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Edited Transcript of GRT.J earnings conference call or presentation 12-Sep-19 9:00am GMT

Full Year 2019 Growthpoint Properties Ltd Earnings Presentation

Johannesburg Sep 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Growthpoint Properties Ltd earnings conference call or presentation Thursday, September 12, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Estienne de Klerk

Growthpoint Properties Limited - CEO of South Africa & Director

* Lauren Turner

Growthpoint Properties Limited - Head of IR

* Leon Norbert Sasse

Growthpoint Properties Limited - Group CEO & Director

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Conference Call Participants

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* Nicolas Lyle

STANLIB Ltd. - Analyst & Portfolio Manager

* Ian Cruickshanks

* Michael Green

Growthpoint Properties Australia - CIO

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Presentation

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Michael Green, Growthpoint Properties Australia - CIO [1]

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All right. Good morning, ladies and gentlemen, and Estienne and Norbert, too. Can we get going now? It's -- this is the Growthpoint Properties, the presentation on their annual results year ended 30th of June. A company that's well known, been listed on the JSE since 1987, has a ZAR 139 billion worth of properties around the world with a market cap of ZAR 68 billion, which tells a bit of the story. The -- so because of the size of the group and the length of the story, I don't want to take much of your time. But -- and of course, there's some other breaking news as well about Sandton South, as you know, beyond Discovery and Capital & Regional. We won't go there because those are new issues. But I think it's always a pleasure to be hosted by Growthpoint because it's the sort of group where we require this type of feedback, and the corporate governance, I think, the company displays by doing this to us is much appreciated by the industry.

So thanks to Growthpoint for the chance to listen to the presentation, and I'll hand over to Norbert Sasse. Thanks very much all.

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [2]

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Thanks very much for the introduction, Mike, and welcome, everybody. Thank you very much for taking the time out to come and listen to our presentation here this morning. Mike did mention the announcement which we made yesterday around the discussions that we are in with Capital & Regional. I don't want to detract from the results presentation by addressing that, so I'll leave that right till the end. And hopefully by then, there's no time left for you to ask any questions. We can't say anything anyway. So based on the panel rules, and we got Goldman Sachs here who are chaperoning us, making sure we don't say anything that we not mean to be saying. But again, thank you very much for attending, and welcome.

I'm going to present to you the results for the year ended 30 June, 2019. The agenda, start off dealing with a quick review of the strategy, touch on the financial highlights, salient features, then some financial results. I'll talk to you some of the international investments and the Growthpoint Australia and Globalworth and how they've been doing. Estienne will come and present on the South African portfolio and also the V&A Waterfront. He'll also deal with the capital management slide, and then I'll come back and just conclude for us and deal with any questions around the Capital & Regional at the end.

So just an update on strategy, where we're at, at 30 June. Approximately 30% of our property assets by book value located offshore, that represents about 23.3% of earnings before interest and tax. We invested during the period another ZAR 1.3-odd billion or AUD 131 million into Growthpoint Australia via following our DRIP in the first instance, and then in the second instance, participating in a rights offer. The GPRE -- Globalworth Poland and Globalworth merger or consolidation took place. And as part of that transaction, we invested another ZAR 241 million into Globalworth, about EUR 15 million, just keeping our stake at the 29.9% level.

Domestically, we continued to look to optimize and streamline the South African portfolio. We sold 14 assets valued at by about ZAR 2.9 billion with a further 7 assets of about ZAR 325 million being held for sale as at the balance sheet date.

We -- on the new revenue streams and looking to introduce new revenue streams, I think we've made pretty decent progress. On the trading and development side, we earned ZAR 61 million worth of trading profits. We earned about ZAR 13 million worth of third-party development fees. And there's a pretty healthy pipeline of opportunities in the trading and development space, and we hope to continue to build a sustainable revenue stream out of that.

On the funds management side, we still -- as we sit here today, we got the 2 funds. There are a number of transactions that are in the pipeline. Some are being concluded, i.e., we've signed agreements, but there are still a couple of conditions precedent, so they haven't quite been -- so they're not quite over the line yet. But should those be done, we should have in order of ZAR 10 billion worth of assets under management across those 2 funds certainly by the end of this financial year.

The 2 funds are the Investec -- Growthpoint Investec Africa Properties fund. The commitments we have, there's $212 million, and we have now started investing into individual assets across the continent. We drew down $32.5 million for the acquisition of the Achimota Mall as -- in Ghana, and then another $62.5 million was drawn down for the acquisition of Manda Hill in Zambia. If all goes according to plan, by the end of the financial year, the -- all the equity commitments in that fund will have been drawn down, and the team will, in all likelihood, be back on the road, looking to raise additional capital for the fund.

On the healthcare fund, we got about ZAR 2.6 billion worth of assets there, the 5 properties, 4 hospitals and the medical chambers. We've attracted just over ZAR 700 million worth of investment from third parties. We're spending about ZAR 100 million on developments and extensions to the Hillcrest and Gateway Hospitals in KZN. We are well advanced with the development of the Pretoria head and neck hospital development. It's about a ZAR 500 million project, and that'll be completed in April 2020. And again, a very healthy pipeline of both acquisitions as well as greenfields and brownfields type opportunities for that fund.

We have a pretty big investor at the moment doing due diligence on all the documentation, and we hope to announce something in due course. We -- I think the investor is considering a number between ZAR 500 million and ZAR 700-odd million to be invested in the fund.

We included a slide here for your benefit. I know that there's still a lot of questions on how this fund management business works or is meant to work. It's quite a complicated little slide, and I'm not going to delve into all the aspects of it. You're welcome to work through it and ask us afterwards. But in essence, what we tried to demonstrate here is probably encapsulated at the bottom right-hand side of the slide where you can see the fund itself or the company itself, GHPH, that's Growthpoint Healthcare Property Holdings, it earned rent -- net rent of ZAR 210 million for the period. It paid the asset management fee of ZAR 32 million. So its income after the asset management fee was about a ZAR 178 million. Growthpoint owned 72.9%, so we started off with a ZAR 100 million, and then we've been selling down. And the idea is that we sell down to about 15% to 20%. The strategy with fund management is that we would co-invest, and we'll have 50% to 20% of the equity in whatever fund it is that we end up launching. So our piece of that ZAR 210 million is about ZAR 153 million. Our effective share of the fund management fee is ZAR 23 million. And then the receipt of the asset management fee and the property management fee amounts to ZAR 36.7 million. So our bottom line that we earned from their healthcare fund in -- for the period was ZAR 166.7 million.

And the noncontrolling interest on the right-hand side, that's obviously, the new investors who've come and invested into the equity of the fund, that's their share of the spoils. And a case of fairly pleasing result for the first full 12-month period that we've produced financial results for the healthcare fund. The investors achieved a 13% total return for the period through to June 2019.

Some of the salient features then for the period under review. Distributable income grew at ZAR 5.3% to ZAR 6.4 billion. Distribution growth was 4.6% to ZAR 2.181 per share. The difference between the 5.3% and the 4.6% is due to the issue of additional shares mainly in the 2018 period with the distribution reinvestment plan that we had on at that time. We saw 4.9% increase in group property assets to ZAR 139.4 billion. Our consolidated group LTV is at 36.4% versus the prior period 35.2%, so a slight increase there in our gearing levels. But that's come down again to below the starting point of 35.2%, settling at 35.1%. If you take into account the AUD 174 million that the Growthpoint Australia entity raised via write-off -- via placement rather, which settled literally on, I think, the 2nd or 3rd of July, so just missing the 30 June year-end, if that capital raise had been -- if that cash had been on the balance sheet at 30 June, consolidated LTV would've been back down to the 35%. And then NAV per share decreased slightly by 0.7% to ZAR 25.39 mainly driven by a slight decrease in property valuations; a bit of currency movements certainly on the Aussie dollar versus rand, referring to respective balance sheet dates; and some mark-to-market of some of the derivatives.

Just flipping through the income statement. If we look at the gross property income, top line grew at about 3.8%, which is represented by about 1.1% growth to ZAR 8.3 billion coming out of the South African portfolio. Growthpoint Australia grew at 9% in rands to ZAR 2.76 billion. We're showing healthcare in here separately. The gross income was ZAR 240 million compared to ZAR 222 million the prior period, that's 8% up. And then the trading and development fees and profits of ZAR 75 million where there's no -- there was no comparable number. So all up.

The gross property income up 3.8%. Property expenses on the other hand in South Africa grew at 10.4%. Estienne will talk more to that when he deals with the South African portfolio. In GOZ, property expenses were up 18%. We're still seeing a bit of a dynamic in the GOZ numbers with the greater weighting to office versus industrial. I think GOZ today is over 70% or just in the -- around 70% of its assets today is represented by offices. And your cost-to-income ratios generally in offices are higher than that in industrial. So as we increase the weight into office, we generally see a bit of an increase here in the cost-to-income ratio.

The healthcare fund expenses went up by -- actually came down a little bit by 3% from ZAR 31 million to ZAR 30 million. So that left property expenses up 11.4% in total and net property income, therefore, up 1.7% at ZAR 8.7 billion.

Other operating expenses went up by 5.7%. Within that, the South African numbers came down a bit from ZAR 309 million to ZAR 294 million, that's a 4.9% decrease. GOZ went up 10.2%. And the healthcare number is not a comparable number FY '18 versus FY '19, and that number there essentially represents the asset management fee that is paid by the healthcare fund. And you can see it coming back as an income further down on the slide. And I think the healthcare fund number was only entered about 2 months in the comparable period.

That leaves us with almost ZAR 8.3 billion before finance costs, and that was up 1.4%. Finance cost in all -- in total was up by 1.1% to ZAR 2.6 billion. In South Africa, marginal growth, 0.3%, up to ZAR 2.33 billion. GOZ was up 4.2% to ZAR 570 million, leaving -- basically, then we're moving to the other income line.

Other income, which is where we show the contributions from the other investments that we've got, so the waterfront. Waterfront grew its bottom line contribution by 14.4% to ZAR 678 million. Investment income via the investment into Globalworth and GPRE, if you combine the two, went up by 32% to ZAR 512 million. In 2018, we showed a capital raising fee where we underwrote a capital raise for Global with Poland, and we didn't earn any fee in that regard this year.

Other finance income went down from ZAR 145 million to ZAR 130 million, and that leaves funds management -- we bring the fund management income in the ZAR 32 million of fund management fees.

If we then strip out all the noncontrolling interest for the shares effectively that we don't own in Australia as well as in the healthcare fund, that's about ZAR 605 million, leaving us with bottom line distributable income of ZAR 6.430 billion.

This slide tries to illustrate where the growth has come from during the period. It's not a sort of a perfect science. What we've tried to do here is allocate funding cost. I think if you look at the last year's slide or the half year slide, South Africa was still carrying most of the funding costs. So we tried to do a bit of an allocation of funding costs, so when you look below the trading line. So in summary, South Africa, as you can see, marginally negative. The trading and development contribution of 1.1% to that 5.3% growth. Healthcare went backwards 0.6%, but that's mainly because of the sell down where we sold down from 100% down to 20 -- or, sorry, to 72%.

The fund management contribution at 0.4%. V&A Waterfront made up 1.5% of that growth. GOZ, the standout performer, I guess, for the period, contributing 2% of that. Globalworth and GPRE 1.6%. And then, obviously, the underwriting fee, which I've spoken about, take that out. So that's how we try and reconcile that 5.3% growth, where it came from and what drove that.

Quick look at the balance sheet. The property portfolio, South Africa, about ZAR 117 billion, that's up 4.3% compared to the ZAR 112 billion compared in the prior period. South Africa, pretty flat. Growthpoint Australia up by about 15%. They had a pretty busy 12-month period. Our equity investments represented by the V&A Waterfront at about ZAR 7.5 billion. What's not on here is the approximately ZAR 2 billion of shareholder loans that we have into the Waterfront. So gross asset value, if you want, of the V&A Waterfront is about ZAR 9.8 billion.

Our investment in Globalworth. You need to look at the 2 lines together, I guess, because what happened during the period is we swapped our share that we had in Globalworth for additional shares in Globalworth Poland rather for additional shares in Globalworth. I'll talk to that on the Globalworth slide just now. But our investments at year-end stood at ZAR 7.7 billion, and that compares to the combined Globalworth and GPRE value at FY '18 of about ZAR 7.4 billion.

Few other investments, mainly the Tata building in Rivonia -- not Rivonia rather, it's more sort of in Illovo. Then we have listed investments of about ZAR 846 million, that's represented by the stake that GOZ has -- Growthpoint Australia has in ADI, which is another listed Australian entity. And that's gone up. The share price there went up quite nicely. We have unlisted investments, which is our investment in Edcon, which we have impaired. I think our total investment was ZAR 110 million, and that's being impaired down to ZAR 96 million.

Nominal borrowings, ZAR 49.4 billion compared to ZAR 47 billion the prior year, that's up 4.4%. In South Africa, pretty flat at ZAR 35 billion, and then GOZ gone up by about ZAR 2 billion from ZAR 12.2 billion to ZAR 14.2 billion. The shareholder interest or net asset value slightly down from ZAR 75.2 billion to ZAR 74.9 billion.

So moving then onto the -- a bit of an update on the international investments and how they fared, firstly, Growthpoint Australia. During the period, GOZ invested about AUD 341 million in new acquisitions and had about AUD 45 million worth of disposals. GOZ had a busy year in the equity markets. We've had 2 equity raises, which we've oversubscribed in both instances, and they raised a total of AUD 309 million. In the process, they effectively reduced their gearing by 380 bps to just over 30% post June. That was -- is a consequence of the AUD 174 million capital raise that they undertook.

The net result of that capital raise was that the free float of GOZ has increased to about ZAR 1.3 billion, and that's linked to the fact that we actually diluted our shareholding from 66% to about 62%. So this was the first time in -- since we made the investment back in 2009 that we did not participate in a GOZ capital raise and we did not stand our corner, if you want, for our pro rata piece. And you might ask, "Well, why? And what's the logic?" And I guess the simple answer is that from our perspective, the share price there has run tremendously hard. It's trading at about AUD 4.40, AUD 4.38. I don't know what it closed at this morning. The yield has come all the way down to the very low 5s. We generally end up paying withholding tax up to a maximum of 15%. So after withholding tax yield on GOZ today as a South African or non-Australian investor is in the mid- to high 4s. Now for us to be shipping rands out of South Africa to invest in equity yields that are that low compared to our incremental cost of Aussie dollar funding spreads very narrow. So I think GOZ has matured over the last 10 years. It's now got a market cap of about AUD 3.3 billion, AUD 3.4 billion. It's got a pretty decent free float. Australia, right now, is characterized by all-time record-low cap rates, all-time record-high valuations, lowest-ever interest rate, cash rates are 1% and potentially still going down. So by all accounts, quite expensive. And given that there was substantial institutional demand for GOZ's stock in the Aussie institutional market, we decided to just stand back a little bit and let the Aussie institutions pretty much fund the next round of growth. And I have to say that, that is something which we contemplated would happen 10 years ago when people were asking us why you're leaving it listed? Why don't you just delist the thing? Take it 100% private. Our view was that there would be a point in time where we couldn't afford to fund the future growth and we can rely on the domestic equity markets, and it's happened as we thought.

Talking about GOZ maturing, it's also now gotten to a stage where it's taking some -- doing some developments. Growthpoint itself as a South African entity, for probably the first 10 years of our history, we didn't touch developments until we built the capacity in-house and got the confidence to do developments. And today, I think we can certainly stand proud as having delivered in partnership with Zenprop the likes of the Discovery building. So I think we've built up some good competency. Now Australia is going through that same sort of process. So there's about AUD 353 million worth of developments -- development pipeline in GOZ.

Talking about the low cap rates, the like-for-like portfolio valuation grew 10% in Australia during the 12-month period, and that's characterized by mainly cap rate compression.

Our cost of our investment in GOZ is about ZAR 9.6 billion, and the market value as at 30 June represented a valuation of our investment of about ZAR 19.6 billion. So we've got a ZAR 10-odd billion profit there on the investment that we've made into GOZ over time.

Post FY '19, I said we -- as I said, we didn't follow our rights in that capital raise, so we've diluted to 62%. Let me make it clear that we certainly could and would consider further dilution, but we would not ever want to lose control of GOZ. So for us, control is 50% or more. So as we look at funding mechanisms, as we look at growth, as we look at opportunities, we may consider diluting further, but we'll never lose control of GOZ. Never is a long time, we'll see. If somebody comes and makes a nice, stupid offer, then maybe we'll think about selling all the thing.

86% of the properties in GOZ is on the eastern seaboard, which is obviously where the, let's call it, the high-growth areas within Australia is, the western side. Perth is struggling a bit. The portfolio is split 69% office and 31% industrial, 98% occupancies, 3.3% weighted average rent reviews or the escalations built into their leases, 5-year WALE average lease, incentives actually coming down a little bit. I read an article this morning which suggested Melbourne is now hitting all-time record-high rentals due to the low levels of supply and the fact that vacancies have reached record lows. So I think that bodes well for the development we're doing in Melbourne at the moment. And admittedly, this is Melbourne CBD. But yes, good fundamentals there. And then 76% of GOZ's debt is fixed in terms of interest rate exposure, and the average duration of its facilities is 5.6 years, average cost of debt, 3.7%.

So GOZ, I must tell you, every night when I go to sleep, what do I think about? The last thing I think about is GOZ. It's sort of running very nicely, it's doing what it's meant to be doing. They actually came out with their own distribution guidance for next year. I think it's about 3.5% in Aussie dollars, which would -- I think -- and it's also now on a track record of, I think, 10 years of uninterrupted dividend growth. Since we invested and made the investment, took control in 2009, GOZ has had an uninterrupted dividend growth record for the last 10 years.

Looking at Eastern Europe and Globalworth, again, an extremely busy time for Globalworth with 6 acquisitions during the period totaling EUR 574 million in -- mainly in Poland. So there's been a very big shift in Globalworth where when we invested in December '16, it was 100% Romanian exposure, and 95% of that was in Bucharest. Today, you've got diversification into Poland with, in fact, the bulk of the value today of the portfolio is in Poland, and that is spread across Poland's 5 major cities. And we made some really high-profile acquisitions during the period right in the heart of Warsaw, the Warsaw Trade Tower, and a number of other acquisitions throughout Poland.

There's quite an exciting development pipeline still in Romania. So Globalworth is sort of 2 stories. There's the development story in Romania, and there's the investment/acquisition story in Poland. And development yields in Romania are still very attractive. Our partner there, Ioannis Papalekas and his team have got a tremendous knowledge of that market, and they are developing some of properties that are comparable to my mind to the Discovery building, which we built here in Sandton not long ago. These are truly standout, high-quality buildings. I think for many -- there are a number of people in the crowd who've been there, and I think they'll agree that the quality of the underlying real estate in -- certainly in the Romanian portfolio is quite exquisite. The -- just from a portfolio perspective, we've got 60 buildings now in that company, 23 of them in Romania and 37 in Poland. This was -- this includes the July acquisitions. The pro forma value is about ZAR 2.8 billion, that's up from about ZAR 2.1 billion in June '18. GLA, gross lettable area, is now 1.2 million square meters, and occupancy is 95 -- over 95% with 5-year weighted average lease period.

Our cost of our investment into both Globalworth and Globalworth Poland is ZAR 7.1 billion, and the market value, ZAR 8.1 billion. I mean the share is not that liquid, not that tradeable, but I think in time, that will come.

We own 29.8% of Globalworth. Not only did it have a busy period in terms of acquisition investment but also internally in terms of the restructure. So there were these cross holdings where we held into Globalworth Poland, and we held into Globalworth, but Globalworth held into Globalworth Poland. We've simplified all of that today. So Globalworth today owns 99.9% of the shares in Globalworth Poland, and we're just in the process now of going through the court procedures to expropriate the last few minorities. So in the next couple of months, Globalworth Poland will be 100% whole subsidiary of Globalworth. You will have one entry point, which is via Globalworth, and you'll get exposure to both the Polish and Romanian portfolio.

Globalworth raised EUR 500 million worth of equity during the period, EUR 347 million was cash, hard cash from new investors, and then a EUR 153-odd million, which was the -- effectively us as Growthpoint swapping our Globalworth Poland shares for Globalworth shares.

Globalworth has got its own investment-grade credit rating from all 3 major ratings agencies. Also had a fairly complicated remuneration structure there, which was put in place when it was listed. It was more of a private equity style, RIM structure for management, which many of the institution investors didn't like. We've actually sorted that out and canceled that and put in new RIM structures for the management. So it's taken time. It's taking a bit of time, but I think we are certainly improving all the little niggly bits and perhaps some governance issues, which weren't favored by institutional investors. To my mind, those particular companies should be -- any institutional investor should be very happy to consider Globalworth today, whereas perhaps a couple of years back, some questions could have been raised. It's well positioned for future acquisitions following the capital raise. The dividend grew from 50 -- ZAR 0.49 to ZAR 0.57, and the GPRE dividend was ZAR 0.068 compared to the ZAR 0.037 in the prior period.

So at this point, I'm going to hand over to Estienne to deal with the South African portfolio, and then I'll come back on the outlook.

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Estienne de Klerk, Growthpoint Properties Limited - CEO of South Africa & Director [3]

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Thanks, Norbert. All right. So we're going to get into the really interesting stuff now. Being South Africa, you can see from the respective hairstyles who's running which business, right? So anyway. Look, South Africa is -- has been a bit tough to be honest, but a lot of activity. We've let in this period over 1.25 million square meters of space. So a huge amount of activity there. Vacancies have crept up a little, some of it in Sandton, some of it in our industrial portfolio has resulted in that.

In this market, we're trying to fill our buildings, so the priority is to get the rental and to get the clients into the building, and that has put a little bit of pressure on the renewal growth rate. So to try and defend against a very competitive market, we tend to give a little bit on the renewal rental, and we've seen that come down by 5.3%, which is probably the most that we've seen as an overall company in the time that we've been involved in the business.

At the same time, we've also disposed of some assets. We've sold ZAR 2.9 billion worth of property, the largest of which was Investec at ZAR 2.2 billion, the Investec building in Grayston Drive. And then we made 1 strategic acquisition of some land at ZAR 36 million. The portfolio value has remained stable at ZAR 78.3 billion, but there's quite a lot of activity in that. And that -- obviously, we've sold some assets, the ZAR 2.9 billion. We've developed ZAR 2.7 billion of assets. So there's been quite a bit of churn in maintaining that. And this year has been also a year where we've seen valuations come under pressure. So in our retail and office portfolio, the valuations have come down collectively between those two by about ZAR 587 million. And the healthcare and the industrial portfolio has been revalued up by about ZAR 300 million, collectively. So net-net, down ZAR 290 million. But the reality is with rentals being under pressure and the yield environment, which has actually been reasonably stable, we've seen a bit of a pressure on those valuations. And potentially, if the trend continues on the rental side, I think valuations will remain under pressure. I think the only thing that potentially will be a saving grace on that side is if the risk-free rate reduces, and that very possibly could happen if we look at what's happening in the global bond yield environment.

The renewal success rate has improved to 70-odd percent. Our balance sheet is still very conservatively leveraged at 36.9%, and a very healthy interest cover ratio of 3.8x. Our total expense ratio with the increase in vacancies and specifically rates and taxes has climbed up a little bit. We do a huge amount of work in trying to rationalize, trying to improve our cost structures. And over the years, we have managed to make some savings, and certainly, that percentage has been reasonably constant around the 27.5%. But this year, unfortunately, with the rates coming through and the additional vacancies, we haven't been able to maintain that level, so that's a negative.

As I mentioned, we've been active on the development side, and then we have -- the arrears in this environment have also moved up a little bit, but still a pretty good state, I believe, at about 7.1% of collectibles.

Bad debt through the income statement in the period was ZAR 18.9 million, which talks to a reasonably healthy book of clients or tenant base.

Right. If we look at our retail business, as I mentioned, economy is very challenging. We're still also suffering the overhang of a lot of development in retail, which has brought on quite a bit of competition with some of our shopping centers. And we're working through that and saying that we have been able to -- we've seen improvement in our trading densities to 1.9% growth which is, obviously, a positive in the long term because your rental in your shopping center per square meter to a large extent determines what kind of -- your trading density determines what kind of rental you can achieve.

Our retail is very difficult to deal with at the moment, I'll be honest. And they've got a huge focus on cost with their top line similar probably to any business in South Africa. If your top line doesn't grow, there's a lot of focus on the expense line. And other than headcount, the real estate definitely is in the firing line.

The retail is also looking at improving their trading densities by going to smaller footprints. In response, what we've tried to do is we've upgraded our shopping centers and repositioned some of our shopping centers, so we've spent over ZAR 500 million on that. We've secured Dis-Chem and Pick n Pay in Lakeside in the ex-cinema space that went empty. And we've also introduced H&M and Walmer. So those, obviously, are positive developments.

And no retail discussion will go without a little chatter on Edcon. So as Norbert mentioned, we invested ZAR 110 million into Edcon. We did impair that by ZAR 14-odd million. We haven't really had enough insight into the balance sheet and income statement to take a full view of the investment, per se and on the balance sheet. And in the future, the Board, obviously, will be able to hopefully have that insight as we get reporting information quarterly from Edcon. So generally, our arrears have been wiped out from the entity, and we've seen a reduction in the space. So we continue to work with Edcon carefully, but the sort of -- there seems to be a few green shoots in terms of their trading that we've seen in the first quarter since investing.

On the vacancy side, vacancies have crept up marginally. We do separate what we call core vacancy is at, and that has also increased a little bit with some of the refurbishment initiatives that we've been working on. There's also been 1 or 2 vacancies that have been lumpy and 1 or 2 of the shopping centers that we're working on actively. And hopefully, this number will improve quite soon.

On the renewal success rate, there, we've seen a little bit of improvement, but that has come at the rental growth side, which is negative at 5.3%. In-force escalations are reasonably stable at 6.9% compared to 7% in the previous period. And that is, obviously, on your in-force escalations. And then on the renewal side, there, they've come under pressure where they have reduced to 6.5% from the 7.1% in the previous year.

Our arrears have improved a little bit, so that speaks, I think, to the quality of the shopping centers and the tenants. And then we can say that the high LSM-targeted shopping centers and specifically the community in smaller centers serving those high-LSM markets have been performing very well. Increased administered costs, I think, for the industry. Rates and taxes and administered cost, as a theme, is probably the largest threat. So [Vaya Spova] and SA REIT will be looking to try and lobby for maybe amended regime in terms of this space because over the past 10 years, I think, [Spova] have put out numbers where we've seen rates and taxes escalated 12.5% compounded over the past 10 years. And if you check the past 5 years, that was at about 9.5%. So those debts come from MSCI, and they're very concerning because they are, obviously, putting a lot of pressure on our margins. And then generally, we still continue to look at sustainability initiatives, and the generation of PV power on our rooftops also will be a key focus.

Office. Office remains really ugly space just generally, specifically in Sandton. We have seen pressure on rentals for some time now. And corporate South Africa is generally downsizing, unfortunately, and that, obviously, then has fallout into the office space. Bryanston, Rosebank, Umhlanga, the Foreshore, the Southern suburbs of Cape Town and generally Cape Town doing still reasonably well. So those areas are performing reasonably good. Tenants with a lot of focus on costs, they have a -- the demand for efficient buildings remains the preferred option.

And Sandton, as a note, so just to give you idea, you've got 2 million square meters of GLA in Sandton if you take P grade through to C grade. And off that, you've got roughly about 400-odd-thousand square meters vacant. Now 26% of our portfolio is in Sandton, but our vacancy is predominantly in our B grade space. And as a percentage, it's just under 15%, whereas the market is closer to 20%. We're actively working in Sandton on refurbing some of our properties that -- to make them more competitive in this market. And hopefully, if the economy does start growing, that space will be taken up very quickly.

As I mentioned earlier, we disposed of Investec, and then our collaborative workspace JV, Workshop17, has also rolled out successfully. We're now in 7 iconic areas, probably making us one of the largest collaborative workspace operators in the country. And we've got more than 2,000 members and more than 500 clients in this building -- in these 7 sites. So we've got a 50% share of this entity.

Vacancies in office, as I mentioned, ticked up a bit. Obviously, Investec had a bit of an impact in that it came out over the divider there. 70-odd-thousand square meters added about 40 basis points to that vacancy. So you can see 1.5% is probably the comparable. Some of that is in the Sandton area, and certainly, that is a concerning component for us as a business.

Renewal success rate remains under pressure. Our renewal growth rate deteriorated, and certainly, the rate of rental growth in those renewals is under pressure at 8.6%.

Installation costs, theme of the day. So it's not just are you going backwards on rental, but it's also costing you a little bit more to keep your client in or to attract a client to your building. So we've seen a bit of a tick up in those tenant installation costs. And just for everybody's clarity, what will happen with those costs is they are capitalized and then amortized over the period of the respective leases that we have entered into.

Then on the escalations side, we've been able to maintain the escalations in force at around about 8%. And there, on the renewal side, we're also maintaining our ground on escalations. So giving up upfront a little bit on the rent, but maintaining the escalation rate. And arrears have remained in check at 4.5% of collectibles, and that does come at the expense of tenancy.

So our strategy in retail vis-à-vis office and industrial is slightly different. If you have a tenant that starts struggling a little bit with paying their rental in office and industrial side, you try and get them out of the building as quickly as possible. Whereas in rental, you -- in retail, you'll probably manage the tenant a little bit until you can find a replacement tenant because it has impact on the offering in the shopping center. But we're reasonably comfortable with the level of where the arrears are at this stage in office.

In industrial, of the 3 sectors, this is probably the best of the 3. National vacancies are still reasonably low. Things take longer. Confidence in real estate is a big factor. And I think this morning, they released the business confident index. I think front page; they were saying it's the lowest since 1986. So I can't quite remember that far back, to be honest, but the reality is that businesses are taking longer to make decisions, to take obligations on balance sheet. And certainly, there's a reluctance for rental increases, and the negotiations just take significantly longer. And we're finding that, generally, guys want shorter-term leases before they commit.

So a big factor in this sector is also Eskom. So if you don't have power, it's hard to produce things or to run your warehouse or logistics facility, so it's a key factor. And from our point of view, we've had to spend quite a bit of money not only on water in Cape Town last year but in providing power backup for our clients. Vacancies have ticked up a little bit. We've had few big industrial -- a couple of buildings can skew the percentage quite a bit. So we've had a tenant move out in Cape Town. We've actually relet that space now. That's 16-odd-thousand square meters that was filled in August. And then in Midrand, our Growthpoint Business Park there has seen a big vacancy of 20-odd-thousand square meters, and we've subsequently let 7 of that already. So those numbers were unfortunately over here and up at 6.2%.

Renewal success rate has remained stable. The rate in terms of the rental growth rate has improved quite a bit from negative to positive, but it's precariously there. Escalations remain reasonably stickier to the 8-odd -- just 8.2%. And then we have seen quite an increase in business failures. And I mean these would be business, some of them that have performed reasonably well. You'd be in the ground, building a brand-new facility for an electrical supplier, as a example, you check them out when you made the credit call right up front. Then 6 months in -- before they move in, you go and review them, and they're still fine. And the day they move in, they bang. So we are having 1 or 2 of those experiences, and that's seen the arrears tick up a little bit. So it is a very difficult environment from that point of view to operate in.

And then on the regions, Western Cape and Kwazulu-Natal certainly performing better than Gauteng. If we do just look at the numbers from a like-for-like point of view, in the interest of time, I'll just go right down to the bottom where we strip out all the adjustment for acquisitions disposals and the trading and development side of things. And clearly, if you look at the property expenses compared to revenue, vacancies have a big impact on that. So you'll see your percentages increase significantly in the expense line. And if we then strip all the adjustments out you can get a very good feel of what's happening in the underlying base portfolio. In retail, we still have seen growth of 2.1% across the portfolio. Office unfortunately was marginally negative across the portfolio. Industrial at 3.2% is still positive. And then of the lot, health care performed the best. That's a nice Board meeting to attend, no vacancies, no arrears and 10% growth in income. So it doesn't happen often in this environment.

Our trading and development business. I know this is the one that most of you hate the most for some of the reason, but it's actually turning out to be quite a good business. The -- what we've always done is we've separated out of the activity for our own balance sheet and that for third party. So the third party is the part where we generate fees, which is the nonrecurring part, which is what everybody is concerned about. We believe that, that it's a business that can sustainably deliver these nonrecurring fees, albeit that they will be a bit lumpy from time to time. As we've mentioned from a prudential limit point of view, we will not expose the balance sheet more than 5% of the South African portfolio to that type of activity. So if you have your stock on balance sheet, if you like, it will never be more than 5%. At this stage, we know we're close to that in this environment that we're in. And then we have a similar prudential limit for our on-balance sheet development activity. So we don't expose the balance sheet more than 10% to development now. To give you idea at the moment at ZAR 3 billion-odd the exposure is less than 3.5-odd-percent. So it's not a material component in this environment, but we've been very active. We've continued to invest in our portfolio and then the idea is, obviously, to sell the properties that don't meet our strategic objectives from our own balance sheet point of view.

So Oxford, anybody that's driven down Oxford Road, well, it's unmistakably the hugest building on the block, and it 37,000 square meters and actually letting is looking very promising. So we're pretty excited about that development. We completed Exxaro, which was fully let day 1 to Exxaro. In Kloof Street, we've finished a development for Workshop17, which was about 2,000 -- just under 2,400 square meters for them. Draper on Main, we're, obviously, speaking to a client for the whole building, which is about just over -- just on around 5,000 square meters. Richefont development in Durban is about 3,500 square meters of which we've let 1/3. Wadestone and Runway and -- are both developments that we've done demand-driven industrial. Our Runway Park was for Bidvest. And then in Mount Edgecombe, we're on spec, busy developing industrial mini and maxi units, if you'd like. And those that we've -- those will be completed towards the end of the year. And then Millroad in Cape Town was a whole park that we've developed, some of it was speculative. Some of it was demand-driven. And at this stage, there's 8 -- only 8,000 square meters, 2 units that are vacant, and we're busy with a 13,000 square meter development at this stage. Third-party projects, the biggest ones are Bakers in Cato Ridge. As Norbert mentioned, the Pretoria Head & Neck. And then, we're building a little convenient shopping center in Pietermaritzburg that we'll be selling.

On the V&A can, so the V&A is kind of disconnected it seems to some extent from the rest of South Africa still, thank goodness. So fundamentally, pretty solid, good retail space growth. And the percentage there, 3.7% is certainly holding up its own. Edcon surprisingly trading well there and continue to invest in the store. Retail trading density for the past 6 months has been at 4.5% growth. Average trading density is at 5,200 square meter must be the highest in the country, and the footfall at 26 million per year makes it the most visited property on the continent. We are expanding for Woolworths 4,000 square meters into the basement and that will be completed in time for the festive season at the end of the year. Even their offices are performing well, so there's good demand for P-grade office space. Vacancies are low in office portfolio at 1.8-odd percent. Just for interest sake, for the whole of the V&A, vacancies are only at 1.2%. We've got good renewal growth rates still there on rental when we renew. The Dock Road Junction is fully let to spaces, and we also got a new Apple flagship store that's moved in there. We've finished the Battery Parkade, and that certainly will facilitate the growth into that precinct going forward with that Parkade being completed. We're busy building for Deloitte of 8,000 square meters at this stage, and that's to be completed next year October. And then, we've got a deal that we're busy working with Investec Bank on for their new head office for the bank.

Overall, investment income grew by 14-odd-percent from the V&A and was ZAR 678 million of which ZAR 35 million came from trading profits on residential units that we did mention in our previous presentation at half year. Turnover rentals are a little bit lower, but they're returning pretty much back to the levels that we had historically.

Residential side, vacancies have improved a little bit. We've seen a big oversupply in the whole Cape Town market of residential, and we've pretty much put a pen in some of the residential ambitions on the development side just for the short term. Marine and industrial, the cruise terminal has proved to be very successful and processed over 66,000 passengers, which is, I think, a record for the year actually for this year. And certainly, we have seen that the route around Cape Town is becoming increasingly popular. Premier fishing has moved out, and this opens a development along the key side in the V&A, and then the cruise liner terminal phase 3 will include a food incubator offering and that's coupled to industrial-style sort of offices, which will be available from 2021 for those guys that are looking for offices down in the V&A. Then the hotels, as I mentioned, occupancies remain strong and in fact, we're seeing that everything is reverting back to normal post the water crisis. Clearly, if you're having international footage of violence and xenophobia and all sorts of things like that, that doesn't really promote tourism, and I do believe that, that probably have a bit of an impact on the V&A in the next year. This is quite a busy slide, but it's been a busy period.

On the treasury side, so our debt is at ZAR 35.2 billion. We have extended the weighted average term of our debt to 4 years. Roughly, ZAR 3.7 billion of debt matured in the year with another ZAR 3.3 billion of debt maturing in 2020, and we've refinanced that in advance. We did a public bond issue of ZAR 2.6 billion for periods between 3 to 10 years, and the JIBAR pricing was between 109 on the 3-year side up to 190 basis points on the 10-year side. We've -- we were issued for the first time a ZAR 600 million inflation-linked bond for a 10-year period with an effective JIBAR rate of 180 on top of JIBAR.

Our unsecured debt is 57-odd-percent today, so we've met with Moody's yesterday, and they confirmed our rating at BAA3. So they seem to be happy with how things are progressing at Growthpoint. On the interest rate hedging side, 86.5% of our debt is fixed. And obviously, that interest rate of 9.2% speaks to the term, so with terming out the debt, the interest rate has moved up marginally from the 9.1% in the previous period. If we include our cross-currency swaps, it brings it down to 7.1%. Our investment into GOZ, so total capital cost into GOZ is AUD 1.087 billion. Of that, we obviously have AUD 970 million of CCIRS covering that. That's the equivalent of 49% of market value and 89% of the cost. We have interest cover ratio of 4.7x, which is quite conservative and then 83% of our dividends for next year has been hedged with FECs at a rate of 11.15%, which is better than the current rate of spot.

Globalworth, we've got a cost of EUR 465 million into Globalworth, and we have funded that by EUR 50 million of direct euro loans and EUR 86 million of CCIRS loans and then EUR 333 million of -- CCIRS is equivalent to 91% of the market value and 99% of the cost. EUR 8 million remains uninvested and is on cash deposit as at year-end, and we'll probably be using some of that into -- to cover our investment, which is below in the Africa fund. And that gives us a 2.4% interest cover ratio. And 83% of our dividends in euros has been hedged for next year at an average rate of 19.13%.

As I mentioned, we still have commitment to the Africa fund and as that commitments taken up towards the end of the year, we'll convert some of euro debt to that. Then we have pended to some of the rhetoric from the analysts in the market as it relates to look through LTV. Now we haven't been able to actually establish a consistent definition of look through LTV, so we have given a couple of proposals. I'm not going to be talking through each one of them, but I think about the principle is, it doesn't matter which way you slice and dice it in terms of looking at total assets and liabilities, consolidated from the various subsidiaries that we have and investments. Ultimately, the LTV on all the metrics remains conservative for Growthpoint, and we're reasonably comfortable as to how the balance sheet is positioned for growth going forward.

And with that, I'll pass to Norbert just to cover the balance.

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [4]

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Right. And just to conclude, if I look through -- look forward to the prospects, I guess, for the next 12 months, South Africa remains very tough. Estienne gave you a pretty good heads up there on what's happening in SA and SA portfolio. The macro still very tough. There's certainly a severe lack of any growth drivers in the domestic economy at the moment. All the property fundamentals remain under pressure. We don't see that changing very quickly. We think it continues to sort of tug along and probably deteriorate a little bit further. In terms of future growth, certainly, the South African portfolio is diluting future growth at the moment. We are looking -- continue to look always on the outlook for opportunities to enhance our own portfolio and make accretive acquisitions. And I think our relative balance sheet strength at the moment stands us in good stead.

The V&A Waterfront, still a lot of interest there on the development side, especially on the Canal District and the Pierhead. Granger Bay master plan, so the entire Granger Bay precinct at this point in time is still pretty much untouched in terms of development. We still see that as a very significant future opportunity. It's not without its complexities in terms of getting all the rights in place and permissions and permits in place, but we're making good progress there. And again, looking for any opportunity to increase the income from the existing portfolio.

GOZ is in great shape, it's got about $417 million worth of debt headroom as we sit here today looking for acquisitions. It's lowered its debt costs through refinancing some of its debt. There's very strong shareholder support as I mentioned earlier I think raising $174 million from the market. And without our participation, I think it's a great tribute to management there and the fact that, as I said, GOZ is now able to stand on its own 2 legs. A very high-quality tenant portfolio and very sort of manageable near-term lease expiries. We're not in the retail sector in Australia, so retail pretty much across the world has, obviously, come under a little bit of pressure, but the portfolio in GOZ is focused on office and industrial, which certainly in the Aussie market are the preferred sectors. We continue to seek well-leased and well-located commercial real estate assets and development opportunities. As I said, a bit more of an emphasis on development there as well. And then GOZ put out its own guidance, as a separate stand-alone entity, listed entity with a dividend growth of 3.5% to $0.238.

Globalworth is operating in a pretty strong macroeconomic environment, both in terms of Romania and Poland. Those economies are still going very nicely. Lot of multinationals -- global international tenants are attracted to that region, looking for a presence in that region. Very accretive acquisition and development opportunities, especially the development yields in Romania are in the double digits, developing at 10% and 11% yields. And on completion, when the development is fully let to marketing, let to marketed the 7.5-odd-percent yield. So very attractive development dynamics.

We did see the entry of a new strategic investor in the form of Aroundtown, separately listed company in -- I think it's in the Euronext or in Amsterdam. They -- this is a one of Germany's largest property investment companies. It's got a market cap of about EUR 9 billion. It's got a portfolio of assets across Germany and the Netherlands of about EUR 17 billion, and they acquired an 18.9% stake in Globalworth. We see that as a sort of an endorsement actually in terms of our own investment into Globalworth a couple of years back.

And at balance sheet date, Globalworth had cash balances of circa EUR 400 million, which is, obviously, good to have for future investment, but given the dynamic where interest rates in euro currently negative, it is pretty much -- it's a pretty heavy negative cash drag if you want on earnings until such time as it is invested.

And then getting to the cracks overall, I guess, at the bottom, and I urge all of you to hold out your phone and Google what nominal means because when we spoke to the analyst yesterday, and when we presented to the press, nobody could understand or figure out what nominal meant. So we are saying though that growth next year, if any, will be nominal. And I leave it up to you to go and Google nominal. So we have heard different interpretations of nominals, some mentioned, oh, that must be 0% to 4% as a range, I'm saying. I think it's just important everybody understand the delta. If you want to go to 4%, that's like ZAR 250 million range worth of additional distributable income based on the size of the business today, so that would be a stretch. But yes, it's -- we're going to stick to our nominal story and up to you to figure out what that means. It doesn't -- it means really -- as far as we're concerned, it's -- there isn't going to be much growth next year at all, South African dynamics and the way we're seeing it playing out is quite a drag and going to be sort of wiping out any growth we can achieve out of the other investments. So I'll leave it at that.

In closing then just a brief remark on the announcement which we made yesterday on our discussions that we've entered into with Capital & Regional. They put out their results announcement yesterday. They announced that they are in discussions with us with a view to us taking majority stake through effectively partial offer for cash on the one hand and a subscription for shares on the other hand, which means capital going into the company. So there'll be some -- there'll be an opportunity for shareholders to cash out some of their holding, and on the other hand, we'll be putting capital into the company.

A lot of questions about U.K., why U.K., Brexit, retail, all those things. I think if you look at the dislocation in that U.K. retail market at the moment, our personal view is that it's probably opportune to consider an entry into that market. It doesn't -- you're not often presented as a South African corporate or real estate company. You're not often presented with an opportunity to invest into first world markets or developed markets and not end up -- for it not to end up being a hugely dilutive transaction. Now when we entered Australia in '09, we had a similar dislocation. There was the financial crisis -- global financial crisis, the listed property sector collapsed 80% from the peak in '07 to the trough in '09. And we ended up recapitalizing a small vehicle, and we've grown at, I mean pre-capital injection, GOZ's market capital was ZAR 50 million. Today, it's about ZAR 3.3 billion, and it's grown into a really nice company. Can we recreate something like that? We hope we can, we think we can. We -- in terms of the retail, I think what's happened in the U.K. from our assessment is that any retail asset, irrespective of what -- as long as it's deemed to be retailed, has been marked down very harshly. The kind of assets, which capital and regional owns are mainly community centers well located in the heart of pretty substantial towns. They represent 60%, 70% of the available retail space in those markets. They serve the community and basically are positioned to -- for the needs, needs-based retail. So this is nondiscretionary spend as opposed to discretionary spend, as opposed to one space. So it's not high in fashion, it's more your grocer, your baker, your nail bar, hair bar. There's, obviously, fashion, some closing there, but it's not overweight the exposure to those sectors are not overweight in these centers. So we've been to have a look at all of them.

We've done a pretty decent due diligence and the discussions are progressing and continue to progress. And given yesterday's announcement, we'll have 28 days in terms of the LSE takeover panel's rules. We've got 28 days to, what they say, put up or shut up. So we need to make an announcement and finalize terms hopefully in the next 28 days, and I guess that is about as much as I can say on that. We think it is an attractive entry point into the U.K. Brexit, yes, I mean, there's obviously a lot of risk around Brexit. For us, I think we still look at a very high level. The U.K. is still the fifth largest economy in the world. It's probably got -- certainly its short-term growth prospects notwithstanding Brexit to remain better than that of South Africa. So we're looking through -- we're looking at this as a long-term investment. And at the end of the day, we're fundamentally real estate investors, and when the deal becomes apparent, you'll be able to understand, I guess, what we are buying the underlying property assets for. And hopefully, you will agree that there's value there.

I'll conclude on that. And then open to the floor for any questions. We have run over time a little bit, I'm afraid, apologies for that. But yes, any questions, happy to take from the floor.

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Questions and Answers

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Nicolas Lyle, STANLIB Ltd. - Analyst & Portfolio Manager [1]

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It's Nicolas Lyle from Stanlib. Norbert, can you tell us a bit about how you're thinking about your debt over the next 12 months? My question is coming from a perspective -- a further deterioration in capital values in South Africa as the rental situation continues to worsen. How you think about your current debt position in terms of your overall capital allocation?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [2]

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So LTVs are sitting at about whatever 36-odd-percent. As I said, now if you consolidate Aussie's 35%, but on SA balance sheet, we got ZAR 35-odd-billion range worth of debt. We have, I think for the last 2 reporting periods, we actually switched off the dividend reinvestment plan. So the DRIP, which meant we haven't raised any equity. Certainly, lengthy board discussion at the Board meeting earlier this week. The view is that we should be offering the DRIP again. So we hope to through offering the DRIP raise some equity again to shore up the balance sheet because notwithstanding effect that we say -- sold at ZAR 2.9 billion of assets, we have invested another ZAR 2.7 billion through incremental new developments. We see pressure on valuations. We do think valuations are probably likely to continue to come under pressure.

Estienne hinted at the fact that maybe risk-free rates can come down if you consider what's happening globally, can that help us a little bit in the valuation argument? Maybe, but it doesn't help the fact that obviously, the fundamentals remain pretty weak.

We're not, however, seeing or certainly modeling or predicting that our valuations will be going down by 5% or 10% or 15%. So we see, if they were trend down, they'll trend down nominally or notionally over time. And we're going to be disciplined around keeping our LTVs and our credit rating. I think one of the things that we're most precious about is our Moody's rating. There's nothing we can do about the global scale rating, which is intricately linked to the South African sovereign. But as a domestic issue, we're AAA, and we're going to manage our debt situation whether it's through the sale of assets, through further equity issuances. We certainly would be managing our LTVs and our debt position so as to maintain investment grade and an ideal world, maintain our AAA status, and that's the way we're thinking about it.

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Ian Cruickshanks, [3]

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Ian Cruickshanks, Institute of Race Relations. If I can be a bit of help to start with, 1995 was P.W Botha's Rubicon speech, which was -- had a lot to do with the business confidence being where it is now. Not just where it got to, it's how long it stayed there because it stayed there to just about the end of the '80s. So let's just look at the possibility that the current situation could be extended. Is not likely then to have a severe impact on foreign visits to the V&A Waterfront for instance and those sort of travel, which have a huge impact on spending power? Can you give any sort of estimate, any ideas you have in that respect, please?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [4]

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Not really. But let me say though that it is interesting that the waterfront is clearly the asset in our portfolio and probably the asset in the country, which is most exposed to tourism. And as much as on the one hand, certainly, the images which are currently being shown across the world about violence and crime in South Africa are not supportive. The -- we often see that the currency change, with a very weak currency, it -- notwithstanding some of the challenges around, let's say, safety and security, there are tourists out there who are bargain hunters, and we take a chance on the safety and security, but because the pound is at ZAR 19 or ZAR 20 they can get their beer for an equivalent of ZAR 0.35p. They find it very appealing and that's interesting. We've seen massive increase in especially jewelry sales at the waterfront. So when the -- it's actually you can track it and draw a correlation between jewelry sales at the V&A stores and plot it against the currency. When the pound is at ZAR 19 and the dollar is at ZAR 15, jewelry sales month-on-month are like 35% up at the V&A Waterfront. So I think it is a bit of a hedge, the waterfront is a bit of a hedge in that regard from a tourism perspective. But yes, I think and your point is, if there were to be a marked ongoing lengthy deterioration in the situation, even the waterfront at the end of day would probably end up suffering some negative impact from that.

Domestically though, I must say, the waterfront is -- since we took ownership of the waterfront and in collaboration with our partners there, the GEPF -- or the PIC on behalf of the GEPF as well as the management, we have also tried to change the offering within the waterfront to be more local friendly. So when the foreigners owned it, they disregarded the locals and they pitched it to more for the international visitor.

We've changed that mix, and we have actually understand in a very long, the domestic market is your market.

The domestic shopper and if you look at the mix of retail that we put in there, the mix of food offering and everything, it's definitely changed to be more in favor, if you want to more attractive for the local domestic South African shopper.

And I think they will always be supportive of the waterfront.

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Ian Cruickshanks, [5]

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Make one comment. Meanwhile of course, there's more to South African tourism than the V&A? And how is that going as a draw right now?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [6]

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I'm not quite following your question, Ian.

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Ian Cruickshanks, [7]

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The V&A is still -- as a concept, still attracting a large number of foreigners and their bargain hunting spending, but there's more to tourism than just the V&A Waterfront. There's the rest is South Africa. Is that not ended under -- is likely to continue with difficult problems?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [8]

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I'm not any expert on that. I have to say though that if I look at certainly the finance ministers, let's say, positioning recently on some of the triggers for stimulating economic growth. I think tourism is the one area that you can actually reasonably quickly switch on. There's not a lot of capital investment to be done. You fix some of the Visa -- the Visa regime and access into the country through -- for tourists. I think it's an easy fix and I think tourism is probably the one industry in our country, provided we can get the crime and violence and the messaging around that sort that out, I think there's a huge, huge opportunity for the country as a whole in the tourist industry.

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Ian Cruickshanks, [9]

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Hopefully gets taken.

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [10]

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Thanks.

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Unidentified Analyst, [11]

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Ryan from Yahoo. Have you guys considered reducing your payout ratio just given the pressure in the local environment, and as you mentioned, tenant installations and retaining tenants, yes, have you guys debated that?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [12]

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Ryan, we have. We certainly as management have given a lot of thought. We understand there is a lot of comment in the industry about that and around that at the moment. We have not had very extensive discussions at board level on that. I think management's view at this point in time is still that our payout ratio, we believe to be sustainable. It's balanced against our view on LTVs, access to funding, liquidity, both in the debt and equity markets, the sustainability of the underlying income that we have, may also, obviously, from our foreign investments. So if you look at our interest cover ratios that we have on our debt, which are all very healthy from 3.8x. We've taken a balanced view of where we are at, at the moment. And for now, I think management's view is that we would be comfortable to maintain our current payout ratio and not reduce it.

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Unidentified Analyst, [13]

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Just one follow-up question. Have you done the exercise to determine at what point you can avoid tax leakage with regards to your payout ratio?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [14]

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Look I mean the REIT regime suggest I guess you need to pay out at least 75%, right? Of your total distributable income before you end up paying tax. I don't know if that was -- what your question was, but...

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Estienne de Klerk, Growthpoint Properties Limited - CEO of South Africa & Director [15]

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Lauren says we have started looking at that. There are tax consequences if you don't pay out your full distribution, there is cover that you get from, let's say, wear and tear allowances and allowances that you can still get, if you'd like, but those allowances aren't that generous that we let's say, can retain 10% as an example, which is kind of the theme going around the market at the moment?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [16]

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But my understanding is, yes, you can pull it back to 75% obviously, you need to pay out a minimum of 75% to be a REIT.

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Estienne de Klerk, Growthpoint Properties Limited - CEO of South Africa & Director [17]

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Pay tax.

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [18]

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I mean -- but then you pay tax on whatever you don't payout. So Estienne is in the process of doing some numbers with the accounts team on just trying to understand if you pull it back by 10% are you still covered with all the tax allowances and wear and tear, so pull it back to 90% and at least not pay any tax. So I think that the work is underway.

Any other questions?

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Lauren Turner, Growthpoint Properties Limited - Head of IR [19]

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Yes. We've got 2 from the webcast now. But the first one, they're asking for the dividend pay date, which is 7 October, so I don't think we need to add there. But the other one is, how will ensure that we repatriate the income from the recently purchased Africa properties back to South Africa? And what are the average returns on those investments?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [20]

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So I think the average yields across those investments are somewhere between 8% and 9% in dollars. Then they -- obviously, there are some withholding taxes and a bit of tax leakage and -- but you probably get down to 6% -- somewhere between 6% and 7% on a net-net basis. The -- I guess we've taken whatever measures we can that are available to us in order to ensure repatriation and repatriating those profits I guess we -- I mean it is part of investing into Africa I guess as you do run the risk when there is a real liquidity shortage that perhaps you end up not being able to repatriate the funds as and when you need it. We do have the IFC as part of the World Bank as one of our major investors in the fund. We do also hope that in a time of crisis, we could perhaps lean on them a little bit to help us. No guarantees clearly.

But other than having taken whatever measures are available to any investor and certainly being a big emphasis of the due diligence of the team that are running that fund. We are exposed I guess like everybody -- like anybody else is invested in terms of repatriating those dollars.

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Lauren Turner, Growthpoint Properties Limited - Head of IR [21]

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We've just got one more. To please provide some color on the ZAR 520 million derivatives realized interest on the interest line item?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [22]

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Sure. So it was actually -- you've asked for this so. I hadn't heard it clearly. I couldn't understand what's going on, and I have to just maybe generally state whose here from the accounting, Gavin, for goodness sake. The accountants are driving us bossy. So I mean, it's unbelievable. IFRS and the complications that are coming with having to report in terms of IFRS. From IFRS 16 on those long-term leases on the stuff on the CCIRS not to account for it and -- so the answer to that after giving that speech the way I understand it and I've qualified as an accountant but I'd certainly not deem myself to be one anymore but -- because gone are the days of matching and all those good sort of things, I guess. Prudence and yes, but so what the account, I don't know what IFRS is, now determining that we should split the CCIRS as the cross-currency interest rate swaps between an income element and interest-earned element and an interest-paid element. And if you look at that little disclosure in the press release, you will see an interest-paid number of ZAR 3-point-something billion, and then ZAR 520 million of income. And if you net the 2 of you get to the same interest-paid number that we put in our investor analyst presentation.

So it's -- due to accounting, we have to now split the CCIRS in terms of its components. It's got an interest-earned component and an interest-paid component, but then net is interest paid in my mind.

And -- so that's what that ZAR 520 million is about.

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Lauren Turner, Growthpoint Properties Limited - Head of IR [23]

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Okay, I got 2 more. Why didn't we participate in the GOZ DRIP and rights issue, if investment -- sorry, why did we participate in the GOZ DRIP and rights issue if investment is relatively expensive?

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [24]

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So obviously, there's a big distinct difference in the pricing. So the DRIP was at ZAR 346 million, the rights offer was close to 4 -- I think it was ZAR 397 million, the pricing. So the pricing of the 2 are very different. And we just took a view that at close to $4 with -- as I said earlier with dividend yield after withholding tax of -- in the mid-4s -- low to mid-4s. It was looking expensive in our view, where if we were to borrow whether using CCIRS or Aussie dollar debt, or whichever form of debt we chose to deploy to follow was that this -- we probably borrow Aussie dollars. No one gives up our treasure. We probably borrow Aussie dollars at about 4 20 at sort of range. To borrow at 4 20, to invest at 4 50 was just -- didn't make sense to us. So we stood back from that second one. At the 4 -- at the rights offer when it was priced at the 4, the 4 or 4 40 whatever that price was it was still enough margin for us to do it, but we decided against participating in the second one.

I think the second one I have to say, there was not only that as a consideration, Growthpoint Australia also had an investor, what do you call it, survey done, and the 2 criticisms that -- and there were only 2 criticisms about GOZ was that on the one hand, investors felt it's gearing was too high. And on the other hand, they felt there wasn't enough the free float. It's been a thing since we took control of it back in 2009, and we've always said we will grow the free float as we grow the business. So when owned 60% or 70% of it, we then had a $200 million market cap, the free float was very, very small. Today, the free floats over $1 billion, but by not participating and by diluting from 66% to 62% again, we incrementally increased the free floats. So we're addressing 2 concerns that GOZ shareholders through that survey had identified as an issue. We raised the equity, brought the LTV down to 30, and we increased the free float a little bit. But our business is not to create free float for Aussie investors. Our business is to drive returns on our investment, and we felt that it was looking a little bit pricey based on our cost of capital. It's very cheap to -- for Aussie investors they must go plenty because still you can get -- they don't pay the withholding tax. They can get 5.25% to 5.5% yield and they can put their money in the bank at 1%. So it's a no-brainer. They must go a long run guys, but for us, it looked expensive.

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Estienne de Klerk, Growthpoint Properties Limited - CEO of South Africa & Director [25]

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So I think just an interesting comment. We'll get back to the other 2.

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Leon Norbert Sasse, Growthpoint Properties Limited - Group CEO & Director [26]

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Switch it off. Africa, we have run out of Internet. Guys, we are available for the next hour and a bit and outside. Please join us for a drink and a snack. We'll happily answer anything you've got. I want to just thank our management team for doing a sterling job on getting the results out and our directors who're here supporting us. We've got our Chairman, Francois and some of our other nonexec directors are here. So thank you all very much for your time and attendance. We appreciate it.