Vukile Property Fund Limited (VKE) Earnings Call Transcript & Summary

Good morning, ladies and gents. Thank you for joining us on this call. We are delighted to host Vukile Property Fund for the FY '23 Pre-Close Update Call for 31st March Year-End. Vukile is a JSE-listed REIT with retail property assets in South Africa and in Spain through Castellana. On today's [ fellow ] speakers, we are joined by Vukile CEO, Laurence Rapp; and the Group CFO, Laurence Cohen; and the Managing Director of Southern Africa, Itumeleng Mothibeli. We are also joined by Castellana management, Castellana CEO, Alfonso Brunet; and CFO, Debora Santamaria. We are going to allow management to give a presentation, which will be followed by a Q&A session. [Operator Instructions] Finally, I would like to hand over to the Group CEO, Laurence Rapp. Over to you, Laurence.

All right. Good morning. Lwando, thank you very much. And let me start off by thanking you and Anchor, Francois, Yesh, the whole team for hosting us. We really appreciate it, and to thank all the participants for attending. I'd say that the message we are going to give now at our pre-close for the full year period is, in a sense, very similar to what we spoke about at the interim stage, although maybe a bit more pronounced, in the sense that we are going to present some numbers now that are perhaps even stronger at an operational level than what we showed at half year, and yet the concerns at a global macro level are also greater. I think not only is it inflation, rising interest rates, but now the bank contagion that's coming through. So really, it's a tale of a very strong operating environment. Assets are performing exceptionally well, and yet the global macro is very challenging. So when you look through our numbers, really the strong operating results you're going to see, which Itu and Alfonso are going to take you through, are, in a sense, country to macro conditions and what one would expect. And yet I think what it also does, it starts to highlight that we are seeing success of our focus on the consumer, which you'll see coming through in the presentation, especially some of the events we're running in Spain and what's happening there; the value-added projects that we've been doing adding significant value, footfall and sales; and then our hands-on active management, which has really been instrumental in driving vacancies down and collections up. So all in all, the South African results that Itu is going to take you through are the best that we've produced since listing, and Castellana continues to deliver the market-leading performance in Spain. On the challenging side, though, really one has to look at the debt capital markets, particularly in Europe, and those are very challenging. I think the big benefit that we have in Vukile and in Castellana and even taking it one step further into Lar España is that we have a very long debt expiry. So in Spain, the first debt expiry takes place in financial year '26. That's for both Castellana and Lar, and then 1 year or 2 thereafter. So hopefully, that gives the markets enough time to settle down and we don't find ourselves having to go and look for finance and refinance in what is a very volatile period. So our balance sheet really remains very solid. The metrics are largely in line with what you saw at the half year period. Just to comment in South Africa, the debt capital markets and the bank market remains very open and very active where Vukile has tremendous support in both the DCM and with the banks directly. Just to comment that we really continue to find opportunities to deploy capital on a strategically aligned and accretive manner. And I want to just pause on that for a moment because in many respects, people think, "Well, why are you doing that with such a difficult macro environment?" And I think the answer is precisely because it is a difficult macro environment. This is sort of a time when, I think, one has to take views through the cycle. We can all go through the various process that we do going back many, many years and see that you'll go through hiking cycles and you're going to go through cutting cycles. But at the end of the day, it's about building long-term sustainable businesses that are able to survive throughout the cycle. When times are challenging, I think that is when one can often find some very interesting opportunities. So just what's on our agenda at the moment, most of it you have heard of already: Pan Africa Mall. Itu will give you an update on that. That's at a yield of 9.25%. BT Ngebs, which was closed in the past 6-month period, also at a yield of 9.25%. We will see very significant upside on the value-add work we can do there. A few weeks ago, we put out an announcement around a ZAR 350 million spend into further energy projects at yields of between 12% and 15%, which are, obviously, very accretive. And then on the Spanish side, we have got a value-add project at Vallsur, which should yield around 7.5% in euros; and another one at El Faro, which would result in us owning 100% of the mall, and that's on a yield of around 10% with an IRR closer to 30. So really some exciting projects. And I think our confidence really stems from the value we've added in the previous 3 projects that many of you have seen, and you can see the fruits of all those efforts in this result. And then really, it's the continued evaluation of corporate opportunities in Spain. By that, I really mean Lar España. We continue to engage with them, and we'll give an update on that a bit later in the presentation. But really what I'd like to do now is hand over to Itu to take you through the detail of the South African performance for the full year. Itu?

Yes. Thank you, Laurence. Good morning to everyone. It gives me a great pleasure to provide an operational report and update through the period ended Feb 2023. I think key issue is a period that has been characterized by continued challenged macros. And I think even further is the worsening public sector infrastructure challenges that we faced of late have made the environment very tough to navigate through. But notwithstanding these challenges, the portfolio has shown a significant and pleasing like-for-like NOI growth, so I'll start with that, of 5.3%. This is trading ahead of our 5-year average, which is circa 5%, which has been a pleasing result in terms of our NOI growth. The portfolio efficiency measures in terms of trading stats, tenant retention and also our rent to sales continue to outperform. Our turnover was up by 6.4%. We've seen a steady and continuous improvement in our trading densities. Those have increased by 6%. Our rental sales continue to be steady and market-leading at 6%. And we also have seen growth in trading densities across all of our segments, which has been pleasing. A key story that has come through in the past year has been this continuous improvement in occupancy levels. Our vacancies have improved. From 2.6%, they are now down to 2%. This is effectively the lowest that we've had since listing, and we continue to see strong demand across all of our segments. And I think also, we're closing deals ahead of our budgets, which is positive. And then with regards to the reversionary cycle, so the reversionary cycle has indeed turned. From negative 2.4% at March 2022, it's now at 2.1% positive as of 2023. 80% of all of our renewals were either flat or positive, which is now starting to be in line with our long-term averages. Our recent WALE in terms of deals that we've concluded have been at an average of 3.8 years. This compares favorably with the overall average of the portfolio of 3.2 years. Therefore, the leasing environment remains strong. 79% of all the deals that we've done in the past 5 months have been with national tenants, which signifies the strong demand that the portfolio has. And then with regards to footfall, also a positive story. Our footfall is 8% higher than the corresponding period in the prior year. And I think the very strong message that's coming across in terms of footfall to our malls is that all of our segments have shown a steady increase across the spectrum, including the urban portfolio as well as the commuter portfolio. The portfolio continues to have a very strong collection rate at 100%. And I mean I think also showing the good health of the trade and also our metrics is that we've also seen an overall decrease in arrears. So 100% collection, overall decrease in areas, which shows the strength of -- and the health of our tenants. And also, when we look at the detail around arrears, we've seen a decline in arrears in nationals, SMMEs and also in our government tenancies. We're making great traction on our PV strategy. With the project once completed, we will service 20% of all of our energy needs within the portfolio via renewables. And we will also aim to have 80% of our portfolio with an augmented self-generation solution, which I'll touch on later on in the presentation. So to summarize, just in terms of operating metrics, we're incredibly pleased with the outcome and how the portfolio has held up over a difficult trading environment. The portfolio is effectively fully let with continued demand from tenants, which should all go well for increased rentals over time. We're happy with the strong and sustained operating metrics, and we continue to see strong support from our tenants, our communities and other stakeholders. And I think looking forward, we'll look to sustain these levels and look to drive additional alternative income in terms of growing our top line. And true to what we've always done in terms of managing the Vukile portfolio, we'll continue driving a scientific approach in terms of managing our cost base, which has obviously been under pressure of late. Thanks. To the next slide. So with regards to some detail around the leasing environment, our vacancies are down by circa 6,000 square meters. They've been down across all segments. So value and rural are effectively fully let, strong demand coming through there. With regards to categories, sporting/athleisure continues to be a strong absorption part in the portfolio. We've seen an increase in fashion tenancies and also a very strong supermarkets demand across the portfolio. We've also seen a decrease in our banking exposure, not necessarily tenants giving back full space, but downsizing. And this rationalization of space has opened up an opportunity for us to increase our higher-performing categories like sporting and athleisure, but still having the banking exposure within the portfolio. So over the past 5 months, we've closed 658 new deals and renewals, which equates to just over ZAR 1.2 billion. And we continue to see very strong support and demand for the portfolio, not only in the township and rural portfolio, but we're now starting to see that across the spectrum, which is very encouraging. Key tenants that we've worked with aggressively over the past 5 months have been PEP, Price, TFG and Clicks; and also secondary unlisted tenants, such as Fashion World, Signature Cosmetics and PQ Clothing. Next slide. So with regards to our retail category performance, fashion and groceries, and these are the 2 biggest categories within the portfolio, they have grown by 4.8% and 8.4%, respectively. 11 of our 13 categories are showing growth both in terms of turnover and trading density. Athleisure and health and beauty have shown the highest increase over the period in terms of overall trading metrics. And our home decor hasn't come back as strongly coming out of COVID where we saw significant growth in that category over that period. But when one drills into the detail of the home decor space, there are certain brands that are starting to show significant outperformance, and those are PEP Home, Truewood and West Pack. So we expect that category to also start pulling through and showing overall growth. Next slide. And diving a bit deeper in terms of our footfall and sales performance, we've seen the trading density at the portfolio level up 6%. Again, in terms of retail and trading density growth, strong growth coming through in the commuter and township portfolio at 9.4% and 9%, respectively. But we're also seeing some sustained growth in the rural portfolio at 5.1%, and this is up until January. You can see how the footfall and sales have [ tracked at ] over time, but again, consistently strong performance in footfall across all segments. The rural and township segments have shown consistent growth both in terms of sales and footfall. And all figures are now comfortably ahead of pre-COVID. In fact, we're [ going to formally say ], this is perhaps the last time we'll be referencing pre-COVID because on a year-to-year movement, we've seen an increase in trading densities and footfall. And perhaps now it will be appropriate for us to stop referring to the COVID environment. Next slide. Then I'd like to give you an update on our energy management and our backup power solution, which we announced a couple of weeks ago. We've currently invested in PV and renewables to the tune of 12.7 megawatts in the past 5 years. This year, we've added an additional 2.3 and 3.9, which we aim to complete in the next 2 to 3 months. We've also committed to an additional 9 megawatts over the financial -- the upcoming financial year '24, which will double our previous exposure to circa 25 megawatts. The ZAR 350 million that we aim to spend will be for additional PV, additional batteries to ensure that our tenants continue to trade over the periods of load shedding. But I think a very important part of the solution that we're trying to introduce is that not only does it ensure that the entire mall trades and offers our tenants a backup solution that is brought about by the landlord, it also grants us strategic flexibility over time to manage the escalations of electricity, which over the past couple of years have been significant to manage them to a level where it doesn't impact the total cost of occupancy of our tenants dramatically. So there's a strategic lever that the solution will have over and above allowing our tenants to have sustainable supply for 80% of our assets, and it will give us optionality not only to the national listed retailers but also all independents within the mall environment. And what we found is in our portfolio, about 70% of our mall continues to trade during load shedding. The tenants that don't necessarily trade are the independents, which this solution will also aim to solve for. So this is something that we're focusing on aggressively over the next 12 months, and we will give you an update on this as and when we execute. [ Next one ]. With regards to our 2 acquisitions in the pipeline, I'd like to give you an update in terms of Pan Africa mall. So our due diligence there is done. We've approved -- we've received approval from the Com Com. We've also had strong inter-team cooperation in terms of the letting of the Phase 2, which have seen high demand. The mall is trading significantly well. So we're very impressed with that. The one outstanding issue, which was outstanding at interims, was the COJ consent for the sale of the leasehold rights, which has not been forthcoming. This is a condition precedent. And we -- if this consent is not granted by this coming Friday, which is the end of March 2023, we've gotten to a point where we'll consider exiting the deal as this is causing significant challenges not only from a capital allocation perspective, but also from a deployment perspective where there's a bit of cash kind of yield that we now need to manage. So I think we're still very much committed to the transaction. We still think this will add significant value to the portfolio, but we've been waiting in the wings for this consent from the COJ. And if it's not granted by the end of March, we will then have to make a decision about whether we want to continue with this transaction or not. With regards to BT Ngebs, we've made significant progress with the acquisition. The DD is almost complete. We finalized the reconfiguration of the space in terms of the plan and what we want to do in introducing new tenants. We anticipate that the transfer of this asset will happen in the first half of the new financial year, and everything else with regards to BT Ngebs is still on schedule. So we're looking forward to taking transfer of this asset. [ Next slide ]. And I think from our side, that would be it. Thank you for your attention, and I'd like to invite Alfonso to give us his update on Castellana.

Thank you very much, Itu. Good morning, everybody, from Madrid, and thank you for joining us on this pre-closing of our FY 2023. First of all, many thanks to Lwando and the Anchor team for hosting the event and providing us with this space to run the presentation. So now let me get directly into how operations have developed during this financial year. The retail real estate market has proven to not only recover from the COVID crisis but improve from pre-COVID levels during the last year 2022. Although footfall benchmarks did not yet achieve the 2019 levels, sales have overcome such levels for almost the entire period. All in all, despite the uncertain macro environment, shopping centers and retail banks have performed extremely well during these last 2 years. Focusing on Castellana portfolio and looking to footfall, it was in September last year when our portfolio overpassed the index, achieving levels pre-COVID and even higher. In this FY 2023 so far until February, our visits are above those of the same period pre-COVID, proving that shopping centers have not lost any relevance to customers. More of the contrary, customers metrics are beating records in terms of dwelling time and conversion rates. It is expected that March will keep the same line as before, and our year-end will be very positive. The stars in our portfolio are Bahia Sur, El Faro and Los Arcos with double-digit growth that prove how the value-added repositioning projects that we developed in those assets are paying off and are bringing now up to 24% more people than before as those projects have consolidated in the communities. In terms of sales, from January '22, turnovers broke the index, turning positive and have continued above the line since then with double-digit growth. In this FY '23 year-to-date till February, sales [indiscernible] 12.4%, above pre-COVID levels. in the same line as footfall from what we gathered from our tenants, we expect March sales to be very positive to close the financial year in record figures since COVID. Moving to the next slide, please, and looking into sales and breaking it down to categories. We see that the ones most impacted during the COVID crisis are now back to growth mode. Categories such as fashion, F&B and services are showing substantial growth compared to previous years, overpassing now pre-COVID levels. DIY and pets are still the stars, [ keeping ] their tremendous growth once again during this period with 67% and 60%, respectively, compared to 2019. Breaking sales into asset categories, shopping centers have shown a strong growth in September with more than 11%, and retail parks keep the trend of growth in the last months with positive 17.3%. Moving on to trading environment, next slide, please. And as advanced before, the entire industry agrees that the ghosts of retail Armageddon, e-commerce impact and COVID impact have dissipated now. Retail real estate has proven resilient and very strong. Still more than 90% of the sales in Spain are physical, and the recovery from COVID is no question. We are seeing most brands with quite an aggressive expansion plans now for this coming year ahead. Our portfolio was well ahead of this phenomena, showing the positive trends before anyone else. We are convinced that the fact that our portfolio has always gone ahead of benchmarks is because of our differentiated customer-centric approach, being closer and in touch with our communities by which we understand and gather for what our communities are demanding and requiring. Improving our portfolio through value-added projects, repositionings, local events, promotion and entertainment has derived on a strong growth in visits, dwelling time and hence, in sales for our tenants. This dynamic is satisfied -- this dynamic of satisfied customers, strengthening repeated visits and loyalty directly translates in happier tenants and consequently, in higher income for Castellana. This is also well shown in the increasing members of our loyalty programs in the shopping centers. If we move to operating activity and moving to leasing activity, occupancy and rent collection, we are keeping market-leading figures for the year. Very active leasing activity during the year, 80 renewals, with a positive reversion rate of [ 1.8% ]. It is worth to note here that this is excluding CPI as indexation are not normally [ coincidental ] of expiries, and adding, sorry, 103 new lease agreements, pushing rental levels up to 6 points -- by 6 %. Adding both, 183 leases signed in the year with a total of EUR 6.8 million refreshed into the cash flows, and all that with an increase of 3.13% of our portfolio average rent expressed in terms of euros per square meter per month. We keep occupancy at market-leading levels, reducing arrears and most importantly, maintaining collections to [ good ] collection levels above 99%. Now we move to looking into indexation. Next slide, please. Inflation have moderated since our summer months when [ REIT ] peaks above 10%. The average of 2022 in December closed at 5.7%. The fact that sales have kept in very good shape throughout the year, [ therefore ] rates have stayed at healthy levels and rents in our portfolio are in the low end, it is giving tenants room to afford CPI increases in our portfolio. As reported before, 99% of our leases in place are indexed to CPI every anniversary. Portfolio minimum guaranteed rent, or what we call MGR, grew in the financial year 5.7%. That is a combination of CPI increase and asset management action in the portfolio. Having this year a larger impact of 4.2%, the asset management initiatives performed as per the consolidation of the value-added projects conducted in the portfolio versus a CPI effect of 1.4%. However, during these last months of our FY '23, 80% of MGR has already been indexed, mainly in the months of December and January at an average rate of 7.7%. The majority of the effect, in fact, 75% of that effect of these high inflation rates is to take place in the next financial year, FY 2024. And now moving to our investment in Lar España. We keep our interest in Lar following the year-end results. We are very satisfied with their metrics and recovery, very in line to Castellana's portfolio with double-digit growth in footfall and sales, showing a strong occupancy and income growth. At the beginning of the year, Lar España performed a successful bond buyback program for more than EUR 90 million and at an 18% discount to par value. This improved their net loan-to-value down to 37%, increased NTA and produced a profit of circa EUR 19.5 million that should improve 2023 P&L and dividends. Based on this good performance and our knowledge of the assets, we still believe there is opportunity to unlock value going forward. And so we remain long-term shareholders with our 25.7% of the company at an average price of just below EUR 5 per share. The dividend for 2022 period announced by the Board, still pending to be approved by the AGSM, is EUR 50 million, which equates to EUR 0.60 per share, implying a 12% dividend yield on our investment. So that would be all from my side. And now I pass it over to Laurence Cohen for the financial and treasury part, who will explain how the large dividend is to be accounted for. Thank you.

Thanks, Alfonso. Good morning, everyone. [ Shandy ], on to the next slide. When we initially made our investment into Lar España, one of our considerations in terms of the manner in which we recognize the income from Lar was, obviously, compliance with Spanish GAAP, compliance with IFRS both in Spain and in South Africa. And in addition to that, we -- given the materiality of the investment, we wanted to ensure that we, as far as possible, remove any forecast risk in the recognition of income from Lar España. On that basis, we communicated to the market upon the initial investment that we would accrue, by way of a non-IFRS adjustment, the income from Lar based on actual historical declared dividends from Lar España. And we can confirm that for both FY '23 and in the years going forward, we will remain consistent with the previously communicated policy. So that means that for the year ended FY '23, we're going to be recognizing 46 cents in total from Lar España. That is made up of 36 cents for the year -- for the 10 months ended January '23, and that 36 cents was based on the actual 36 cents that was declared by Lar España -- for the Lar España year ended December '21. And then the remaining 10 cents that we're going to bring into income of Castellana for FY '23 relates to the 60 cents that was declared by Lar España in February this year. So 60 cents we're going to bring in over 12 months, from February '23 until January '24. That's at a rate of 5 cents per month. So the 5 cents in February '23 plus 5 cents in March '23 will give you 10 cents in February and March '23 plus the 36 cents that we brought in until January '23 gives you 46 cents that we'll bring in for the year ended March '23. And then in the year thereafter, in FY '24, we're going to bring in that 60 cents, continue bringing it in at a rate of 5 cents per month until January '24. So that will be 50 cents that we'll bring in, in FY '24 for the 10 months ended January '24. And then obviously, we'll reset it from February '24 based on the dividend that Lar España will declare for the year ended December '23. [ Shandy ], if you could just go on to the next slide, please. Also just to bear in mind that Lar España will be declaring their dividend of EUR 0.60 for the year ended December '22 in March '23. And in terms of IFRS, Castellana will need to recognize that EUR 0.60 in full in its Spanish GAAP and IFRS income in the FY '23 year, which means that there will be a non-IFRS adjustment required in Castellana, which will be the difference between the EUR 0.46 that Castellana will recognize in FY '23 and the EUR 0.60 that it will bring in, in terms of the accounting standards. So that 14 cents of recovery essentially will be brought into FY '24 as a non-IFRS adjustment in terms of SA REIT best practice. Also just to bear in mind that in terms of the Spanish SOCIMI rules, the dividend received from Lar will need to be on paid in full to Castellana shareholders to avoid any tax leakage in Spain and to ensure that Castellana continues to remain tax neutral. [ Shandy ], you can move to the next slide. In terms of our balance sheet, our balance sheet metrics remain strong, and the most significant metrics remain largely in line with what we reported at interim stage. 88% of group debt and 79% of South African interest-bearing debt has been hedged. The interest rate caps in the South African portfolio that we entered into during the course of last year are all providing protection with the cap rates having been struck below current 3-month JIBAR. We continue to proactively manage interest rates in the current environment, and all FY '23 expiries have already been repaid, refinanced or renegotiated. As regards to FY '24, 63% of all debt has already been repaid, refinanced or negotiated. And as Laurence mentioned in his introduction, Castellana's debt maturity is fairly low risk with the next maturity only occurring in FY '26. We still have significant cash and undrawn committed facilities at ZAR 3 billion with the liquidity position still being very strong. As we previously announced, our rating agency, GCR, upgraded our credit rating last year from AA minus to AA with a stable outlook. And as also previously communicated, we had a very successful bond issuance in August last year where we raised ZAR 767 million in 2 bonds that were issued in the debt capital market. With that, I'd like to hand back to Laurence, and he will update on -- provide an update on guidance.

Great. Laurence, thank you very much. And I think before I get into the guidance, let me just simply say that a huge thank you to my team for an unbelievable effort in the past year and producing these exceptional numbers that they have just taken you through. So at the financial '22 results, we guided for growth in FFO per share of between 5% to 7% and equally, a growth in dividend of between 5% to 7%. And we are very pleased to confirm that guidance will be achieved for FY '23 at growth in FFO per share and EPS of between 5% to 7%. I'd also just make the comment that based on all the information we have to date, including sort of where the interest curve is sitting based on consensus figures and the budgets that we've just prepared for our Board to approve, we are looking for growth to continue into FY '24 in terms of growth, FFO per share and dividends per share. And obviously, we'll provide detailed guidance for FY '24 at our year-end results presentation, which is scheduled for the 12th of June 2023. So really, in summary, we are delighted to present the set of numbers and figures to you. I think you can, hopefully, see where our enthusiasm comes in, in terms of the strong operating performance of our business in both South Africa and Spain. And really, once again, delighted to be able to deliver on guidance and looking forward to continued growth. So with that, Lwando, I'm happy to hand back to you and see if there are any questions from the participants.

Laurence, I think we have 2 questions on the Q&A. Anonymous attendee. Can you please speak to the tax savings on the solar rollout as this year [ includes tax savings ]?

Laurence, would you like to maybe take that question?

Yes, certainly, I can. For -- because Vukile is a REIT, whilst there will be tax allowances that we can claim on the amount -- certain of the amounts that we invest in the solar project, it's not going to have a material impact on the company because all it will do will lower our taxable income, which will lower the dividend that we are required to declare in order to remain tax neutral. That's essentially the summary. However, we can confirm that although it will offer us some additional tax allowances and therefore lower the taxable income and the dividend that we are required to declare in order to remain tax neutral, it's not going to, in any way, affect our dividend policy that we've already communicated to the market. In other words, I don't think the market needs to be concerned that as a consequence of this, we're going to further reduce our dividend payout ratio.

We have another question from anonymous attendee. Alfonso, have you as a team identified why your sales growth has exceeded the national sales benchmark?

Yes, thanks, Lwando. Look, it's a difficult exercise because we don't really have the detail on the benchmarks on how they break down, okay? But I mean, I can say that there are different factors over there that made us better in the curve, the main one being the asset dominance in catchment areas and our active asset management in those assets bringing more people. More visits definitely mean more sales. Then there's the composition of categories or what we call the retail mix within the assets because we incorporate the most loved brands and categories. So hence, that means better sales. And also the improvement on those categories where we have more weight, which are the fashion and accessories, F&B, groceries and sports, which have been improving very well since COVID.

Another question is from Mweishö Nene. What was the recovery rate on your diesel spend for FY '23 so far?

Itu, will you take that, please?

Yes, I'll take that. Mweishö, just on kind of just diesel spend, it also depends a lot on how -- on what your diesel backs up. So in majority of our malls, our diesel generators back up common areas, right? And a lot of our retailers have their own generator backup. So by virtue of us covering the common area, the recovery ratio is relatively low. So in those scenarios, our recovery ratio has been about 40% to 50%. But for instance, at East Rand Mall and Thavhani Mall where we've got our own generators that are backing up retailers, the recovery ratio in that scenario is significantly higher. So I mean I think that's how I would approach to answer your question. We have, in terms of our forecast and I think we mentioned this at the September update, that we have overspent. But we've sufficiently budgeted and forecasted for the overspend in diesel, and that's all in our figures at the moment. So there shouldn't be any surprises coming out of there.

Another question from anonymous. Can we get an update on the latest LTV and ICR? Can you also update us on financing rates of facilities that have been renewed?

Laurence, are you happy that I'll take that question?

Yes, please do. Thank you.

Thank you. So in terms of the LTV and the ICR, as we mentioned in the presentation, we do anticipate that it will be largely in line with what we reported at interim stage, LTV probably in the region of 44%. In terms of ICR, we reported 2.9x in September. The ICR may be, when we report at year-end, may be slightly lower than that given the increase in interest [ cuts ]. Although as we've mentioned in the past, still significantly higher than the various covenants that we have in place. And then as regards the rates that we've been getting on new facilities, I think when we issued debt into the debt capital market in August, it kind of reset the base and compelled the banks in many respects to sharpen their pencil for Vukile funding. And the 2 notes that we issued in August last year, the 3-year note was at 139, and the 5-year note was at 159. And in the months subsequent to that, we've obtained bank funding facilities, a 3-year facility at 140 -- a margin of [ 1 40 ] and a 5-year facility at a margin of [ 1 65 ], which does indicate that the banks are making a big effort to meet the same pricing that we've managed to achieve in the debt capital market.

Another question from anonymous. Any potential financial penalties you could face if you walk away from the transaction [indiscernible]?

No. There wouldn't be anything. Remember that this was a condition precedent that was a requirement of the sellers to get fulfilled. So I think I want to just reiterate that we are not saying that we're definitely walking away from it. But contractually, we have the opportunity if we so choose. And as Itu mentioned, it is sort of playing havoc with our capital allocation because there are opportunities and you need to know where to allocate that capital. Interestingly, and really about half an hour before this presentation started, we did get a letter from the sellers, from [ JPC ], that while it's not being definitive, was more positive in its tone. So based on that, may be quietly hopeful that it will come through. But in all events, if we do decide not to proceed with the transaction, categorically, there are no financial penalties on our side.

Another question from anonymous. Any color on group gearing level expectations and valuation expectations?

So look, valuations are sort of being done at the moment in both South Africa and in Spain, and that's why we can never give the definitive LTV number at a pre-close because it's very much dependent on where those numbers come out, and those only finalize post year-end. I think what we can say in the Spanish environment, we do expect a further increase in the discount rate or the IRR. We've already, I think, had 50 to 75 bps in the last year. We think that will go up again, and that will hopefully be offset by the higher net operating income. And that's driven by not only the value-add projects and the income we generated, but also by the expected indexation that, that comes through. So I think we'll have to wait and see where they are. But I think you're going to have a very tight band around the current valuations, either slightly positive or slightly negative. But I don't think you can expect anything dramatic within the Spanish valuations. On the SA side, I think when we look at the NOI growth that we're getting in the portfolio and look at sort of where the discount rates are and again, what's critical on valuation is to realize that a large part of the valuation always sits in the terminal value, and your terminal value [ quotes ] really have to look through the cycle. I don't think there is anything we're going through at the moment that would suggest that these are permanent and long-term changes in the overall environment. This, for us, is cyclical. So therefore, it's really sort of more in the short end of the valuation or an increase in discount rate versus the increase in NOI and where that comes out. So I'm sort of expecting sort of a fairly neutral valuation outcome in Spain, and I would expect to see some level of growth in the SA valuations.

Another question from anonymous. Well done on very impressive numbers. Would you please elaborate on the potential impact from the global banking issues? Given that you don't have any expiries before 2026, Vukile should be isolated from any potential fallouts. Or does your comment mostly related to your future ability to do deals offshore?

That's a full question. So look, I think, obviously, the global banking crisis is something to watch very closely. I think, when was it, a week, 2 weeks ago that we had all the volatility. Things seemed to be settling down a little bit from that point of view. But I think generally speaking, it does mean that you'll probably find that banks become more conservative in their lending policies. We have already seen debt capital markets trading bonds that are often issued at 1.5% to 2.5%, trading in the 6% to 8% kind of range. So I think at this stage of the game, for companies to go to the debt capital markets, and I'm talking generically here, is not that attractive. The banking market, I think it's going to be very much dependent on whether you're talking about refinancing or whether you're talking about new debt. I think new projects are going to struggle to get financing. I think refinancing, with our deep bank relationships, a solid track record of delivery, I think you will be able to continue to get those refinances, obviously, though, coming at a higher interest rate not only because of base rates, because I think that's what banks do when markets are tight. So certainly, if we were facing a refinance in the next year or so, yes, I would be more concerned than I am at the moment. The fact that our earliest refinance in Spain comes in, in FY '26, I think, is very comforting for us because when one looks at sort of the length of these hiking and cutting cycles, we probably are quite well into the hiking cycle. And by the time that we need to then start looking to refinance, hopefully, the banking market is in a far more stable and open position than it is at the moment. So for us, not a major concern. But for the broader real estate industry, I think, yes, it is a very big driver at this stage of the game. The other question around whether or not it impacts our ability to do deals, I think we see more opportunity in the corporate space than in the physical asset space at the moment. So there are always ideas that are floating around in the team. I think you know us well enough that we are entrepreneurial. We are looking for opportunities. And we think that in the market turbulence that there is at the moment, this is the time to be open to ideas and seeing what's out there. So I don't think, by definition, you can conclude that the banking environment precludes us doing deals. I think on the contrary, it may actually give more opportunities than not.

Next question is from [indiscernible] on your progress. Is Spanish/Europe expansion in your thinking?

Yes, absolutely. I mean I think the Spanish side, obviously, Lar España features very prominently on our radar screen. We took our stake, I suppose it's now about 14, 15 months ago, and you can see how well that's done for us. So that ability to have sort of really understood the market, act on it, and you can see we're earning about a 12% dividend yield in euros, which I think is superb. So yes, we have bought some additional shares in the market. I think we are continually looking for ways to try and deepen that relationship. And we always have an eye out for those types of opportunities.

Okay. I'm just -- I think we have 5 minutes. I'm just going to maybe select a few. Where is your holding in Fairvest currently?

Fairvest, we own -- I think it's about 6%, Lwando.

[indiscernible] Maybe let me take the last one from [ solo fellow ]. How has the [ third-party ] management service you'll be providing progressed?

Sorry, can you repeat the question? I missed it.

How has the third-party asset management service you will be providing progressed?

Right. So I mean I think there really are 2 components to that. There's the contract in Namibia, managing the portfolio there. And then I think there is a deal with ALT Capital Partners and the REimagine fund, and that sort of really is at its infancy. So very hard to comment other than to say we are very excited with the progress that they've made in raising the funding and the deal flow that's coming through. So they've yet to start deploying that money, and that's something that will take some time. But certainly, we are very excited with the beginning and the initial progress we've seen from Ben Kodisang and his team.

I think, guys, we can stop here given the time. So in closing, I would like to thank the Vukile and Castellana management for allowing us to host this pre-close, and thanks to the participants. For me, I think the stars are aligned for Vukile. We believe the [ rent ] weakness benefits the Vukile balance sheet. And given the strong operational performances, as implied by this pre-close, given the large dividend, given the large share price recovery, which is marked to market in the Castellana balance sheet and in an environment of rising costs and refinancing costs, Vukile has an attractive debt expiry profile. So all of that, I believe, may result in Vukile [ getting ] strong FY '23 numbers. So ladies and gentlemen, bye-bye.

Lwando, thank you to you, Francois and the Anchor team. And thank you to everybody for participating. Have a good day.

Thanks, everyone. Cheers. Bye-bye.

Thank you very much. Bye-bye.