Equites Property Fund Limited (EQU) Earnings Call Transcript & Summary

Good morning, everybody. If you can just be patient another 5 minutes apparently with load shedding, the [ robots ] are causing a bit of havoc and people are a little bit delayed. So we're just going to give people another 5 minutes, if that's okay, and then we'll get into it. But I mean, while I'm at it, obviously, welcome to everybody and it's great to see you all. Thank you for making the effort and taking your pajamas off and coming through to see us. It's nice to see everybody and it really is pleasant to be presenting to an audience. It hopefully will be a very insightful presentation. And over and above that, we'll open up the floor to a bit of Q&A. Obviously, I think we've got some great guests with us. We were -- sort of 2 and a bit years ago, we were planning our introduction of our joint venture partners in the United Kingdom coming down for our presentation in May 2020. And as we know, that was not a possibility. They both have made -- there's 2 of the 4 have been able to attend today. If I can introduce Graham Pardoe and David Keir. And obviously, we welcome them here and really pleased to see them with us here. They have presented you in the results for the last 2 years, but obviously, always online and somehow I don't know it never feels the same. But are we good to start or are we good to go? So let's get going. And as I said, welcome and very, very privileged and humbled to be here today. I think another great set of results and we'll get into the detail of everything. And what I'd like to start with is obviously Equites' strategy of becoming a globally relevant REIT specializing in the logistics sector. I think every year, we've presented this slide and every year it will be there because it really talks to the essence of who and what we are. And it's remarkable how global supply chains have been put under pressure, and coupled with that, you've had proliferation of e-commerce predominantly in the U.K., not so much in the South African market that will probably come in time. And I think Equites has never been better positioned to take advantage of a extremely buoyant U.K. market, coupled with our partnership with the Newlands team, who without blowing too much smoke, I genuinely -- and I think if you spoke to anybody independent in the U.K., would certainly be one of the 3 top developers in the U.K. And as Equites to have them as our joint venture partner I think is a great privilege and it's going to be a game-changing contribution to our business over the next 5 to 10 years. In SA, our team has gone from strength-to-strength and we fought strong today and I think the ability for the team to develop and create the platform and continue to grow that platform is second to none. And I mean, I'm just blown away by the scale of the business and where we've taken it to in 8 years and the quality of talent that we've attracted to the business and continue to attract to the business. So let's talk about where are we as a business? We are in South Africa. We're in the UK. Strategy in South Africa, let's start with best-in-class developments. To do that, we need landholdings, otherwise, there's no chance to pitch for business. Over and above that, where opportunities arise, we look to acquire. But what we acquire has to tick our boxes. So the reality of it is that there's not much that ticks our boxes that does come to market. And when it does come to market invariably, it's of a quality that a lot of people will be interested in, we've not necessarily are going to win every pitch on that battlefront. So it is what it is and we continue to play in that field, but we have certain metrics in which we are prepared to play at and we're quite stringent and strict with that. The key obviously to all of this is focusing on the A-grade tenants and the long-term leases. That is the essence of our business. In the U.K. as the team will present a bit later on, we currently control 13 tracts of land in the U.K. We obviously have the privilege of bringing some of those things through. And we've had -- we've had a few successes already. And this morning as well, we announced another success in that regard. And we will continue to unlock developments on a pre-let basis for Equites, but we are quite happy to do -- we're not speculative developments, turnkey developments on behalf of owner-occupiers or asset managers that are wanting to retain ownership of buildings, which we will do for fixed prices for them, make a turn and move on. And through that, we will unlock capital, which will facilitate that growth which in the U.K. potentially can be enormous and we will see that as the presentation goes on. So I suppose this is the most important slide. I suppose why everybody is here today. It's the year-end review. I mean, we all know that as much as in our one-on-ones, a lot of you as shareholders will tell us that DPS is not really that important. We know it is that important. And I think we gave guidance of 5% to 6%. We're in at 5.2%. We're very pleased in a period coming out of COVID, I think the delivery of these numbers is fantastic and well done to the team. I think the most pleasing part of it though, obviously is for me is that there's 7.9% growth in NAV. I think that is a massive number. Also in light of the fact that our portfolio has grown to the size it has grown. We've managed to keep a really strong balance sheet. Our loan-to-value stood at 31.5%, hasn't really meaningfully moved in the last year, but we've added 30% to our portfolio. So I think our management of capital has been second to none. Over and above that, our WALE remains at 13.7 years. There's no equal in the South African sector, that's for sure. And as I said, the portfolio, ZAR 25.7 billion, 33% growth is fantastic. So what have we achieved in the last year? So let's start with the acquisition of the DSV Campus. Now it was a complicated acquisition, dealing with a highly specialized team out of Denmark that believe that we should just pay them and move on. And the team worked tirelessly to ensure that the documentation and all the metrics that we were buying were actually delivered. And it was a challenge, but we got it over the line. I think we've acquired a fantastic asset. It's an asset which I think will give DSV a critical edge in the 3PL and the third-party logistics market in the context of South Africa, and that bodes well for them in the long-term sort of staying in that facility. I think what's also really pleasing about that facility is that we've been talking about alternative sources of equity in our business for maybe the last 3 years. And I think this was the first time we actually showed the market that we could do it and doing the joint venture with EPPF I think was groundbreaking for us and obviously really pleased to be working with their team. And now that we've got the framework in place, we believe the opportunities will come where we will present to them. And because the framework is in place, it will be a quick, yes, we're interested, no, we're not and we can sort of move on with our lives and an ability to raise meaningful equity should it be necessary. Over and above that, we've completed obviously the flagship development of Sandvik upon the R21, ZAR 300 million-plus development. And yes, it's a world-class facility. I mean, for the suites to tell you that it's their best facility in the world, it's going some because they're not necessarily always the most complementary people in the world. So very pleased with that. We obviously have also secured 4 new developments in the pipeline during the year and those are ongoing and being built and growing. Our GCR rating, obviously, Laila and her finance team have done sterling work there and both short-term and long-term were upgraded, with pricing significantly better than what we graded, but it's still a fact that we're moving up. And apparently, you can't move more than one grade a year or something. Anyway, be that as it may. Bottom line is that we're pricing really well in the -- we had a bond auction and Laila will talk to that a bit later, which was great. We've got a GB pound sustainability-linked loan, which obviously talks to our sustainability metrics and the important sustainability is to the essence of our DNA. Equites as an organization started placing a lot of emphasis on that already for a good sort of 3 or 4 years and that's really flowing through in everything we do. We raised ZAR 2.7 billion of equity in the capital markets in the year, 2 ZAR 1 billion capital raises that were significantly oversubscribed and I think well priced. And then over and above that, we had very well responded to DRIPs and we raised about ZAR 700 million through the DRIPs. And I always like the DRIP because it's always nice when the -- I suppose the shareholder on the street has also got the ability to sort of participate in the process and that's been great for us. And another key metric, obviously from a transformation point of view, we've gone up a notch from Level 4 to Level 3 and we're currently sitting at about 66.1% black ownership. And obviously, that's in the world that we operate with international conglomerates and South African National incorporates and whatever. The BEE rating is a critical part of their scorecard because obviously, they would like their procurement points in terms of the rent that they're paying us. So that's been great the fact that we could up that. And then obviously, the final element is not on there, but I just thought I'd add it is obviously the UK land sales. So we've done a deal up at Hoylands with American asset manager called Arrow and post-Newland's profit share, post-HMRC's profit share, we'll take about GBP 5 million from that deal. And then in Basingstoke, we've done a deal with Lidl. And with Arrow, again, we'll be developing 2 warehouses for Arrow there. And the combined profit share after we've given their profit share to Newlands and HMRC have taken theirs is just north of GBP 31 million. So ultimately, we're looking at in excess of ZAR 700 million of crystallized profits that will just go straight down to the bottom line. Obviously, non-distributable, it's -- it will go down to the NAV line, but obviously, it's an alternative source of equity. And again, we've been talking about this alternative sources of equity. And again, it's an example of the Equites team being able to deliver on stuff, which we've been working on for many years. So where are we and where is logistics going? Global supply chains are in crisis. And I mean, I'm sure all of you have seen photographs of outside the Shenzhen Port and outside Shanghai as well with 400, 500 ships waiting to be loaded, with what happened in Durban a couple of weeks ago, containers being lost. And the general supply chain disruptions across the world, the cost of containers having gone through the roof. All of these factors sort of all came together at once, if you like. And the consequence of that is that we also have the U.S. China trade war, we have the Ukrainian Russian conflict. We have Brexit to a certain extent, especially within the realms of our business. And then various lockdowns especially in Asia that are still fairly strict. And so what we're seeing is, obviously, the world is certainly changing and the just-in-time model is certainly a model that was for yesterday. And what we're seeing is inventory levels are growing significantly. And obviously, the word on the street is now obviously just in case. So -- but that being said, not only that, we're seeing little bit of nationalist fervor everywhere and borders sort of having come up a little bit in the last few years. And the consequence of that is we're seeing a lot more onshoring as well, which results in, again, more demand drivers in terms of the space, obviously, also on the manufacturing side, but to supply into the manufacturing, you need the warehouses and everything that goes with that. Whilst we'll probably try and steer clear of the manufacturing element of it, we obviously would like to be at both ends of the finished good and also the raw material coming in through the logistics system. And I think a key metric and obviously the differentiator going forward and why, I mean even South African retailers, you can see the amount of money that they've put into warehouses and I can give you examples. I mean, PEP putting 150-odd-thousand square meters up at Hammarsdale, Pick and Pay are putting 150-odd-thousand square meters on the R21. Massmart put 70,000 up in North Joburg, they put 50,000 in Cape Town, 50,000 in Durban. I think Truworths have just committed to 40,000 in Cape Town. We're doing 50,000 for TFG. We're extending that 21 to 40 odd. So what you're seeing is all these big retailers are investing significantly. And the reality is what's actually happening is that they're investing in AI and supply chain technology and the kind of investment necessitates scale for it to be operationally effective. And I think what's going to differentiate the winners and losers in the next 5 and 10 years, I think it's going to be -- and how retail and e-commerce evolves will be linked to fulfillment. And the winners and losers are going to be the people that can fulfill as efficiently and as economically as possible. And being part of the thought processes of the various organizations, obviously, firstly educates our team. Our team are getting better and stronger and more well versed in the process. And the consequence of that is it leads to new business and continual business. And we'll talk to that in a bit more detail coming up. I'm not going to spend too much time on the U.K. market. I think Graham will talk to that a bit more a bit later on, but needless to say that 2 things. Available land ready to build on is a scarce commodity in the U.K. Construction inflation in the U.K. is going one way at the moment. And the consequence of both of those 2 is that the rental growth that is coming through the system is significant. And obviously, our existing portfolio of just shy of GBP 500 million will be the beneficiary of those escalations over the next sort of 2 to 3 years as those rent reviews start coming through. As you will all be aware, in the U.K., the rent review is on a 5 yearly rotation. I won't go much more into the U.K. there, I'll leave that to Graham. Let's -- South Africa, as you can see over there, and I believe some of our competitors in the REIT space have spoken to this too, I mean we're currently sitting with 0% vacancy in our portfolio in South Africa. We literally don't have a square meter. And what we're hearing from other players as well is that they're looking to potentially tear down some of their older stuff and put new facilities up because the demand drivers are going in this particular segment of the market. And we'll talk a bit more in detail just now about what the market is. But needless to say, I think, for the first time as a consequence of, believe it or not, a bit of scarcity of land to be able to do big developments on coupled with construction inflation, we're seeing meaningful rental growth through the development pipeline that we're currently undertaking. And when I say meaningful, I mean I'm talking double-digit. So we haven't had much rental growth over the last 2 to 3 years and especially through the COVID years, but even pre-COVID, for a year or 2, rental growth was muted probably 1% or 2% per annum. This is the first year in a while that we're going to see some significant rental growth, which obviously speaks to the valuations in terms of our properties and where they're going. So this is quite an important slide for me, I think it is anyway. And this really talks to what I call the Equites way. And what is the Equites way? What do we do differently to everybody else? Well, we do quite a lot different to a lot of people. One of the key things that we do that a lot of people don't do is we put solar panels on the roof and the energy that those solar panels deliver, we give that energy to our tenants for free. So that is a carat that we give to our tenants, which ultimately is a saving, which is to their benefit. Over and above that, another key metric that only Equites probably does, very few other people do, is our entry spec is a 50 meter yard. Now a lot of South African sort of movement of trucks is between interlinks and containerized transport necessitates big yards. Now I remember 6, 7 years ago when we started, most of our competitors were giving between 32 and 35 meter yards. We came in at 40 and we drove it. They came up then to 37, 38. We drove it to 45. They've come up to 40, and we've gone to 50. Now we believe a 50-meter yard is an institutional grade yard. Once you start going to the bigger retailers, the likes of Shoprite, the likes of Pick and Pays, especially the supermarket chains where they've got massive volumes of trucks coming and going. The reality is you probably need 60 meters because just the volume of trucks is just so big that if you don't have that kind of size. Over and above that, we purposely put on-grade canopies that allows, especially up here in [ outing ] where you get these massive downpours that allows people to operate in the rain. We have docks and on-grades. So we've got the facility of the containers coming, but not just the containers. We mechanically ventilate all our warehouses. So there's no bird proofing and it is cheaper obviously to not mechanically ventilate, but obviously, it comes with different sort of problems, especially when it comes to food grade warehouses where you get the birds coming in and the vermin that follow. So all of these things have been developed over time. Our floors are all FM2 special. They're built on a 32x24 grid. Now all these things probably mean nothing to you guys, but the reality of it is that what we're trying to do in everything we do is we're trying to reduce the maintenance for our occupiers. And why do we do that? You say, well, you've got a triple net lease, they pay for all the maintenance. But the reality is even if they do pay for it, what it does is if it's not done properly upfront, it creates a grudge between you and your tenant. We don't want grades with our tenants. We want to build relationships with our tenants because the cheapest business that we can do is repeat business. And we've shown it time and time again that, that repeat business is the complete differentiator. And by putting in product that mitigates maintenance as much as it possibly can, and you have to do some maintenance, but mitigates it. I mean another issue is that we have no plaster and paint on any external facade. All our external facades are either tilt-up walls like there and on the front. And then where the offices are, we try and make it a little bit fancy with some glass, a little bit of cladding, a little bit of Hulabond or the likes, but we do not put plaster and paint on external services because if you do, within 3 years, you've got to come in chisel out the cracks and make good and paint. And that even on a small office space like that, it's going to be ZAR 300,000. And your tenant when you pass on that bill to him, he's not necessarily very happy. He feels that he's been cheated as much as he's agreed and he signed it and we've really worked hard on those relationships. So these are our key metrics in terms of who and what we are and why we want to continue to develop because we believe we're developing product that will stand the test of time. We believe a warehouse built to this specification will stand at test of time for at least 30 years. And this leads us on to the next slide. And this really talks to our land holdings. And with our land holdings, obviously, comes opportunity. And you can see that this time last year when we were presenting these numbers to you, we had 112 hectares of land in South Africa. These are the developments that were undertaken during the year. And as we stand at the moment, we technically have 93 hectares of land. But the deal flow that we are -- we've signed with the various parties, and we not quite signed or very close to signing basically is going to take our land holding basically down to 27 hectares. That is over 400,000 square meters of GLA over a 2 year period. That is almost ZAR 5 billion of the highest quality real estate in the sector. The only way you can do that is by controlling land. There is no way that you could have done a 50,000 square meter deal with TFG going to 90,000 if you do not control the land. And if I can take you to this slide, this is an example of a piece of land that we secured in 2019. It was unzoned when we secured it. But we secured it on the basis that we would be given a Section 82 certificate, which is service land ready to go for its use as a logistics hub. A whole lot of infrastructure had to be put around the facility. What we agreed with the vendor was that we would fund the infrastructure as it was going right up to Section 82 and we would only pay the vendor his profit once he gave us the certificate. The process probably took 18 months from agreeing the deal to actually fully paying for the deal. And thereafter, we've secured a deal with -- obviously, this is the TFG deal down here. And this is another deal, which is effectively a heads of terms have been signed. We're just going through the final wafts of legal documentation to get there. So what do we have here? We have a 43 hectare piece of land in a great node, 2 very long-term leases to 2 quality covenants, which will give us a degree of safety to the base portfolio, which will continue growing. So the point that we're trying to show with this example is that Equites' very essence is creating that alpha and that alpha is created by having a joint venture with the Newlands team in the U.K. that delivers alpha for us and having a best-in-class development team in-house in South Africa that can deliver product like this for the benefit of our shareholders. On that, I'm going to hand over to Riaan, and he's going to take you through some of the fundamentals and operational highlights and only highlights of the year.

Thank you, Andrea. The next couple of slides I'll be dealing with our property fundamentals, which really is the foundation on which the success of Equites is built. As you can see there, we've year-on-year tried to achieve good improvement on them, and really Andrea has referred to some of the statistics. When you look at our WALE and you combine that with the in-contract escalations of 6.6% in South Africa, it shows the predictable and sustainable growth that is embedded in this portfolio. We've also had our busiest year since inception, growing the portfolio by adding ZAR 6.4 billion of quality assets, increasing the portfolio by 33%, and then also very importantly, in growing the portfolio, we again improved the percentage A-grade tenants in our portfolio from 94% to a current 97.2%. Now we've, over the years, become very sophisticated in introducing very extensive tenant vetting processes, because ultimately, in the environment in today's world the biggest way to mitigate tenant failure is by making sure that the tenants you contract have strong balance sheets and are tenants that are in sectors of business which are robust and can survive any downturn in the economy. The next slide deals with our portfolio split. And in looking at it, you'll see that we now have about 40% of our assets in the U.K. made up of 28% of U.K. logistics assets, 7% of the assets are under development at the moment and then 4% land holding. Also importantly, and Andrea referred to our usage of land, our land holdings have come down from 11% last year and they are now at 8%. And in that our South African land holdings over the past 12 months have come down from 8% of total assets to only 4% of total assets. We are very excited about the opportunity for growth in South Africa. We will be announcing some significant transactions in the coming weeks. And we've seen that coming out of COVID, the demand for logistics assets in South Africa is probably the highest we've ever seen it since our inception. Also the U.K. with our land holdings and some of the development pipeline projects coming to fruition over the next 12 months, we really see that over the next 12 to 24 months, we will again add some significant assets to our growing portfolio. The next slide, I think I'm going to pause at a little bit, and it really speaks to the quality and sustainability of our portfolio. As you will see that from the slide that 87% of our leases by revenue expire after FY '24, which means that only 13% of our leases by revenue will come up for renewal over the next 24 months. Now I would like to just put that in context and also talk about what potential reversions could do to our business and to our ability to grow our revenue sustainably. And putting it in context, I want to speak about 4 elements. Now I think everybody understands that with the WALE as ours, when leases come to an end after 10 years in a low growth environment, lease reversions is something that can happen and you need to manage actively. Fortunately, we have a business which do not have many leases coming out. So we can see -- we've got transparency as to see where these lease renewals will occur. And at the moment, 13% of leases by revenue is coming up for expiry, but importantly, we'll be adding significant amount of assets over the next 24 months. Now currently, we've got about 1.4 million square meters in our portfolio, which translate to revenue of about ZAR 1.5 billion. Now we're adding in the next 12 to 24 months on a contractual basis already a further 300,000 square meters, which takes our total revenue from ZAR 1.5 billion to ZAR 1.9 billion, which I think just simply shows that even if there are going to be reversions, its impact on our ability to produce sustainable growth for our shareholders will be -- will not be hindered by the leases coming up. And secondly, the rest of our portfolio in South Africa is growing within contract revenue increases of 6.6%. And in addition, we've also got 3 significant renewals in the U.K. where rental growth has been at an all-time high and we expect to get significant growth from those assets. And thirdly, Andrea alluded to it, we've really seen in the last 12 months that SA Logistics vacancies are at an all-time low. Land scarcity means that there are fewer opportunities to really produce the assets that a lot of the logistics clients are needing. And we are already seeing that we're marketing some of our new speculative buildings at about 25% higher rentals than last year. And then the final element to consider is that we've got a portfolio of extreme quality located in very secure environments, mostly in logistic parks. So those elements puts as it is, and we are very confident that we can manage our portfolio going forward in a way which will keep it in a sustainable growth and our fundamentals will assist us through that period. That sort of leads us to the next slide. And I think we -- when we put the slides together, we just thought about putting some brand names up there. I think it speaks for itself when you've got a portfolio made up of -- and that's only a small sample. We -- because we don't have a very high number of buildings, we forged a very close relationship with these tenants. We meet with them at least biannually. We've conducted sustainability audits on every single building. And we've been overwhelmed by the response from our tenants. I mean, sustainability, ESG has become a major talking point. And very importantly, the demand for some of the changes to the buildings that we are offering is very high. And strategically, that also offers an ideal opportunity to talk about extensions, and it creates the platform an opportunity to see how we can extend these leases and even further improving our WALE. That's it from my side. I would like to hand over to Laila for the important part.

Thank you, Riaan. Good morning, everybody. So I'd like to pick up, Andrea has already alluded to some of these highlights, but just to reemphasize, the distribution growth of 5.2% is in line with our guidance and underpinned by very strong financial performance, which we'll go into later on. The growth in the NAV per share of just under 8%, I think it's a testament to an exceptionally well-performing portfolio. And when Graham and David touch on the logistics market in the U.K., it will explain further what's been driving a lot of these uplift in the U.K. Our total return of 17.3%, if you recall, we guided double-digit total return, and I think that fits quite nicely in with our targeted guidance. And then just an LTV of 31.5%, we've always spoken to being conservative, and this is a testament to it, but we'll break it down a little more. And then just ZAR 1.8 billion in liquidity, that's cash and undrawn facilities at 28 Feb. I just wanted to touch on some elements in the balance sheet. So if we start off, really the bricks and mortar, I think that's a pun, but is our investment property. And if we look at the growth in investment property year-on-year, that's grown by 33%. It's really due to the acquisition of the DSV Campus, as Andrea spoke to, the acquisition of 3 assets from ATTACQ as well as the completion of developments both in South Africa and the U.K. Trading properties is the newest line item on our balance sheet. We've released since this morning and we released one last week. What this line item represents is assets where we hold land either for disposal purposes such as the transaction that we spoke that we released last week or turnkey developments such as the one with Arrow, which we announced this morning. So we expect that line item to be there as it's a fundamental part of our business going forward. And I think what it does is it really illustrates our ability to crystallize cash in our business or crystallize cash as part of our ongoing U.K. operations. Cash and cash equivalents, as I previously mentioned, that was as a result of the accelerated bookbuild, which happened in February, and that was just some residual cash, which was sitting at 28 Feb. And then just in terms of our loans and borrowings, we've increased the loans and borrowings. But what we've done is, we've really maintained the integrity of our capital structure. So that increase from ZAR 6.8 billion to ZAR 9 billion is really in line with our capital structure and that LTV remains reasonably unchanged year-on-year. And then just on non-controlling interest, that number has increased slightly. That's the inclusion of the EPPF joint venture, and that was in the acquisition of the DSV Campus. So Shoprite is sitting in there as well as the new NCI component, which is EPPF. So if we look at the distribution statement, again, if we look at the top-line, that's ultimately what really drives the growth in the distribution year-on-year. Our gross property-related income has grown by 30% year-on-year, underpinned by strong like-for-like rental income as well as the inclusion of all of our newer assets, Shoprite, DSV and the completed developments during the year. Admin expenses has increased marginally. As our business is becoming complex, we're expanding our footprint. The business in the U.K. is growing. We've increased our staff and overhead costs. But also, we are moving into a phase of being more sophisticated and mindful of systems and processes, and this comes with a natural increase in the administrative and head office costs. If we look at net finance costs, these increased by 32%. In the previous slide, we spoke about the increase in loans and borrowings, and this is directly related to that. And if we look at the antecedent dividend, I think everyone in the room understands it, that's as a result of the 2 accelerated bookbuilds as well as the dividend reinvestment programs over the period. And in the non-controlling interest, we've spoken about that and the increase as a result of Shoprite being in for a full period as well as EPPF. Then just the number of shares outstanding, it's increased in line with our accelerated bookbuilds as well as the dividend reinvestment programs. And that brings us to our distribution per share of ZAR 0.163 per share for the full year. I love a bridge. So if we just look at the bridge and look at how that 5.2% is made up. The biggest component of the growth is the like-for-like -- South African like-for-like income and that contributed 3.75% to the movement year-on-year. The portfolio activity, in that line item, we've included Shoprite because it's non-like-for-like as well as any other developments and other non-like-for-like properties, which have come online during the year. The U.K. portfolio, that's an impact of our hedging our U.K. operations as well as growth non-like-for-like properties which have come online. We had an SA vacancy in the portfolio. That has subsequently been let. And if you look at our vacancy as at May, we have a 0% vacancy, but that vacancy during the year did reduce our DPS slightly. And then the capital structure is an interesting one. We've always favored having an exceptionally strong balance sheet. And at several points during the year, we had to assess whether it would be prudent for us to raise capital. At that point, the cost of raising the equity may have been slightly dilutive to our DPS because we invested it in proceeds which was slightly under our cost of equity. That was an assessment which we did to ensure that we had sufficient cash reserves to enable us to implement our pipeline. So there are some negative impact as a result of our capital structure. But if we look at the next slide on NAV and LTV, the impacts were positive. And that's just an assessment which we do to assess the overall impact on our business. And then there were some other impacts and that takes us to our overall growth in DPS for the period. If we look at the growth in net asset value, we started off the year at 17.25%. The growth in DPS added ZAR 0.09 to it. We issued some shares at a premium to net asset value, and this is what I was alluding to earlier. Even though the impact may be negative on it from a DPS perspective, it helped us to shore up our balance sheet, reduce our LTV. And because those shares were raised at a premium to net asset value, it added to the growth in NAV over the year. Then the U.K. core portfolio, really outstanding uplift. I think I'll touch on it a little bit later, but we have externally valued 100% of our income-producing portfolio. So all of that uplift is independently verified. And I think it's just a testament to the strength of the U.K. logistics market. U.K. developments that was the completion of Amazon Peterborough as well as a percentage of completion on the Hermes asset, which actually PCed yesterday. And then tax. In the current year, we recognized deferred tax on fair value uplifts on the U.K. portfolio, but there was also another nuance. The U.K. tax rate has been gazetted, that it's increasing from 19% to 25%. So for deferred tax assets we have to recognize those assets at the rate at which those deferred taxes will be utilized. And that meant that there was an additional impact of the deferred tax liabilities on our NAV, which resulted in 0.49 -- ZAR 0.25 decrease in the NAV. And that brings us to the 18.61%, which is our NAV per share as at Feb '22. This slide is a slide which we started including a couple of years ago. And I think this is -- at this period, we decided that we would externally value 100% of our income-producing properties in South Africa and in the U.K. So when we look at these values and we really assess what the values are per each of our category, you'd see that in almost -- actually, in all of those categories, the value per square meter is now well below the replacement cost. As I'm sure Graham and David will allude to, in the U.K., there's been significant construction inflation, and Andrea will talk to it when he's closing out. What we've seen over the last 18 months and longer is that construction inflation and the cost of building these assets has significantly increased. So when we look at an average value of ZAR 11,000 a square, that's below a replacement cost. And what that means is that, firstly, we would start to expect some sort of rental growth. And secondly, if you just look at an overall reasonability of our valuations, they seem to be fairly reasonable. And we hope that by improving or by increasing the frequency of our valuations, we've brought about a lot more robustness in our process and credibility to these valuations. Then if we look at the LTV bridge, we started off the year on 31.2%. The SA acquisitions and developments increased that LTV by 7.7%. The DRIPs and the bookbuild, that was the largest contributor to decreasing that LTV. And that really positioned us or gave us a position of strength in terms of just ensuring that we had sufficient reserves to implement our pipeline. Then we had some U.K. developments which increased by 6.3%. The U.K. portfolio uplift decreased the LTV by just under 2%. And then there were some deferred tax and other movements, which decreased -- which increased by 0.7%, taking us to 31.5%. So if you look at it year-on-year, there was a lot of movement, but it ended up fairly constant from 31.2% to 31.5% despite the massive increase in our investment property portfolio. From a treasury management perspective, we've really focused a lot of time and effort on how we manage our internal treasury function. So just some of our highlights. We obtained a credit rating upgrade. We are now a AA- long-term and A+ short-term, which we're very pleased with. We engage openly with GCR on an ongoing basis and we're constantly looking to improve this rating. GBP funding, we secured additional GBP funding, and I think I'll touch on it later. But one of the feedback or the comments we hear from investors is why we're not more active in the pound debt market. And I think during the year under review and definitely going forward, this is a key focus area of ours. We fostered great relationships with U.K. banks and we'll look to be drawing down further on pound facility, in-country pound facilities. Our DMTN program, we've had a fantastic year in the DMTN program. We had our first public auction where we priced -- we actually priced as the tightest corporate issuer in the South African market besides Toyota and Mercedes-Benz, which is a little bit of a brag, but I think it's very well worth mentioning because it does illustrate that debt investors actually value our stock as fairly safe and they're very happy to allocate proceeds there or investments there. Then from a sustainability point of view, we concluded our first green loan with RMB. We also concluded a sustainability at GBP -linked -- sustainability-linked facility with Standard Bank. And we are looking to incorporate sustainability elements as far as possible in all of our funding arrangements going forward. And then our capital raise, we raised ZAR 2.7 billion of equity through our accelerated bookbuilds as well as the dividend reinvestment programs, which were both very well supported. Again, some highlights. I'm going to skip over the LTV because I think I've spoken about it quite a bit. Our debt maturity is 2.7 years. When we did our debt issuance last year, we placed a chunk of one year debt. We're trying to really be active in a variety of different spaces and that's why our debt maturity is slightly lower than the 3 years, which we'd be used to seeing. But this is really as a result of us feeling out the markets, determining where parts of liquidity lie at any given point in time. And just pricing for perfection really just seeing where parts of liquidity line, how we price best to fund our business. There was a cost of -- our cost of debt in South Africa increased by 34 basis points despite the base rate increasing by 50 basis points, and this is as a result of our interest rate hedging policy. And then in the U.K., similarly, the cost of debt increased by 13 bps, and this was despite a 40 bps increase in the base -- in the Bank of England base rate. And then we've tried to diversify our sources of funding, both from an equity and debt perspective, and we now have 28 investors between bilateral funders and debt investors across our DMTN program. Cross currency interest rate swaps. We've managed to reduce our utilization of cross-currency interest rate swaps to 20.6% at Feb '22. This ties back to the point which I raised earlier about us favoring in-country funding with GBP funders, and we're trying to do this actively. So as you've seen over the last couple of years, we've actively reduced this utilization rate. We still undertake our progressive hedging policy in terms of distributable earnings. And for the period under review, the income statement hedge floor was ZAR 21.39. What this does is it really just reduces any volatility and fluctuations in our distributable earnings. There's further detail around this and the different levels of our caps and floors in our financial statements. And then we hedged 91% of our outstanding debt at Feb '22 and 89% of our outstanding debt plus capital commitments, and that is all in line with our policy. And then just -- ESG has become fundamental to what we do in our business. I think as citizens, as global citizens as and -- and as corporate citizens, we have a responsibility, but also it ensures that our operations will be secured going forward. We cannot build a sustainable business without focusing on all elements of ES&G. So just in terms of what we've done for the year, we've employed a full-time Sustainability Officer, who coordinates all of these efforts. And we thought that we'd just include some of our highlights for the period. We just received our Sustainalytics Rating a couple of weeks ago, and we've improved our risk rating by 35% year-on-year, which is remarkable. And we are also rated amongst one of our top -- one of -- in the top percentile -- top 10 percentile -- sorry, top 90 percentile of our peers. So -- what that means is that in terms of managing our risk and in terms of how we communicate our ESG framework and how we communicate what we're doing, we are regarded incredibly well by Sustainalytics. Then we did an exercise where we assessed our carbon emissions for the period. And what we established was that we at 9 of our properties where we've already implemented solar PV, we've managed to save 6,10zero carbon -- tons of carbon -- of CO2 as a result of implementing these PV systems. Now just Andrea spoke about our baseline spec, in terms of all new developments, every single new development will have a PV system, which will result in further carbon ton savings as we roll out our pipeline. Then we undertook a significant amount of sustainability audits. And what we decided was that 24 of our properties in the upcoming period will be subject to either the beginning of PV installations or some sort of mechanisms to help them reduce their footprints. And as a result, we expect to be saving or generating 6.5 megawatt peaks of renewable energy over the next year. Then in terms of our Ampcore Program, we have a Social Responsibility Incubation Program. And as part of one of our targets in our sustainability-linked funding, we have to improve or increase the amount of expenditure with SMMEs, particularly those under our Ampcore Program. And this is just as a result of us recognizing that there's a necessity to grow and develop SMMEs in the context of our business and our country. And then just lastly, we had to show that we were completely committed to making ESG part of our business. And in that respect, 25% of our remuneration is now linked to an ESG target. And that really is, I guess, putting the money where our mouths are. Because ultimately, if we don't take responsibility for it, we can't expect to drive change, and this is really us just showing our commitment to this process and to improvement. So that's it for me. I'm going to hand over to Graham now, who's going to take you through the U.K.

Thank you. Thank you very much. So move this on. Good morning, everybody. So nice to see you all. It's great to finally be here after 2 years of COVID and presenting remotely. So you've got myself, Graham Pardoe, MD of Newlands; and David Keir is our Chairman. So we're going to jointly sort of just take you through some slides that talks a bit about the U.K. business, where it's at, the progress that we've been making, we'll talk a bit about the market, chat a little bit about some of the challenges that we face and the opportunities that we see in front of us, and then we'll hand over to Andrea to sort of close up and then we go into Q&A, I believe. So yes, just talking a bit about the U.K. market. We're operating in a phenomenal market. We continue to see really, really strong record take-up. I think in 2020, we saw an excess of 40 million square feet. In 2021, we saw an excess of 40 million square feet again. I think interestingly, in that record take-up year of last year in the first quarter of last year, there was 5 million square feet of space taken up. In this quarter, CBRE are reporting that we're already at 10 million square feet of take-up. So the indications are that we're going to continue to see another really strong year. I think importantly as well that within that sort of take-up, it's not all about the online sector. We'll talk a bit about the online sector that continues to be strong in the U.K. But last year, I think Amazon took up 25% of space. This first quarter, that CBRE stat of 10 million square foot of take-up, Amazon have only taken about 0.5 million square feet of space there. They've taken a very small proportion of the overall space. So that really talks to the sort of strength and depth of the U.K. market. Yes, Andrea talked at the sort of start of the presentation about some of the sort of global challenges that we're sort of all seeing with supply chains. The -- in the U.K., we've had Brexit. We've had the pandemic. We've got continued challenges with what's going on in the lockdowns with China and the ports. You've got the war with Ukraine and Russia. These are all putting significant challenges on supply chains. So we're seeing a lot of onshoring in the U.K. So the U.K. is sort of driven by a number of key factors really. It's the online sector, but importantly, the general sort of third-party logistics sector remains strong, and we're seeing things like onshoring as well. So there's a broad depth to the U.K. market. I think in terms of the regions, a slide on or the map of the U.K. there on the right-hand side, the important thing to take from that really is if you look at the sort of 3 sectors there on the right-hand side, you've got Yorkshire and the Northeast at 21.9%, the East Midlands being the strongest sector in the U.K. at 28.6%, and then you got the Southeast at 18.9%. They're the 3 strongest regions in the U.K. And if you can see -- you can -- you sort of oversee that the portfolio of the U.K., that the dots there, those are our 13 assets that Andrea talked about, and we'll talk a bit about those in due course. But you can see they all sit in those sort of 3 sectors. So we're really excited by the U.K. portfolio, how it's progressing, where it sits and the continued sort of strength in the U.K. market. So if we just talk a bit about some of the key schemes in the U.K., Peterborough Gateway, this is a building that's obviously finished. It's completed in September '21, 142,000 square feet let to Amazon. You can see the pictures there. We're really pleased with that. It's a fantastic unit. It looks great on a rare sunny day in the U.K. So we're super pleased with that. It's a great sort of asset. The next slide actually just shows you, if I try and press the red dot, you can see the Amazon plot there. That's a little bit out of date. We'll update that this year, but that's where the building sits. It sits on the wider Peterborough Gateway portfolio. Equites owned a couple of other buildings there. So you've got the DSV unit and also the Coloplast unit there. So that's a really great asset that we're really pleased to have delivered. The next slide is talking about our scheme up in Barnsley. So that's in the Yorkshire and Northeast sort of sector of the U.K. And as Laila mentioned, we PC-ed yesterday the Hermes unit. Those guys have just rebranded as Evri. And so we're very excited again by the completion of that unit. And then on the remaining land, we took a decision to do a deal with Arrow that we announced some time ago. They're an American sort of capital provider who wanted to come in into a speculative development. We're seeing quite a bit of spec development in the U.K. And we took a decision as a group that, that was the right thing to do for the joint venture just to rotate some capital out of that site. So we're on site currently building those buildings for Arrow. If I move to the next slide, you can see there the sort of bespoke sort of every unit cross-dock facility and then the Arrow units -- there were 2 Arrow units that we're building speculatively there. If we then look at Basingstoke, so this is in the Southeast. You can see the dot there. You got Heathrow Airport here, and then that's the -- obviously, the capital of London. So this is a great site. And we're taking this through the planning process, expecting to go to Planning Committee in May. And we've announced 2 deals, one was yesterday, which again was with Arrow, the same guys looking to do a speculative development, but also a land sale to Lidl. So those are the 2 spec units that we will build once we have planning for Arrow, and then that is the land sale to Lidl, which will complete again once we have planning. If I move on Thrapston, David, I think you just want to talk through...

Yes. This is a scheme in the center of the country on the A14. It's land we secured with an option. There's a planning application in there for 2.2 million feet anticipating a consent in June of this year, and we've let 500,000 feet of that to DHL. They committed to take that space already. So hopefully, the sort of onsite with infrastructure back end of this year and starting the building construction spring next year.

So this is a sort of summary of the U.K. portfolio. So these are the 13 sites that you could see on the sort of first slide that we presented sort of going from the North in the sort of Yorkshire sort of markets through the sort of East Midlands markets and then down into the Southeast markets. So 13 sites, around about 1,000 acres of land, has a potential to deliver sort of circa 15 million square feet of floor space, and that has a gross development value of approximately GBP 3 billion. So we're really sort of pleased and excited with the portfolio that we've got, the positions and where it is. The team have been working phenomenally hard to progress these sites through the sort of planning process. I mean, just touching perhaps briefly on the team as well in the U.K. We've continued to sort of grow the U.K. team as we've grown the business. Planning in the U.K. is quite lengthy. It's quite political. It's quite time-consuming. So you need a good strong solid team to sort of take those sites through the planning process. So we're now up to about 18 members of staff, who've worked phenomenally hard over the last 12 months to advance the -- that the sort of sites through the sort of process. So just touching on some of the other sites that we have. Nottingham, that sort of sits on the M1. We have planning there. We're currently talking to a number of parties about various sort of deals and structures. We hope to announce something in the summer. We're currently looking at just discharging conditions and talking to contractors about pricing. So we hope to go onsite on that site in the autumn.

Yes. Peterborough, this is land, you saw on the previous slide, that's a scheme we developed out in the previous business of about 5 million feet. So we've got land secured on the other side of the motorway. We've put a planning application in February of this year for 2.5 million feet and hopeful to get a consent back end of this year. So start onsite next year with that as well.

So next is Coton Park, Rugby. This is literally around the corner from our office, sits right smack bang on the M6, fantastic location. We have a deal agreed for 250,000 square feet. We hope to actually formally announce that in the sort of summer and looking to start onsite in the autumn and that would be in all likelihood an Equites hold.

Yes. Cambridge, again, land on the A14, that will take about 1.8 million feet. This would be a combined sort of B8 and Life Sciences obviously tied into the university there. And we're anticipating planning sort of end of this year, early part of next year. Rushden, this is, again, close to Northampton and Thrapston. It's land we've secured for about 2.2 million feet and planning there probably submitted spring next year.

So Newport Pagnell is Milton Keynes. So that's in the sort of Southeast part of the U.K. market site, sits smack bang on the M1 motorway, the main motorway that goes from London up to the North of England. We've got a planning application in already, that's sort of getting close to coming to a conclusion. We're hoping to take that to committee at the end of June with a successful outcome. And we have 2 potential pre-lets there that we're in very detailed discussions now. We're getting close to agreeing terms on those, again, great covenants likely to be an Equites hold. So we'd hope to be announcing those in the summer and starting onsite in the autumn. And then just finally, we have a sort of joint venture with Tarmac, Tarmac Group, big aggregates company. They brought us in to take their site through planning, didn't really have any expertise to do that, brought us in to help sort of advance our site through the planning process. Egham sits sort of in West London, pretty close to Heathrow Airport. It's not likely to be a logistics asset that will be held by Equites. That's predominantly down to where it sits and whether you'd get planning for logistics. And it's quite close to sort of some residential units unlikely to get consent because of the traffic that a logistics facility would generate. So this really is more about getting a data center application through and approved. It would be a land sale. These guys are paying a lot of money in West London to have opportunity with planning. So that really is just something that we will take through the Tarmac JV and then deliver some profit to our JV. So that's a sort of brief summary of the U.K. portfolio. Just sort of wrapping up, we thought we'd sort of present a slide that really sort of talks a bit about the challenges that we face and -- but also the opportunities that we have in front of us.

Yes. So on build costs, we saw last year build costs go up by about 20%, and we're anticipating the same level this year. So you think, well, how do we deal with a 40% plus increase in our build costs. That's probably been caused by some Brexit, pandemic, clearly not helped by the Ukraine position and sort of what's going on in China. Steel prices have sort of gone up from GBP 1,500 a ton to GBP 3,000 a ton. You've got [ HS2 ], massive rail project that's been built. So that's sucking up a lot of stone, a lot of cement. But you've got to see that in the context of where rents are. So good stat is in Northampton, 2 years ago, you'd see a rent of GBP 6 a foot, that's now GBP 8 a foot. So generally, we've seen rents and predict rents are somewhere between 20% to 35% increase in the last 24 months. So yes, a challenge, but that's where we are. Other massive issue in the U.K. is planning, really, really difficult to get. So that's -- historically, that's always why we've controlled a land bank. We don't buy land in the open market, very, very rarely. So we take land through the planning process and put value into the land. So that's very important. We're not plugging land at full retail value into our business. And it's a real key in keeping people out. You can't just go acquire land...

It's a real barrier to entry in the U.K. Yes. A lot of people would like to come to the U.K. and just turn the taps on, but unfortunately, it just isn't that simple. It takes time. And not everybody has the sort of team or the skill set to do that. So I think we see that the market, we believe will remain strong. There are some challenges. Certain players are looking at what they do, but we believe the market will remain strong. DHL have been telling us that they now have a mandate from above to replace their entire U.K. portfolio if it doesn't meet sustainability standards. So they've got quite a lot of assets in the U.K. that are pretty old and...

Yes, I think they're talking about replace in the next 5 years, 16 million to 18 million feet of space. Yes.

Million square feet. Yes. So I think there's a number of factors that we believe will continue to see sort of strong demand. David has talked a bit about rental growth. I think our view is that with construction costs rising, we will continue to see strong rental growth. David talked a bit about the opportunities. We don't tend to buy stuff that's sort of on market. We don't see value there. So our sort of mandate and expertise, if you like, is to sort of seek out opportunities, take them through the planning process and add value that way, and we continue to see a lot of opportunities. So we have a portfolio of 13 sites there, but there's already things that we're looking at that if they're right, we will look to bring them into the business. We talked a bit about the barriers to entry. That planning continues to remain very challenging due to the sort of political nature. It's a very drawn out process in terms of the work you have to do and the boxes you have to take to sort of get a planning application through. So yes, I think in summary, we're very excited with the business that we have. We're very excited to work with our partners here in South Africa. We've got a great team who's expanding and have worked really hard over the last 12 months. And yes, we're very excited about the future. So if I perhaps hand over to Andrea.

Thank you, Graham. And just for reference purposes, guys, divide everything by 11, and it gets back to square meters. So yes. So yes, just it's a sort of thumbs up thing. So DHL, 15,000 -- 15 million square foot, it's probably about 1.4 million square meters. So that's our portfolio. We won't get it all. But on that note, though, what I -- just a sort of a brief synopsis of what we currently have in the pipeline and it's contracted. I mean I think the key metric here is just over ZAR 4.2 billion worth of product, which is about 280,000 square meters. Obviously, the U.K. asset is a very high-value asset. And then at the bottom, I think what's quite nice here is, obviously, we've agreed the terms and we crystallized that deal that was exchanged last night. So it's not -- it's more than agreed terms, now that's actually contracted. So there, you can see about -- we estimate about ZAR 728 million of profit after tax coming to Equites. The consequence of all this, so the outlook, where are we, what can we tell you? So the first thing, and I think we showed it, the utilization of land in South Africa in the last 24 months has gone through the roof. We're currently sitting in a situation where we effectively have 27 hectares of land, which we currently control. I think on that land, the biggest facility we can build at the moment is probably about [ 45,000 to 50,000 ]. We can't build anything bigger because of the way the land is configured. The challenge in SA is going to be to work with municipalities to get land zoned, but then get it electrified, sewerage and water, all challenges at every step of the way. And I think the ability for developers to build sort of the 80,000, 90,000, 100,000 square meter facilities in Joburg and Cape Town, especially Durban. There is one significant plot of land, which is actually controlled by Investec Bank, which can probably see quite a few developments and we'll probably clean up in Durban for a few years now. But Joburg has still got some pockets of land, and to build, obviously, a 10,000 square meter facility, there's lots of pockets. But it's when you start getting to the bigger facilities that it becomes a bit more of a challenge. The medium-term outlook for the U.K. logistics market, we don't see much changing. Even if it does call off at some stage in the future, we just think that there's this sectoral shift in terms of what logistics is within a property investment portfolio and the relative importance that it's placed on it within how society will work going forward, I think we'll maintain valuations and opportunity at best-in-class. In South Africa, over and above the 280,000 square meters that was on the previous page, we're currently in negotiations for a further 160,000 square meters in SA, which will be approximately ZAR 1.8 billion of property. In the U.K., I mean, Graham alluded and David alluded to the DHL and the Newport Pagnell facility and things like that. And the reality is we are fairly close to about another 160,000 square meters of space, which Equites will look to retain over and above other opportunities where there could be further turnkey opportunities coming through the system. And that will probably be somewhere in the region of about ZAR 4.5 billion worth of U.K. property once you've quantified all of that. And in that vein, Equites remains almost this hybrid REIT that is going to create value, create growth, create opportunity and create value for shareholders through its development pipeline predominantly. We're not saying that we will never buy anything, but the metrics for us to approve a product for it to be bought are pretty demanding. And especially within the South African market, there are not that many assets that will come through that muster, if you like. I'm not saying there aren't any, but there aren't many. We remain obviously committed to our process. We foresee significant growth to the portfolio. And part of the strategy of that portfolio growth again is going back to what I said earlier in the presentation is that what we're trying to do as well is because we have one-tenant assets by creating the scale in the portfolio, what it does is it mitigates the opportunity of the vacancy factor becoming unmanageable. And if you lose a tenant and that tenant is only 0.5% or 1% of your portfolio, that becomes very manageable for an operation like us. The critical thing, obviously, in everything that we're wanting to do and what we're going to be doing, obviously, is linked to funding. I mean, as you can see, the pipeline is substantial and where are we going to get that money. So, as I said earlier, we placed a lot of value on the relationship with EPPF. We know that they've got a very strong balance sheet. And we also know that they're very keen to expose more money to the direct property sector, and we will continue to engage with them and look to further opportunities there. We'll obviously continue to look to the JSE. I mean it's been a good source of equity for us over the years, and we -- there's no reason why we should stop. But obviously, like all these things, the equity has to be priced appropriately. We'll continue to do DRIP programs, especially in current circumstances. The gentleman talked to the 13 sites, and the 13 sites are going to give us between 15 million, 16 million square foot of opportunity over the next 5 years. That's GBP 3 billion, GBP 4 billion, we're talking ZAR 60 billion. I mean, the prospect of doing all of that is obviously very exciting, but probably unrealistic. And the reality of it is that through the process, Equites will undertake turnkey developments, will undertake land sales, where the appropriate pricing can be achieved. And as a consequence of that, we believe we will derive significant equity out of that process, which will facilitate and allow for the growth of the U.K. portfolio as we go along. Laila obviously spoke to the debt markets and the debt capital markets as well. And the U.K. financial institutions that we're dealing with are really, really keen to give us more debt. The pricing of that debt continues to sort of please us. I mean, obviously, it's been priced extremely aggressively. And obviously, we, at the moment, are in a position of great favor with a lot of institutions who would like to park that money with us. And then the final element, obviously, is within the South African portfolio, as Laila alluded to, there are sustainability audits that have been done in the portfolio. And whilst we're not saying that we will sell every property that can't meet a zero carbon footprint or a sustainable neutral position, there are certain properties that are just good properties, and we will retain them. But the reality is that we will probably have a bit of churn out of the portfolio in the next sort of 2, 3 years, where some of the older properties, some of the properties that were in that base portfolio that was the original listing will probably get on sold. And so prospects and outlook, seriously positive. And let's conclude with our guidance. So we're going to give guidance of 4% to 6% for the year. I mean last year, we gave 5% to 6%. We've sort of widened that to 4% to 6%. And I think really, we've done that because of the uncertainty that currently is in the marketplace. We're really not sure how quickly interest rates will start moving. We really are not totally sure what the real impact of the Ukrainian impasse will be over time. We're really not sure how long the Chinese will keep themselves lock down the way that they currently are. And as the manufacturing sort of hub of the world, they remain critical to most countries' supply chains. So we've given ourselves a degree of flexibility there, but we're very comfortable with that. But I think more importantly, and in line with the Equites strategy of wanting to look at beyond distribution, we're looking at the total return metric. And it's a metric that we are going to be sort of focusing our attention is more on than just playing distribution. And we -- whilst we respect that distribution is a key metric, especially to South African shareholders, and as a consequence, we do have to give it the commensurate respect because ultimately, the vast majority of our shareholders are South African institutions. So -- so we -- but at the same time, we believe to generally create a business that will stand the test of time and be able to go through the many waves and fluctuations that the market will bring to every sector of the property industry over the years to come, the critical thing is to create property, which generates real return, which is really linked to the NAV as well. So combination of the 2 and the returns that we give to our shareholders as a combination will be a driving metric that Equites will find very important. And we're forecasting sort of that to be between 15% and 20% after this year's 17.3%. So that's our wrap, that's our results. Thank you so much for attending. We've got, obviously, the Equites team here and obviously available for questions, and please stay behind afterwards for a cup of coffee and a chat, and hopefully, the generator kicks in. Okay. Yes, I think -- yes, we -- and questions. I think [ Lydya ] has got us a microphone there. If let's just wait for the lights to come on, I think. And then -- and Riaan has also got -- obviously, we actually stream this live through LinkedIn, and I'm not sure what the other plat -- Cop Cam as well. So we do have some questions that are coming through online as well. Okay, there's the lights. So, Mweisho, okay, let's start with some questions on the floor, if that's okay.

Just 2 questions for now, right? The first is being around the SA valuations, right, obviously, with your like-for-like growth being quite strong and generally, you're seeing a tick up in valuations and everything is stable, why has that stayed flat this year?

Ultimately, take it away, Laila.

Yes. So, Mweisho, I think that valuers are starting to see some momentum returning to the sector. But as you know, they're historic looking. So they're waiting for market evidence of rental growth. So even though we know it's there, the fundamentals are there, like-for-like rental growth is strong, what they're looking for is really evidence of market rental growth. And I think once that starts returning, they'll be able to factor those into the valuations. Until we see evidence, unfortunately, the valuers are not going to adjust those assumptions. And as you know, that drives the terminal value. It drives the period anywhere after lease expiry. So I think that's what we're waiting for. These sets of valuations were quite conservative. But I think once we start seeing evidence that will start coming through in the valuations. I mean, yes...

It's coming. It's definitely coming.

It's coming. It has to come at some point. It has to come. Yes.

Just second question, perhaps a bit more directed to the U.K. What is the yield that Arrow Capital Partners are going to receive on their -- on what they've basically put in rights? So you obviously got it in development. So aside from the land profits that you guys are getting, what is the yield that they're expecting there?

So, Mweisho, I mean, ultimately, we don't know what yield they're going to get because they're giving us a fixed price. So they are paying us. We've agreed a price that they are paying. We're going to deliver units to them. If they get let pre-PC, we have a little bit of a kicker. If they don't, if they get let, I think 3 months after PC, there is also a kicker, but it's slightly less. And if Capital Partners let that thereafter, it's their baby. We -- and it will -- the function will be what they let it at, what their yield will be, and we are not part of any of that risk, that is 100% theirs. We are being paid a check for land, we'll draw down checks every month to pay for the building as we deliver it, and then our profit will be at the last check basically when we PC it, that will be the balancing, what they call the balancing payment. So it's surprisingly enough, it's what Equites used to do a few years ago before we entered into the Newlands JV, but we did it with pre-lets rather than with vacant buildings. But obviously, the vacancy levels, you saw what Graham and David put up earlier, the vacancy levels are at all-time record lows in the U.K. So the desire to get into the marketplace by some of these asset manager and the sector being so hot is resulting in the likes of Arrow Capital Partners as they called sort of wanting to take this step.

Just a quick question on Amazon. Amazon's CEO recently said that they simply have too much space. I know you did touch on it a little bit. But do you think that has a big impact on the U.K. market going forward from here?

Graham, do you want to take that one?

Yes. Sure. Yes. Look, good question. Yes, sort of very current and valid question, given sort of recent announcements. So look, I don't think so. I think the U.K. market is just so broad in its sort of offering. It's very different to South Africa in terms of Internet growth. I think at the moment, the U.K. operates of something like 27% of all sales are done online in the U.K. That's widely expected over the next few years to grow to 50%. I don't know off the top of my head what Amazon represents as a proportion of that, but it will only be a proportion of that. So I think as I mentioned earlier in the presentation, if you look at the take-up stats for this quarter, we're already double where we were this time last year with Amazon taking any space whatsoever. So I think that talks sort of strength and depth of the U.K. market. Amazon will come back into the market, I'm sure at some point.

Yes. You've been very surprised they didn't take more space, but what that is and we can't say.

Yes. Okay. Sorry, we had a question, I'm just reading out before we go back to the floor. But there was a question from Nazeem at Investec, and he wanted to know will we be acquiring any more land, Andrea?

In SA.

In SA.

In SA. Well, we certainly would like to. It must be appropriately positioned and it must have electricity, water and sewerage. As I said earlier, is a challenge. We are actively scouting for that land. And should we find the right parcel of land, we certainly will acquire, especially in light of the fact that we currently have almost no land. So yes.

Okay. Cool.

Question -- any other questions? Yes. Female right at the back there.

One thing that is noticeable about your accounting practices is that you use a lot of capitalization and this even extends to your bonuses. So I mean, is there any particular reason you took this practice?

I mean, yes.

Capitalization of our bonuses.

No, capitalization of salary costs, staff costs and salary costs.

Yes. Staff costs, not bonuses.

Yes. So I mean, our practice is 100% in line with IFRS, as Andrea said, and we believe that the development part of our business is a significant part of our business. It helps us to create our alpha. And in producing the product that we have brought to market historically, part of that is that we are allowed to capitalize borrowing costs, we're allowed to capitalize overhead costs, which are incurred to get those assets into the condition for its intended use. Part of that is we employ an entire development team. If we weren't doing developments in-house, we wouldn't have to employ those people. We have a significant head office component. We have a number of software, hardware.

I think critically, the fundamental crux of it is that every development we do has got a development management fee associated to it, it's in the feasibility, and that development management fee basically pays for the management of that development, and that's what we capitalize to the product, which is what every developer all over the world does.

Maybe this is another question from one of our people watching on the -- from [indiscernible]. What is the risk of the comments made by Amazon in the last few months of a decrease in space demand?

We just had that.

We had -- apologies. Then the other one, which U.K. leases are approaching renewal and what uplift are you expecting?

Yes. So we have XPO in Coventry that is due a rent review in November this year. And then next year, I believe we've got DSV and Coloplast in Peterborough coming up as well. So where we are at the moment with XPO is that, that particular site was developed with a massive yard and XPO run a liquor, predominantly a Heineken contract out there, but it's not just Heineken. And they needed the yard, especially -- which was purpose-built effectively so that they can store the kegs when they come back from the pubs effectively and then from there gets sent back in. The way that, that lease is set up, it's linked to RPI with a 2% and 4% cap and collar or OMV, whichever is the higher. And then there's a very specific clause in how the land because obviously, it's a massive, massive yard. It's about 7 acres of concrete hardstand how that also gets incremented. The basics of it is that, that the actual -- the GLA there is let at about GBP 6 a foot. And as Graham indicated earlier, the Coventry sort of area is probably at least GBP 8 and potentially even more than that. So we are anticipating a pretty substantial increase in that negotiation, but like all these things, negotiations will take time. Fortunately, they get backdated to the day. But -- so we expect that negotiation to be a good sort of 5- to 6-month negotiation. And then both DSV and Coloplast, I mean, Coloplast, I believe is at GBP 5.15 and GBP 5.25 on DSV. And I think Peterborough, it's got -- obviously it's got no vacancy anymore now, Peterborough Gateway is done. But I mean, I think the last deals that we've done there, I mean, were your spec builds with [ GreenOak ], weren't they? I mean...

Yes. Yes. And look, people are expecting Peterborough to be probably heading towards mid-7s now. We're certainly getting interested in our scheme at Peterborough that obviously doesn't have planning yet, but we are being asked what are we likely to be quoting when we get planning? And we're really talking around the sort of mid-7s.

So again, so the prospects, and I think we alluded to it earlier in the presentation as well, the prospects on the existing base portfolio that was developed sort of between 2016 and 2019. The prospects on that, obviously, between 2022 and 2025 are looking pretty good. Yes. Any other questions on the floor?

There's another question from Yesh. U.K. property revenue decreased from [ 303 ] million to [ 263 ] million in FY '22. What were the factors that drove this? Would you consider looking at disclosing Equites Newlands JV accounts in future?

Yes. So U.K. property revenue decreased. If you remember, we dispose of the [ 2 stock ] assets. So that's not included in rental in FY22. And then we do disclose ENGL JV accounts, it's [ Note 11 ] in the annual financial statements. So you should be able to see that there. Yes.

Any other questions on the floor? Yes, no, go ahead. And one...

[ Bernard ] has a LinkedIn question.

Okay.

I just want to know is my mic on? Hello? Okay. So just on sustainability, I think this one is for Laila. How much attention is given to the embodied carbon footprint of new facilities being built? And, yes, it's from [indiscernible] embodied carbon being the CO2 footprint of the facility during the construction of new builds?

Yes. So to reemphasize, all new developments that we bring to market are EDGE certified, at least EDGE certified. What we're aiming for now is advanced EDGE. So what that means is that it would have a 40% saving to a normal building. So 40% saving in water, electricity and embodied carbon. So that's our target to have a 40% improvement to a normal baseline spec.

Thank you.

Okay.

Go ahead.

[ Maheer ] asked what is our expectations? Has our expectations regarding rent -- South African rental -- double-digit rental growth been proven or does it remain an expectation at this stage?

Okay. So I think it's been proven in 2 developments that are currently being undertaken in terms of the rental that we'll unpack on completion. They were yield-driven developments. So the -- there are certain specific items in the build for the client, but the level of rental that's been achieved has certainly been well north of the 10% rentals that we would have had on a historic property. We're currently also negotiating 4 particular deals, and all 4 of those deals are not -- they're not all -- 2 of them are yield-driven. So they are a consequence of what they will cost to build. But 2 of them are not, 2 of them are basically on a fixed price basis. And in both instances, on the fixed price, whilst the deals are not signed, the fixed price does put us in a position of getting north of 10% rental growth on them.

Andrea, there is a question from [ Paolo ], and I think this talks to the Arrow deals because -- and his question is in Barnsley, Arrow assets, there's a fee for letting the assets, what is the progress on this? So I mean, I think maybe just to explain the strategy of those?

Well -- there's a bonus. And maybe Graham can sort of detail on that bonus, how does it work with Arrow?

Yes. So we're involved up until, I think, it's 3 months post PC of practical completion of delivering those buildings. So at the moment, we're onsite building them. We're going through the construction phase. So we're assisting Arrow with occupier interest at the moment. And there is occupier interest in both buildings, particularly 1 building actually, the larger of the 2. Obviously, it's their decision in terms of what rents quoted and agreed because they are the ultimate owners of that asset, but if it gets let, there is a kicker. I can't actually remember off the top of my head what it is, but it's a sort of agent fee.

If it's pre-completion, it's 12 months' rent, and if it's post-completion, about...

Yes, I think that's right. Yes. So it's more of a kicker than a substantial part of the overall profit of the scheme, but yes. It'll pay for this presentation. Yes. Any other...

There are a couple more coming in, but they're detailed. So if we can take those...

Yes, I think we'll take those offline if they're too detailed, I think so.

Yes.

So I think, ladies, gents, thank you so much for being with us today. Really appreciate the time, and please stay with us for a cup of coffee and a biscuit. And if there are any sort of questions that you would like to ask the management team or -- we will be hanging around and available as well. Thank you.