Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Turnover growth from the portfolio has been above inflation over the last four years.
- Grocers and supermarkets have shown a 10% growth in turnover.
- Low vacancy rates in township centers, with some improvements post year-end.
- Successful deals and expansions, such as the Shoprite deal and solar plant expansions.
- Strong logistics portfolio with a value of completed buildings at ZAR15.3 billion.
Negative Points
- Higher vacancy rates in some suburban centers and specific locations like Central Park Bloom Fontaine.
- Ongoing construction and development projects leading to temporary higher vacancy rates.
- Challenges in competing with new assets due to construction cost inflation.
- Some underperforming office assets, though efforts are being made to sell or convert them.
- Pressure on development yields due to rising commodity prices and construction costs.
Q & A Highlights
Q: Just on the option of taking net new shares as part of the dividend, what was the thinking around the ratio and the premium offered to investors?
A: Steven Brown, CEO: We believe giving shares to our shareholders is a smarter move than selling them and redeploying the cash. The ratio was set to ensure we could afford to give without impacting the business, even with a premium. This approach positively impacts our loan-to-value (LTV) ratio by retaining cash and applying a premium to it.
Q: Are there any acquisition opportunities in South Africa, especially post-elections with potential market rate cuts?
A: Steven Brown, CEO: We are not actively looking to acquire assets in South Africa. Our focus remains on rolling out developments on our existing land bank, which offers better value compared to acquisition yields.
Q: What proportion of your energy needs are currently being covered by solar in the retail portfolio?
A: Steven Brown, CEO: Currently, 14% of our energy needs in the retail portfolio are covered by solar. This will grow as we expand our solar plants.
Q: What is the tax assumption included in FY 2025 guidance?
A: Steven Brown, CEO: The tax assumption is between ZAR60 to ZAR80 million on top of the ZAR175 million. It's challenging to forecast precisely due to various moving parts, but this is our current estimate.
Q: What is your long-term strategy with the NAP business, and what is the lowest level you're willing to reduce your shareholding to?
A: Steven Brown, CEO: We see NAP as a great long-term investment. Our strategy is to judiciously decrease gearing on the rand portfolio. We aim to maintain more than 10% shareholding to avoid withholding tax on dividends.
Q: What are the margins you're currently being charged for new facilities?
A: Steven Brown, CEO: Margins for new facilities range from 1.50% to 1.70% for five-year leases. This has come down from around 2.25% three and a half years ago.
Q: How sustainable is the low tax charge you just referred to?
A: Steven Brown, CEO: The low tax charge is sustainable due to various factors, including tax-exempt NAP dividends, Section 13 quin allowances, and embedded historic capital losses. Provided there are no significant changes, we expect this to continue.
Q: Have you seen pressure on development yields in logistics due to commodity prices and construction costs?
A: Steven Brown, CEO: While there have been cost increases, we have been able to pass some of these onto tenants through higher rentals. We are targeting yields similar to those from two or three years ago but with higher costs and rentals.
Q: What is the actual ROE for the logistics portfolio, and what is your target ROE?
A: Steven Brown, CEO: We target a return on assets north of 15% in South Africa, aiming for 16% or higher. We focus more on asset-level returns rather than overall ROE.
Q: What is your tax treatment on profits from property sales, and could you exhaust your assessed tax losses?
A: Steven Brown, CEO: Capital gains tax (CGT) is applicable, but we have embedded historic capital losses that offset gains. CGT is not currently an issue for us due to these losses and the deferred tax asset from our NAP position.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
