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

Good morning, everyone, and welcome to Hyprop's interim results presentation for 6 months ended 31 December 2021. I want to make a special word of welcome to all our investors, directors as well as the high performers and maybe also use this opportunity to say thank you to all the teams in South Africa, Europe as well as Africa. Thank you for your dedication and commitment. If we look at the agenda, what we will be covering, we will look at our headlines and operations in South Africa that I will give you an update on. And Eastern Europe will be given by Rabia. Wilhelm will then provide us some feedback on sub-Sahara Africa, Brett on the financial results and I will handle the closing. Three years ago, we had to find a new strategy, and we have set a number of priorities we want to achieve, and I do believe we have made quite a good progress achieving these priorities, although COVID has made it a little bit difficult always to achieve it and the impact of COVID is seemingly to be less of an impact and that is actually quite evident in the performance or the trading performance of our whole portfolio in South Africa as well as Europe and our Africa operations. One thing COVID did confirm is that we are social beings that like to interact and to mingle with people, and there's a lot of energy being given off when you integrate with each other. And that supports our vision of creating safe environments and opportunities for people to connect and have authentic and meaningful experiences. Our distributable income for the last 6 months was ZAR 501 million, that is an increase of 5.9% compared to December 2020. On a like-for-like basis, that is a 21% increase. Our see-through LTV, we successfully reduced from 37.2% to 34% and that is the one that is relevant for our bank covenants. Our bank covenants is set at 50%. So there is quite a bit of headroom where our LTV is now. We also have worked very hard on our fully consolidated LTV. Our fully consolidated LTV peaked at around 52% in June 2020, and we have successfully reduced that now to 41.5%. The next key thing for us was to implement the Hystead liquidity event, and we have started that process. We have sold 1 asset, which is the Delta City in Belgrade. We have concluded the transaction on the sale of Delta City, Podgorica, and there's 1 CP that's remaining of securing the in-country debt, but it seems there's good progress, and we believe the transaction to be implemented quite soon. The balance of the portfolio, the 4 assets, and that's a transaction what we refer to the Hystead transaction, where Hyprop will be acquiring those 4 assets from Hystead. In terms of our SA portfolio, what we did experience on our SA portfolio over the last 2 years, there was a big devaluation on the SA portfolio of about ZAR 5 billion. And it's positive to see that we eventually got some increase on our portfolio, which is 1.4% increase since June '21, which is ZAR 298 million. We have gained good traction in our repositioning strategy in line with our Golden Thread pillars of being brand, place and people. And that was also evident in the quick recovery on our SA portfolio as restrictions was lifted. We -- our performance of our tenants was quite good. And in December, our numbers were very much in line with pre-COVID 2019 trading stats. We have maintained our retail vacancy at 2.4%, and in February, we have reduced that to 1.4%. We successfully completed the Somerset Mall ceiling project and that had a big impact on the ambience of the center and also letting in natural light into the center. At Eastern Europe, our independent property values was EUR 651 million, and we kept Podgorica in that valuation at EUR 75.4 million, and that is very much in line with our June '21 valuations and very much in line also with the 31 October '21 valuations, which we are using for the Hystead transaction. Retail vacancy was maintained at 0.3%, and there was also positive reversions on the portfolio. The 2-year project at Skopje City Mall for rightsizing tenants, improving the flow in the mall, bringing in the right tenant mix, upgrading the outside restaurants as well as the play area will be completed in the next month. We also upgraded the food court at The Mall of Sofia. In Africa, we have appointed a new asset manager, Sonja de Necker that will drive value creation on the portfolio, and Wilhelm is pursuing the exit strategy, and he has made some good progress on a potential sale on the Ghana assets. Non-tangible assets, we started work on our electronic gift card system, which is called NIKA, and we hope to roll that out on our portfolio quite soon. Looking at our key metrics. As a group, we want to ensure we have a healthy balance sheet. We've got a sustainable base of income where we can grow from. We will focus on total return and optimal capital allocation. Our distribution has increased by 5.9% to ZAR 501 million, but if we look at our distribution per share, that has reduced by about 9.6% to ZAR 1.465 compared to ZAR 1.98 before, and that was mainly due to 2 things. Obviously, the income we've lost on Atterbury Value Mart that was sold as well as the issue of new shares that was [ bought ] or issued during the DRIP. Our net asset value per share has reduced to ZAR 58.97 per share, and the reduction was also mainly driven by the issue of new shares with the DRIP. That reduction was ZAR 6.60 per share. As previously communicated, we won't be declaring an interim dividend. We will be paying annual dividends until such time where the market stabilizes. This graph shows the interest cover, loan-to-value as well as our exposure to hard equity debt. It's very important that your interest cover is healthy. Our interest cover is -- currently, our IFRS ICR is at 3.21x cover, and our cash ICR is at 3.62x cover. We have had a priority to reduce our debt, and I do believe we have done that quite successfully. Our see-through LTV, as I mentioned, has reduced to 34%, and our fully consolidated LTV is at 41.5%. Another risk that was on our balance sheet is the way we have funded our hard currency equity debt and that was normally funded, securing it with in-country South African assets. And when the rand weakens against those hard currencies, obviously, your debt increase in the value of your asset that's giving it security reduces, and that has put strain on our balance sheet. What we have done is we've successfully settled all dollar equity debt, and we have made quite a lot of progress in reducing our euro equity debt, and we've reduced that by EUR 38 million. That was after December '21. What we are going to do with the sale of Podgorica as well as the implementation of the Hystead transaction, that euro equity debt will reduce to about EUR 111 million. South Africa, still the bulk of our business. 59% of our investment properties are located in South Africa, and that's a total of 77% of our total GLA. Our distributable income is coming mainly from South Africa, as 99.6% was paid from South Africa. And the main reason for that is we haven't declared any dividends from Hystead. And given the dollar liquidity issues in Nigeria, we haven't received really any income from our Africa operations. Trading overview. The graph on the top left-hand side shows our footfall. We have shown a 5.1% increase in our footfall over the last 6 months, which is very positive. And as you can see on the slide, since March '21, we had an increase in our footfall above the 2020 footfall numbers. The footfall at all our malls has been very -- has improved and the one that has performed the best was Canal Walk, where our footfall for the last 12 months compared to 2020 has increased by 8.9%. On the graph, we also show the basket size. That's the amount of money spent per visit. And as can be seen on dots, the basket size has improved in 2021 compared to 2020. Our basket size for the last 6 months was on average ZAR 281. And in December, it was ZAR 321. It has increased over a 6-month period compared to 2020 by 5.5% and over a 12-month period by 8.6%. Trading density. That's the graph on the top right-hand side. Similar is our footfall that has seen a positive growth in our trading density since March '21 if you compare it to 2020. And it's very good to see in September '21, we started to actually meet our trading densities as it was in 2019. There was a positive growth in our trading densities of 8.3% in the last 6 months. In terms of malls that has performed very well in trading density was Canal Walk. It has increased by 12.9% and Rosebank Mall by 12.2%. If we look at specific categories that has been doing well, although coming from a very low base, entertainment increased by 84%, jewelry by 24.9% and electronics, photography and music by 19.9%. Our focus is always to make sure our tenants are performing. So we are focusing quite a lot on tenant turnover. Tenant turnover has increased by 11% over the last 6 months. All the malls have shown very positive growth in tenant turnover. Rosebank Mall was the best performer. It increased its tenant turnover by 21.3%, Hyde Park Corner by 17.4% and Canal Walk by 13.3%. Net receivables at 30 June '21, was ZAR 61 million. We have collected 101% and that has reduced to ZAR 47 million as at December '21. In terms of our arrears, our arrears in December was ZAR 114 million, and we successfully reduced that to ZAR 111 million. On the next slide, we showed retail vacancy. The graph on the top left shows the vacancy over the last few years. And as can be seen in December 2020, we had the highest vacancy level, but we have maintained it quite well at 2.4%, and that has subsequently reduced to 1.4%. In terms of our office portfolio, which is only 6% of our GLA, we have got vacancy of 26%, and we are busy with a number of initiatives to improve that vacancy of potentially converting some of the offices in other uses and, therefore, actually attract more people into our malls. Rent reversions. It's positive to see that our rent reversions is now minus 13% compared to December '22 (sic) [ December '20 ] where the rent reversions was 22.7%. And what is quite evident in terms of the turnover that's improving as well as our rentals, our rent ratio has reduced from 9.9% in December 2020 to 8.3% in December '21. This was also confirmed by the valuers. I do believe our rentals is definitely back to market, and it is definitely at a more affordable and a sustainable base. The average duration on new leases was 4 years, on renewals was 3.3 years. And to mitigate the rent reversions, we are doing 3 things. We're actually signing shorter leases. We have reviews and, where possible, we increase the rental turnover clauses. Therefore, as the tenant trades better, we can actually participate in that upside. One of the mandates we have given the teams, we need to make sure we retain our key tenants, and we have functional malls, and they're all working very good to do that. Tenant turnover. Understanding your demographics of your shoppers around your shopping center is key, and that will drive tenant turnover in the long term as well as growth in your income. At Canal Walk, we are going to open in May of this year the first Zara within our SA portfolio. We also opened at Canal Walk Aeronautica, Clicks Baby, Nicci Boutique as well as Birkenstock. We opened 2 new flagship stores at Canal Walk for @home as well as Totalsports. And the current vacancy at Canal Walk is only 3%. And I understand from the team, they've got a list of new tenants that wants to come into the mall, and quite interestingly, the tenants are looking for space of around 400 square meters, which does put a challenge or a positive challenge on the team. We have reduced our vacancy at Rosebank Mall from 4.8% to 3.7%. We are currently busy moving some tenants around within Rosebank Mall and that's specifically to activate some dead spots and actually improve the flow within the mall. Since we opened a preowned iStore, iStore approached us to open another store. So we will be opening a new -- second iStore for new products, and we also secured PEP HOME for Rosebank. CapeGate, the vacancy is well below 1%, and they have secured tenants like Studio 88 as well as PEP HOME. We also have upgraded the Checkers to the new FreshX specification, and we increased the Checkers store by 900 square meters. At Hyde Park, we also got very good demand. We have made some changes with the entrance right next to Clicks now from the parking area. And what is positive about that, it actually activates that area of the mall, and we are seeing some activity. And Somerset Mall, we still got 0 vacancy, and we have secured a new concept store for Totalsports, ALDO, Big Blue as well as Starbucks. The Glen, almost the third level of the shopping center hasn't performing -- has not performed well, historically. And the team, what they've done is actually have rightsized HiFi Corporation, and they want to bring in further value offering on that section of the mall. So they will be introducing Crazy Plastics and Crazy Pets, and we do believe that will actually be quite beneficial for that section of the mall. If I can now pass over to Rabia to give us an update on Eastern Europe.

Thank you, Morné, and Good morning, everybody. Just before going to the slides, just a short brief on the many events evolved in Hystead and in the region. First point, disposals. It was reported that during the second half of 2021, Hystead disposed of Delta City Belgrade to MPC Holding for EUR 115 million and, at the same time, commenced negotiations, which were subsequently concluded to a signed sale and purchase agreement in February with BIG CEE to sell Delta City, Podgorica for EUR 95 million. These disposals are in line with the strategy set by the group to retain core assets. Second point, the Russia and Ukraine conflict. Russia's attack on Ukraine has taken the markets by surprise. And the consequences are already having an impact on some sectors, such as commodities, transportation and logistics, which already have suffered due to the pandemic. As it seemed to be, the direct impact to the commercial real estate market in the region we operate in is still considered minor and mainly limited to few points: the exposure of some European banks to the Ukrainian and Russian markets, which, at this point, does not seem to be [ arresting ], and the constant price increase in electricity and fuel, which leads to an increase in the shopping centers' operational cost and also affects the spending power of customers in nonessential products and services. We are closely monitoring the escalation and the development of this unfortunate crisis. Now moving to the slides, macroeconomic and retail environment. It was reported that the COVID pandemic affected all countries Hystead operates in. However, starting 2021, we noticed the first signs of recovery, which improved throughout the year until today. 2022 is expected to further improve the retail performance in the region. In Bulgaria, the GDP slightly improved with 2.4% in 2021, and the expectations are to further increase in the upcoming years, peaking in 2023. The CPI is also higher with 3.2%, and going forward, with a stable increase of 2% to 3% per year up to 2025. The unemployment rate is the lowest out of all countries in the portfolio at 5.7% and lower than European average unemployment rate. The total shopping density is 120 square meters per 1,000 inhabitants. Croatia, on the other hand, shows major GDP growth in 2021 with 11.2%. The CPI movement is in line with the rest of the portfolio, marking 2.5% increase. The unemployment remains low at 7.6% and is expected to further improve, reaching 6% in 2028. The shopping density is the highest with 268 square meters per 1,000 inhabitants. Montenegro behaved similar to Croatia with regards to the GDP. There is an increase of 8.4% in 2021, which is expected to stabilize in the next several years at 3% to 5%. The CPI is relatively stable with around 2.5% upside in the next 5 years. The unemployment is the highest in the portfolio with almost 20%, while the shopping density is around 163 square meters per 1,000 inhabitants. North Macedonia has stable macroeconomic indicators with 4.3% increase in GDP, 2.8% in CPI and relatively high unemployment rate of around 15%. Shopping density, on the other hand, is 68 square meters per 1,000 inhabitants, which is the lowest in the portfolio. Next slide, trading overview. We compared the 6 months trading overview with the previous financial year. It must be noted that the overall performance of the malls has not reached yet the same level as pre-pandemic period in 2019. The footfall recorded a 12.8% increase during the period from July to December 2021 compared to the same period in 2020. Even though the pandemic continues, there is an overall positive trend during the period observed on a monthly basis. The spend per head increased by 4.1% on average for the second half of 2021 compared to the same period last year. During the COVID period, the trend of increasing spend per head was set based on less frequent visits by customers with more significant higher basket spend. As for the trading density, there is an increase of 11% between the 2 periods. This is mainly due to the improved turnovers in the second half of 2021. If we look at revenues, considering that there was no hard lockdown and the malls continued to operate during July to December, with the green certificate restriction in place, the income stream improved by 17.4% compared to the same period in 2020. On the collection side, there is stable improvement trend during the 6 months in 2021, reaching 88% collection out of total collectibles in December, which is very close to the pre-COVID level. Next slide, valuation bridge. Even though the pandemic is still ongoing, the restrictions during 2021 were less severe in comparison to 2020. We start seeing a recovery in the net operating income and subsequently on the property valuations, which improved by 0.5% from EUR 648 million to EUR 651 million. These figures exclude Belgrade valuations, and Podgorica is presented at EUR 75 million. However, we highlight that the cap rates and the discount rates remain unchanged since 2020, still 25 basis points higher compared to the pre-COVID levels. All valuations were done based on the discounted cash flow projected over a period of 10 years. Next slide, leasing activity. During the 6 months ending December 2021, we managed to secure new international and local brands entering our portfolio, with the majority being in the fashion and fast food category. In total, we have concluded 36 new lettings and renewals at a weighted average overall rental decrease of less than 0.5%. New lettings were secured on almost 3,000 square meters and renewals over 6,000 square meters were concluded from July to December. The average contractual escalation achieved was 2%, and the vacancy at the end of December stood at 0.3%. That's all from my side. Thanks. And I will hand it now to go Wilhelm.

Thank you, Rabia, and Good morning, everyone. If you're wondering what's happened to my face, I ran out of talent on my bike. It's nothing serious. Turning to Sub-Saharan Africa. Trading conditions in Africa have improved, as you will see from our trading metrics in a while. They say that Putin killed COVID. That's not to make light of the situation, but saying that COVID concerns have moved down the risk register. On that note, all tenants in the Africa portfolio are now allowed to trade, but there are curfews in place and capacity restrictions on restaurants and cinemas. Looking at some of the trading metrics. Foot count increased by 9.1% compared with the previous year and is only slightly down on pre-COVID levels. This is indicative of trading starting to normalize. The increase was driven mainly by West Hills Mall and Kumasi, with the Ikeja and Accra Mall being more or less flat. In a similar vein, trading density in Ghana grew by 6.7% compared with the previous year, with absolute trading density being well ahead of the pre-COVID levels. Overall vacancies ticked up slightly over the past 6 months to 11.6%, but remain well below pre-COVID levels. The recent increase is due to the vacation of 1 tenant, UK Brands at Accra Mall just before period end. Ikeja City Mall remains fully let, as has been the case for the last 2 years. I'd really like to thank the Africa team for their commitment during these unprecedented times. It really takes a team effort. Last year, ShopRite announced the sale of its Nigerian business. We are pleased to announce that we've signed a new 5-year lease with a new owner who will continue to trade under the ShopRite brand. Unfortunately, the liquidity constraints in the Nigerian foreign exchange market persists. Hence, no U.S. dollars could be repatriated to South Africa and no income from Ikeja was included in distributable income. All bank covenants are being met, and subsequent to the period end, we've reduced the gearing in the Ghana portfolio by USD 5 million, of which Hyprop contributed roughly 3 quarters and Attacq 1 quarter. Moody's and Fitch recently downgraded Ghana's sovereign credit rating, citing liquidity and debt challenges amid revenue generation constraints. Consequently, the Ghanaian cedi has weakened by 11% during the reporting period and the cedi has weakened further since 31 December 2021. Despite our strategy to exit Africa, we're committed to protecting value in the interim. Our immediate priorities remain relentless cash flow management, strict cost control and a reduction in vacancies to fill the void left by the departure of many South African retailers during the past 2 years. An example of cost control is an amendment to the terms of a property management agreement to a lower basic fee and a performance fee contingent on meeting certain KPIs. You would have read in the press about Game looking to curtail its African operations. We are in contact with Game who've indicated that their intention is to sell the Ghana business rather than close it down. However, information is limited at this stage, and we do have the legal right not to agree to the assignment of leases to the new owner should that be required. Turning to the sales process. In November 2020, we announced an agreement to sell our 75% stake in Ikeja 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. As Morné has mentioned, we are in discussions with a potential buyer of the Ghana portfolio, and we will update you when there is something concrete to report. The transaction is quite complex on the side of the buyer rather than on our side. In conclusion, we've made huge strides in optimizing the capital structures and management structures in the African entities to streamline operations and drive value. The operational performance, as you've seen, is also quite encouraging, but the impact of the recent weakness in the cedi on turnover and collections will have to be watched closely and managed properly. Thank you, and I'll hand you over to Brett now for the financial report.

Thank you, Wilhelm, and Good morning, everyone. The improvement in general trading conditions in the centers is mirrored by the financial results for the period. Distributable income increased from ZAR 473 million in December 2020 to ZAR 501 million in December 2021, despite the sale of Atterbury Value Mart in July. Atterbury Value Mart contributed ZAR 90 million of revenue and ZAR 60 million of net property income in 2020. No income from Ikeja or AttAfrica is included in the distributable income as a result of [ grupo ] not being able to secure dollars to pay dividends or interest to its shareholders. As a result, this waterfall graph reflects the changes in the rest of the group's distributable income, mostly in the South Africa portfolio. COVID-19 relief in South Africa reduced from ZAR 104 million to ZAR 47 million, with the balance of revenue increasing by ZAR 41 million over the prior period as rent reversions reduced. The provision for credit losses on trade receivables reduced by ZAR 27 million, while other costs increased by ZAR 65 million, once again, mainly due to significant increases in rates and utilities. The reduction in the recovery rate of municipal and utility costs impacted the cost-to-income ratio. The magnitude of these cost increases are relevant when negotiating rent renewals and impact the level of rent reversions. Net interest costs in South Africa reduced by 38 million, following receipt of the ZAR 1 billion of cash from the sale of Atterbury Value Mart. The reduction of rand debt over the last 2 reporting periods also contributed to the lower interest costs. No dividends were received from Hystead in the current period compared to 20 million in December 2020. Management fees received from Hystead reduced from 33 million in 2020 to 13 million, which is more sustainable. In December 2020, there were interest and overhead costs in Hyprop Mauritius, which has since been reduced following the repayment of all Hyprop Mauritius' debt. This accounts for the ZAR 16 million improvement in the column described as Africa on this slide. Overall, distributable income increased by 6% or 21% if Atterbury Value Mart's net income is excluded from the December 2020 results. Cash generated from operations in all portfolios was good and exceeded the distributable income. This includes Ikeja before we exclude the distributable income from Ikeja because of the dollar constraints in Nigeria. Net operating cash flow, which is calculated after deducting net interest paid, was 567 million compared to distributable income of 501 million. Major items impacting the cash flow during the period are the proceeds from the sale of Atterbury Value Mart of ZAR 1 billion, the 2021 dividend of 1.04 billion and the proceeds from the DRIP of 876 million, giving a net cash outflow of 159 million. Capital expenditure of circa ZAR 100 million and the repayment of ZAR 260 million of rand debt. The graph on the left-hand side of this slide shows the changes in the group's total debt over the period, including all the euro debt. Total debt reduced from 19.9 billion in June 2021 to 18.2 billion in December. The 18.2 billion includes the effect of the weaker rand at 31 December, which increased the rand equivalent of the dollar and euro debt by almost ZAR 800 million in the period. Most of this currency weakness has been reversed at the current exchange rates. Rand debt reduced from 5.4 billion to 5.1 billion as a result of bonds, which matured during the period and were settled from cash and revolving credit facilities. The net reduction was ZAR 267 million. In June 2021, the total euro debt was ZAR 13.4 billion, equivalent to EUR 786 million, 401 million of equity debt and 385 million of in-country debt. When Delta City Belgrade was sold, 83 million of in-country debt was transferred with the sale of the company and Delta City Podgorica settled EUR 9 million of its in-country loan from the IFC. A further EUR 4 million of in-country debt has been settled through debt amortization. These amounts make up the EUR 1.6 billion reduction in the euro in-country debt on the slide. The net proceeds received by Hystead from the sale of Delta City Belgrade is EUR 33 million. This amount was used to settle EUR 38 million of equity debt in January 2022 -- sorry, February 2022, as it included, on this slide, as the ZAR 654 million reduction in equity debt. The result is that by the end of February, the in-country debt has reduced from EUR 385 million to EUR 289 million, and the equity debt reduced from EUR 401 million to EUR 363 million, an overall reduction of EUR 136 million, or ZAR 2.2 billion. The change in the U.S. dollar debt is mainly due to currency fluctuations. The U.S. dollar debt comprises the bank loan in Ikeja of $59 million and the shareholders' loan from Attacq of ZAR 24 million. The graph on the right-hand side shows the steady reduction in the group's bank debt since 2019. Total debt has reduced from over ZAR 20 billion in 2019 to an equivalent of ZAR 16.5 billion, based on a constant 2019 exchange rate. In terms of the group's LTV, the see-through LTV is used by the group's major lenders for covenant purposes and is the relevant LTV calculation at 31 December 2021. Only once the Hystead transaction has been implemented, will the fully consolidated LTV become the relevant measure. The see-through LTV reduced from 37.2% in June 2021 to 34% in December and is well below the bank covenant of 50%. The sale of Atterbury Value Mart had the biggest impact in reducing the see-through LTV by 2.3%. Because of the way in which the see-through LTV is calculated, the impact of the Delta City Belgrade sale on the LTV in the period is minimal. The EUR 33 million of sale proceeds were only used to reduce the equity debt in February 2022. And the impact of this is only evident in the forward-looking LTV movement in the top right-hand side, which shows a further reduction of 1.3% in the LTV once these proceeds are applied to reduce the euro equity debt. The resultant LTV is 32.7%, and this is where the LTV is today. Other factors that affected the see-through LTV in the period are the increase in property values and the exchange rate fluctuations, neither of which are significant, but collectively reduced the LTV by nearly 1%. Please remember that the changes on these graphs are the percentage change for each of the individual items and do not necessarily add up to the total change in LTV value. Following completion of the Hystead transaction, the fully consolidated LTV will become the relevant LTV calculation for bank covenant purposes. The fully consolidated LTV and see-through LTV will also converge to the same final answer. We have tracked the steps to this convergence on the right-hand side of the slide, starting with the December 2021 LTVs. I have already mentioned the effect of settling the 38 million of equity debt in 2022. The Hystead transaction will result in an increase in the LTV, mainly due to some of the back-to-back security, which Hyprop holds from PDI, being released as the euro equity debt is settled from the purchase price paid by Hyprop or is taken over by Hyprop in the entities it acquires. The impact on the see-through LTV of 8% is also the result of all of the Hystead debt being brought onto the balance sheet and into the LTV calculation. This effectively accounts for the difference between the historic see-through and fully consolidated LTVs. The sale of Delta City Podgorica will result in approximately EUR 70 million of equity debt being settled, reducing the LTVs by between 2.4% and 2.8%, depending on whether it's see-through or fully consolidated. The final stage of the debt reduction plan is the sale of the Ikeja City Mall, which will reduce the LTV further when this happens. Once all of these transactions have been implemented, the 2 LTVs will converge at 38.5%. If the Ikeja sale is not implemented, the fully consolidated LTV will be 40%. In reducing the fully consolidated LTV to the 38.5%, a total of EUR 290 million of equity debt will be settled from the proceeds of the Hystead transaction and the sales of the 2 Delta City properties. The net rand debt will increase as euro borrowings are replaced with rand borrowings and rand cash is utilized. Total borrowings will be more evenly split between rands and euros, each just below 50% of the group's total borrowings. The equity in the euro portfolio will increase to a minimum of EUR 170 million, and the LTV ratio of the European portfolio will reduce from just below 100% to approximately 70%. These changes will significantly decrease the group's balance sheet risk and exposure to a weakening rand. Notwithstanding the envisaged reduction in the fully consolidated LTV, all of our South Africa lenders have agreed to an LTV covenant of 55% for a limited period following consolidation of the Hystead properties. The group's short-term liquidity requirements of 5.6 billion, this covers all of the debt which matures over the '22 calendar year as reflected on this debt maturity profile. Nearly 2/3 of this or EUR 200 million relates to the euro equity debt, which will be settled through the Hystead transaction and from the asset disposal proceeds. The group has ZAR 6.3 billion of liquidity to meet these needs. We are also considering refining some of the DCM bonds, which mature later in the year with new bond issuances. In conclusion, just thank you to everyone for listening and for supporting us, and thank you, too, to my finance team for all of their hard work again with this reporting period. Back to you, Morné.

Thank you very much, Brett. And in closing, we will touch on some of the ESG points we're busy with. We have completed our energy and waste audits, and we are in the planning phase now. Obviously, we will be focusing on the low-hanging fruits to actually bring down our consumption of energy as well as recycling of waste. One of the exciting projects is we have started a pilot project with IoT.nxt. It is a smart technology business, and I actually envisage to optimize the efficiency of your operations as well as maintenance. And if this is successful, we obviously will roll it out on the rest of the portfolio. Similarly, Propelair toilets we have run as a pilot at Clearwater Mall, and it has actually shown quite a lot of water savings, and we will be rolling that out on Hyde Park Corner as well as the Rosebank Precinct. We are in the planning phase of the Phase 2 and 3 of solar projects at Woodlands, Clearwater Mall as well as Rosebank. In terms of our foundation, we have appointed a dedicated person to actually drive the Hyprop Foundation. The foundation focus on 5 areas, namely education and skill development, community upliftment, health and wellness, environmental upliftment and enterprise development. From a governance point of view, we have appointed 2 new independent nonexecutive directors to the Board. The reason for that is to improve the skill set on the Board as well as for some succession planning. We have appointed Loyiso Dotwana as well as Bernadette Mzobe. We also have internalized the company secretarial function, and we have appointed Fundiswa Nkosi as our company Secretary. The rationale for acquisition of the 4 properties from Hystead. I'm just going to give a little bit of background from where we come from. As you would know, we had obligation to implement a liquidity event at 31 May, '21, with a long stop date of 31 May '22, that was agreed between the parties. And that liquidity event could happen in 4 ways. It could be a listing IPO. It could be a corporate restructure or the sale of assets. Before myself joined Hyprop, they were busy driving a listing of Hystead. Unfortunately, market conditions have changed, and that never happened. And since then, we have been in negotiations with PDI of how do we implement this liquidity event. We have agreed to actually do it by means of selling the 6 assets. As mentioned before, Delta City Belgrade has already been implemented, and we are on track to also sell Delta City, Podgorica. What Hyprop then decided is, given the core assets that's left is very good assets, we will make an offer to Hystead to acquire these 4 assets. And it actually works in line with our diversification strategy. It also has these 4 assets that we believe you can actually grow from. There's a lot of upside on these assets. If you look at the 2 Croatian malls, we think there's opportunities to do extensions on those. There's definitely demand for tenants to increase their store size, and there's a number of tenants that wants to come into the malls. If we look at Skopje City Mall, we have done quite a lot of work over the last 2 years, and that benefits we will only see as COVID dissipates. The same with the mall in Bulgaria. We have done most of the work there. Obviously, the one part of it, which we will spend some CapEx on, is the upgrading of the toilet facilities that will be happening over the next 2 years. In terms of the historic structure, we already got 78% of the downside risk. And what we will achieve by this transaction is really align our economic interest with our risk we take. This is 4 centers. We actually understand very well. We've got a 4-year track record on these assets. And another important point is, we will take over the existing staff complement, which I do believe is quite a competent team, and that will ensure in-country know-how as well as continuity. Furthermore, we will optimize our capital structure. As mentioned by Brett, we will, as a step one, create real equity in the investment of at least EUR 170 million. We also will reduce our euro equity debt exposure, which is really a cross-currency risk for us and that we will reduce to about EUR 111 million after the disposal of Podgorica and the implementation of the Hystead transaction. And then from an accounting point of view, this Hystead investment was always very complicated on our balance sheet. We will simplify the accounting and reporting. And those assets will be consolidated onto our balance sheet, which is beneficial. Then I think it's also important to see what is the impact. As you would know, there is green certificates required in terms of the malls in Eastern Europe. At Croatia and Skopje City Mall, that has been dropped actually just before January. But what we have seen -- and this is a very good graph to show what is the impact. The green certificates has been dropped subsequently at mall of -- The Mall in Sofia, and that's indicated by the line. And you can see the immediate increase in footfall that do have to the mall. So I see a lot of upside on the malls. In the circular, we have disclosed to shareholders there was a forecast, which we've done in that circular, and that was based on forecast which was still done when these green certificates was applicable on the 4 malls. So I do think we will actually perform much better than that forecast that's indicated in the circular. If we go to the next slide, obviously, looking at our outlook, the war in Ukraine does have an impact on inflation as well as the increase in commodity prices. We do think it will increase the cost of food, electricity and fuel, and definitely would put some pressure on our shoppers as well as our tenants. Operational costs on our malls will increase in the short term, but we do think it will normalize in the medium term. We are keeping a close watch on what is happening in Ukraine and what is the potential impact on our Eastern Europe properties. One of the benefits is most of the -- all the countries we are invested in is NATO countries. And we had some communication with the valuers to understand would there be an impact on our property values on the Eastern Europe properties. The feedback from them was, basically, these are mainly Balkan countries, and they have had adjustments for the perceived risk in these countries. And the risk premium on these countries is actually much higher than the rest of Eastern Europe. So they don't think there would be any adjustments in the cap rates as well as the discount rates. As a group, we have set ourselves the following 4 key priorities to drive. We want to implement Hystead transaction; obviously, implement all the initiatives to strengthen our balance sheet and reduce the euro equity debt. We will limit CapEx to the essential capital spend, and we want to implement a number of these ESG initiatives. One of the key things, which we want to drive, is the annual portfolio review to ensure our properties is in line with our strategy and is still core to the portfolio. In South Africa, we will definitely pursue our repositioning strategy in line with the Golden Thread principles or pillars, as we say. We are exploring some redevelopment opportunities on the SA portfolio. And that's quite exciting. We're looking at 3 projects, specifically at Somerset Mall, Rosebank Mall as well as Hyde Park and, hopefully, we can get some finality on that, and then we will definitely communicate these developments to the market. In Eastern Europe, we want to leverage all of our SA expertise. We want to retain the dominance at our malls. And one of the things we're going to drive hard is actually securing the further rights to do the extensions at the 2 Croatian centers. In Africa, obviously, we want to conclude the transaction on the disposal of the Ghana properties. And should the Actis deal not be implemented, we will have to go back to the drawing board to ensure we can create liquidity of that investment. Non-tangible assets, we are -- moved that responsibility under Wayne Abegglen's portfolio. And one of the key things we actually are going to do is to look to split the [indiscernible] business. It's the physical districts, which we think could be a competitive advantage for our centers, and then it's the technology platform, which you can actually extract a lot of value from not just in the districts but actually managing markets as well as centers. We want to complete the NIKA software, and then we will roll it out on the rest of our portfolio. Just in closing, we are busy with a number of things, and we've got a few priorities, which we have been driving. I do believe these will have a big impact on the future growth of Hyprop. And thank you very much. We will now go into Q&A.

I've got 2 questions from Francois Du Toit, and I'll handle them one at a time. The first one is, can you please explain the desktop valuations? How do they differ from the year-end valuations in terms of the process and people involved?

It's -- firstly, same valuers are doing the valuations. The difference between a desktop valuation and fully -- full valuation is effectively, they visit the site and engage more with the management team with a full valuation, whereas a desktop valuation, they get the budgets, and based on the budgets, they make a valuation based on the previous numbers.

Second question, effective forward yield of 7.4% was disclosed for the SA valuations. At a 7.4% yield, net rental income would be ZAR 1.657 million for the SA portfolio. But annualizing the first half's rental income after adjusting for the ZAR 47 million COVID impact gives me just ZAR 1.5 million net rental income. What am I missing? Are there one-off negatives in the first half's rental income other than the ZAR 47 million COVID impact?

Brett, you have the answer there for us.

I think what's probably best is for Francois Du Toit to share his calculation with us, so we can look at the details and guide him properly. But I don't think there are any big ones-off impact in the current 6-month period rental income.

Thanks, Brett. And Justin has got 2 questions from Peregrine. First one, assuming the Hystead transaction has concluded and considering the forecast balance sheet position at that time, is it fair to assume that a DRIP will no longer be offered to shareholders come the year-end dividend payment?