Hyprop Investments Limited (HYP.JO) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Hyprop's final results presentation for June 2020. I hope you're all safe and well, and thanks for joining us. I'm joined today by Brett Till, our Financial Director; as well as Wilhelm Nauta; and then Rabia Shahib is also joining us to give us an update on Europe. If we look at the agenda, what we will be covering is we will give you an update on our vision and priorities. I'll give you an update on South Africa. We will hand over to Rabia to give us an update on Eastern Europe's operational performance. Wilhelm will discuss the disposal process of the exit of Africa. And Brett will give us an update on the financial performance up to the end of the financial year. In closing, I will give an update where we want to take the business going forward, and then we will go into a Q&A session thereafter. One of the things that COVID -- although COVID had a huge impact on our business, one of the things we have realized is usually as humans are social beings, and we like to interact. And that interaction actually supports our strategy of creating safe environments and opportunities for people to connect and have authentic and meaningful experiences. The strategy is quite simple in a sense. We've got a group focus where we want to strengthen our balance sheet. We want to identify new growth opportunities. And then we want to focus on total return and create value for our shareholders in the long term. In terms of specific focus areas, we want to reposition our South African portfolio, improve the dominance of our European portfolio, exit Africa and actually increase our exposure to the nontangible assets focus area. We have made huge progress with the implementation of our revised strategy. In terms of our balance sheet, we have strengthened the balance sheet. We reduced our hard currency debt by over $270 million over the last 2 years, and we are left with about $18 million with equity debt in the Africa exposure. We retained our -- we reduced our debt with about ZAR 1.2 billion from retained cash. We have met all our banking covenants although we had an impairment of just under ZAR 4 billion on our South African assets, which is about 13.9%. We have made very good progress with the repositioning of our South African portfolio. Unfortunately, COVID did have a huge impact on our business. We have worked quite closely on the Hyprop Way. The Hyprop Way is a way you will experience the Hyprop malls from arrival as you go through the mall and when you leave the mall again. These positive progress is quite evident in trading densities that has increased at The Glen. The Glen trading days increased by 1.9%. And at Atterbury Value Mart, it increased by 4.9%. We have completed 3 of the PV installations on our portfolio, the ones we have completed is at Woodlands, Atterbury Value Mart and The Glen. In terms of improving our dominance, in the European portfolio, we had made very good progress. We have completed at Mall of Sofia the conversion of the Carrefour supermarket, and now Mall of Sofia is the third largest mall in Bulgaria. We have made quite a lot of progress with the repositioning of the Skopje City Mall in North Macedonia. What we are improving at that mall is the vertical flow in the mall as well as rightsizing a number of tenants. And we are -- we also bought joining stand to actually improve the outside entertainment of the center. We have bought out 10% of the creation assets and now we control those assets 100%. A lot of times we wonder how is the exit of Africa happening. Wilhelm will give us further update. But if you look at the gross assets and our effective shareholding, we have made quite a lot of progress in terms of this exit strategy. We have agreed final terms on the disposal of Ikeja. And after that has been implemented, we would have reduced our exposure in Africa by about 70%. The 30% we will be left with is the 3 Canadian malls, which is ACRA Mall, West Heels as well as Kumasi. On a nontangible asset strategy, we have secured our first initiative. It's called SOKO District. And that's quite an exciting venture we're busy with. What a lot of the online retailers has realized is the customer wants the physical touch and experience products. And therefore, they need to get into the physical space. But a lot of the retailers, to get into the physical space is quite difficult and the barriers of entries are quite high. Some of these retailers that has done it is Yapi Chef as well as Amazon Books. But given the barriers of entry is so high, and it's mainly due to 2 things: the cost of capital to fit out the store is quite high. It's normally about $5 million to $7 million to do a store fit-out. And then they have to sign quite long-term leases. The minimum lease term you will sign on a shop would normally be around 3 years. And that still having a lot of uncertainty, whether your product will sell in the shopping center you have elected. What we are busy creating is a technology platform that will give the online retailer the ability to get access to the physical store at much less capital cost, plus we want to match the product, the shopper and the area they operate from. We have partnered with a company called EmpiriQ to specifically develop this platform. EmpiriQ have had quite a success with another platform they have created in the residential property market. It's called INDLU. INDLU -- the word INDLU means house in Zulu. And it actually touches on the full value chain in the residential property market from development, financing and the letting out of the completed units on completion. In terms of our key metrics, as a group, as I mentioned before, we want to focus on total returns. So we look at the income side as well as the balance sheet. In 2019, our distributable income on the company was ZAR 1.9 billion. In September 2019, we have communicated that we expect reduction in that distributable income of around 10% to 13%. And that was mainly due to 3 things: rent reversions on our South African portfolio. We also had the restructure of the headcount transaction, where we had a reduction in rentals of about 40%. And then we also had the impairment of our South African assets, which has caused us to move some of the dollar debt onto our South African balance sheet. If we ignore COVID for a moment, we actually would have met that guidance we've set. Effectively, we would have been down about 8%. But unfortunately, due to COVID, that reduction came through on our income statement is about ZAR 500 million. So from the ZAR 1.9 billion, we would have reduced to about ZAR 1.7 billion. And minus the ZAR 500 million, we ended up at about ZAR 1.2 billion. In terms of loan-to-value, we look at 2 loan-to-values. The one is the fully consolidated loan-to-value, where we consolidate high state onto our balance sheet, and the other is where we do a see-through LTV, and that's the one which is used by the banks. We only bring our liability which we have towards high state onto the balance sheet as well as our equity stake in high state. Due to three things, our LTV has reduced. We had an impairment on our SA assets of ZAR 4 billion. The dollar has -- the dollar and the euro has strengthened against the rand. Therefore, our hard currency debt has increased in rand terms. And then we also had some impairments on our African assets. Our LTV has effectively increased to 41.2%. Our ICR, even after the impact of COVID, is still positive at about 3x. The net asset value per share due to these impairments has decreased by 20.6% to ZAR 76, and that's after the interim dividend of about ZAR 3. South Africa is still the engine room of the business. 50% of our investment properties is located in South Africa, and it still contributes 94% of our distributable income. The trading overview. We've looked at our foot count first of all and what was the impact on footfall during the 4 months over the 5 months of lockdown. As you can see on the graph on the top left-hand side, when the hard lockdown happened at the end of March, during April, the foot count reduced quite substantially. It dropped almost 30% on all our malls. What we have seen since the lockdown has been lifted the people started returning to the malls. What was positive to see, although that shoppers visited our malls less frequently, the spend per head was much better per visit. So our spend per head has increased although our visits has decreased. The foot count over a year-to-year basis has reduced by about 13.1% 2020 versus 2019. Trading densities. If you look at the graph on the top right-hand side, that's something we've been focusing on, specifically with the repositioning exercise in our malls. We have improved the anchor tenants on a number of our malls. And that you can see has worked quite a bit with the performance or the increase in our trading densities up until February. One of the positive things that I have mentioned before is at The Glen and at Atterbury Value Mart, even after the impact of COVID, our trading densities has increased. In terms of categories, the performance of the electronics on our portfolio increased year-on-year by about 7.1%, and the trading densities on our health and beauty increased by 1.1%. Total revenue, that's this graph on the top left -- the bottom left-hand side, as you can see when -- in April, the big dip happened, the loss on our SA portfolio due to rent reversions, loss of income from the parking side as well as turnover rental was about ZAR 300 million. Collections has increased. As you can see on this slide on the right-hand side, the collections as of June was 73%. The latest numbers we've got for September is our collections is almost back to 90% of collectibles at this point in time, which is very positive. Vacancy. Unfortunately, our vacancy has increased. It was 0.8% in 2019. That is 2.4% for this financial year. It's about 15,648 square meters that is vacant. But that does create opportunity for us to actually use this vacancy to repurpose that for new users, for example, bringing new uses like storage areas and the like and other communal facilities. And one of the things we are focusing also on is bringing in differentiating tenants. I think one of the things we have realized, each mall you walk in is basically the same tenant mix. But you have to identify those differentiating tenants to make it quite unique for the shopper when it walks into your shopping mall. One of the key things we are going to do is going to assist our key tenants. We want to make sure at the end of this -- when this pandemic comes to an end, we do have functional malls. Our arrears has unfortunately increased. Our arrears in 2019 was ZAR 32 million, and that has increased to ZAR 137 million at the end of this financial year. One of the KPIs of the teams is actually to make sure we reduce that arrears. I think it's quite important at this point in time to give a bit of a recap on what has happened on Edcon. As you know, Edcon went in business rescue. But just take a few steps back before that. About 2 years ago, we added total exposure to Edcon of about 67,000 square meters. That was 8.1% of our total GLA. The restructure of Edcon, they indicated to us just under 16,000 square meters of the 67,000 square meters is what they call nonprofitable stores. And over the last 2 years, we have taken back all that space and related to new tenants. A lot of them was much better anchor tenants we've included in our malls. The transaction with the disposal of CNA, the new buyer of CNA has taken over all our CNA stores in our portfolio. As you know, TFG has made offer for Jet that is none -- that deal is still conditional on Competition Commission approval. They have agreed rentals on all our stores and have indicated they want the Jet stores at Woodlands and Atterbury Value Mart to close down. Retail ability. That's behind the eco stores has also agreed terms with us. And after all these transactions, we will be left with about 2,772 square meters. And those 2 include the Jet stores at Woodlands and Atterbury Value Mart. Our exposure to retailability has increased to about 5.7% of our total portfolio. And for TFG, it's an increase to about 5.8% of our total portfolio. In terms of our valuations, as I mentioned, we had an impairment on our SA portfolio of about 13.9%. And that was mainly due to the reduction of our net operating income, an increase in the exit cap rates as well as the increase in the discount rates. Our rent reversions on our South African portfolio had been about negatively 13.2% on renewals. It was about 12.5%. And on new lettings, 16.5%. The malls that had the biggest impact was Clearwater Mall, Woodlands and Hyde Park, where the values had decreased by about 20%. Canal Walk has reduced in value about 10%. The movement in the cap rate wasn't that much, given the fact that it's a super-regional mall. And due to the scarcity of those assets, that didn't move that much. Both The Glen and Atterbury Value Mart has reduced by about 17%. The trading densities at both The Glen and Atterbury Value Mart, just in comparison, has actually increased year-on-year. Since the lockdown has started to lift, we are starting to see a number of shoppers coming back and the new tenants actually approaching us to actually take occupancy in our malls. The new anchors we've secured was Checkers. We have opened Checkers at The Glen in October 2019. And since they opened, the trading densities has improved quite substantially at The Glen. As I mentioned, even with the impact of COVID, it was still positive growth year-on-year. We have got the Checkers at Rosebank under construction, and that will be opening in December 2020. The next one we have secured is on the some of the game space. We're taking back the game store at Woodlands, and we will also be replacing that with Checkers, FreshX store. Construction will restart in October, and that will be opening in October -- sorry, in April of next year. We did a portfolio transaction with the [ Mass mart, ] which is quite a good transaction. Game has come with a new concept. They going to roll out on all their stores or all their game stores in South Africa. So what we've agreed on our specific ones is to have new 7-year leases on our portfolio, plus they have undertaken to upgrade these stores to the new concept store. For the two Builders Warehouses, we've got 1 at Atterbury Value Mart and 1 other at Woodlands. We have secured new 10-year leases, and they've also agreed to upgrade the stores to the new specification. As you know, Dion Wired closed down. We had 3 in our portfolio, and we subsequently have relet all those 3 stores. The one was at Somerset Mall. We replaced that with Toys R Us. At Hyde Park, we've secured PNA. And at Canal Walk, we'll be opening a new flagship store for PEP. At The Glen Shopping Centre, we have welcomed a number of new tenants. For example, Kings Me shoes, Torga Optical and Estoril Books. Atterbury Value Mart still keeps on attracting value and premium tenants. We've secured ASIC, Kappa, PEP as well as Timberland. At Hyde Park, we have identified one of those, I would call it, differentiating tenants. And Kamers Makers has opened in September with the first weekend of opening that traded exceptionally well. And what we have seen is that started attracting a new type of shopper to the Hyde Park, which it didn't have before. And that's for your Afrikaans type of shopper, and that is quite positive for the shopping center. CapeGate has celebrated their 15-year anniversary, and they also secured the first Ackermans Woman within the portfolio. Good progress has been made with some other tenants, but one to mention is Starbucks. We opened them at Clearwater Mall, and the first Starbucks will be opening in the Western Cape at Canal Walk. I will hand over now to Rabia to give us an update on Eastern Europe. Thank you.

Thank you, Morn, and good day to everybody. We start with a short introduction of the Hystead management team. I'm Rabia Shabib, acting as Hystead's Chief Financial Officer; and together with Yvette van der Merwe, Hystead's Chief Operating Officer, we formed the executive team. We were the first staff member to join Hystead. And together, we have appointed highly skilled head of its team members, Kalin, Krasimir, Antonio, Radoslav and Miglena, who are doing a fantastic job, especially during these trying times. We are all based in Sofia to oversee the European portfolio operation. We move to the next slide to have a look at Hystead organic term. And this key strategy of the company since its inception and throughout its acquisition activity so far has been to retain the existing experienced and country property management team in order to present critical skills as well as domestic experience, which can be transferred between all the markets in which Hystead is invested. Having said that, 4 out of 6 malls owned by Hystead are internally property managed, while the property management at the 2 Croatian malls is outsourced to CC Real where Hystead provides the asset management to all the 6 malls. This is also the time to thank all our teams in all the countries for their hard and excellent work. Next slide. When we speak about Southeastern Europe, it's important to understand the macroeconomics and the retail environment of the region. The Balkan regions where Hystead is operating in has shown stronger macroeconomics for the last decade, driven by improved business environment and increased appetite for foreign investment. This positive trend will be contracted due to COVID-19 crisis by at least 3% to 9% in 2020. And the economy will grow in later years at a lower rate than expected prior to the crisis. However, despite that, the macroeconomic indicators are still positive for the region. If we look at the GDP, all the economies in the region are expected to continue presenting positive GDP growth after 2020, in excess of the European average growth. The inflation is well maintained, but positive at around 2% over the medium term, in line with our opinion Central Bank 2% target, which is typically benchmarked for a price stability and good positive market practice and rental escalations. The unemployment rate is expected to increase in 2020 due to COVID-19 with aviation and the tourism sectors being the most severely impacted. The people in these countries are well educated, and there will be always a demand to employ them. Correction to the unemployment rate is expected from 2021 onwards. Looking at the G&A density. The retail space in the region is still well below the average European and U.K. retail space. That has a positive effect on our trading density, but can also imply, depending on specific country or city, that there is potential growth in the retail sector, which means potentially higher competition to come. For that reason, it's critical that our centers remain dominant within the areas they operate. Moving to the next slide. It's imperative to highlight the impact of COVID-19 outbreak and the lockdown on some trading performance indicators. Generally speaking, we have started the year with slightly improved like-for-like performance up to February 2020. Around mid-March until mid-May, the government in Southeastern Europe imposed total lockdown, closing most of the private sector businesses, including all our shopping centers. Only few stores which considered to be running essential activity such as food retailers, pharmacies and banks were allowed to remain open during lockdown. Last year, up to June 2019, footfall had a minor decline of 0.5%. This year has recorded a decline of 0.8% up to February prior to COVID-19 outbreak in Europe. From March, due to the lockdown and its restriction, we experienced a significant decline, 51% in March, 88% in April, 54% in May and 25% in June. The current trend beyond June shows a decline of 30% on average. All percentage are like-for-like. We do however see positive trends with the opening of schools in the region just recently. We noted in some of our locations positive weekly improvements as compared to last year's numbers. The spend per head increased with 6% for 8 months to February 2020 and by 8% year-on-year to June. After the reopening of malls, the retailers promoted aggressive sales, which kept the decline in turnovers less negative than the decline in footfalls. Hence, the increase in spend per head. The same trend was for trading density. We have started the year with slightly better trading intensity than similar months last year. However, during lockdown up to June 2020, the trading density for the shops that could trade declined by 41% on average. When we look at our revenues, the lockdown has significantly affected our income stream. We did not charge rent for shops, which were not allowed to trade during lockdown, but we continue charging service charges for all the shops in South Africa known as operating cost. The forfeited revenue loss during lockdown for rent, parking and marketing income was EUR 9.5 million compared to actual income for the same period last year. As for collection, we see that it was also negatively impacted during lockdown. However, following the reopening and concluding the COVID-19 annexes to the lease agreement, we put more aggressive effort on collection -- and collection to strengthen our cash balance and reduce arrears. Evidence for our effort is that August ended with low record for arrears in the most of our properties. Next slide. One of the most important segment in our operation is the leasing activity. During the 12 months up to June 2020, we had noticeable new brands entering our portfolio with the majority being in the fashion category. Skopje City Mall had the most newcomers entering the Macedonian market due to our 2 years project. In total, new leasing were secured on 12,000 square meters of gross leasable area at an average rental increase of 16.5%. And the leases over 21,000 square meters were renewed at slightly less rental than expiry, giving a weighted average of rental increase of 6.1%. Contractual escalation was 1.4%. And vacancy at 30th June 2020 stood at slightly below 1%. That's all from my side. Thank you. I will hand it over to Wilhelm.

Thanks, Rabia, and good afternoon, everyone. I'll briefly touch on the operating performance, what we are doing to protect value and comment on the disposal process, starting with the operating performance. Foot count at its worst point during COVID-19 basically halved, but it has since recovered and ended the year down just 29% on a monthly basis. All tenants in the Africa portfolio are now allowed to trade other than cinemas in Ghana. In Nigeria, cinemas are allowed to trade at 50% capacity. Collections dropped substantially during the peak of lockdown in April and May, but has since recovered to 86%, which is a huge improvement, albeit below normal levels. Trading density in CD tracked ahead of the 2019 figures until the lockdown started. And after lockdown, it started tracking ahead of 2019 numbers again. However, local currency weakness against the U.S. dollar put a slight dampener on the hard currency trading density. It should be noted, however, that Nigeria is excluded from trading density figures as they don't report turnover in Nigeria. As communicated before, it is our strategy to exit Africa. However, we are obligated to protect value in the interim. Since the half year results announcement, we have completed certain interventions. These include the buyout of the minority shareholders in AttAfrica, which paved the way for a new shareholders agreement with the tech that is simpler and more equitable than when we have the minority shareholders. We continue to enjoy a good relationship with Attacq, as we are aligned with them. Secondly, we have signed revised KPIs with the external property manager in Ghana, which we believe should improve accountability and performance. And thirdly, we have successfully renegotiated bank facilities to deal with the challenges created by COVID-19. Our current priorities include: firstly, refinancing in-country nonrecourse debt to reduce our funding cost. And this is at an advanced stage. Secondly, continuing to review the property management function; thirdly, relentless cash flow management and collections; and lastly, sourcing more local tenants as a result of the departure of many South African retailers during the financial year. Turning to the sales process. After the sale of 2 malls last year, Hyprop's Africa exposure comprise of interest in 3 Guinean malls held through the AttAfrica structure as well as Ikeja City Mall in Nigeria. And all of these are co-owned with a Attacq. As communicated in our pre results briefing, we have reached agreement on the key terms for the sale of Ikeja City Mall. The buyer has since completed its due diligence and the sale agreement is in the process of being finalized. The transaction is subject to several conditions precedent, including regulatory approval. After the sale of Ikeja, we will have reduced our effective exposure to sub-Saharan Africa by 70%, based on Hyprop's share of the gross assets. You can pick up that trend from the top graph on that slide. The remaining 30% exposure is attributable to our interest in the AttAfrica portfolio of 3 malls in Ghana. Looking at the bottom graph, we have managed to reduce our U.S. dollar debt from $344 million in June 2019 to $73 million currently. And after the sale of Ikeja, we will have no more U.S. debt on the Hyprop balance sheet. So that bar on the far right will be eliminated completely. We are still in discussions with several parties regarding the Ghana portfolio. The COVID-19 pandemic has caused potential buyers to become internally focused for several months, but there is evidence that the market is slowly opening up again. We will certainly update you when there is something concrete to report. Thank you. And with that, I hand you over to Brett now for the financial report.

Thank you, Wilhelm. 2020 has certainly presented new financial challenges for REITs. The deteriorating economic environments as well as COVID-19 exposed some of the concerns around the historic REIT financing and distribution models. The prospect of a decrease in property values placed pressure on LTV covenants. Cash collections became a challenge as tenants managed their own cash flows in the uncertainty of COVID-19. But notwithstanding these factors, we met all of our banking covenants at 30 June 2020 and remain cash flow positive throughout the COVID-19 lockdown periods. The group's liquidity remains strong. Significant progress has been made in reducing exposure to the dollar-denominated debt used to finance the group's African investments, and we are committed to strengthening the group's balance sheet and further reducing our hard currency debt. I will touch on the actions we plan to achieve this in the presentation. Actual distributable income for the year is ZAR 1.258 billion, equivalent to [ ZAR 493 ] per share. This is 34% below the ZAR 1.9 billion for 2019. But for COVID-19, we would have achieved the distributable income set out in the guidance given in September 2019 of 10% to 13% down from that year. The guidance took into account the rent reversions in the SA portfolio, the 40% discount we agreed with Edcon in terms of their restructuring and the additional interest costs on refinancing dollar debt in rands at the end of the 2019 financial year. The direct loss of income from COVID-19 was ZAR 434 million, comprising rental discounts in SA and Nigeria of ZAR 259 million, an estimated ZAR 25 million of lost parking revenue in South Africa, Hystead's income reduced by EUR 11 million during lockdowns in the EE countries. This resulted in no dividends being paid by Hystead in the second half of the financial year, and payment of management fees were suspended in the last quarter to ensure that all operational and financial commitments could be met. This reduced Hyprop's distributable income by an expected ZAR 150 million. Other indirect losses due to COVID-19 relate to the increase in the provision for expected credit losses of ZAR 31 million in SA and Nigeria and the decrease in turnover rental in SA of approximately ZAR 27 million. It's difficult to say for certain that these last 2 items are due only to COVID-19, given the general state of the economies. And hence, the classification is indirect. Adjusting for the impact of COVID-19, distributable income would have been between 8% and 11% down from 2019. This is in line with or better than the guidance given. One of our key priorities is that distributions are based on cash-backed earnings. Cash generated by operations for the year was ZAR 1.7 billion, despite the challenges with collections during the COVID-19 lockdowns and the increase in rental arrears. The two important lines to look at on this graph are net operating cash flow and the distributable income. For South Africa and Europe, the net operating cash flow is higher than or at least equal to the distributable income. This is what we want. The cash flow and distributable income deficit in sub-Saharan Africa was anticipated due to the reduction in income from AttAfrica and the impact of COVID-19 on Ikeja. Ikeja generated good cash flow during the year, but we've not been able to remit income from Nigeria since December 2020. The deficit in Hyprop Mauritius has been funded with equity contributions from South Africa. The REIT funds -- sorry, the funds from operations for the year was ZAR 1.72 billion. Now turning towards or to focus a bit more on the debt. The total debt for which Hyprop is responsible at the beginning of the financial year was ZAR 13.4 billion and includes the on-balance sheet dollar debt and the euro equity debt, which has been guaranteed by Hyprop. In line with the objective of reducing debt, a net ZAR 1.2 billion of debt was repaid during the year. This was mainly dollar-denominated debt. As a result of the weakening rand in the last quarter, the rand value of the dollar and euro-denominated debt increased by ZAR 1.8 billion, to give a year-end total of just under ZAR 14 billion of debt, 2/3 of which was dollar or [ euro-denominated.] Since 30 June, we've done the following: the maturing bond of ZAR 425 million was settled in July. There was very little appetite from the bond market to refinance this bond during the COVID-19 lockdown period, but we did manage to raise $100 million in the bond market pre the year-end. We raised a new secured revolving credit facility of ZAR 450 million, which has a further ZAR 50 million available to capitalize interest payments, if required. We raised 2 new SA bank loans totaling ZAR 1.7 billion. These were used to settle $99 million of debt in Hyprop Mauritius. Since year-end, we have settled all our revolving credit facilities, which remain available to the group. The current total debt is ZAR 13.35 billion using the June 30 exchange rates. What is critical to note and as Wilhelm pointed out is how the value of the U.S. dollar debt has reduced from ZAR 3.7 billion at 30 June 2019 to ZAR 1.6 billion to date. In actual fact, we've reduced the U.S. dollar debt from ZAR 340 million in mid-June 2019 to only ZAR 73 million today, and this remaining debt will be settled on disposal of Ikeja. One of the risks we manage throughout the COVID-19 lockdown period was the LTV ratio. Liquidity was never an issue. However, we were in weekly contact with our 3 major lenders to discuss cash flows and strategies to deal with the COVID-19 risks. Their support was unwavering, and we were pleased to say that we complied with all of our bank covenants at 30 June 2020. The see-through LTV, which is used by most of our lender banks, increased from 35% to 41.4%, as is evident from the graph on the top left, the reduction in the value of the property portfolio and devaluation of the rand caused an 8% increase in the LTV. This was partially mitigated by the repayment of ZAR 1.2 billion of debt. We continue to monitor the sensitivity of the LTV to changes in exchange rates and property valuations, as shown on the bottom left-hand of the slide. The LTV is more sensitive to a change in the property value than the exchange rate. A 20% weakening of the rand will result in a 3.4% increase in the LTV, while the 15% decrease in property valuations will result in a 7.9% in the LTV. Improving the strength of our balance sheet and thereby reducing the LTV ratio remains a priority. This will be achieved in various ways. We've depicted these in the graph on the right-hand side of the table. Repaying all the revolving credit facilities since year-end has reduced the LTV by a further 1%. Selling the Ikeja assets results in a 3.5% reduction in the LTV due to removal of all in-country debt and minority shareholder loans from the balance sheet as well as utilizing the excess proceeds to settle residual debt. It is our intention to retain our share of the Hystead dividends and use these proceeds to settle the euro-denominated debt, which we have guaranteed. Practically, what will happen is that Hystead will declare its normal dividend. However, we will use our portion, including the guarantee fee we receive from PDI, to reduce the debt we have guaranteed. This may require the debt in Hystead to be restructured and will require PDI's consent. We are working on a few ideas in this regard, and discussions with PDI are progressing. By retaining 1 year's dividend from Hystead, with a value of approximately ZAR 300 million at current exchange rates, we will reduce the LTV by almost 1%. Lastly, we have used an illustrative ZAR 1 billion as a target of an amount by which we would like to reduce the debt further. This could come from asset sales or retained distributions. The overall effect is to reduce the see-through LTV to 34%. Doing a similar exercise on the fully consolidated LTV, if you look at the bottom right-hand graph, reduces this from 51.7% to 46.9%, which is below the bank covenant level if we have to fully consolidate Hystead in due course. We are often asked whether we will breach banking covenants if we take control of Hystead and must consolidate it. The LTV ratio scenarios show that there is tolerance to do this. And if we are able to execute on our plans, the fully consolidated LTV should go below 50%. We are confident that if we have to consolidate Hystead, we will come to an agreement with the banks on the LTV covenants and how these are calculated. A change in the accounting should not result in a breach of the banking covenants as there is no change to the underlying debt or exposure. Our approach is to ensure there is clarity on the debt and what our exposure is and to an agree appropriate covenant with the banks and how the calculation is done. We've already broached this topic with lenders. Looking forward in terms of debt and the debt maturity profile, this graph includes the South African-based rand debt, the dollar-denominated debt in the African entities and the in-country and equity euro debt within Hystead. Separate analysis of each of these categories of debt are included in the annexes to the presentation. Two months ago, this graph had ZAR 2.1 billion of debt maturing in quarter 3 and quarter 4 of 2020. This debt has been refinanced. One of our short-term strategies is to have an element of shorter-dated debt that can be settled from available cash. This is essential to reducing our overall debt levels. In the immediate short term, we've reduced our revolving credit facilities. These are still shown in the maturity profile for reference purposes. The debt maturing in quarter 1 of 2021 relates to the dollar debt in Ikeja as well as ZAR 49 million of in-country asset-backed finance in Hystead. The Ikeja debt will be transferred on the disposal of the asset. And Rabia and his team are already working on refinancing the euro debt with the incumbent bank and other potential lenders. The quarter 2, 2120-- sorry, 2021 debt is the remaining $18 million in Hyprop Mauritius, which will be settled from the Ikeja proceeds. Quarter 3 debt is an SA bond, which we look to settle in cash. The quarter 4 debt is mostly euro equity debt, which will perform part of the restructuring of the Hystead debt referred to earlier. In short, our debt maturity profile lends itself to reducing debt levels over the next 12 months in an orderly manner. To also just note that at the end of the year, our unencumbered assets were ZAR 5 billion, which is approximately 18% of the portfolio. Lastly, to touch on capital expenditure. For the 2020 financial year, CapEx was ZAR 212 million. This includes ZAR 44 million paid for the Baker Street property. All nonessential CapEx was frozen in the last quarter of the year to preserve cash flow. This resulted in some projects being rolled over to 2021. Despite the pressure to reduce CapEx, we remain mindful of the need for planned maintenance, end-of-life cycle replacement of assets and the general upkeep of our properties to ensure they remain fully operational and relevant to tenants and consumers. Total planned CapEx for 2021 is ZAR 513 million, although only ZAR 148 million is committed and only critical items will be undertaken. Some of the larger projects include replacing the ceiling and air conditioning at Somerset Mall, tenant fit-outs linked to new leases with major retail groups, notably the Checkers. And the Checkers project at various of the malls and renewals of the Massmart leases. There are also unavoidable replacements of lifts, escalators and generators, which need to be done. Tenant installations and income-based projects will be assessed based on lease and return fundamentals before these are committed to. Another point just to note in the results is that the net asset value per share of ZAR 76.09 is calculated after deducting the distribution per share for the 6 months ended 31 December 2019 of ZAR 3.08. And the total before the outstanding dividend is, therefore, ZAR 79 and a few cents. We've also included in the pack in the annexes some detailed financial information on Hystead, a balance sheet and a profit and loss account, which most or a lot of investors often ask us for. In conclusion, the current liquidity of the group remains good with ZAR 314 million of cash on hand at the moment and ZAR 1.15 billion of available revolving credit facilities. Cash collection since the end of the financial year have improved. And for the September billing period are approximately 90% of normal monthly billings. We are committed to strengthening our balance sheet and the steps we want to take to achieve this. Lastly, I would just like to thank all of the staff and our finance departments for their hard work in finalizing the results in very unusual times. Thank you. And back to you, Morn.

Thank you very much, Brett. If we go now in closing, in terms of our distribution and LTV plan, Brett has given some light around our LTV plan. What is key for us is intention to retain cash at this point in time. So we haven't made a final decision in terms of the payment of the interim dividend and the declaration of our final dividend. We are investigating a number of options. And as soon as we've got more finality on that, we will communicate it to the market, but it won't be communicated any later than December 2020. A lot of people asked a question around Hystead. What is going to happen in May 2021? We, as management, actually think it's opportunity, whereas we've currently got 60% interest in the asset, which we have been managing for the last 5 years. So we actually do understand this 6 properties quite well. So going acquire this 40% interest in the malls make sense given you understand the asset. And I do believe there is some growth to be gained out of the investment into Hystead. Just to recap how the structure work in terms of Hystead. We've had to invest the initial amount of about EUR 400 million, of which PDI has got 40% shareholding. He has guaranteed himself for about 22%, of which EUR 40 million was in terms of direct bank guarantee for his debt. And then the other EUR 46.8 million, which is about 12%, he gave us back-to-back security. So Hyprop currently got exposure to the Hystead debt of 90%, whereas PDI has got a direct exposure of 10%. On the remaining 18%, which is the 40% minus the 22%, it gives us a guarantee fee, which equates to 60% of the dividend receivable under 18%. So indirectly, the free carry PDI have through this structure is 7%. In terms of the existing shareholders' agreement, it was always contemplated that Hystead would be listed. Unfortunately, where the market is at the moment, I don't think the listing is a possibility. So any other terms will have to be negotiated with PDI. The deal is further awarded in such a form where there's May '21 when the risk after listing should start and the listing have to be completed by May 2022. So effectively, there's a year period to implement the transaction. I do think the way -- or what Brett has explained, the fact that we're also working on our consolidated LTV basis, is going to mitigate that risk, should there something happen where Hystead is consolidated onto our balance sheet. In terms of optionality of what we can do with Hystead, the one option is we take full control of Hystead, as I mentioned, right in the beginning. And there's quite a high possibility of that happening. Another option that could happen is PDI reduces to about 10% and we take up 90%. That is actually the exposure we already have, except for the back-to-back security, and that's also quite a high possibility of happening. The other one is where PDI has to replace our -- about 12% of the EUR 46.8 million of our guarantees, and he takes 22% of the company, and we remained at 78%. On all these options, given the fact that we've got our balance sheet at risk at the moment would be accretive from an income point of view. The last 2 options is we outright sale, sell the portfolio. That's a possibility. I think it's quite low. And the other one is a listing. Therefore, I think 1 of -- option 1 and 2 is both probably some of the options that could happen on that portfolio. Looking at our priorities going forward. Given the uncertainty in the market and where we are, not knowing whether there's a second wave or anything like that, we can't give any guidance at this moment going forward. What we are going to do is focus on the implementation of our revised strategy, and I do believe we have succeeded in a number of those points. We're going to continue with the repositioning of our South African portfolio, continue improving our dominance on our Eastern Europe portfolio as well as secure a transaction with PDI on the restructure of Hystead. We want to implement the final transactions to exit Africa whilst retaining some value. In terms of the nontangible strategy, we want to complete the implementation of SOKO District. The first pilot will be launched at Rosebank Mall in the first quarter of the first calendar year before April of next year. We definitely want to strengthen our balance sheet. That's something we've been working on and strengthening balance sheet doesn't always mean reducing debt. Obviously, if you find good growth opportunities, you can also use some of the cash and reinvest it into those growth opportunities and strengthening our balance sheet. As I mentioned on the distribution, we would like to retain some of that cash. Brett has mentioned that we want to retain the dividends from Hystead to effectively reduce our euro debt. We want to sell Africa, and then we want to recycle some of the South African assets, which is not core to the strategy. We did receive three offers on 2 of our South African assets, and we are assessing those offers as we speak. I will go over now in a Q&A session if there's any questions.

Okay. [ Mahesh ] asked a couple of questions. I'm going to go through them one by one. The first one is, in terms of the shareholder agreement, is there a minimum price that was initially agreed for the disposal of PDI shareholding?

As I mentioned, the intention was always to list the company. So there was never intention to buy each other out, the shareholders. Therefore, there's no minimum prices agreed. It will be based on independent market value of the assets at that point in time.

How to further downside do you see to property valuations? Or do you think valuations are now conservative?

In terms of South Africa, I do think the economy is under pressure. If there is further rent reversions, your NOI could reduce and the projections will have impact radiations. I do think given the impairment on our portfolio of about 13.9%, it is quite conservatively valued at this point in time. Just to touch on the offers we have received is very much in line with some of these valuations.

How different is distributable income relative to distributable profit for tax purposes and relevant to determining reak minimum payout of 75%?

Brett will answer that for us.

The distributable income of the ZAR 1.25 billion is slightly higher than our taxable income for the year.

Okay. With elevated liquidity risks, further valuation headwinds and the probability of consolidating highest debt, could you not build a case to withhold dividends in its entirety and a relief in terms of the liquidity requirements in terms of the company's act whilst at the same time maintaining the REIT status?

As I mentioned, we are looking at our alternatives, and the whole intention is to retain the cash and still meet our REIT requirements.

Can you unpack the cash dividend alternatives you are considering? Have you received any commitments from shareholders with regards to accepting a scrip alternative?

We haven't engaged with shareholders at the moment. We are busy with engagement with the JSE as we speak. And as soon as we got a bit more finality on that, we will definitely engage with our key shareholders. p

Okay. [ Mahesh's ] last question. How would the use of Hyprop share of the high state dividend to be treated, assuming used to reduce for euro-guaranteed loans from a tax perspective? And consequently, how would this impact the minimum requirement payout ratio going forward?

If we don't effectively receive, and Brett, you may help me if I'm wrong, receive a dividend from Hystead, it won't form part of your distributable income in Hyprop, and we can use our portion of that to reduce the equity debt. So I think that's the answer to the question.

Yes, I think the reduction -- most of our income from Hystead is actually taxed as a CFC, and we get the exemption for the permanent business establishment in the operating entities in country. So I don't think there would be a negative tax consequence of not receiving those dividends if we were to retain them to settle the Hystead to debt.

Ross Krige is saying thank you guys. How is trading density growth in South Africa and Eastern Europe evolved post -- post-financial year-end?

It is increasing slowly, but surely. Unfortunately, I think the foot count is not there, but we are seeing some of the tenants are trading much better. Unfortunately, if I can take South Africa, I think your Home Depot, DIY, those type, electronics is doing very well and your lower LSM type of fashion brands is also doing well. So that is definitely increasing.

[ Mr. Jan ] asked, what are the tax implications of retaining the Hystead dividend?

I think we have answered that question.

Yes. I think we did answer it. So I don't think there would be any tax implications because it's taxed to the CFC, and we get the exemption for the foreign business establishment in country.

[ Louis Kruger ], please explain the highest debt repayments, what debt is being repaid? It sounded like it was debt that was guaranteed. Does that mean it is PDI's debt portion? And would this mean increased shareholding for Hyprop?

Just to recap on the capital structure of Hystead. Historically, that capital structure is 100% vehicle. You've got in -- just to use an example, but the assets is worth about 800 million. The in-country debt is around numbers, 400 million, equity debt, 400 million. As I explained, we had to guarantee 90% of that equity debt, which is a 90% of the 400 million, where PDI has given direct guarantees for 40 million. He's given us back-to-back guarantees for 46.8 million. So when we retain dividends and we want to use it to pay back of some of the euro debt. It would be the portion of the equity debt, which I've explained late last. It wouldn't necessarily mean we move up in shareholding as yet. Shareholding will be adjusted when we when we renegotiated the deal with PDI. What it does mean is we will move some of that euro debt, which has been put into the structure directly by the banks on to SA balance sheet and effectively put a shareholders' loan into Hystead. The structure still to be finalized, but where it's [indiscernible] what we're talking about. Brett, if you want to add something.

I think just if the question relates to the EUR 49 million that I referred to when I was talking, that is in-country asset-backed finance that is not guaranteed by either of the shareholders. The debt maturing in quarter 4 of 2021, that is equity debt, and it's a combination of loans from different banks. And it includes debt guaranteed by Hyprop and by PDI.

[ Charon Kristen ] is asking, can you remind us of your strictest LTV and ICR covenants?

Our group LTVs, we -- there's different levels of LTVS. Each bank will have a security, LTV, ICR covenant as well as LTV 1. As a group, we have LTV covenant of 50% as we stand with most of the banks. And the ICR is -- I'm speaking in a correction, what is it, plus...

It ranges from 1.75 to 2x cover.

But that's a group one. And one of the things, how you can mitigate the risk of if you should consolidate Hystead onto our balance sheet is twofold. We have got those initiatives we're trying to implement. That's the one way. And I do believe we can also approach the banks to effectively increase our group LTV to 55%, but that is discussions that's currently underway.

Second question is, you mentioned potential growth opportunities. Do you have a preference with respect to geography and investment-type direct or listed?

I think each investment will be evaluated on its merits. Given the risk when you invest in South Africa, obviously, you will have to make certain adjustments for the risk you see in those investments as well as when you go offshore. As we mentioned before, our focus areas is really South Africa and Eastern Europe at this point in time. I believe if we buy out Hystead, it could be quite a nice growth opportunity and actually diversify a little bit more in Eastern Europe.

His last question. Can you disclose ballpark yields regarding offers you mentioned you received from some assets?

That we will disclose when we've got finality on the assessments.

[ Siphilele from Excelsius ] is asking, what are some of the ideas you are working on with high state PDI to restructure date and reduce LTVs? What is the banker's view on consolidating full debt from Hystead?

Brett, if you can answer that.