Delta Property Fund Limited (DLT) Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Delta Property Fund pre-close update conference call. [Operator Instructions] Please note that this call is also being recorded. The company will not discuss any price-sensitive information because they are currently in a closed period. The company will also provide guidance on distributable earnings, and other specifics will be disclosed when the results are released. I would now like to turn the conference over to Sandile Nomvete. Please, go ahead.

Thanks, Chris. Good afternoon, everyone, and thank you very much for dialing to the market pre-close call. I think also just for everybody's notification, the presentation will be up on our website and the recording before close of business today on the Delta website so that for those that maybe did not hear any comments or want to follow through on the presentation over the weekend, the presentation will be available. We have a very short and precise agenda. The first point we're going to be dealing with the business environment and update in terms of the trading environment. I will then hand over to Otis, who will take over the -- who will basically take us through the operational review. As per normal Shaneel will then follow with the financial review. Obviously, has already been alluded by the facilitator, price sensitive information is obviously will not be shared at this time, but we will try and share as much information as possible for people to try and make some sort of forecast. I'll then come to the conclusion, and then Ms. Dumo will then take all questions at the end. I think we all been saying for quite some time that the business environment has been challenging. I think probably earlier than any other listed fund. And I think it's probably a bit of a break from that, from this management team particularly, that we're quite happy to say that Delta has seen some traction on the lease renewals from DPW, with only 3 large leases outstanding from the bulk lease renewal that we announced of 227,000 square meters outstanding. And I think there's been a lot of activity that has been done by the company, particularly on the distant front on bulk lease renewal. And on top of that, it's also -- we've also been very, very productive and active when it comes to just the general leasing on new leases and renewals outside of the bulk lease renewal at provincial level, at state-owned enterprise level as well, which Otis will take us through. The fund expects renewals to escalate over the next 2 months. Obviously, we are of the view that we've seen, in fact, not even of the view, we have seen quite a little impetus from DPW to conclude any outstanding leases with particularly major landlord. Obviously, these have been done depending on where the various companies are sitting, with some level of rent provision, which we had already communicated at half year and at the beginning of the financial year. So I think that is still very much in line. And I think we've been pretty accurate in terms of our predictions in terms of the level of revisions that we've been seeing in the renewals that are there. And in a way, I think this obviously speaks very well in terms of the next 2 to 3 years as we basically implement these issue. We will -- Otis will go into more granularity around the level -- the number of leases that we renewed in 5 years and 2 years, of which Delta obviously qualifies with. We anticipate that once the national leases together with the significant provincial leases have been renewed, that our WALE will increase to about 2 or -- to just over 2 years, which I think, given that we were sitting at critical level, particularly at the beginning of this financial year and last year, where we had not -- and in fact, I think it's a pleasing achievement from us to start to see some improvement in our WALE. Obviously, the WALE is important because, clearly, if we've got -- as we do have debt expiring facilities at the end of Feb, the banks obviously look at that WALE as a guidance in terms of the lease and the debt expiry profile that they'll obviously provide to the company. From a tenant retention perspective, I think despite the tough trading environment and increased competition in the DPW and [ sovereign space ], we have managed to retain 90% of our tenants. I think that is definitely a positive from our side, that despite we're historically we were losing tenants, particularly in Bloemfontein, we've managed to basically stem the losses on that front, and we're now basically retaining a lot more of our tenants in the key notes that we play in. And we're quite excited as well that we've basically been -- we've managed to achieve some great new leases and new tenants, particularly in Pretoria and particularly in Pietermaritzburg in Capital Towers, which obviously speaks to a changing environment in terms of the play -- the notes we play in. And that speaks to part of that 90% tenant retention achieved. From a sector perspective, the domestic property fundamentals remain weak, resulting in large incentive through revision. We've seen, particularly as we've historically said, in areas like Sunninghill, where we've seen people offer rent-free periods or huge incentives to tenant to tenant their building. From a Delta perspective, I think we are taking and exploring a different view to exploring potentially moving from our offices where we currently reside and potentially taking up some of that vacant space in Sunninghill. And that business case, we are hoping will be done in the next 2 to 3 months to try and obviously encourage other tenants who are there about the viability of the node. We've got particularly 3 Simba particularly as an office park that we have earmarked. And we are already starting to get some of the smaller tenants also requesting some space in that particular area, which may be talking to maybe the rental incentive particularly or even in Waterfall maybe going outside of the Sunninghill area. And I think it is certainly bottoming out from what we -- from the levels we've seen before. From a CapEx perspective, obviously, the big question is that having done all these leases and renewals, what is the CapEx expenditure? I think, obviously, it's a major -- it's going to be a major talking point for FY '21. Some of the CapEx is contractual. And obviously, some of the CapEx is to make sure that it's predominantly of a defensive nature given that we have -- had to make certain commitment to some of the landlords to make them sign. On the CapEx front, some of the benefits, so low-hanging fruits that we've -- not long-hanging fruits, but some of the big achievements that we are expecting, pointings, and I think has been a long talking point from the day that we acquired from Redefine. We have spent quite a bit of capital, particularly on this building. And as a result of the amount of capital that we spent on that particular building, and there's a further ZAR 30 million that we are spending. As a gesture of goodwill, the true tenants in that particular department -- in that particular building, being Correctional Services and Defense have both submitted their renewal applications to DPW. We advised that Correctional Services in particular would like to renew, their 35,000 square meters for 5 years, and their application is already sitting at DPW. And the Department of Defense is -- also in the building has requested a 3-year extension. I think what we are hoping that once that refurbishment is done, we will obviously be arranging some sort of a roadshow for shareholders to see the amount of work that we are doing there. Similarly, we spoke at just after half year that the eThekwini Municipality had renewed their lease at Shell House, also one of the properties we bought as part of the Redefine portfolio. And we have appointed a contractor for the refurbishment to do 4 years looking at lifts, looking at the ablution facilities at Shell House in Durban. And again, as part of that investor roadshow, in terms of some of the CapEx that we are finally being able to spend will obviously form part of that roadshow, which is long overdue, I might add. From a funding perspective, I think now that we are signing leases, it's putting us in a very, very good position to be able to renegotiate our expiring facilities. And Shaneel will go into more detail around where the discussions are with the various banking partners in terms of our expiring facilities. I think we've been in close communication with all -- most of our large debt providers. And I think they've obviously understood that there was -- it's taken since 2016 to get the leases to come through. They have finally come through. And we can start talking in a more detail around about the cost of debt, and obviously, the debt terms as well with the certainty of the leases that are there. I will then come back, and just maybe to wrap up from a conclusion perspective, but I think that you will get a lot more granularity from Otis on the operational performance of the portfolio. Thank you, Otis.

Thank You, Sandile. Good afternoon, everybody. I think from a leasing point of view, we've stayed very close to the new minister. We held a meeting with him late December with the other landlords. And we highlighted the challenges and also came up with possible solutions on how to assist. And we had that meeting on the 12th of December, there has been some key changes in Public Works [indiscernible] will then DPW's, PMTE. His contract expired. And there's been a new leadership elected at DPW. Part of the issue that we raised with the Minister, arrears and the backlog on the lease agreement, and we're happy to report that we are seeing the green shoots following on from that region. With our arrears, we have a building in Pretoria, called Department of Stats, where the tenant's located, we're bullish that we'll be recovering an amount of close to ZAR [ 30 ] million but before -- in the next couple of weeks. There is money that the orders from the rental and for a tenant reinstatement that had to be done in the building. We also have been engaging with the DPW auditors. They've appointed a firm called O-M-A, Oma, who are helping them do the recon on the entire portfolio. And we're dealing with them at a portfolio level. Following which, when that is done, our arrears, they should come down substantially. One of the key issues that were highlighted in engagement with the minister was the treatment of recent taxes. In some of our government buildings, government did not pay the recent taxes. Our new minister is the first who understand property. She's the next mayor of Cape Town and then fully understand the need for recent taxes to paid and fully appreciate that they make a big complement of our income. So she is looking into that. But that discussion is being led by [indiscernible] and we're happy to say that those ongoing meetings seem to be gaining traction. And hopefully, in the next couple of months, we'll reach a resolution. With regards to the main work there DPW, which is the lease agreement. You recall we started off with about [ 158 ] leases in National, and made up 227,000 square meters. We are happy to report that we've done 42 of the lease agreements, which make up 112,000 square meters. We have 3 big leases all in Pretoria that make up just under 90,000 square meters. 2 of the main, 1 building which is Poyntons, Department of Correctional Services. We occupy 35,000 square meters, and we're quite well advanced in getting a 5-year lease agreement. And the rental that we're looking at there is between [ 30,00 ] square meter. The other tenant is Defense, that shake up 25,000, indications that it will sign up on a 3-year lease. And then also in Pretoria, we have Hallmark, which is the home of Home Affairs. That lease is expired. The alternative we gave to DPW that we'll give 5-year lease. So with those 3 leases finalized, would have cleared our backlog, parting a small -- remaining leases that make up 30,000 square meters. Those 30,000 square meters have got that default clause with the lease agreement, which allows them to move out the final 3-year lease, but they're allowed to give 3 months notice. And we're negotiating with them around that. The minister has agreed that, that clause should be removed, and reengage in the use of department to get that removed. On the other lease in Poyntons, Sandile I think area, we have notched up some successes. I think in municipal level, Chiselhurst and Durban, Benoni, 3-year lease, and may have work a provincial lease in Pietermaritzburg. We signed up a 5-year lease ZAR 120 square meter. And in Randburg, the South Randburg, Lucia, still the lease on a 3-year basis, and they've now taken up an additional 2,700, which we initially gave up. Also, in Durban, we've got, road accident fund. The tenants in Embassy occupy just under 8,000 square meters. They have gone out on tender, but we are well placed in terms of the tender to remaintain on that tenant. And what makes us bullish is that we have there's a lot money on the IT system, and they have indications that they are not relocating. So we all place to get a 10-year lease on that front. And then in South [indiscernible], obviously, the 16,000 square meters on a 5-year basis. Also at DPW, is that there is a reuse of [indiscernible] that's a police in Durban. We signed a 3-year lease. And in Polokwane, we signed public works affairs. So we are seeing traction on the national leases, provincial leases and employees. Just from prospect to new leases that we have, you may recall, we've got a building called Delta House in Pretoria. The tenant vacated. The building has been empty for 2 years, 10,000 square meters. We are happy to report that we secured a 10-year lease with the JSE Listed Education Group advertise. Looking to take up a 10-year lease agreement. They have indicated in the 10-year lease that they wanted option to acquire the building. And they were indicated, that they may come up with an offer to acquire the building. It is an empty building and as we increased our vacancies. So if we're ready to list it, our vacancy will come down quite substantially. Tenant retention remains a big thing that we want to obviously submit. The challenging note are obviously 3 states where we continue leading on the provincial leases. At national level, we renewed our leases in the 3 states, the bulk of them on a 3-year period. And [ Shaneel ] will be taking some time pain in finding them. The only one is to renew [ AECOM ] on a 3-year lease for 5,000 square meters, but we've brought down our rentals and are trying to continue marketing the building more rental and as well as time to dispose them more. Our vacancies, unfortunately, have ticked up. I think at last report, we were sitting at just under 14%, 15%. They've been driven largely by the Sunninghill and the loss of tenants to [indiscernible] in Capital Towers. But we're be happy to report that in Capital Towers, the vacancy, the void has only been for 6 months with effect from 1 April will then fill up the building, which is about 18,000 square meters, with some local government, provincial government leasing. CapEx, our CapEx budget remains largely within the figure that we've communicated previously, round about the 250 mark. We've obviously got a TI element that is lease renewal mix. That's on Page 12, just under ZAR 78 million. And we've started implementing that with the renewals that we've achieved. So we're working on them and prioritizing the building where there's been lease renewal. In terms of CapEx, the fire project at Poyntons has been completed, and we've seen some benefit. I think the lease had Correctional and Defense are coming -- again its renewed, direct results of us being proactive and putting to the building. Department adjusted for 5-year leases, we put the CapEx budget together, and we'll be rolling that out. On page, the [ 4 rules ] remain challenging, primarily due to the fact that it is up with the noncore, but we're able receive some offers on some assets that are key to us. And we are pushing the pricing there because we did not want to dispose of this building. We have an offer on the Marine, which is a building in Durban. It's coming from a blue chip PIC. They have done their DD. And we believe that when the offer comes through, we should get close to our book value on that particular asset. Cloud build over the new 5-year lease. We've got some unsolicited offers like the our auditor pushing the envelope in terms of the pricing. We would really like to hold on to the asset. But if it comes with an offer that is juicy we will consider that as well. And then the other building where we're getting off of is Beacon Hill, which is in King Williams and Bishop. There, the lease agreement is coming up in mid-May 2021 and the tenants we are -- we from a market income that the government or the provincial government is putting up on treatment. So the local -- the provincial government has indicated that they want to buy the building and use it as storage. And so we are waiting their offer while they do their duty on rental. And with that, I hand it to Shaneel.

Thank you, Otis, and welcome to all of our stakeholders that are dialed in. Just from a financial perspective, it's obviously been quite a robust and challenging period for us financially. That ties in with a lot of the lease renewals that we had successes on from a leasing perspective, because with all of those renewals that Otis has pointed out comes the obligation of CapEx and TI. We have been managing that fairly well out there without any facility. So a lot of that is coming out of the working capital and the cash flow of the business. Nevertheless, I think we are progressing well. We have a timetable in place, and we are sticking to that time table. So I think we're doing fairly well in managing the CapEx projects that are tied to these renewals. From the income statement perspective, I think for those shareholders that are aware, we did come out at interim. There was some pressure around ICR. We had 6% below level 2 mark for the first time at interim. And one of the reasons for that was obviously the reversions that come along with some of the leases, which we've been managing below the 6% mark. Also, the increased vacancy in the portfolio, that had an impact, together with the escalated or higher finance costs. That's attributable to the facilities that we extended. Nevertheless, I think now as we sit and as we forecast for financial year end, we are happy to announce that we believe that number to be back above the 2 level, not sufficiently where we'd like it to be, but at least back above the 2. And a lot of that has come from distribution that we've received, dividends specifically from our investment in Grit. From a debt perspective, and I think that would be on top of mind for most stakeholders, we do have a significant amount of debt that expired at the end of February, a quantum in excess of ZAR 3.5 billion. And I think as Sandile has alluded to, we are happy with the fact that we have begun negotiations with our funders. And we have reached finality on terms and conditions for extensions on 2 facilities, particularly with Nedbank and Investec. From an Investec perspective, we've done a little bit -- we had better goals, we have signed a few additional leases. And we are actually looking to split our debt profile with the bank into a longer-term profile and a shorter-term profile for us that give us a lot better certainty around our debt expiry profile. And it will actually assist in trying to manage the cost of debt down. From the Nedbank perspective, obviously, we've got the largest quantum in our business. We have 3 critical leases that Otis did allude to, specifically in Poyntons, 2 in Poyntons and I think it's actually Harlequins...

Hallmark.

Hallmark. So the discussions with Nedbank are very positive at this stage. And on conclusion of those leases, we will then be better placed to start looking at much longer-term facilities and at a much more competitive pricing as well. Standard Bank, we -- in the same position, we're having robust discussions at this stage. The facilities have been extended. It's just of us trying to now negotiate the long-term debt. And we are having very, very good discussions and positive outcomes at this stage. From the LTV perspective, obviously, the big influencer with regards to our LTV will be the valuation at financial year-end, which is performed as part of the year-end audit. At this stage, I'm happy to announce that, without the impact of valuations, we have reduced LTV. And I think what's noteworthy to mention at this stage is that, as many shareholders are with, we are amortizing facilities between our 3 funded, not a significant quantum, but a quantum nevertheless. So this amortization has a double negative effects on the business or a negative effect and a positive effect. The positive is where we see the LTV starting to tick down because, obviously, we're paying off some of the capital. The negative is effectively where the cash flow of the business is being utilized to settle this, resulting in available facilities or liquidity for distribution being cut out. And if I just have to give you a very rough estimate, you look at our -- how much, we are paying in the region of -- just under ZAR 15 million in total between the 3 funders. So it is quite a significant cash gain on the business, considering that we have to still maintain our CapEx program, but it's something we -- it's something that we are managing nevertheless, and we will be looking at a longer-term solution in that regard. From a debt perspective, again, based on the last financial year-end, our weighted average cost of debt, we've managed to reduce it marginally, but we've kept it around the 10% mark. So I think there, again, that's a testament to the relationship with our funders and bankers, our banking partners, who obviously see the value in the business and believe in the leasing -- in terms of leasing story with government. So we feel very positive about that. As Otis has mentioned, the arrears for us which is obviously quite a contentious issue at this stage because we do have quite a substantial provision in place of just under ZAR 90 million. And the arrears haven't moved significantly in respect of the tenant department from what we last supported. We've got the forum dispute that's ongoing, which we need to reach resolution on. But we've got the other smaller quantum, the stats and -- Otis, what are some of the other...

There are too many.

But basically from the fund, so those are more the smaller and we see it as competition from the low-hanging fruits. So we believe of that amount, potentially about ZAR 40 million is where we could really try hard and fast to try and conclude within -- without giving a definitive time frame, but hopefully before we go out with our year-end results. As I mentioned, on the provisions, we believe we are adequately provided. This is barbing the year-end audit, and obviously, the institutions of this is nice. So that was a little bit of -- I wouldn't say gray area, but it's obviously between the auditors and ourselves to manage how we justify the provision that we have to be adequate in the business. And I think another big win for us during this period, many of you would have seen the SENS that was disseminated, is the fact that we've managed to dispose of some of our good shareholding. That released about ZAR 104 million out of the investment we carried, which was used to settle debt that we have with Investec. As we've been saying to the market, the balance sheet management for us is critical. So a lot of decision-making that will be taking place in addition to the disposals, we'll have that on top of mind. The one bottleneck we have encountered however is the fact that, due to the deteriorating share price of Delta, we're now in a position where the transaction above ZAR 95 million mark, specifically in regards to disposal, falls into the category 1 transaction in terms of the JSE industry requirement. So it does put up a little bit of a challenge because the window of opportunity to realize a bit more value out of the Grit share disposal is there. However, we are faced with this bottleneck. We have a discussion at the board, a board meeting that we had earlier today. So we are engaging with the JSE to see how this -- to see what solutions we can put the better places up to have almost an approval that will cover especially the assets that we have held for sale together with the investment interest. And I think beyond that, just in conclusion, from a financial perspective, at interim, we did provide guidance to the market regarding our distributable earnings that we're hoping to achieve. We more or less slightly worse off than the guidance at interim, we're sitting at around 16%. Again, I want to swiftly emphasize, this is barring any unforeseen circumstances that could emanate from the year-end audit. But we are expecting to be between the 16% to 18% range for full year guidance. And with that, I hand you back to Sandile.

Thanks, Shaneel. I think the next topic is obviously the potential merger discussions that have been going on with Rebosis. And I know it's got the market's talking quite a bit. I think on that front, we obviously have a self-imposed 6-week window to find an agreement on the merger, which ends on the 6th of March, which is next Friday. And I think we anticipate that an announcement will definitely be going out sometime next week. We are hoping that even maybe prior to [ 6th, ] that we will be able to commit -- that we will be able to communicate something definitive to the market. And I think, given that we are under cautionary base as much as we can say at this stage. However, I think if the merger does not proceed, I think there's obviously a couple of options that the Board has been deliberating given that we've now started seeing traction on our lease renewal and our weight is improving, and we will obviously do plan, should the merger not go ahead to again to shareholders in terms of what we planned for the year. And those discussions may include a potential rights issue or even consider private equity offer, which have been floated, given that -- from a private equity perspective, the cash flows in the business are definitely there. And I think we've got a handle on what our Achilles heel, which was basically the non investment of leases. The leases are starting to come through. And I think Shaneel has spoken, that the mix as a minor hurdle is just to put pen to paper on the financing facilities, which we are pretty confident that once those 3 outstanding leases, we will be able to communicate on the affirmative prior -- before we go on to the podium, when we announce our results. In conclusion, I think the point for us to take away is that the legacy lease renewal about on bulk renewals is largely been completed by the 3 main leases that we have referred to. And 2 of those leases, as we've been saying, in 1 building. And one of them has already written to DPW. We have a confirmation of that. The other is the 90% tenant retention rate that we've achieved, which is commendable, and the improvement in our way, I think that is definitely something that we will be give more information -- of more granular information when we present our results sitting at just above 2 years. The lower funding costs that we're -- that we are negotiating, I think, will obviously also come to pay on the back of an improved WALE and the improved ICR, as Shaneel has already spoken. I think that is quite important for us, that we see the improvement on the LTV going forward may be important, but probably equally more important will be the ICR. We really are working extremely hard to improve our ICR to levels well above 2, which is where we would feel comfortable as a Board. Clearly, we've mentioned the significant capital expenditure required in the short term based on the signed leases. And I think that will form part of the discussion that once we engage with shareholders and once there's certainty in terms of the direction that we're moving is something that we need to take into cognizance. I think where we have certainty of income, certainly, for the greater part of 3.5 years or so, based on the lease renewal, it places us in a very firm position to start having those discussions. Lastly, I think we -- from a Delta Board's perspective and management, we will remain committed to our sovereign strategy despite the challenges that government is experiencing with SOEs and the economy at large. We think that, certainly, if you look at the tenant retention percentage, the percentage of leases that we have renewed, it's an area we understand. And we will continue to drive that advantage forward. The one area that we have not really expanded on is our growing influence, particularly with relationships with DPW [ Centurion ]. They have had a fallout with one of the major landlords in [ Centurion ]. And we are engaging with them on a wide variety of leases, to the point where post filling Capital Towers on the 1st of April, we will only have a vacancy of 500 square meters in Pietermaritzburg. Obviously, the next target area for us will be around Durban, where we're seeing some further traction already. The municipality occupies quite a few buildings in the portfolio, and they've already submitted their renewal proposal to the Bid Adjudicating Committee to renew all of those leases. So we don't see any further losses there. Obviously, should Marine get sold, that does pose a positive problem for us on 2 fronts. That, one, we dispose of Marine, the building, but the purchasers of Marine are looking to self-occupy, which then means we would have to place those additional tenants that are in the building in our other buildings within the Durban area. So I think those are some of the things that we are definitely working on prior to us reporting and announcing our results. And we'll give a lot more detail at the point where we announce our results. At this point, that is the end of our presentation. As I've already mentioned, this presentation will be available on our website and the audio as well. And I would like to open the floor for questions for myself, Shaneel and Otis.

[Operator Instructions] Our first question is from [indiscernible] of Salandia Capital.

Mentioned capital requirements that you need to make or spend in order for that leases to be renewed or as requirements for some of those leases. Can you give any indication what the amount of capital spend is in relation to your distributor income?

This is Shaneel speaking. So I think just to refresh. We do have a 3-year capital plan, which totaled just over ZAR 600 million. Now from a timing perspective, if we look at the financial years, it's almost broken up to between ZAR 200 million to ZAR 220 million per financial year. So again, it depends on what level of distributable earnings we're going to achieve. So to be able to give you that ratio, is a bit difficult. But you could probably do the calc using the quantum of between ZAR 200 million to ZAR 230 million a year.

Last...

Sorry.

Last what you said, I didn't hear that last part.

Okay. So just to repeat. We have a CapEx plan of between ZAR 200 million to ZAR 230 million per year, okay? So -- and just correct me if I'm wrong, your question was, what is the percentage -- what percentage of CapEx form a part of the distributable earnings? Am I correct?

Yes, yes. I'd like to have an indication of how much it will affect your distributable earnings if you're not able to get capital somewhere else.

So effectively, it will have a direct impact on the distributable earning, because ultimately, that spend will come out of working capital, which is out of our cash flow results.

Okay. And that's helpful. And so tell me, I think I've read the article in Business Day the other day, where you guys have said you don't need a merger with Rebosis, and you can do it on your own. And the last -- just the last week, I've listened to Octodec results, and I read [indiscernible] say the same. It seems -- and I want to first ask the question, are the banks putting pressure on you in terms of loan-to-value ratio to raise capital? Or do you have ability to raise capital apart from rights issues? Because the way I see it as well as going on in the industry, and you must correct me if wrong, if you don't have that pressure, is that the only way you at the moment can raise that capital for capital commitments is to take it away from distributable earnings. Is that correct? Is there other ways for you to raise capital at the moment?

Yes. So I think as you rightfully pointed out, at this stage, that's exactly what we are saying to shareholders, is that -- if you look at our balance sheet which is a little bit strict, there's sufficient headroom. However, distributable earnings is one part of call. The second part of call that we have, which is a little bit more difficult in this economic environment, is obviously the disposals that we do have. We've got assets held for sale. However, we are just as affected as the rest of our peers in the property sector where the market is quite depressed. So as we said, the working capital is our only opportunity at this stage, barring us obviously looking at alternatives to do a capital raise.

Okay. And you foresee you'll be able to do that in the current environment from distributable earnings? I think you've mentioned just now you're looking at either equity raising or private equity deals. What is the realistic prospect of raising equity capital at the share price? I mean, surely, the probability of that is close to 0.

Yes. I think we understand the challenges in the environment. And obviously, the way we hope to approach this is not so along your traditional method. But again, I'd like to -- we do understand the challenges that we do face. So it's something that we've been strategizing as part of our Board. And I think once we're better placed, we'll then come to market with the proposal that we have.

The next question is from [indiscernible] of Coronation Fund Managers.

My question was mostly answered in part of the previous question. But then just to add a little bit to it if -- what would the LTV impact be with all the capital expenditure required for filling in those tenants? I mean how negative would it be? Will it take the ICR below 2 again? Will it take LTV above covenants and so on?

Shaneel again. So I think if you look at the capital expenditure coming out of working capital, from an LTV perspective, you're using the cash. And a lot of the CapEx that we are planning in the business is defensive. We don't expect it to be very accretive. So even from a valuation perspective, we're not expecting to see any significant movement in valuation. So we don't see a significant impact on the LTV just looking at the CapEx by itself. From an ICR perspective, obviously, if you look at the ICR, which is driven by profit from operations, together with your finance costs, so that spend of working capital shouldn't drive either one of those 2 metrics in a very different way. If anything, we anticipate spending CapEx on the building could give a little bit more confidence to our funding partners, the bankers. And hopefully, we can get a -- we can be a bit more competitive on pricing. So we see it as a positive from that perspective.

[Operator Instructions] Our next question is from [ Sohail Ahmed ], who's a private investor. [Operator Instructions] We're moving on to the next question, which is from [ Amanda David ] of [indiscernible].

I don't know if I missed it. My line was bad as well. But you said that you have ZAR 3 billion of debt has expired in February. Have you been able to secure or finalize negotiations? Or are you nearly finalizing negotiations? And to what extent?

[ Amanda ], it's Shaneel here. So I think, as I did mention a bit earlier on is that we have secured extensions, especially on the major part of that facility, which is with Nedbank for the period of 3 months. And the Nedbank extension is really a means to give us an opportunity to conclude those 3 big leases so that we can start having discussions around more permanent facilities. On the Investec side, we have done an extension for a very short period, probably for about a week, with a final proposal now around 2 facilities that they are fitting our portfolio between. So they're looking at longer-term -- longer-dated leases that they packaged it into a 3-year portfolio and the shorter term and vacant leases which are put into a 12-month portfolio. So that's our deal with Investec which will materialize within the next week. Standard Bank, again, we're granting up an extension. There, again, we have a few hurdles to cross. One of the big hurdles being filling up the vacancy that arose during the financial year at Capital Towers. And I think we're happy to announce that Sandile has mentioned that we've got a tenant for that building. So that should give us some significant push with Standard Bank. And there, again, we should have our facilities in place. So there's no real -- there's no risk to us at this stage. All have been dealt with our banking partners. It's just that we obviously wanting to have a longer-term debt expiry profile, which will be our first prize, and that's what we're heading for.

Yes. The other thing, the interest coverage ratios. What are the bankers wanting or have attached sort of this covenants to your debt?

Yes. So our interest cover ratio, historically, from a covenant perspective has been 2. You would recall, at interim August '19, we did reach that cover, but we did get combination from all of our banking partners, because, again, our banking partners are fully fair with our business, and they understand that one of the reasons that we did dip -- one of the contributors has been the increased pricing on the extension. So we did get combinations. And again, our banking partners are working together with that. With that being said, we dipped below 2. It was at about 1.92. So again, it hasn't fallen off the rate up to like 1.5 or 1.2. And that's where we did manage to obtain the combinations, and we will continue working together with them into the future as well.

Okay. And your LTV covenants?

LTV, we never reached with the banks. I mean the covenant level of the bank is 50%. If you look at our interim, we are sitting at about -- just above 44%. So it is well -- well cushioned when it comes to LTV.

Okay. Great. Lastly, is there a chance that you won't pay a distribution at all?

Again, that's a difficult question for me to answer at this point because it's subjected to the liquidity at the point of when the Board does a declaration. I prefer not to give you a direct answer. But at this stage, I think we did say 40% at the interim. And as we did indicate to the market, we will consider it at the end based on our liquidity in the business.

The next question is from Viren Garach of Personal Wealth Management.

Of the ZAR 600 million envisaged CapEx over the next 3 years, what amount of that CapEx is based on contractual commitments on the leases that have been signed?

So okay. Viren. Otis. It's about ZAR 78 million for the TI, tenant installation. That is the one that's contractual. The other one is just the ongoing CapEx that we carry out on the portfolio. I think contractual one, that is in the lease agreement, is the tenant installation figure of ZAR 78 million.

ZAR 78 million? Okay. Then Shaneel, the next part of my question is that, obviously, if Delta wants to maintain its REIT status, does that -- doesn't it have to distribute 75% of its distributable earnings?

Viren, yes, that's a good question. And we currently are engaging with our sponsors. I think we're also taking guidance from our peers in the markets that have not distributed. But a big part that comes out of the distribution requirement is the liquidity of the business. So even though the 70 -- the 75%, it's all subjected to liquidity, and obviously, the normal [ company's ] requirement, liquidity and solvency. But our understanding is that the JSE also considers the liquidity when the Board is doing the declaration. So we are engaging on that, because, as you rightfully point out, the 40% mark is below the 75%. And we obviously will do everything in our power not to breach REIT status.

Okay. And the last part of the question, you mentioned private equity. How would existing shareholders know or -- our rights are protected in the sense that how do we know we won't be diluted with this? With private equity getting an off-market price per share that's far below than what it's trading right now.