maybe explain a bit on that? Yes, that would be interesting to get some more color on.

Yes. So if you look at one opportunity is it's got about 18,000 square meter coverage in roof space. The city's electrical policy framework offers a ZAR 0.25 incentive, which basically gives you about ZAR 1.03 sell-in premium. So on warehouses like The Island, where you don't have huge demand for consumption on site. You can actually sell that generation back to the city and your overall yield improves. Also out of the 8 tenants that are in occupancy at the moment, there's about 3 or 4 of them that are actually under market. So -- and that's why the 29-month WALE isn't a major concern for us because we believe that there is an asset management opportunity to increase revenue at the end of those lease renewal periods, 2 examples. Okay. Hopefully, that was the reason no questions because there was a thorough presentation. Okay. Okay. Excellent. Well, thank you very much, everyone, for attendance. I hope you have a wonderful weekend, and thank you for your ongoing support. I assure you that we are doing our best and look forward to reporting -- or actually at the pre-close will come up first for the financial year. But for those that do hold our shares, your money will be in the bank towards the middle of next month. Thank you very much.