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

Good morning, everyone, and welcome to our annual results presentation for the year ended 30 June 2023. I want to use the opportunity to say a big thank you for all the teams in South Africa, Europe as well as Africa for their hard work and commitment. Just from a posting questions point of view, I think we can use the opportunity during the whole time to post your questions. and we will be handling the questions at the end of the presentation. In terms of the agenda, I will be covering the headlines and key metrics. I will ask Rubecca Khan, one of our portfolio executives in South Africa to give us an update on the operational performance of South Africa. Rabia Shihab will give us an update on Eastern Europe in terms of operational performance. Wilhelm on sub-Sahara Africa, and then Brett will give us an update on the financial results. I will handle in closing, where I will give a little bit of a picture of looking ahead in terms of what's happening on the portfolio. Following the consolidation of the 4 properties in Eastern Europe onto our portfolio for a full financial year, our distributable income has increased by 24%. It has increased to ZAR 1.451 billion. The European portfolio delivered net property income of EUR 43.3 million compared to the forecast, which we have given to you when we did the transaction where we acquired the 4 assets from a high state that forecast was EUR 58.9 million. The good performance from Europe was further supported or boosted by the fact that the rand has depreciated against the euro. 84% of our shareholders has elected to participate in the DRIP for 2022. We had reinvestments of ZAR 844 million, and that has been reduced to ZAR 500 million. We had to issue new shares of about 16 million shares. There was a slight reduction in our LTV to 36.3%. That's below our internal target of 40%. We have a healthy liquidity position with ZAR 2.3 billion of available facilities. MSCI has upgraded our ESG rating to AA and that was on the back of improvement in our corporate governance as well as our green building initiatives. When you start looking at South Africa, our repositioning strategies is definitely paying off. And as you can see, we -- with the improvement of our operational performance. Our independent valuation on the SA portfolio increased to ZAR 23 billion. Although there was an upward pressure on some of the capitalization rates and discount rates on some of the properties. That was, in a way, a bit compensated or mitigated by the good operational performance plus an increase in our forecasted net operating income or the forecast for our net operating income. Our tenant turnover has increased by 12.8% and the total tenant turnover for the financial year was ZAR 23.6 billion. Our average foot count grew by 5.2% and our retail vacancies was reduced to 1.2%. In terms of our strategy is to drive tenant turnover. We have seen an improvement in our rent reversions, although still negative. For the first 6 months, it was minus 7%, compared to the last 6 months was minus 7%, compared to the first 6 months of being minus 13%. Looking at the financial year, our negative reversions was minus 9%, compared to previous year, where it was 13.4%. We have successfully revamped the Clearwater food court, and we have seen an improved trading performance of all the restaurants as well as the food outlets in the food court. The second phase of solar has been completed at Woodlands as well as Rosebank. In Eastern Europe, we have successfully reduced euro borrowings in country by EUR 56 million in line with our debt reduction strategy. Our independent valuation on the Eastern Europe portfolio increased to EUR 574.6 million, that is very much in line with the value we have used when we have acquired these 4 assets. Tenant turnover has increased by 15.9%. The total tenant turnover for the financial year was EUR 559 million. What is very good about Europe, they've increased their footfall with 14.3%. Retail vacancies is very low at 0.3%, and we had positive reversions of 4.5%. We successfully replaced the 2 Inditex stores at The Mall in Sofia, the ex-Massimo Dutti space was now occupied by Intersport and Sinsay, which is part of the LPP group, took over the ex-Zara premises. These 2 new anchors, Intersport and Sinsay is actually attracting more shoppers and therefore, they are trading better than the outdated Inditex stores which they've replaced. We also completed the [indiscernible] room upgrade at The mall in sofia. Sub-Sahara Africa, the team did very good work under a very tough economic circumstance in Ikeja City Mall remains fully let and achieved a 28% decline in arrears. We successfully replaced the ex-Game space at Accra Mall. We replaced that. We have a tenant Orca Deco. They opened a new flagship store. Orca Deco is a furniture retailer in Africa. Still committed with Actis to implement the sale of Ikeja City Mall. We have received competition commission approval and the last -- or one of the last remaining CPs is for Actis to raise the dollars. Excluding game, the vacancies on the Africa portfolio reduced by 50%. On the non-tangible assets, we have split the [SOCO] business between the physical district and what we call the technology platform. The physical districts has been internalized to the Hyprop portfolio, and the idea is to use that as a differentiator on our portfolio. If we look at the technology platform, we rebranded it to Nter. We do develop further functionalities that manage tenants and vacancies as well as tenant performance. And what is very positive Nter started securing third-party users. In terms of Nika, our electronic gift card, we are making very good progress. We're engaging with a number of banks to actually improve our redeemability over that. And what Iglu is a business. It's a tick app, very much like Airbnb, where you can register your rooms that's available for rent. Part of the future of this technology app is also to provide loan find funding to build extra rooms to your property. And what they started doing is using the Nika court to actually manage their drawdowns when the customer are buying stuff from cashbuild stores. Our distributable income has increased by 24% from June 2022 and it has increased to ZAR 1.451 billion. Given the shares that we had to issue as part of the DRIP, our distributable income per share has increased by 18% to ZAR 405.3. After the effect of the additional shares, our net asset value has increased by 4.1% to ZAR 36.39 per share. ICR is very important for us to have a healthy balance sheet. Our ICR has reduced from 3.2x to 2.8x, and the main reason for that is the increase in interest costs due to interest rates that started moving up as well as the increase in our borrowings. Our loan to value, if you look at our fully consolidated LTV has reduced slightly to 36.3% and that's very much in line with the way SA REIT calculate LTV on that basis, our LTV is at 36.1x. I will hand over now to Rubecca to give us an update on the South African portfolio.

Thank you, Morné. 62% of the value of our investment property remains the bulk of our business that sits in South Africa, making up 71% of our total GLA. South Africa contributes to 62% of our distributable income. We continue to see positive results of our center repositioning strategies. Tenant turnover is a major focus area for us and key to driving rental growth. Tenant turnover has increased by 12.8%, and this is just over 15% of our pre-COVID numbers in June 2019. All 8 of our malls have shown great growth with Rosebank Mall increasing by 21.1%, Canal Walk by 20.1% and CapeGate by 13.9%. The top right graph indicates the effort ratio, which measures the total cost of occupancy versus tenant turnover. At year-end, the effort ratio was 8.7% compared to 9.9% of June 2019. This is a good indication that rental growth will follow, provided we keep growing the tenant turnover. Rental growth does lag slightly compared to the turnover growth, and this is evident in some of the reversions that we are still experiencing. Trading density on the bottom left showing growth of 11.8% compared to June 2022 and a 14% higher of pre-COVID levels. The specific categories that have performed well are 33% increase in entertainment; 41.4% in other, which includes luggage, travel, convenience services and car sales; and 22.1% in food services and takeaways. The footfall has shown positive growth of 5.2% since June 2022, but still lags against the June 2019 footfall. Our spend per head has increased substantially since 2019 and although shoppers are visiting less frequently compared to 2019, they are certainly spending more per visit. We have a driven focus to attract shoppers through marketing initiatives, which will ultimately increase our turnovers. The top 2 graphs of the -- on the top of the page show our tenant turnover and rental income over the last 5 years, reflecting the rolling 12 months ending June. As we had reported previously, our repositioning strategy is commenced in our SA portfolio in 2019, and we had made good progress until COVID. But as the impact of COVID dissipated, we continued with our repositioning, and we had an accelerated growth in our tenant turnover since 2021 with good double-digit growth for the last 2 years, which shows an above inflationary growth indicative of growth in our market share. Looking at the rental income, we have experienced positive growth over the last 2 years, achieving a 4.1% growth in 2023. In 2019, we saw negative reversions, which were further accelerated by COVID. In mid-2021, we could see green shoots of recovery in the rental income. As said before, turnovers will ultimately drive income growth, but there will be a lag, and it's clear from these graphs that, that lag is about 2 years. Our average portfolio escalation has reduced to 6.6%, which should protect us from being over rented in future. When negotiating with tenants on rental reductions, we have been increasing our turnover rental percentage. And although from a low base, we have seen very good growth in our turnover rental, which can be seen on the bottom right graph showing a 32.2% growth for the period ending June 2022 and a 28.3% for the period ending June 2023. Now looking at the top left table, we can see that there has been improvements in the negative reversions. Rent reversions for the last 12 months was minus 9% compared to 13 -- minus 13.4% in June 2022. The negative reversions over the last 6 months was minus 7% compared to the first 6 months of the year of minus 13%. We are seeing the turning point, and this will maintain as we continue to see the tenant turnover growth. We have made some strategic decisions in terms of consolidating spaces to improve tenant mix and to bring new flagships offerings, which results in a downward rental growth on the consolidated space compared to reletting to independent stores at a higher rental. However, the strategic reasoning outweighs the short-term negative impact. Retail vacancy was successfully reduced to 1.2%. In terms of our offices, that comprise only 6.8% of our portfolio, we have seen an increase to 33.9%. The increase in the office vacancy is also due to the strategic vacancy created at Baker Street which is earmarked for development. The demand for office space has increased, and this has been driven by the negative impact of load shedding and businesses returning to the office setups. We are currently busy with upgrading some of our offices and plans to upgrade the balance of our offices to enable us to present a better value proposition. Moving to our workload. The leasing workload for the year commenced to just over 170,000 square meters and we've successfully concluded 87,000 square meters. A significant reduction in vacancy was achieved and about 61,000 square meters is still under negotiation. In terms of the achievements over the year, we have opened at Canal Walk 11 new stores, including food outlets, restaurants and kiosks. Amongst those are Cape Malay House, Ted Baker, Yuppie Chef, Free Bird, Asian Mart, Bossa, Kunafa House. Fashion and footwear brands, S.P.C.C. Calvin Klein, Tip Top Taylor, UNION-DNM and SA's first unique clothing store. A number of stores completed their refurbishments, new metro downsized and completed an upgrade and refurbishment. Freedom Adventure Park took over the vacated new metro space and plans are to open in December 2023. Pick n Pay Clothing and Steve Madden relocated into bigger flagship stores, and we are left with a vacancy of just 0.7% at Canal Walk. The vacancy at Rosebank Mall was reduced from 2.4% in June 2022 to 1.5%. We opened new stores for foot gear, Hi-Fi Corporation, Volpes, CASA DAS NATAS, Republic, the Pyjama Shop Sidestep, Game 4You, The Bed Shop and streetwear clothing brands, Cultish, being the second store of its kind in South Africa. Toys R Us opened in September 2023. Total sport expanded and Mr Price Home relocated and expanded with cotton on in [France] Taylor relocating and upgrading their stores. A number of stores also completed refurbishments over the past 12 months. At CapeGate, we have a vacancy level of 0.7% and we secured new stores for Mr Price Connect, Wagamama's, Old Khaki, Factorie, Gadget Time, Partners Hair Design, The Persian Carpet and Suzuki. Pick 'n Pay has upgraded their store to the latest CVP and Mugg & Bean has done a complete revamp. Hyde Park remains in high demand, and we opened George's Grillhouse Scapegoat Gallery, Versailles luxury, Copacabana and Skins Cosmetics, also launching the first Calvin Klein underwear store in South Africa. Denham, Loxitan and Pick 'n Pay completed upgrades with Nedbank rightsizing and upgrading its branch. Somerset Mall remains fully let and we've secured a number of stores, which include Krispy Kreme, Puma, Salomon, freedom of movement and Espresso Cafe. A number of stores upgraded and refurbished during this year, including Toy Kingdom, PNA, Expedition North, Exclusive Books, Nedbank and Birkenstock. Construction of the new Checkers, FreshX commenced in January 2023 and is anticipated for opening in November 2023. Somerset Mall also offers [nika] spaces. These are work parts, a tech-enabled network of proximity offices for remote working. At Woodlands Boulevard, we have a 1% vacancy. And over the last year, we've included Westpac, Petzone and Volpes. The relocation and expansion of Mr Price Home and the refurbishment of Exclusive Books, an incredible connection has also been completed. New deals coming up are Ackermans Woman and Yuppie Chef. Woodlands has their dive through projects currently on the go to include Burger King, Chicken Licken [indiscernible], and we are currently busy with the expansion of Woolworths, which will include the first W seller in Pretoria. The restaurants in our newly upgraded food court at Clearwater Mall are trading exceptionally well. New stores include Cosmic Comics, Freedom of Movement, Huawei, Legit Beauty, Tagheuer, Yoyo Bubble tea, [Cape Artists] and ARC Cosmetics. We are currently busy with the installation of our new escalators linking the ground and first floors with the completion of this project anticipated for November 2023. And at the Glen, we've opened our new KFC drive-through hyperpaint, dial-a-bed, chick king, Cappello's, YDE, PEP Home , G-Star Raw and Glitz & Glamour. The upgrade of all our [Truist] brand stores Cross trainer and Freshini was completed and F&B [indiscernible] Fabiani rightsized and upgraded. The South African portfolio has produced pleasing result, which again reinforces the positive effects of our repositioning strategies. I would like to now thank you and hand over to Rabia, who will take us through the Eastern European portfolio.

Thanks, Rubecca. And good day, everybody. It was obvious to all market players that following 2 years of pending and already more than a year into the Russia and Ukrainian war, the slowdown in the commercial real estate market was invisible and was to hit in 2023. Despite its size in the real estate sector, the retail market transaction volume within the CEE region decreased by 60% year-on-year. Investment in certainty became the dominant part of the equation to the extent that in some countries, the volume decreased down to 0. This is a side effect of the ongoing war in Ukraine, which further disrupted the market, increasing interest rates and inflation to high records. This may not appear a bit optimistic now, but one may assume that the prevailing sentiment in the first half of 2023 is a temporary situation, providing the space and the time to align price expectations between sellers and buyers. There are early indication that this situation may improve by the end of the year as the current condition can be an opportunity for equity investors. And as such, we are exploring opportunities in the countries we operate in and in the region. It is worth mentioning that we may still see greater divergence in prime yields across the region as we still see divergence of inflation rates. Despite these challenges, the positive outlook of the rate -- retail performance, which started in 2022 continues into 2023. Turnover, footfall and net operating income are still improving. Starting with the slides, macroeconomic and retail environment. The real GDP growth in Bulgaria was 4% in 2022 compared to the previous period. expections are for a steady economic growth revolving around 2% from 2023 onwards. The fears of the recession due to the expected energy crisis under war in Ukraine did not materialize. But the inflation proved to be persistent and among the highest in the region at around 16% in 2022. Following the GDP contraction, inflation is projected to slow its galloping pace and reached 9% in '23 and to even touch the deflation zone in '24 and '25 before reaching the ACV target of 2% in 2026. The employment rate in Bulgaria remains one of the lowest among the countries in the portfolio at 4% and lower than the European average. The total shopping density remains unchanged compared with June '22, at 112 square meters per 1,000 inhabitants. Much like Bulgaria, Croatia exhibits the trend of relatively high GDP in '22, followed by a moderate growth close to 2% in '23, which is projected to remain in that range for the foreseeable future. The inflation pattern resemble as well as the one observed in Bulgaria, however, with less fluctuation due to price stability achieved with the euro adoption effective 1st of January; '23. Unemployment is forecasted to remain within the healthy level of around 6%. The shopping density is the highest within the portfolio with 279 square meters per thousand inhabitants. North Macedonia has relatively stable microgram indicators with steady GDP growth in the range of 2% to 3%, like other economies inflation peaked in '22 reaching 14% with expectation to steadily decline to 9% in '23 and thereafter approaching the targeted rate of 2% from 2024 onwards. The unemployment rate was high historically and is projected to remain as such at around 16%. The shopping density on the other hand, is 76 square meters per 1,000 inhabitants, which is the lowest in the portfolio and significantly lower than the European average. Next slide, operations. An improvement could be observed while comparing the 12 months to June trading overview with the previous 12 months. The turnover improved by 15.9% compared to the previous period. The trend continues to July with a further increase of 16.3%. Effort ratio improved by 1%, decreasing from 10.5% to 9.5% in June '23. The trading density increased by 16.9% compared to the previous period. This is due to improved turnovers in every month of the current year compared to '21, '22 period. In July '23, same trend continues with an improvement of 17.4%. Next slide. The footfall recorded a 14.3% increase during the period from July to June compared to the same period last year. The overall positive trends continued during the period observed on a monthly basis. In July '23, footfall movement is almost identical with an increase of 14.2%. As spend per head decreased slightly by 1.4% on average for the 12-month period compared to the same period last year. This is in fact a stabilizing process of the spend per head following the changes we witnessed during covid. During the first month of the period '23, '24, the spend per head further improved with 1.8%. Next slide. leasing activity. As previously mentioned, the turnover gradually improved during the last couple of years, reaching 15.9% increase in 2023 compared to prior year. The trend in rental income is similar, 20% increase in 2022, followed by a 10% improvement in '23 on a year-on-year basis. The indexation movement is similar to inflation curve with significant increase during the last years, reaching 7.2% average annual indexation. A major upside of 28% and 29% is observed in the turnover rental income after the covid period for the year '22 and '23, respectively. Next slide. During the financial period, the renewal reversions were 10.2%, which relates to 17.1% of total G&A. The new deals reversions was 23.4%, which relates to 4.3% of the total G&A. And the total average reversions of new deals and renewals are 12.9%, which relates to 21.3% of total G&A. During the period, the renewal retention rate by a number of tenants was 68%. Further breakdown of the reversion includes flat reversions of 48%, followed by a positive reversion of 37% and negative reversion of 13%. The total occupancy is 99.7% with a 0.3% vacancy coming from the Mall in Sofia. Next slide. The lease workload at the beginning of the period was 19,000 square meters, out of which 1,400 square meters of vacancy by the 30th of June the workload was reduced to 12,261 square meters with a vacancy of 557 square meters. Next slide. Over the past year, Skopje City Mall enhanced its tenant mix with the new brand additions such as [indiscernible] and the Body Shop who opened their first and only store in North Macedonia. In April, newly renovated Nike shop opened their doors, being the biggest in the country. Also, we have some other tenants who completed food refurbishment during the financial year, such as the Cosmos, Burger King and [star ocean]. Moreover, Skopje City Mall successfully concluded a lease agreement with H&M to be open for trade at the end of March '24. As part of the H&M project, few tenants had to be relocated or ensure they occupy optimal optimized to accommodate our new and core tenants. City Center 1 East in Zagreb also welcomed new tenants that opened in the past 12 months. This includes, among other, submarine, Sizeer, Purex, [Istyle], A1 and Pandora, while other tenants such as the Dormeo Home, Mass, Deichmann and H&M completed their store refurbishment. City Center 1 West, the new tenants that opened at the mall are Sizeer, U.S. Polo, Polleo Sport while Sancta Domenica, Hervis and KFC underwent full refurbishment. Many new openings are the Mall in Sofia, such as Jack & Jones, Skapto Burger, Skarra, [Kariopi], [indiscernible], Ozone being the first shopping center store and pickup point in the country, dunk shop and the market entry of the outdoor station Royal Robbins. Among the newly refurbished stores are New Yorker, SportVision, [Fishing Home], [indiscernible] and VIVA Supermarket, while H&M and Guess are designing their [indiscernible] for refurbishment, which is started in August '23. As previously reported, the Inditex brands were successfully replaced during the financial year. [indiscernible] for ex-Massimo premises and Sinsay for the ex-Zara premises. For the ex-location of Sinsay, we concluded the deal with the German value retailer value study as a flagship store, which opened mid-July. And now for the Sub-Saharan African portfolio, I hand you all to Wilhelm. Thank you.

Thanks, Rabia, and good morning, everyone. Starting with the macroeconomic environment. This slide clearly illustrates the impact of the sovereign downgrade of Ghana and the deregulation of the foreign exchange market in Nigeria on their respective currencies. Currency devaluations and higher interest rates created quite the challenging environment and dominated and otherwise good operating performance. Nigeria held a relatively peaceful presidential election recently. The new government introduced certain measures that are very positive in the long term, but in the short term, they have created turmoil. The measures I'm referring to are exchange control relaxation and the removal of a fuel subsidy. Trading conditions in Ghana remain challenging despite the local currency having recovered somewhat from the massive devaluation in 2022. The Cedi remains weaker than in 2022. Hence, you will still see a marked difference between Ghana's results in dollar and in local currency. Let's look at some of the trading metrics. As alluded to earlier, trading metrics were much better in local currency than in U.S. dollars due to the significant depreciation of the cedi Turnover in cedi grew by 29% but declined by 25% in U.S. dollars. Similarly, trading density growth was up 30% in cedi by down 24% in U.S. dollars. Growth in spend per head increased by 35% in cedi and declined by 21% in dollars. Despite the challenging economic climate, vacancies, excluding the game Ghana vacancy, in the whole portfolio reduced from 10% to 7%, which is a 30% reduction in vacant GLA. Adding back the game vacancy in Ghana that increased vacancies to 16%. Allow me to unpack some key aspects of a non-trading nature. With rent being referenced to U.S. dollars, the CD devaluation place a strain on tenant's ability to pay their rent. We put contingency measures in place a year ago in Ghana, which has allowed our collections and vacancies to hold up relatively well. We've also approved some assistance to Nigerian tenants to see them through this period of currency adjustment. Ikeja City Mall remains fully let at this stage. We've managed game's exit from Ghana and a lot of emphasis is placed on securing replacement anchor tenants. The team has already filled the space at Accra Mall, and the team is far advancedly securing anchor tenants for West hill's Mall and Kumasi. The liquidity constraints in Nigeria persists even after the exchange control relaxation. During the financial year, we've managed to source the equivalent of USD 8.7 million before the currency devaluation in June this year. we've used those dollars to reduce dollar bank debt. Turning to the sales process. Hyprop and Attacq are working with actors on restructuring the proposed sale of Ikeja. Merger approval was received in June this year and is valid for 12 months. All parties remain committed to the transaction, but the lack of U.S. dollar liquidity in Nigeria is delaying closing of the transaction. as we have to be paid in U.S. dollars and not in Naira. We remain in discussions about the sale of the Ghana portfolio, but the country's economic situation is making it difficult, as you can imagine. In conclusion, the Rest of Africa portfolio has delivered a very pleasing result given the economic situation globally and in country. And we've put measures in place to manage the challenges. Thank you, and I'll hand you over to Brett now for the financial report.

Thank you, Wilhelm, and good morning, everybody. In today's presentation, I will cover the changes in distributable income from 2022 to 2023. Some noteworthy items in the financial results and look at the borrowings and outlook for interest costs. Distributable income increased by 24% from ZAR 1.17 billion in 2022 to ZAR 1.45 billion. The main reason is the inclusion of the European portfolio's results for the full financial year. We have analyzed the year-on-year changes in distributable income in the slide before you. For the South African portfolio, income increased by ZAR 130 million. This includes ZAR 13 million or a 28% increase in turnover rentals to ZAR 57 million, a ZAR 10 million or 15% increase in marketing income and a ZAR 72 million increase in recoveries of generator and diesel costs. Contractual rental income increased by 1.7% as some contractual rentals were converted to turnover rentals, notably for the cinemas. COVID-19 concessions ended and ZAR 6 million in accrued discounts from 2022 was reversed. We also received ZAR 10 million from an insurance claim relating to COVID-19 losses. Total costs increased by ZAR 120 million, of which the increase in diesel and generator costs was at ZAR 86 million. Net interest costs increased -- sorry, ZAR 103 million, following the conversion of euro borrowings to rand borrowings in March 2022 with the Hystead transaction. and by a further ZAR 44 million due to the increase in interest rates over the year. The net result is ZAR 101 million reduction in distributable income from the portfolio. Distributable income for the European portfolio was ZAR 525 million after interest costs and local taxation. This is an increase of ZAR 424 million from 2022 due to the inclusion of the results for 12 months. The portfolio performed very well and achieved net property income of EUR 43 million compared to the March '22 forecast of ZAR 39 million. This was mainly due to strong revenue growth as a result of positive reversions and lower covid concessions and increases in turnover rentals in line with tenant turnover growth. Costs were well controlled and increased by 5% only aided by fixed price contracts with electricity suppliers and government subsidies on electricity costs. Interest costs were in line with the prior year as a result of the very high level of interest rate hedges. Ikeja City Mall maintained its net property income in dollars despite the devaluation of the Naira. Revenue in rand increased by ZAR 52 million, mainly due to the rand's weakness against the dollar. Increases in costs were mitigated against -- sorry, we mitigated by a reduction in arrears and consequently, a reduction in the expected credit losses. Interest costs increased by $2.6 million before these were hedged in December 2022. In June 2023, Ikeja secured $8.5 million, but incurred a foreign exchange loss of $3.4 million or ZAR 60 million in doing so. The dollars secured were used to reduce the interest owing on the bank borrowings. An unrealized foreign exchange loss of ZAR 170 million was incurred realized on translation of Ikeja's results from Naira to dollars for financial reporting purposes. As this loss is unrealized, it is excluded when calculating distributable income. The group's share of the realized foreign exchange loss is ZAR 45 million and effectively accounts for the reduction in distributable income from the Sub-Saharan Africa portfolio of ZAR 43 million from 2022 to 2023. We have refined our dividend policy to pay out 75% of the distributable income from the South Africa and Eastern European portfolios. A dividend of ZAR 299 per share was declared for the year amounting to ZAR 1.07 billion in total and a 7% increase on the total dividend declared for 2022. The cash flow statement highlights some noteworthy transactions for the year. If we started at the first green highlighted line, cash generated from operations was ZAR 2.4 billion compared to the operating income of ZAR 2.1 billion. The main reasons for the excess of the straight-line rental revenue accrual of ZAR 100 million, depreciation charge of ZAR 110 million and unrealized foreign exchange losses of ZAR 170 million previously mentioned. Dividends paid of ZAR 1.15 billion comprised the dividend paid to Hyprop shareholders in November 2022 of ZAR 1.05 billion and ZAR 144 million paid to PDI being their share of Hystead's accumulated profits up to May 2022 as part of the Hystead transaction. The purchase price for the PDI free carry equity of ZAR 27 million was also settled and Hystead affected the capital reduction of $7.5 million as part of the process to wind up Hystead, ZAR 32 million was paid to PDI in this regard. The ZAR 27 million and ZAR 32 million gives you the ZAR 59 million described as reduction in noncontrolling interest. Capital expenditure for the year was ZAR 289 million, of which ZAR 240 million was in South Africa. This excludes projects which are in progress and will be completed in the new financial year at a further cost of ZAR 140 million. The Board has approved a CapEx budget of ZAR 500 million for 2024. This includes the ZAR 140 million of project in progress from 2023. If the ZAR 140 million is adjusted in each of the '23 and '24 financial years, the average capital expenditure is ZAR 370 million per annum. This is in line with the retained distributable income for the year. The ZAR 500 million CapEx budget includes -- or sorry, excludes what we would call super projects. Examples include the Canal Walk food court, the Somerset Mall extension and its new food court and additional solar plants for the [Rosebank] and CapeGate malls. These projects cannot be funded with debt only if we want to keep our LTV below 40%. And this is a key motivator for the DRIP being offered with the 2023 dividend payment. ZAR 222 million was invested in AttAfrica and used to reduce bank borrowings in the joint venture. The Board has approved a further $18 million of support for AttAfrica either through a new equity injection to be used to settle bank borrowings or to provide guarantees to AttAfrica's lenders. ZAR 6.2 billion of debt was settled and ZAR 5.4 billion of new debt raised. This includes ZAR 1.8 billion of bonds issued in 2 auctions and ZAR 450 million of bonds issued in private placements. ZAR 1.4 billion of bonds which matured and bank facilities of ZAR 1.1 billion was settled during the year. In the European portfolio, EUR 12 million of in-country debt was amortized and ZAR 20 million of the Croatia debt was settled with the balance of ZAR 143 million being refinanced in June '23. -- we raised ZAR 500 million through the 2022 DRIP, which was supportive of 84% of shareholders and ended the year with over ZAR 1.2 billion of cash on hand, ZAR 1.05 billion in South Africa and Europe and ZAR 154 million in Nigeria. The group's borrowing profile is illustrated on this slide. Total borrowings increased from ZAR 14.5 billion to ZAR 15.2 billion. These amounts include the ZAR 512 million owed to Attacq by Grupo investments in Nigeria. Rand debt decrease by ZAR 77 million, while the euro and dollar debt reduced in local currencies, but increased in rand due to the weaker exchange rate. We continue to receive support from a variety of funders, including via the debt capital markets, as illustrated on the top right-hand graph. The borrowings are predominantly rand and euro-denominated with the only dollar loan being in Nigeria. The loan-to-value ratio reduced from 36.4% to 36.3% in June '23. The main components of the changes are set out in the top graph. We are comfortable maintaining the group's LTV below 40%, particularly given the high interest cover ratio of 2.8x for the 2023 financial year. The LTV of the European portfolio reduced from 58.5% to 54.5%, in line with our strategy of reducing the euro debt. The LTV remains resilient to changes in property valuations and exchange rates and would increase to 41.2% if property values declined by 10% and the rand weakened against the dollar and euro by 15%. The current debt maturity profile after refinancing the EUR 110 million of equity debt in July 2023 and including the new ZAR 750 million facility secured in August is shown at the top of this slide. The maturity profile of the rand debt is well spread. The euro debt maturity profile has more peaks due to the large value of these loans. If possible, we would like to spread the maturity dates of some of the euro loans. But given their extended duration, there is no pressing need to do this immediately. These loans are subject to annual amortizations of approximately EUR 10 million in aggregate. You will also notice that the euro guarantee debt and how this has been refinanced in 4 tranches to take advantage of the lower margins on the shorter-dated maturities and create opportunities to settle some of this debt if desired. The 2024 quarter 1 maturities include a bank loan of ZAR 925 million. We are in discussions with the current lender about refinancing this loan. There are also 2 bonds which mature in the quarter which we intend refinancing via the DCM. Our liquidity remains strong with ZAR 36.6 billion of cash and facilities available, including our first green facility which will probably be used towards some of the solar plant funding. The impact of the increase in interest rates has dominated discussions with investors over the last 6 months. The group has established and maintained an interest rate hedging policy for some time. In terms of the policy, at least 75% of interest rate exposure is hedged and hedges were aligned to loan maturities. The snapshot at June '23 shows that 83% of interest rate exposure was hedged. Interest rate hedges were at similar levels for most of the financial year. This provided significant protection against the increase in interest rates over the last 12 months. The average duration of our interest rate hedges is at least 1.5 years, and we achieved a healthy interest cover ratio of 2.8x, as previously mentioned. If we look at the maturity profile of the interest rate hedges, you will notice that the profile of the rand hedges is evenly spread other than the peak in quarter 1 of 2024. This coincides with the loan maturities in the same quarter. Even though the maturity profile is flat, we have still been impacted by increases in interest rates, partly due to not being 100% hedged and partly due to replacing maturing hedges at the current higher interest rates. On the bottom left-hand graph, we've shown how the all-in cost of rand borrowings has changed from 2022 to '23. While the base [dry bar] rate increased by 350 basis points, our all-in cost of funding taking the hedges into account, increased by only 1.3%. A similar position exists in the European portfolio, where the base Euribor rate increased by over 350 basis points, yet our all-in cost rate increased by 1.6% and was compensated by a reduction in the lending margin from 2.7% to 2.3%. The concern lies in what happens over the coming 12 months. From a rand interest cost perspective, the overall cost of borrowings at June '23 was 8.9% with an average for the financial year of 8.5%. As interest rate hedges mature and are replaced in line with the maturity profile, the average cost of borrowings will also increase and could reach 9.3% in 2024, adding an additional ZAR 70 million of interest costs. Any increase in borrowings will compound the increase in interest costs, obviously. The position in the euro portfolio is exaggerated by the value of borrowings and hedges, which matured in June and July 2023, of EUR 250 million. The overall cost at 30 June was 3.9% with an average for 2023 of 3%. This average rate could increase to 5.3% for 2024, which will increase the interest costs by approximately EUR 7.5 million. The U.S. dollar loan in Nigeria is fully hedged for the duration of the loan. We have revised our interest rate hedging policy based on the lessons learned over the last 12 months, albeit in one of the most extreme interest rate cycles for decades. This should lead to interest costs being better managed in the future. The increase in interest costs from 2023 to '24 is the main reason for the reduction in distributable income of 10% to 15% in the guidance provided with the financial results. Other key assumptions made in preparing the guidance are that there is no significant change in interest rates from those at June 2023. This includes the euro, dollar and Naira exchange rates and that the 2023 DRIP is supported by shareholders and ZAR 500 million of capital is raised. On that note, I will hand you back to Morné. But first, I would like to thank the entire finance team across the whole group for their hard work over the past year and for helping to prepare these financial results. Thank you, and back to you, Morné.

Thank you very much, Brett. I will be handling the closing [piece]. If you look at our ESG, we build our sustainability framework around 3 goals. It's creating spaces and connecting people. The second one is partnering with climate resilience and include -- and the third one is inclusion across our value chain. We successfully completed 2 solar projects that -- both of those were second phases at Rosebank Mall and Woodlands. On the picture on your left-hand side of the slide, you can actually see the installation we have done at Woodlands. We will be completing the fourth phase of our solar at Clearwater Mall, and that will also be completed before the end of this month. We have done very good work at our zero waste strategy, and we have effectively reduced or improved in our recycling performance from 54% to 74%. A key thing also in South Africa is to start looking at water, which is quite the scarce -- scarce resource in South Africa, and we have been installing Propelair toilets on some of our malls. The benefit of that was we had a saving of 59 million kiloliters of water. Just to put it in context, that's about the water being used by the average 640 swimming pools. So there's quite a lot of water. The Hyprop foundation has celebrated its 10 years of making meaningful impact on the surrounding communities. The focus areas for the Hyprop foundation is, firstly, skills development as well as education. Then community upliftment and enterprise development. The Hyprop foundation together with our various centers contributed ZAR 5.4 million, included in the ZAR 5.4 million is ZAR 1 million that goes to bursary funding for our first 7 university students. In terms of changes to the Board, our previous Chairman, Gavin Tipper, retired on the 31st of December '22, and he was replaced by Spiro Noussis as our new Chairman. Stewart Shaw-Taylor retired by rotation at the AGM in November 2022. Nyami resigned on the 5th of December to pursue other interests. I want to use the opportunity to say a big thank you to Gavin, Stewart and Nyamii for their commitment and hard work over the last few years, and I wish them all the best for their future endeavors. We have appointed a new director, Richard Inskip, Richard comes with a wealth of knowledge in the retail space. He was an executive at Both Woolworths as well as Massmart. We're looking ahead, inflation is busy stabilizing in Europe, and hopefully, that will -- the increase in interest rate will come to an end and potentially, we'll see some smoothing or reducing interest rates towards the end of next year. In South Africa, we're still worried about the electricity crisis as well as the collapse of infrastructure. And then over and above that is also the lack of service delivery, specifically if you look at [indiscernible]. We have set ourselves the following 6 strategic initiatives. We want to implement sustainable solutions on our malls in South Africa to mitigate the risk for load shedding. The second one is to reposition our South African malls as well as our European malls to ensure we retain market share as well as grow market share. On an annual basis, we look at our portfolio to identify recycling opportunities as well as new investment opportunities. In Africa, we want to ensure we retain value and drive the exit of Africa. And all in all, we want to ensure we retain a healthy balance sheet. And the last one is to focus on our non-tangible asset strategy, although it's quite small in the bigger scheme of things. After the market has stabilized, and we've got more clarity around the performance of our portfolio and with some feedback from you and the shareholders, we have amended our dividend policy. Our new dividend policy means we will start paying out interim dividends again. The interim dividend will be 90% of the distributable income from South Africa. And then the final top-up dividend will be 75% of our distributable income from South Africa as well as Eastern Europe. The final dividend, we will be paying is ZAR 299.3 per share. That is 75% of SA EE compared to the old policy, we would have only paid out 62%. One of the key things we're still busy with is catching up with our CapEx to do our repositioning. And one of the things that's also in our accelerated is to roll out our solar plant on our portfolio. Therefore, the Board has decided it would be prudent that with the dividend, we're going to pay, we want to do a dividend reinvestment plan of a further ZAR 500 million. As mentioned by Brett, given the high interest rate cost as our interest rate hedges mature, and we need to rehedge, plus the planned DRIP, we believe there is a reduction in our distributable income of 10% to 15%. In South Africa, we're busy with a number of projects. As mentioned by Rubecca, we have seen there's more demand for our office space. And what we have started doing is to upgrade our office space. We have started with a project at the mall offices in Rosebank to enhance the value proposition, and that will be completed towards the end of this month. The Checkers FreshX Project and the Cinema Connect, Somerset Mall is going very well, and they will be trading in 2023. Additional plants, we are planning projects for a second phase of the Glen. And then we need to roll out our solar projects and our Western Cape portfolio, which include CapeGate, Somerset Mall and Canal Walk. Two new projects, what we call Phase 2a and 2b at Somerset Mall is quite exciting projects. 2a is the expansion of the current GLA. We want to add about 6,000 squares of new GLA, and that's on the back of tenant demand. With this phase, we also want to improve the flow of the mall. And then 2b is a new food court around a central park. At Canal Walk, we have been doing quite a lot of work to look at upgrading of the food court at Canal Walk, part of the project. We want to improve the linkage after food court onto the canal as well as bring in the natural light from the canal. We are currently busy with a value engineering exercise to improve our efficiencies, bring the cost down for that project. And I think the key thing for us is also to ensure we don't have a lot of downtime with the development. In Eastern Europe, we are busy with H&M store at Skopje City Mall, and that will be trading in March 2024. The food court in City Center 1 West, we want to make it a little bit bigger as well as upgrade that. One of the exciting things that's happening is the Metro Line 3 extension. There will be a new station right next to the Mall in Sofia, and that's currently under construction and the planned opening of that is towards the end of 2026. They have indicated to have some research that we actually could expect about 28 million of passengers that will use the line. So we do think it will definitely add to the footfall of the mall and ultimately, tenant turnover as well. In Africa, we still want to drive the exit. One of the key things we are going to do that was also mentioned by Brett, we are going to reduce some of the in-country debt in Ghana. We want to finalize the deals on the ex-Game space premises at West Hills and Kumasi. And then the team are very positive to implement the revised deal with Ikeja City Mall before 30 June 2024. At Somerset Mall, we will run a pilot project to see whether the Nter platform and to test the new features. We want Nika to conclude a deal with one of the banks to facilitate revision. We will also run a pilot project at Hyde Park Corner, and that is where we're going to integrate Nika with the independent retailers payment systems and to drive promotions and loyalty programs. With that, we will go into a Q&A session now. Thank you very much.

All right. We have a question from is [indiscernible] at Anchor Stockbrokers. He's asking how has the Pick 'n Pay CVP revamped improved its trading density in your portfolio?

We haven't seen much improvement in terms of tenant turnover, specifically from pick 'n pay since the CVP has been installed. I think is maybe too early to say as yet. I do think Pick 'n Pay also have some operational challenges they need to address. But we are hopeful it will improve. But to answer your question, it hasn't improved as yet.

And then another one from Jonathan [indiscernible] from Oyster Catcher Investments. He's asking is the debt in AG Africa guaranteed by Hyprop? It looks like you are putting good money after a bad investment, but putting further support into AG Africa. So why invest further?

If I can maybe answer that question, I think Brett can add on to it. Just to clarify, it's nonrecourse debt that we have in Africa. So it is not guaranteed. The capital is not guaranteed. There is some guarantees we've put in place to mitigate the interest rollout. What we -- but most of that funding has been put in place by our South African banks. And therefore, although not contractually committed to that debt we actually got our obligation to sort our debt out. And therefore, we're working closely with the banks to address those issues. So I don't think we ever can walk away from that debt I do think we need to sort it out jointly with the banks. If you want to add something on that Brett?

Morne, maybe just to also remember, there's significant equity in that investment still. We need to try and preserve that value too. And by -- in the Board approving the further financial support if we do go ahead with the guarantees, we would get a reduction in the funding cost, and that would hopefully create and generate some free cash flow for us out of those investments. without us necessarily putting in more money.

All right. We have another -- we have a question from Louis Kruger at 361 and he's asking, can you please split your CapEx guidance between solar and nonsolar.

Well, I think the ZAR 500 million, as mentioned by Brett, there's no provisions in that for solar. That is basically to cover the ZAR 140 million of what is in the pipeline plus new projects. as Brett has mentioned, the solar and what he called like super projects like the Canal Walk food court, the phase 2a and b at Somerset is not in that budget of ZAR 500 million. And therefore, those projects will be managed or assessed on a case-by-case basis and then provided we got sufficient money, we will actually invest those money's. If you want to add something on that?

I think solar project is quite scalable. So we can adjust it depending on what CapEx we have to spend. Most of the projects we've done to date have been sort of between ZAR 50 million and ZAR 70 million a piece. And the current project of Clearwater that is in progress, that forms part of the ZAR 140 million that we've rolled over from 1 year to the next, and that number is about ZAR 30 million.

And he's got a further question asking with the new dividend policy, do you foresee providing DRIPs going forward?

I think we will always look at how to maintain our balance sheet. I mean we are currently sitting at 35%. I think historically, the model kind of worked because value has always increased, and therefore, you always had spec capacity to releverage for new projects. I think we will always make the right decisions or believe the right decisions to protect our balance sheet and make sure we maintain our LTV around 40%. So to answer the question, provided we've got new projects, we believe we want to invest. We will do a DRIP if needed, as we are going to do now. But I don't think that is going to happen with each dividend we pay. That's not the intention.

We have a question from [indiscernible] Schultz from Renier Investments. He's got 2 questions. The first one is interest cost in SA and EE is expected to be about 9.3% and 5.3%, respectively, for 2024. What is the estimated 2024 ungeared return on assets for the SA and EE portfolios?

I think the best indicator of that is the yields which we show on the property portfolios, which I'm just looking for a slide where we refer back to those.

On SA, the forward yield is 7.3%, and in Europe, it's 8.6%. But that is on 100% of the assets. So if you look at your equity, the yields is quite different.

Okay. Second question is, at the preclose meeting at the end of June 2023, it was mentioned that interest in SA malls was shown. Can you perhaps comment further about this right now?

I think it's interest to buy.

To buy or sell some of our malls.

They just said interest in SA malls.

There has always been interested in our SA malls. There is quite a lot of interest in specifically our Western Cape Malls. But we have -- as I said, we take our annual review of our portfolio. We identify the assets we would like to recycle when we identify those assets we want to recycle. We start engaging specifically directly with potential buyers as well as with brokers. And sometimes you do get unsolicited offers on some of your assets. But to answer your question, I think there is definitely demand for our Western Cape assets, I think, to a lesser extent on the [routing] assets.