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

As a leading South African based real estate investment trust, Hyprop Investments is reimagining the future, designing solutions with spaces, people and conscious retail come together, creating safe environments for connected experiences. Hyprop's CEO, Morné Wilken shares how the company is repositioning its centers in response to the changing environment and needs of consumers.

At Hyprop, our centers exist to create safe environments and opportunities for people to connect and have authentic and meaningful experiences. This is our purpose, which is why in response to the changing environment and the needs of consumers, we are evolving from traditional mall structures to omnichannel environments that offers customers excitement, personalization and experience led spaces. We are repositioning our assets and value proposition. And in doing so, we are building a future fit change ready organization. We call this evolution, our Golden Thread. The Golden Thread is our unique response to the changes in bricks and mortar, retail and the world we operate in. It also allows all Hyprop malls to be connected through a unified set of services, offerings and experiences across 3 pillars of brand, people and place. When our customers walk into our centers, they will have a universal experience and know that this is a Hyprop center. The Golden Thread was born out of the idea of reimagining Hyprop centers as a modern village, places that focus on community and real experiences, places that are relevant now and into the future, places that are convenient, accessible and open a world of possibility. The economists pointed out that the data-driven shopping and eval is unstoppable. It will change the nature of our stores so that physical and digital shopping seamlessly interact. The third retail revolution is creating a customer pool system rather than a producer push one. Our malls are being redesigned to create safe spaces and experiences that respond to this retail revolution, spaces and experiences where the digital and physical retail worlds integrate spaces and experiences that understand and serve the needs of our people, from our customers to our tenants, service providers and to our investors, and most importantly, our own people. Our brand evolution is about more than just evolving our corporate identity and future-proofing our assets. It's about making every experience exceptional because at Hyprop, we're about more than stores. We are more than property owners. We are leaders in building relationships, creating exceptional places and experiences that excite and expire our communities, starting with our employees because we know happy employees mean happy customers. Our goal is to ensure Hyprop is known as a Great Place to Work, a Great Place to Shop and a Great Place to Invest. Repositioning and redesigning for the future through the launch of the Golden Thread is how we will achieve this. Ultimately, creating shared value for all our employees, our retailers, our service providers, the communities we operate in and our investors. The Golden Thread is the start of our journey into the future.

We are Hyprop. This is were community minded, collaborative and connected to the world around us. We're authentic, act with integrity and we're responsible for our actions. Most of all, we are creative and visionary. We are doers, who make things happen.

In terms of the agenda, I'll give an update on the headlines and the key metrics' as well as update on South African's performance in terms of the operational performance; Rabia will give us an update about Eastern Europe; and then we will give over to Wilhelm to give us an update on sub-Sahara Africa; Brett will give us an overview on the financial results. And in closing, I will give us priorities for the next financial year, and then we'll open the floor for some questions. COVID is still real. The reality is it had a big impact on our business. The big negative with COVID at the moment is really the stop-start of the lockdowns, and you can't really create real momentum, and it makes it also difficult for the retailers to get momentum. Up to date, COVID has cost Hyprop ZAR 850 million. What is positive to say at least, as we go along those reversions or rent relief, is becoming less. 2 years ago, we have set ourselves a strategy, which we wanted to implement, and we set ourselves some key priorities. And I do believe we have made quite a lot of progress on those key deliveries. One of them was to reduce our LTV. We have successfully reduced our LTV from 41.4% to 37.2%. That was done with the proceeds of ZAR 777 million from the equity raise via the DRIP, accelerated book build, where we raised ZAR 358 million. We've successfully settled all the dollar equity debt on our balance sheet, which relates to the Africa investments. And the transfer of Atterbury, the asset, which we sold was only transferred after year-end. And if you take the impact of those proceeds into account, our LTV reduces to 34.9%. In terms of our SA portfolio, the property valuations has decreased by ZAR 1.6 billion compared to June 2020, and that's a 5.9% decrease. That was mainly driven by a reduction of the NOI on the portfolio. We completed Phase 1 of the solar project on the Gauteng portfolio. We are looking at a Phase 2 as well as some PV rollout on our Western Cape portfolio. The savings on that has been ZAR 9 million to date. We maintained our retail vacancy on our SA portfolio at 2.4%. And then we've reduced successfully 5 CNA stores by 4, and we've only got 1 CNA store left in our portfolio, and that's the one in Rosebank. If we look at our European portfolio, the total portfolio was valued at EUR 765 million. That is in line with the December 2020 independent valuation. As just in terms of reduction from our June 2020 valuation, it was 4.8%. Just for a little bit of background, for June 2020, we used the December 2019 independent valuations. The redevelopment at Skopje City Mall in North Macedonia is progressing well, and we anticipate to complete that by the second quarter of 2022. We successfully completed the upgrade of the food court at The Mall of Sofia, in Bulgaria. And one of the things we have been doing on the Eastern Europe portfolio is similar than our SA portfolio is relooking which is core assets to our strategy and which is noncore, and we have identified some noncore assets in our portfolio in Hystead, and we have accepted the offer to sell Delta City in Belgrade for ZAR 115 million. There's a number of CPs that still needs to be completed before the transaction could be implemented. In sub-Sahara, we're still driving our exit strategy. One of the things we have put ourselves out to do is to ensure we create value from these investments whilst we're waiting to exit the position. And therefore, we have decided to move one of our key resources into Africa to really focus turning to operational business around. So Nicole Greenstone has agreed to help us turning the business around on that side, whilst Wilhelm will pursue the exit strategy. Nontangible asset strategy, we opened our first district, SOKO District at Rosebank Mall in July, and that is one of the few opportunities we're looking at, at the moment. We've completed our deal with -- we formed a JV with EmpiriQ and we are pursuing 4 new opportunities, of which one would be electronic gift card. And hopefully, that will be implemented before the end of this calendar year. Looking at our key metrics, One thing we have set ourselves as a goal is to create value for all our stockholders in the long term. And therefore, we need to ensure we have a healthy balance sheet, reset the income to sustainable base and then focus on total return in the long term. Our distributable income has reduced to ZAR 1.035 billion. And the main drivers for this reduction was the effect of negative reversions of about ZAR 160 million. Then we had no income from Hystead as well as Africa. Hystead, we used to get a dividend of at least ZAR 119 million. What we did do in terms of Hystead is we retained the cash in the business for unforeseen events. Due to the equity debt, we converted from dollars to rand debt. That has cost us an extra ZAR 26 million. If you look at our distribution per share, that was further decreased due to the impact of the issue of new shares, and that has reduced by 21%. So our distribution per share is ZAR 336 per share. As you can recall, we only paid out 76% of our distributable income as a dividend in 2020. So we paid out ZAR 375 per share. And our intention is to pay out 100% of the distribution this year. Just from a practical point of view, we will be looking to do a DRIP combined with this payment of the dividend. The Board will review the dividend policy in terms of payments and payout ratio and the frequency of payments as and when the market stabilizes. Interest cover ratio, something very important. That is how much your income covers your interest expense. Something that is positive to see is that our IFRS ICR has improved to 3.04 as well as our cash ICR to 3.47. Loan-to-value, I've touched on that. After the sale of Atterbury Value Mart, the intent -- our LTV will reduce to 34.9%. If you look at our best practice REIT methodology of calculating LTV, our LTV has reduced from 26.4% to 22.8%. The next focus area for this financial year is to reduce the euro equity debt on our balance sheet. As I've mentioned, we have settled all the dollar equity debt. So that's going to be a big focus for us going forward. Net asset value per share. The impact of the new issue of shares was about ZAR 13.17, so our new NAV per share is ZAR 62.96. The current share price is still trading at about 56% below this reduced NAV per share. South Africa is still the bulk of our business. 59% of our investment properties is located in South Africa. This financial year, South Africa has delivered more than 100% of our distributable income. And that was given the fact that we didn't receive any income from Africa as well as Europe. As I've mentioned, we did retain our cash in the Hystead portfolio. And as at 30 June, we had a cash balance of about EUR 40 million. The top left-hand side graph indicates our current footfall. It shows for 2019, '20 and '21. The footfall is not at the levels it was in 2020. It's still 7.6% below the 2020 footfall numbers, but it is positive to see since March, there has been an increase in terms of footfall. None of our malls, the footfall has increased above the 2020 footfall numbers. What is positive to see? Although the customers are coming less frequently, every time they do come to the malls, they are spending more money. So that can be seen in the spend period of the malls. 2 of the malls that has been impacted worse by reduced footfall due to COVID is Rosebank Mall. A lot of the offices and hotels hasn't opened as yet since the hard lockdowns in April of last year. The other one is Hyde Park Corner. Looking at trading density, trading density is still down 2.5% from 2020. And similar as the foot count, it actually started increasing from March. And we must take into account in 2020, that was the time when the hard lockdown was in process with -- in South Africa. Trading densities on a year-to-year basis, the malls that has performed well was the Glen. It increased its trading density by 0.9%, and then Woodlands by 1.3%. Specific categories that has been doing well in our portfolio, electronics, that's up year-on-year by 21%; home decor as well as furniture is up 11.6%; and outdoor in sports, 5.5%. In the graph on the bottom left, that shows the total tenant turnover. What is positive to see is that our total tenant turnover has increased by about 3% if you compare that to 2020. And that is the indication that a lot of the initiatives we are busy putting in place is driving better turnover at our malls. 5 of our malls has shown positive growth in terms of total tenant turnover. That is the 3 Western Cape malls. CapeGate has increased by 2.5%, Somerset Mall by 3.1% and Canal Walk by 0.6%. The 2 Gauteng malls that have shown positive growth in total tenant turnover was the Glen with 9.1% increase and Clearwater Mall with 4.1% increase. In terms of our collections, we started the year with net receivables of ZAR 130 million. We've collected 102%, and we ended the year at net receivables of ZAR 61 million. We've worked on our arrears. The arrears was reduced from ZAR 137 million to ZAR 114 million. This graph, the top graph indicate our current vacancy on our retail portfolio over the last 7 years. As can be seen on the graph, our retail vacancy for the last 2 years, although it's on the same levels, has been the highest it ever has been in our portfolio. In terms of our office vacancy. Offices is quite small in the bigger scheme of things. It's only 6% of our GLA, but we did see a big increase in terms of vacancies. Vacancies has increased by 24%. And the main reason for that increase is we've acquired the Baker Street property here in Rosebank, that is offices, and that is planned for future development in Rosebank, and a number of those tenants didn't renew when the leases come up for renewal. In terms of negative rent reversions, I think we must just take the reversions into account of -- on the context of what is our vacancy of only 2.4%. 140,000 square meters of leases came up for new lettings and renewals. And that is 23% of our total portfolio, and we have had negative reversions of 23.6%. The average duration of new leases was 4.1 years and for renewals was 3.4 years. The average escalation was 6.5%. To mitigate negative reversions, what we do is we are signing shorter leases. And what we also do is we're building in rent reviews and then where possible, we are increasing our turnover rental provisions in the leases to participate as and when the tenant starts performing better. One of the mandates we have set to our teams is to ensure you retain the key tenants, and we have functional malls because I think it's critical in these difficult times to retain functional malls because as and when you start losing a number of tenants, that could have a negative spiral effect. And one of the things we must realize when you're repositioning your malls, unfortunately, sometimes there's going to be negative reversions. If I can use an example, in 2 cases, we have replaced Edgars or a Game with Checkers FreshX. I believe Checkers is acting as a batch pillar, anchoring your mall, but you are getting much lower rentals from shopping -- from a supermarket compared to a fashion retail given the margins these businesses make. And I believe this repositioning, as I mentioned on the previous slide, we are seeing some benefits because of the turnover of our tenants that is increasing. The repositioning, I think, will take another 2 years. So on the SA portfolio, we expect low income growth at least for the next 2 years. Adapting to the changes of times, one of the key things we have opened is the SOKO District. What is fantastic about SOKO District is not really the physical store. I think the key thing for us is much more that technology that's backing the store. We've created a platform that enables retailers as well as digital retailers to gain access to a flexible physical space. A retailer can identify his store, plan his store layout and sign a lease within or below 10 minutes. What is very positive from a landlord perspective, you can actively manage the pipeline of your tenants. And then what is very powerful about this system, given the fact that it's real time, is planning the size of the stores, which stores need to be next to what stores? And what is the footfall like? And how can you attract different people pass certain stores? And I believe this has the ability where you could use this technology platform to manage the malls in the future. We're really striving to create community centers, and we're doing 4 things to really try and achieve that. We want to give our shoppers access to different omnichannels. We want to improve our service offering. We really want to create a one-stop shop. And then unutilized space, we want to repurpose and create value or new opportunities from that. A lot of the things we are trying, we're doing it on pilot processes or basis. Some of the pilots we currently busy with is Pargo. Pargo is an online shopping platform, and we have provided 2 collection points for them at 2 of our malls. That has created some momentum. And obviously, as the people come in to collect goods from Pargo, they're at our shopping center and the intention is for them then to use some of the facilities within the shopping center. One of the benefits, while it's not really a benefit, but what is different from overseas, I think in South Africa, the online shopping deliveries, people like the safety element. And I think it's much better for them to collect the goods from the shopping center than having people or every time new people coming to your house with certain deliveries. Parkupp, that's an app that basically rent our parking areas on a flexible basis. And the intention with that is to use our unutilized parking areas and create revenue streams through that. Another important thing we've realized is social followings. A number of tenants have very good social followings. And when you bring that tenant into the physical space, a lot of those followers will come into your malls. One of them, we have done recently at Hyde Park Corner was Tshepo Jeans. Tshepo Jeans has a following of about 65,000 users. And as they came into our mall, obviously, you saw the benefits from the footfall that increases. Similar with the SOKO tenants. A lot of them are online retailers who have a following. So when you bring them into the physical space, you can attract those followers to come and visit the mall. And a lot of the online people, actually customers want to touch and feel the product, and that's why a lot of these digital -- first retailers are starting to come into the physical space. Just to come back to SOKO, we currently have a waiting list of 168 tenants that want to come into that space. And then taking unutilized space in creating something more or more value out of that. One of the initiatives we've identified is bringing in storage facilities at our shopping centers. We've identified 4 shopping centers. We want to bring in parking facility -- our storage facilities. The one we have already completed is at Rosebank Mall. There was 277 units, and that was unutilized parking area, which we've used to actually convert into storage for Rosebank specifically. Tenant mix. As I mentioned before, it is key to get the right tenants into your mall. You need to understand your demographics and what is attracting people into your malls. I think the days of cookie cut tenant mixes is something of the past. You really need to understand what is your demographics and how do you pull those tenants in. We had quite a bit of discussions, as you can see with the number of checkers we've got in our portfolio. And some of their research that they have done, they can actually see when they take an existing store and upgrade it to the FreshX concept, there is, firstly, an increase of footfall, increase of turnover, but what is more interesting is actually they start attracting higher LSM groups. And I see a shift in about 2 levels up in terms of LSMs that visit the mall. The other initiative is the Golden Thread. That is really creating a unique customer experience, and we do it around 3 things, namely your place, your brand endorser and then the people element. Place is how do you experience it when you come into our malls and how do you feel moving through the mall. The old concept is almost like a town square where you build everything around the town square and it makes the movement through our malls much easier. And how do you leave the mall is also very important. Then as all the brand endorser is linking it with the Hyprop brand, and then the people element is really coming back to basics, giving fantastic service, and therefore, the challenge is really getting your service providers as well as your tenants, people that work for them, to give fantastic service. Mixed-use opportunities. We are investigating a number of them at the different malls. We've done a lot of homework in terms of 2 developments and at Intel's residential developments in both Rosebank Mall as well as Hyde Park Corner. If we look at our new tenants, we got into the portfolio on the SA portfolio, specifically. We have replaced at Woodlands, the old game store with Checkers FreshX as well as Stax. We have started the upgrade of the old Checkers to Checkers FreshX at CapeGate, at Canal Walk. We've secured our first Zara in our South African portfolio. We opened flagship stores for PEP, Foschini and the iStore. We successfully opened Nike as well as Seattle Coffee at Canal Walk. We have reduced vacancy at Rosebank Mall from 7.5% to 4.8%. We replaced the old Planet Fitness Gym with the iGnite Gym. We've opened SOKO District, and we also bought in a preowned iStore into the old TM Lewin space. iStore has been doing so well, they are contemplating opening a new store at Rosebank Mall as well. And what is very exciting? We've secured the first Terranova store in South Africa at Rosebank Mall. CapeGate, the vacancies are still below 1.5%, which is very good. We did a lot of work with MRP. We've upgraded the current store and expanded the MRP Apparel store. We've moved the MRP Home store, and then we rightsized the MRP Sports store. And by all of this, all the trading of that MRP stores has improved quite a lot. We've got quite good demand at Hyde Park Corner. And as I mentioned, there's a number of tenants that is entering that space. At Somerset Mall, we still fully led, and we've got new tenants like Toys"R"Us, Babies R Us, Cotton On, Superga as well as Fabiani. We opened 3 new Starbucks in the portfolio, and that was opened at Canal Walk, Somerset Mall and Woodlands. And with that, I will hand over to Rabia to give us an update in terms of Europe.

Thank you, Morné, and good morning to everyone. I will start with the COVID status update in the Hystead portfolio. Europe experienced 3 waves since March last year, which led to hard lockdowns and major restrictions. These restrictions negatively impacted the trading of Hystead shopping centers in the various countries we operate in. We have, however, experienced some improvement in the performance following each wave, but specifically after the third wave. We are currently experiencing the fourth wave in Europe since August, which will again negatively impact the performance during the next few months as the number of infection is rising rapidly and some countries have started to implement harsh restrictions like in North Macedonia and Montenegro, where shoppers are only allowed access to the malls if they have proof of a vaccine or present a negative PCR test or proof of recovery from COVID in the past 180 days. These restrictions enforced by the government aim to prevent the spread of the virus, but also keep adding more pressure on the performance, reflected mainly in lower footfall and turnover. Moving to the next slide, trading overview. The footfall recorded 16% decline from July 2020 to June 2021 compared to the same period the previous year. The spend per head increased by 13%. Such increase is due to less frequent visits by customers with more significant higher basket spend. The trading density declined by 5% compared to the previous year. It should be noted that the pandemic affected the turnover for 9 months in the year ended June '21. Whereas, in the previous year ended June '19, we had -- we only had 4 months of pandemics impact from March to June. If we look at the revenues, the lockdown and restricted measures enacted by the government negatively affected our income stream. After the third wave ended, we noted a stable improvement in the turnover. As mentioned before, we did not charge rent for the tenants who were not able to trade during the hard lockdown, and we are still assisting some tenants on a monthly basis in a form of rent reductions based on effort threshold results in order to keep their businesses functional. On the collection side, we made and still making an effort to strengthen our cash balance. During the third wave, mainly during March and April, the lockdown in Sofia, Belgrade and Podgorica affected our collection efforts. However, after the reopening the malls, the collection rate started to stabilize at around 82%, which is almost at the same level of pre-COVID. Next slide, valuation. During COVID and due to the various government restrictions, we had to put temporary measures into place to support our tenants, which resulted in a decrease in the net operating income and thus, negatively affecting our property valuations. The valuations decreased by 4.8% from EUR 804 million to EUR 765 million. The decrease in the property values is predominantly the result of granted rent reductions, rent fee period, longer void periods and lower turnover rents. The cap rates and the discount rates remained unchanged since 2020, still 25 basis points higher compared to pre-COVID level. All valuations were done based on discounted cash flow projection over a period of 10 years. Next slide, tenants leasing and leasing activity. Over 40 new stores were opened across the Hystead portfolio during the past year, including strong brands such as Pandora, Samsung, Mona, Coin Casa, Hugo Boss, Teilor, Max&Co and Tommy Hilfiger. The average contractual escalation achieved was 0.9%, and the vacancy at the end of June stood at 0.3%. That's all from my side. Thank you. I will hand over now to Wilhelm.

Thanks, Rabia, and good morning, everyone. I hope you're all healthy and safe. Overall, trading conditions in Africa remained challenging during the period, although there are signs that both Ghana and Nigeria are slowly recovering from the effects of the COVID pandemic, as you will see from our trading statistics. All tenants in the Africa portfolio are now allowed to trade other than cinemas and pubs in Ghana. In Nigeria, cinemas are allowed to trade at 33% capacity and restaurants at 50%. Foot count for the year declined by just 2.4%, which is a strong showing considering that we had full 12 months of COVID in the 2021 financial year. There has been a strong recovery in foot count in the final quarter of the financial year, indicating that people are starting to return to malls. Obviously, it's partly due to base effects. Nevertheless, foot count remains below pre-COVID levels. Despite the lower foot count, monthly trading density in Ghana was actually higher in 2021 than in 2020, for most of the year. Trading density increased by 10.7% year-on-year and spend per head by 7.9% year-on-year, both in U.S. dollars. This is indicative of people visiting less frequently, but when they do visit, they tend to make the visits worthwhile. Nigeria is excluded from trading density figures as tenants don't report turnover in Nigeria. Overall vacancies for all 4 malls combined reduced from 12.7% a year ago to 12.1%, which is encouraging during a pandemic period. Ikeja City Mall remains fully let, and vacancies have reduced in the Ghana portfolio. I'd like to thank the Africa team for their commitment during these unprecedented times. It takes a team effort to weather the COVID storm, especially with travel restrictions in place. Unfortunately, the liquidity constraints in the Nigerian foreign exchange market persists. Hence, no U.S. dollars could be repatriated to South Africa. Accordingly, no distributable income from Ikeja has been included in 2021. Despite this, all bank covenants are being met. As communicated before, it's our strategy to exit Africa, however, we obligated to protect value in the interim. Since the December results announcement, we've made certain changes to the asset management structure. Firstly, we've appointed a local representative of the asset manager in Ghana to be right at the goal phase. Secondly, we've moved an experienced asset manager from the SA business to drive value in Ghana. Furthermore, we've optimized the capital structure. Firstly, by refinancing all of the in-country borrowings at lower margins, resulting in an annual saving of $400,000. Secondly, the equity capital in AttAfrica was also restructured during the period, resulting in an additional annual saving of USD 100,000. You would have read in the press about Shoprite and Massmart looking to curtail the African operations. We're in contact with both of these groups who have indicated that they're looking to sell their African businesses rather than close them. However, and unfortunately, they are playing their cards close to their chest. Our current priorities include relentless cash flow management and reducing the vacancies to fill the void left by the departure of many South African retailers during the past 2 years. Turning to the sales process. In November last year, we announced the sale of our stake in Ikeja City Mall to Actis. Both parties remain committed to the transaction, but the lack of U.S. dollar liquidity in Nigeria is delaying closing of the transaction. We're also in discussion with a potential buyer of the Ghana portfolio, and we will update you when there is something concrete to report. In conclusion, we've made huge strides in optimizing the capital structure and management structure in the African entities to streamline operations and to drive value. This will stand us in good stead when negotiating an exit. Thank you, and I'll hand you over to Brett now for the financial report.

Thank you, Wilhelm, and good morning, everybody. I will cover 2 main areas in my presentation this morning. Firstly, the group's distributable income; and secondly, the debt position and how we see this playing out over the next 12 months. Distributable income for the year was ZAR 1.035 billion, a decrease of ZAR 223 million from 2020. The largest contributor to this decrease was the compound effect of rent reversions over the last 2 financial years and decreases in most other revenue streams, which resulted in a decrease in distributable income of approximately ZAR 160 million after taking into account the discounts we previously gave to Edcon. This was partly compensated for by a reduction of ZAR 94 million, from ZAR 242 million to ZAR 159 million in COVID-19 discounts. Remember that the ZAR 242 million of discounts in the prior year were given in 3 months. In the current year, ZAR 112 million of discounts were given between December -- sorry, between July and December 2020, with ZAR 47 million of discounts being given between January and June 2021. It's difficult to predict what COVID-19 discounts we may have to give in 2022, but the trend is definitely downwards subject to no further strict lockdown constraints. The effect of these 2 elements is to reset the rental income base to a level from which sustainable income growth can be achieved, having come off in a historic pace where actual rentals in many of our malls were above the market rates. Hystead declared only on dividend in the first quarter of the financial year, of which Hyprop's share, including the guarantee fee received from PDI, was ZAR 23 million. This compares to ZAR 143 million of income from Hystead in the previous financial year. Hystead currently has EUR 40 million of cash, which has been retained as a result of cash sweeps and limitations on dividend payments by in-country lenders and pending the refinance of the euro equity debt, which matures later this calendar year. The cash sweeps will assist in helping Hystead reduce its total debt, in line with Hyprop's objective of reducing the group's total overall borrowings. Additional interest costs of ZAR 26 million were incurred during the year following the refinancing of dollar debt with rand debt. Other interest costs actually reduced by ZAR 48 million due to the repayment of ZAR 2 billion worth of debt over the last 2 years and lower interest rates during the period. Remember that the benefit from lower interest rates is not that significant because of the group's policy to hedge more than 75% of borrowing costs. Property expenses increased by only 3% from 2020. The increase in expected credit losses on trade receivables of ZAR 22 million is a sign of the times our tenants are facing. Expected credit losses remain conservatively calculated, and we disregard our tenant deposits when calculating the expected credit losses. Other operating expenses increased by ZAR 34 million as a result of additional ZAR 9 million of costs relating to the SOKO District, which has been consolidated for the first time and staff-related provisions. These increases were compensated by a similar increase in the management fees received. On a positive note, the SA portfolio achieved ZAR 570 million of distributable income in the second half of the 2021 financial year compared to ZAR 470 million in the first. As Wilhelm mentioned, although no income from Ikeja or AttAfrica is included in the distributable income, Ikeja performed very well, generating ZAR 55 million of net operating profit for the group compared to ZAR 5 million in the previous year. This ZAR 55 million has been adjusted in calculating the distributable income due to the cash remaining trapped in Nigeria. With the number of shares increasing by 21%, distributable income per share was 32% below 2020. So despite the decrease in distributable income, cash generated from operations for 2021 was in line with 2020 at ZAR 1.7 billion, as shown in the top line of this slide. Cash collections were 102% of collectibles in the SA and European portfolios with arrears reducing from ZAR 137 million to ZAR 114 million in South Africa, and from EUR 3.2 million to EUR 2 million in the European portfolio. Other noncash items shown on the reconciliation on the slide relate mainly to the unrealized foreign exchange losses in the African portfolio as a result of translating dollar-denominated amounts into rands. As I had just mentioned, no income is included in the distributable income from Ikeja or AttAfrica. The net distributable loss from the African portfolio comprises mainly interest costs in Hyprop Mauritius. This reduced from a loss of ZAR 72 million to ZAR 26 million in the current year. This loss should reduce even further in 2022 now that all of the dollar equity debt has been settled. 2 years ago, we outlined a plan to reduce debt from the proceeds of asset disposals, by retaining distributions for the 2020 and 2021 financial years and utilizing revolving credit facilities to create flexibility and actively manage debt downwards. The results of these initiatives are now evident, and we have repaid ZAR 2 billion of debt over the last 2 financial years. The left-hand graph on this slide shows the changes in the group's on-balance sheet and guaranteed euro equity debt over the 2021 and 2020 -- sorry, over the 2021 financial year. This includes ZAR 1 billion of net debt repayments and a benefit of ZAR 950 million due to the rand strengthening against the euro and the dollar. The total on-balance sheet and guaranteed debt at 30 June was nearly ZAR 12 billion. The remaining dollar debt of ZAR 1.167 million -- of ZAR 1.16 billion is the in-country asset-backed finance in Ikeja of $57 million and a tax shareholder loan to Ikeja. The right-hand graph restates the group's total debt, and that is all debt within the group, including the in-country euro debt using the 2019 exchange rates, as shown in the lower 3 segments of the bars. The effect of the currency fluctuations from the 2019 base exchange rate are shown in the green segment at the top of each bar. And currently, that is ZAR 724 million, i.e. our total -- the total impact of the currency devaluation over the last 2 years currently is ZAR 724 million increase in our total debt. The dollar reduction or the reduction in dollar equity debt is clearly illustrated in the graphs by the segment, as is the increase in rand debt through the refinancing initiatives we have implemented. With all of the dollar debt now equity debt having been settled, our attention will now focus on reducing the euro equity debt, currently sitting at ZAR 12.6 billion. In terms of the group's LTV ratio, this has reduced from 41.4% in 2020 to 37.2% in June 2021, as shown in the top left-hand graph. As part of the ongoing work with our lender banks on how we are managing and plan to further reduce the LTV ratio, we have more closely aligned the individual LTV calculations. As a result, cash balances are now offset against debt when calculating the LTV ratio. This is compensated for the impact of the decrease in property valuations on the LTV. Debt repayments and the favorable exchange rate movement reduced the LTV ratio by 4.2% from the 41% to the 37% numbers. Turning to the top right-hand graph. Following the sale of Atterbury Value Mart on 2 July, the LTV ratio reduces to 34.9%. This is more than 15% below the group's LTV covenant with its lender banks of 50%, and 20% below the covenant under the DCM program, and all despite the reduction in the value of the property portfolios. Further reductions in the LTV will come from the proceeds on sale of Delta City, Belgrade and potential sales of other noncore assets. We have assumed an amount of ZAR 2.7 billion from asset disposals in the graph, which could result in a 5% reduction in the LTV. The sale of Ikeja will reduce the LTV by a further 2.1% when implemented. Please just note that the percentage reductions shown for each of the items in the graphs is the effect of that individual item on the starting LTV, so they do not necessarily add up to the total overall reduction. The LTV stress testing on the bottom left shows a tolerance for a 20% decrease in property values and a 15% devaluation of the rand before the LTV ratio reaches the current banking covenant of 50%. The debt maturity profile is largely unchanged from December 2020, other than the refinance of EUR 2 loans by Hystead, 1 of which now runs until 2031. ZAR 5.3 billion of debt matures in the short term. This includes the ZAR 317 million bond, which was repaid in July 2021 and ZAR 238 million of euro equity debt, which matures between October and March 2022. We intend to settle this maturing debt predominantly from rand liquidity. To meet these requirements, we have ZAR 6.4 billion of liquidity, ZAR 500 million of cash on hand after allowing for some cash leakage in the dividend, ZAR 950 million of available revolving credit facilities, ZAR 1 billion from the sale of Atterbury Value Mart and ZAR 3.9 billion of new bank facilities. The new bank facilities albeit for between 2- and 5-year terms and at an interest rate slightly below the current average borrowing rate of 5.5% before our hedging costs. We've also made progress with the lender banks on how we would treat the LTV ratios and covenants should we take control of Hystead and consolidate all the euro debt onto our balance sheet. The solutions include temporary increases in LTV covenants, if required, while we continue implementing our debt reduction plans. Given the strength of our banking relationships, we never doubted that a workable solution would be found with the lenders, and we thank them for their ongoing support of the group. On a longer-term basis, we will continue to reduce the group's LTV ratio and create capacity to fully consolidate all of the euro debt within the parameters of the current LTV covenants. In closing, a dividend of ZAR 336.5 has been declared for the year. It's equivalent to 100% of the distributable income of ZAR 1.035 billion and is 9% than the total dividend declared of ZAR 949 million in 2020. Despite the significant amount of work we did last year on where the REITs can declare noncash distributions, we have gone for a simple solution and shareholders will be offered a DRIP alternative as was done in 2020. Pricing for the DRIP will be announced in early October. Until market conditions stabilize, the Board anticipates declaring a single annual dividend only with the year-end results, and no guidance has been given for 2022 in terms of distributable income or distributions. Lastly, I would just like to thank all of our staff, too, in all of the portfolios, and in particular, our finance teams for their hard work during 2021. Thank you, and back to you, Morné.

Thank you very much, Brett. In closing, I'm handling the closing slide. Just in terms of our purpose, we create safe environments and opportunities for people to connect and have authentic and meaningful experiences. And the way we want to achieve this is really by owning and managing dominant retail centers in mixed-use and key economic nodes in South Africa and Eastern Europe. We have set ourselves a number of priorities we want to drive for this financial year. One of them is further strengthening our balance sheet. I think it's key. We have touched on it. We want to reduce the euro equity debt on our balance sheet, retain some of the cash via the DRIP of the dividend we're going to pay out now. And when we do spend CapEx, actually spend that CapEx on essential stuff. Something that I have been driving hard is having an annual review of your portfolio and making sure you retain your relevant assets. And a lot of times, we talk of core and noncore assets. A core asset may be that is core to me could fit my strategy, and therefore, the other asset could be a noncore asset. It's not to mean that noncore asset is not a good asset. It's just not fitting my strategy necessarily. One of the things we are going to drive quite hard is the implementation of the Hystead liquidity event. There's 2 processes happening on that. It's the recycling of the noncore assets, as we've disclosed Delta City, Belgrade, we have made quite good progress with and hopefully, that will be concluded soon. And then we are in discussions on another asset as well. No disclosure at this point in time until it materializes to something concrete. The intention for Hyprop is then to control of the balance of the portfolio. We are going to work on our ESG. It's an initiative that's important to us. We are doing quite a bit of work on it, doing our audits and getting our strategy in place, and that will -- or results from that will be communicated at the next results presentation. On South African portfolio, it's to drive the repositioning strategies. As indicated, that will take about 2 years. So the income from SA, we will see not that much growth. But getting the right tenants in and as I explained, where we have seen positive growth in tenant turnover, it seems like those initiatives is definitely paying off. In Europe, we want to retain our dominance on our core portfolio, and we are going to look at some extensions. We have been doing quite a bit of work, specifically in Croatia to do 2 extensions on both those malls. We want to leverage our SA expertise and actually create more value on the Eastern Europe portfolio. Sub-Sahara Africa, we want to ensure we create value and optimize the operational performance of those assets, whilst we are pursuing the exit strategy as discussed or raised -- mentioned by Wilhelm, we are seeing some positive interest on our Ghana assets, which is very positive. In terms of the nontangible asset strategy, we are looking to roll out some further SOKO District's and then implementing the 4 initiatives jointly with our partner, EmpiriQ. In closing, in the last 2 years, I do believe we have made a lot of progress on where we want to take the business. Sometimes a little bit slower than I would like it to happen. I must say COVID has made it a bit more difficult and challenging, but I do think the teams are working through those challenges, and they're doing it very well. We, as a team, are doing the right things now to create long-term, sustainable total returns in the future. And on that note, I want to say thank you. We will be opening the floor now for questions.

Our first question is from Pablo. He is saying thank you for the presentation. This is the fourth consecutive semester with rents declining. Will sales in South Africa and Eastern European portfolio end soon? And will we see some positive growth in rents? Or should we expect another 2 years of declining rents?

Pablo, as I've mentioned, I think the repositioning is starting to pay off, and I'm speaking now specifically on the SA portfolio. I see low growth happening in our SA portfolio. One of the realities that has happened, we didn't keep our portfolio relevant in SA. We have been working hard to make it more relevant as we stand now, and those changes, which you're bringing into place, takes time. And as tenant turnover will improve effectively, your effort ratios will come down and then it creates scope to increase your rentals. That's on the SA portfolio. In Europe, I think Europe was an exception in terms of what has been happening in COVID. We haven't seen any negative reversions on our Eastern Europe portfolio. We actually saw positive rent reversions. The negative reversions was relating to Belgrade, where Belgrade, a lot of competition has opened up. And given the competition that opened up, obviously, your turnover has dropped and that causes some negative reversions. But all the other malls had seen positive reversions up to now. And I mean if you go and look at the vacancy at the Eastern Europe portfolio of only below 0.3%, it indicates what is the demand for that assets.

Mweishö is asking why didn't Hyprop raise antecedent income to avoid dividend dilution following the equity raise? Was this to maximize the liquidity?

Just repeat that question?

Why didn't Hyprop raise antecedent income to avoid dividend dilution following the equity raise? Was this to maximize liquidity?

No, we had a number of levers to pull, and one of them was accelerated book build, which we participated in. And at that point in time, the share price was much better positioned, and that's why we pulled that lever. At the end of the day, we only got so many opportunities, recycling of assets are one and keeping your dividends back. As Brett has mentioned, we've worked quite hard with the JSE to see how you can retain your cash and still meet your distribution requirements. And unfortunately, that didn't pay off. So the DRIP is the ultimate one you can do.

Another question from Pablo. Revenues went 6% down during these 2 years. However, salaries went up 50% in the last report versus last year's numbers. Could you explain what's the rationale behind this? OpEx to revenue ratio was 2.2% 2 years ago and now it's 4.4%.

I think the driver is definitely not salaries, I can promise you that. Our key management team and top teams didn't get any increases last year. So that's definitely not that's driving it. In South Africa, you have the negative of rates that's increasing above inflation, and that is actually impacting your cost ratios. And it's not real manageable expenses. In expenses we manage, we're actually keeping those increases and those expenses below CPI. The ones we can't manage is rates, is one. We as, Hyprop has joined Superga, where we are driving a whole initiative to see how we can address rates, which is completely expensive. And the increase on that was huge. I mean over the last x years, I can't recall now exactly, but it's more than 30% increases in some cases.

We have a...

I'll add something to that. Just to add to what Morné has said, we have also brought in -- there were additional salary costs with the new entities that have been consolidated, West Africa Asset Management and the SOKO Company. And I think in 2020, there was a very small provision for bonuses for staff because, as Morné mentioned, most of the senior executives did not get increases or bonuses, and we have made provision in this year's results for bonuses for staff. Similarly, your leave pay provision has increased as well. As a result of COVID, people just aren't taking as much leave and so leave pay provisions are increasing.

Thanks, Brett. We've got 4 questions from Maher. I'm going to go through them 1 by one. Can you elaborate on the proposed outcomes in respect of the Hystead structure post finalizing the discussions with PDI?

I think when we've got finality about that, we'll definitely communicate it to the market. I've specified what I can at this point in time. We are looking to exit the noncore positions. And then we have made a number of proposals to PDI, and we're busy on negotiations. They intend from a Hyprop perspective is to take control of the remaining portfolio.

You mentioned that Hyprop will assume control of Hystead. Can you confirm whether or not this would mean fully consolidating Hystead? Have lenders indicated how they will view LTV, that is consolidated versus see-through?

Where our LTVs are at the moment, if you consolidate -- well, to answer your question differently, whether we take 78% or 100% of Hystead, Hystead will be consolidated on our balance sheet. So if we take control, doesn't need to be 100% to be consolidated. It would be anything where you actually work away with the reserve matters, which is actually preventing it from being consolidated at this point in time. If the reserve matters is not valid, which is over 75%, it will be consolidated.

Okay. Third question. Can you provide more information on the limitation on distributions from Hystead? What are the thresholds imposed by funders? Is the strategy to continue to retain capital in Hystead? If so, what would be the maximum payout expected from Hystead?

The reason why we kept the cash back firstly in Hystead is because of all the ways what is happening. As been mentioned by Rabia, they are experiencing their fourth wave. So that is more a strategic decision we as a Hystead board made to keep the cash in that business rather than pay it out to shareholders at this point in time. There is some requirements from the in-country banks, but they are asking more for amortization rather than keeping cash back.

Okay. He's asking what proportion of your South African rental income base remains unsustainable and over-rented in your view? And by how much do you estimate rentals need to be reduced before you deem the rental base sustainable?

Well, if my assumption is right that we actually can get the repositioning right within 2 years. Then if you look at how many leases are coming up for renewal in the next 2 years, that's about 30%. So you could potentially have that 30% reduced again with 24%. But as I said, the whole driver of this whole initiative is actually getting the turnovers and foot count up in our malls. And if you start getting that right, you actually can start showing growth in our rentals.

Okay. We have a couple of questions from Ross Krige. Is there a long stop date in the Ikeja sale?

I think this October at the moment. October is 21. But both parties is still committed to the transaction. Actis is definitely still wanting to do the deal. As we said, the big thing that's stopping the transaction from happening is actually getting paid for the asset because of dollar liquidity issues.

I think you answered this one in the closing slide, but he is asking, are you looking at disposing any other properties in South Africa or Europe? Do you want to touch on that?