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

Good morning to all participants, and good morning to the Hyprop management team. Welcome to the pre-close operational update for the 4 months ended 31 October 2024. I will shortly be handing over to the Hyprop team who will be taking us through the pre-close update presentation. But maybe just a note to the participants. We will have a Q&A session at the end of the presentation. [Operator Instructions] Morné, Brett, Boitumelo, good morning once again, and thank you for absolute opportunity to host this update. I'd now like to hand over to you for the presentation. Thank you very much.

Thank you, first, Mahir and team, and thank you for hosting us. Good morning to everyone, and thank you for joining us. As Mahir has said, we are looking to give an operational update that covers the period from July to October 2024, and the focus would be on our South African and Eastern Europe portfolio. It very much summarizes the information we disclosed in the SENS earlier today. And at the end of the presentation, as said by Mahir, we will actually open the floor for some questions. If we look at the next slide, in terms of our strategy and our journey, we can go to the next one, Boitu. We started as a management team in 2019. This is more than 5 years ago. Our why for Hyprop is creating spaces and connecting people. And the way we do that is by honing and managing dominant retail centers in mixed-use precincts in key economic nodes of South Africa as well as Eastern Europe. If we go to the next slide, I do believe in the same jack of all trades and a master of none. And for this reason, we are a specialist retail fund with an excellent portfolio. We have 9 centers in South Africa and 4 in Eastern Europe. The 5 centers in Gauteng are The Glen, Hyde Park Corner, Rosebank Mall, Clearwater and Woodlands Boulevard. And the 4 in the Western Cape is Canal Walk, the only super regional in the Western Cape, Somerset Mall, Capegate and Table Bay Mall. In Eastern Europe, we have 2 malls in Zagreb, Croatia, namely City One West and City One East. Skopje City Mall in North Macedonia. In Sofia, Bulgaria, we own The Mall. From a valuation perspective, we have 30% of our exposure in Eastern Europe and 70% in South Africa. And in terms of the South African portfolio, we hold 41% in Gauteng and 59% in the Western Cape. Like our asset class, we focus on making the right decisions in the long term, and we look at total return. Our capital allocation focus on both yield and return on capital. Looking at the next slide, when we started, we set ourselves the following key strategic priorities to reposition our South African and Eastern Europe portfolios to ensure dominance and maintain relevance. We do annual portfolio reviews to evaluate the case for recycling assets, increase our exposure to favorable areas and consider new growth opportunities, protecting the value of the African portfolio whilst we're driving an exit strategy, strengthening the balance sheet and developing nontangible assets aligned to our asset class. During this time, we had some headwinds, business rescue of Ster-Kinekor and Edgars, 2 years of COVID, the SA riots, the wars in Ukraine, Russia as well as Israel and Hamas. Pick 'n Pay's nonperformance and that was quite a key anchor tenant in our portfolio or is a key anchor tenant in our portfolio, failing infrastructure in South Africa. Then in terms of Africa, we had the lack of dollar liquidity in Nigeria and hyperinflation in Ghana as well as Nigeria. But even with these challenges, the team delivered on their strategic priorities. So what have we done? We implemented the high street liquidity event by Hyprop acquiring 4 of the Eastern Europe centers. These centers were acquired at a gross value of EUR 575 million and the latest valuation of these assets is currently EUR 610 million. The malls we've identified as noncore were sold at market value or even above. These sales include Atterbury Value Mart and the 2 Delta City malls in Podgorica as well as Belgrade. In strengthening our balance sheet, we reduced the consolidated LTV from its peak of 52% in June 2020 to 36.4%. And after the sale of the remaining centers in Africa to Lango, that improved to 35.2%. We increased our unencumbered assets from ZAR 2 billion to ZAR 5.6 billion. We settled all the dollar equity debt. We reduced the euro equity debt from a peak of EUR 403 million to EUR 90 million as well as improving our corporate credit rating. We acquired Table Bay Mall, which is in line with our intention to increase our exposure in the Western Cape. Various repositioning initiatives were completed within our South African as well as our Eastern Europe portfolio. Looking on the South African portfolio, we improved the tenant mix by securing Checkers FreshX as a new anchor tenant at Somerset Mall, Rosebank Mall, The Glen as well as Woodlands. We opened the first Zara within the South African Hyprop portfolio at Canal Walk. To increase the dwell time of the shoppers, we upgraded the restrooms at Canal Walk, Woodlands, Capegate as well as The Glen. We reduced our energy costs with the installation of solar plants at our -- all our [ routing ] centers as well as Table Bay Mall. And one of the key things we also did was to secure full backup power at all our centers in South Africa. All of these changes did have a positive impact on the performance of our tenants, and it increased their tenant turnover and reduced the cost of occupancy. Just to use some stats on that, the effort ratio on our SA portfolio has reduced from a peak of 11.3% in June 2020 to 8.5%. Tenant turnover grew 31% since 2019 and is currently ZAR 26.9 billion on the whole portfolio. On the Eastern Europe portfolio, we improved the dominance of Skopje City Mall in North Macedonia. This was a 2-year project, which focused on rightsizing tenants and improving the tenant mix, improving the internal flow within the mall and upgrading the outside restaurants, food courts, restrooms as well as a new play area. At the Mall in Sofia, we completed the Hyprop conversion with an increase of the center to 61,000 square meters. We upgraded the food court as well as the restrooms. This year, we completed the upgrade of City Center One West food court and enlarging that. In terms of Africa, we successfully sold both Manda Hill in Zambia as well as Achimota in Ghana, close to book value. And in September, Wilhelm implemented the sale of the remaining 4 centers to Lango. What is very good about this transaction is we sold the whole Africa structure as part of the transaction. So the only company we are left with is Hyprop Mauritius. Going to the next slide. As mentioned before, the intention is to make the right decisions for the long term and focus on total return. The acquisition of Table Bay Mall is a good example to demonstrate this. We took ownership of Table Bay Mall on 28th March 2024, and this has raised some criticism when we acquired the center. Where we saw opportunity was due to a number of reasons. It was a relatively new center. It had a very good and growing catchment area. It has a much stronger LSM in the immediate catchment area compared to Capegate. The current rentals are well below market, and that is evident in the effort ratio of 5.8% compared to our Hyprop average of 8.7%. All the retailers have been very positive about Table Bay Mall. We secured further upside by acquiring the solar plant at cost and our last independent valuation was ZAR 180 million more than our purchase price. The focus for the first month was to onboard the team and ensure we've got the full staff complement on site. Wayne, Zuleka as well as the team formalized the leasing strategy and started the implementation of that. We started the process to secure further rights to be able to expand the center in the future. The implementation of the full back power will be implemented by March 2025, and we remain very positive about this transaction. I will give over to Brett now to give us a little bit of an update on some financial analysis. Over to you, Brett.

Thank you, Morné. Good morning, everybody. I'm not going to review the financial performance for the period, but I do want to take the opportunity to comment on some of our key financial metrics and to respond to some questions that we did receive during our year-end results presentation and roadshow. Next slide, thanks, Boitu. Our 2 key treasury metrics are the LTV and ICR ratios. Following the sale of the Sub-Saharan Africa portfolio, both of these have improved. If we recalculate the June 2024 ratios on a pro forma basis, excluding Sub-Saharan Africa, the LTV reduced from 36.4% to 35.2% and the ICR improved from 2.45x to 2.6x. In addition, our exposure to the Ghana and Nigeria debt was canceled as all guarantees given by the group for these borrowings were released on implementation of the sale to Lango. Our interest rate hedging policy requires us to hedge at least 75% of interest rate exposure. At 31 October, 83% of interest rate exposure was hedged with 62% of rand hedges comprising caps and collars. The 2 interest rate cuts in South Africa since June 2024 will have a small positive effect on the interest costs for the 2025 financial year. Next slide, please, Boitu. Cash flow and liquidity have always been key focus areas for the group. One of the first changes we made as a new management team was to ensure that we only distributed income that was cash backed. We also emphasized the need to have strongly cash-generative operations and to ensure that the group has sufficient liquidity from a borrowings perspective. The first consequence of this was that we excluded the Sub-Saharan Africa portfolio income from the distribution to shareholders as this income was not being received in cash in South Africa. The dollar liquidity position in Nigeria compounded this limitation for the last 4 years. We monitor our liquidity in a number of ways. The first is the cash we collect from our tenants every month. The 2 graphs at the top of this slide show the monthly collections for the 2 portfolios compared to their billings from June 2023 to date. Although the monthly numbers can fluctuate due to prepayment of rentals before month end, the average collections over the 16-month period were 99% in South Africa and 102% in Europe. Both portfolios achieved a 99% collection rate in the last 4 months. This level of cash collections underpins the distributable income. The second key liquidity measure is how our cash from operating activities compares to the distributable income. The table at the bottom shows how we have consistently generated more cash from operations than distributable income over the last 5 years with 116% in 2024 and an average over the 5 years of 110%. We also measure our liquidity by our ability to refinance borrowings as these mature and our available unutilized bank facilities. At the end of October, the group had ZAR 575 million of cash and ZAR 1.2 billion of available facilities. This is after paying the dividend of ZAR 1 billion during October. Our liquidity position remains strong, and we continue to monitor these metrics rigorously. What is important to remember is that our current dividend policy is not based on the group's ability to generate cash from operations, which I've demonstrated is solid, but is rather one element of a concerted effort over a number of years to reduce debt, strengthen the balance sheet and fund capital expenditure required for our repositioning strategy, all in a conservative manner. Our policy of only paying out 75% of distributable income from the South African and Eastern European portfolios resulted in ZAR 1 billion of cash being retained over the last 2 years, ZAR 447 million in 2023 and ZAR 567 million in 2024, as shown on the bottom right-hand side of the table. This includes the income we can retain in Europe in a tax-efficient manner and has allowed us to reduce the European LTV from 59% in 2022 to 49% in 2024. We aim to achieve a balance between meeting shareholder expectations, i.e., higher dividends and managing risk within the business. Reducing the euro equity debt has been high on both investors and our own risk radars for several years. Next slide, please, Boitu. The logical question which follows is what is done with the cash that we retain other than reducing debt in the European portfolio. Part of the answer is to fund capital expenditure. Over the last 5 years, we've invested over ZAR 1.5 billion in our portfolios. ZAR 182 million of this was in new solar projects and nearly ZAR 1.4 billion in improvements and upgrades to the centers, generators and other sustainability initiatives and projects and tenant installation allowances required to give effect to the repositioning strategy. The benefits of these investments are evident in the sustained improvements in the trading metrics, which we will look at shortly. With the bulk of the backlog CapEx in South Africa behind us, we should see a tapering in the number of defensive CapEx projects and greater focus on yield-enhancing projects like the Somerset Mall expansion, which will commence construction later this financial year. The deterioration in trading conditions in Ghana required the group to invest nearly ZAR 400 million in AttAfrica over the last 3 years to reduce the AttAfrica Group's debt. With the disposal, the risk of further investments in Sub-Saharan Africa has been mitigated completely and any capital which may potentially have been required for the region can now be allocated to better opportunities. Following the increase in CapEx and investment in our malls, the depreciation charge for the South Africa portfolio has increased from ZAR 37 million in 2018 to ZAR 75 million in 2024 and to ZAR 141 million for the group, as shown on the bottom graph. This has a negative effect on the group's distributable income, but is another example of the conservative approach we have adopted to retaining cash for the reasons already mentioned. Next slide, please, Boitu. Our current dividend policy is to distribute 75% of distributable income from the South Africa and Eastern European portfolios. As noted, this policy is not a function of the cash-generating ability of the operations, but is one element of a strategy to reduce debt, strengthen the balance sheet and fund capital expenditure, which was required for our repositioning strategy. Given the progress we've made in addressing several of the risks which the group faced historically, including exposure to Sub-Saharan Africa and the need to invest capital, which we have now eliminated, the capital expenditure required to implement the repositioning strategy and backlog capital expenditure, which has largely been caught up. The need to reduce the euro equity debt and the group LTV, which is now below our target of 40%. In conjunction with other positive factors such as the group's strong balance sheet, the reduction in interest rates, the stable ICR, the increasing depreciation charge, which facilitates cash retention in itself, and an improvement in the overall risk environment. The Board will review the dividend policy with a view to progressively increasing the payout ratio. Any changes to the dividend policy will be communicated with the group's interim results for the 6 months ended 31 December 2024, which are scheduled to be published in March 2025. With that, I hand you back to Morné.

Thank you very much, Brett. We will look now at the operational performance. And as mentioned by Brett, if we look at the next slide, these repositioning strategies are paying off. It is clear from the trading portfolio on our South African portfolio measured over a 12-month period ending October, tenant turnover has increased by 4.8% in the last 12 months. The better turnover of the tenants on our portfolio reduced our effort ratio to 8.5x compared to 8.7x. Footfall has also shown growth of 3.7% over the last 12 months. Going to the next slide. This is looking at the last 4 months trading performance comparing it for the last 3 years. And that you can see all the trading stats are improving. Tenant turnover is increasing, trading density has been moving positive. The only 2 negatives was foot count for September and October as well as vehicle count has reduced in September. All of this, if you look at our leasing activities, the improving trend in rent reversions continue with a positive weighted average reversion rate of 6.7% compared to 5.8% in the financial year 2024. We also retained tenants with a retention rate of 91.8%. Looking at the table on the bottom left, you can see that we successfully reduced our office vacancy from 27.4% to 17.7% and our overall vacancy was reduced from 3.4% to 3%. Retail vacancy is well managed at 2%, and there was a slight increase in our WALE to 3.1 years. So what is the projects we finished on our portfolio? If we look at Hyde Park Corner, we completed the upgrade of the North office tower for Workshop 17. Workshop 17 took occupancy of the whole North Tower, and we secured a new 10-year lease with them. The external facade had been upgraded. The old steel windows were upgraded to aluminum frame windows for performance glass. We also raised the decks over the unsightly mall services and included landscape gardens that can be used by office tenants as well as our shoppers. The new office users will definitely add to the foot count and will improve the trading performance of the center. Another initiative we did at Hyde Park Corner is -- we go to the next slide, we secured a deal with the excellent operator on a new events venue at Hyde Park Corner. This is a real differentiator for the center. The venue is called the Forum and the new tenant also signed a 10-year lease. The Forum has been integrated with the center with a direct link from the center to The Forum to ensure the people attending events gain access to the event venue through the center. Since the opening, they have had events for Johnnie Walker Blue launch, Discovery Foundation Award as well as Living [indiscernible] Awards dinner. At Rosebank, if we look at our mall offices, at the mall offices at Rosebank, we upgraded the entrance to the office as well as the foyer area. In the foyer area, we have created some seating areas for the office users and their visitors. The space can also be used for informal meetings. This has created a much better sense of arrival for the mall offices. We also secured a deal with Mugg & Bean for a coffee station to serve the people with coffee and eats. As mentioned before, the next slide, we started with the Phase 2A expansion at Somerset Mall. This is a 2-year expansion project, which will add an additional 5,500 square meters of GLA. The new GLA is the areas highlighted in a different color than the blue. So effectively, what we are doing to improve the flow through the mall, we're creating a new link, as you can see on the picture, that's from the old Edgars store to the rightsized Game store. Edgars will be rightsized and relocated as an anchor in the new section of the center. What we will do with Game is also to rightsize it and to improve trading density. The existing Edgars or what we call the old Edgars space will be converted to an entertainment offering and a new food court. The new tenants that will be introduced to this section would be affordable luxury and athleisure stores. As part of the project, we will also do a full upgrade of the center restrooms and replace all the old dated mall tiles throughout the mall. In the next slide, we can see some artist impressions of the new food court as well as the extended area, the upgrade on the restrooms and the new tiles in the center. We can go now to the next slide. At Capegate Precinct, we have been working on a master plan to expand the mall and to develop the surrounding satellite sites. Our key requirement was to ensure we keep control of what's being developed on the satellite site as well as securing annuity income. The site opposite [ Mediclinic ], that's the site on the top of the picture, we sold to [ Mediclinic ] for a potential day hospital and consultation rooms. The final design needs to be approved by Hyprop to ensure it fits into our master plan. The intention was to sell the land on a leasehold basis, but unfortunately, that was a deal breaker for [ Mediclinic ]. On the bottom 3 sites, we secured an 18-month exclusivity agreement with [ Song and Gifflo ] to develop 3 office buildings. The deal has been done on a leasehold basis, and the intention is to secure tenants and develop the top structures. The key person at [ Song ] is [ Kuni Pisano ], who was at Atterbury and very actively involved with the waterfall development. The rights that they can use for their development is anything except for retail, and the reason for that is to ensure we call -- retain all the retail activities at the center. Similar to [ Mediclinic ], the final design needs to be approved by Hyprop and be aligned with the master plan. The risk of the development and the ongoing ownership of the top structures will be the risk of [ Song and Gifflo ]. Hyprop will take no risk on these developments and will get an upfront land payment and ongoing land rentals when the developments are completed. Going to the next slide. On our Eastern Europe portfolio, the portfolio continues to deliver strong operational performance. The tenant turnover increased by 10.4% for the rolling 12-month period until October. Effort ratio has reduced from 9.5% to 9.2%. Footfall is flat, and that could be mainly due to the non-trading Sundays in Croatia. Vehicle count increased by 9%. On the next slide, where we look at the last 4 months of trading for the last 3 years, we can see there has been an improvement of all the key performance measures, except for footfall that has dropped in October. We are extremely happy with the ongoing good performance of the Eastern Europe portfolio. In terms of leasing activities, on our renewals, we had positive rent reversions of 2.8%, although that was only on 1.6% of the total GLA. New deals, we had positive reversions of 11.9%, although only on 0.6% of the total GLA. Combinedly, we had positive reversions of 5.2%. We had a reduction in vacancy from 0.3% to 0.2%. Now looking at what we have done on the Eastern Europe portfolio. At the Mall of Sofia in Bulgaria, we installed a new staircase to link the newly upgraded food court with the first floor retail. The new staircase improved access for the office users from the enjoining offices as well as activating this part of the center and also improve the flow within the center. At City Center One West at the next slide, we have enlarged and upgraded the food court. We've included 5 new food operators in the expanded portion of the food court. At City -- Skopje City Mall on the next slide, Cineplexx has undergone a comprehensive upgrade with more luxurious seating, a modernized foyer and a renovated children area. It also has a counter for people with disabilities, which is the first in this region, and Skopje City Mall is now the only center in North Macedonia offering a state-of-the-art cinema as part of its entertainment offering. Now looking ahead, the last few years, we have worked hard to sort out the sins of the past and to simplify the business. We are confident that the business is now in a good place to see growth going forward. The guidance on the dips remains unchanged. As mentioned by Brett, we will focus now on increasing the payout ratio over time. We started the process to secure potential buyers for our Lango shares. The intention is to recycle this capital into new growth opportunities, even buying back shares or just reducing the debt in South Africa. We also want to recycle at least one asset in our South African portfolio and secure new growth opportunities in Eastern Europe. We will also pursue some organic growth opportunities with the extension on our own portfolio. The focus is due to huge demand at Somerset Mall to look at a Phase 2b as well as potential extensions at Capegate. We are investigating whether we can secure a workable deal with the [indiscernible] on the undivided shares at Canal Walk as well as The Glen. We are busy with a few projects on our [ ICR ] portfolio. That includes finalizing the PPAs at The Glen and Capegate. The intention is to install those solar this financial year. We started the process to secure PPAs as well as wheeling opportunities for Somerset Mall in Canal Walk, the implementation of the gas and battery project at Rosebank Mall. In terms of looking at our anchor tenants, we have done good work finalizing some deals with our anchor tenants to upgrade and rightsize their stores on our South African portfolio. And as mentioned at the results presentation, the focus would be on Game Pick 'n Pay, Woolworths and Edgars. On our Eastern Europe portfolio, as mentioned before, we have submitted our group applications to secure additional rights for the 2 Croatian malls. This is actually the first time the group applications had been opened since COVID. We will retail CCO1 West and we will install solar at both these Croatian malls. We can now open the floor for some questions. So over to you, Mahir.

Thank you to the Hyprop team. [Operator Instructions] Maybe I'll just start if there are a couple of questions that have come through. But just a question on the dividend -- progressive dividend policy that's up for consideration. I know that -- or I'm assuming rather that it would change depending on sort of where the LTV trends, specifically in the Eastern European portfolio. But maybe you can provide us with a sense of either a range or where you think a sustainable payout ratio level is. I suppose what I'm trying to get at is where it could ultimately settle. Any sort of insight on that would be appreciated.

Mahir, I think we will start off at 75% and progressively look at increasing that. We haven't finalized exactly what the numbers are, but we are definitely of the view to progressively increase it. Will you go to 100% again? I think you must always be cautious not to repeat the mistakes we did before. And therefore, I think we will do have a prudent approach. As mentioned and illustrated by Brett, what we have got is the depreciation that has been building up that also helped to fund a number of these ongoing maintenance. And as mentioned, we have caught up with a lot of the CapEx up to date. I think the 2 major defensive CapEx numbers we still have in the pipeline is we would like to upgrade the food court at Canal Walk. And the other one is effectively, we've developed a whole master plan at The Glen because I think it's a center that can perform much better, and we would like to implement it. So that's the, I would say, defensive CapEx we have to spend, but most of the other CapEx we've caught up, given the fact that we can actually do the solar now via PPAs or even wheeling, we always will consider that. And that means at least we don't have to spend the CapEx for the time being, but you actually can get someone else to do it and still procure your energy at very competitive prices. So to come back to your answer, I can't tell you exactly is it going to be [indiscernible], but it will go from 75 potentially 80 and then going from there. But I think definitely, there will be -- and the Board -- we actually had a Board meeting on Monday, and the guys are definitely on the [indiscernible] that we will have to increase it. The idea is to look at our financial results in December, and then we can, with the interim results presentation, communicate a definite process going forward.

And then again, without giving too much away, I mean, what would be the catalyst to obviously move more quickly in terms of increasing the dividend payout ratio? Would it be better line of sight in terms of CapEx? Or would it be a reduction, for example, again, the euro LTV? What would be the catalyst to increase it, I'd say, sooner and more substantially to where your sort of target payout ratio would be?

I would say the catalyst was really to get away from the in-country debt in Africa. As mentioned by Brett, over the last few years, we've put in ZAR 400 million into that debt, which hasn't given us any return. And that was always our big worry. What is that check going to be? I mean that's why we also didn't pay the dividend in March for our interim dividend. So I would say that was the major catalyst. And it is now taking it from there and progressively moving it upward. Brett, do you want to maybe add to it?

Just to maybe add that I think you've seen quite a big shift in the overall risk environment, particularly in South Africa post the elections and the government of National Unity, the cessation of load shedding and things. So there's a lot more positivity that we possibly don't have to be as cautious as we have been in the past.

Perfect. And then, Brett, I mean, there's a very interesting slide that you posted on the depreciation charge. Do you mind just maybe elaborating how the sort of depreciation charge that you have ultimately creates capacity or result in retention of capital to be redeployed and fund some of the CapEx that occurs. And perhaps you can sort of provide us with an indication of how that depreciation charge is going to trend going forward?

I think first part of your question is how does it facilitate funding CapEx. The depreciation is deducted when we calculate the distributable income, but it's not a cash flow item. So that cash is left in the business and can be used to fund the capital expenditure. So that's at its simplest version. If you look at -- that charge has increased significantly because as we've been replacing some of the infrastructure assets, we've put those into categories of depreciable assets because we know whether it's in 5 or 10 or 20 years' time, we're going to have to replace those again. And we need to make provision for that. So we depreciate the assets rather than lumping them into the investment property where that change in value of that asset then comes through as a fair value adjustment and it never finds its way into the distributable income. So it's a more conservative accounting treatment, I think, that makes provision or reduces your distributable income possibly when we compare ourselves to peers. And it reduces distributable income, but it leaves cash flow there to replace assets to settle debt or to repay debt and amortize debt, if you like over the period or the useful life of that asset. The charge is increasing exponentially. We've got to ZAR 141 million in the group. That includes the European assets, which are being depreciated. The South Africa charge is sitting at ZAR 75 million with the -- not all the recent capital expenditure has found its way into that depreciation charge. And so you can expect that charge in South Africa to be increasing. And what also compounds it is the tenant installation allowances our policy is to capitalize those tenant installation allowances and amortize them, okay? There may be a version that says you can factor it into the lease straight-lining calculation. And then again, you lose it in the revaluation of the investment property because that's where your lease straight line adjustment ultimately lands up. So -- but we are depreciating and amortizing those tenant installation allowances. And we're seeing with the likes of a Checkers store with some of the TIs we've had to do where even with the likes of a Pick 'n Pay where they've upgraded stores in the last couple of years, and we've made contributions to those, there are more and more demands from tenants for these tenant installation allowances and some of the numbers can be big. And so again, it's a conservative approach to the way we're dealing with the accounting. And that's again a noncash -- well, we disburse the cash upfront for which we have to generally borrow the money, and it's a noncash amortization through your P&L account that you're ultimately then recouping that money over time.

Just in terms of the CapEx number, so you alluded to a ZAR 550 million for FY '25. Now, Morné also mentioned that there are a few other projects under consideration, Canal Walk, The Glen, et cetera. If we look at beyond 2025, I mean, where -- how do we -- how can we expect to see that CapEx number trending? Is it still relatively, I would say, elevated in FY '26 and then sort of tapering off to a more normalized ZAR 200 million, ZAR 300 million? Or maybe just some insight into that, if you don't mind.

I think we've spoken quite often about sort of ZAR 300 million level as being the normal CapEx level. We know in this financial year, there's -- the Workshop 17 project is being completed in this financial year. And we've got the start of the Somerset Mall development or the Phase 2a development there that's also starting to come through in this financial year. Somerset Mall is probably the only big, big project that is in the pipeline that we've put into our budget number, and some of that is in the [ ZAR 550 million ]. The big portion of Somerset Mall will actually be incurred in the 2026 financial year. But that run rate of [ ZAR 300 million ], if you look at the slide that we did present, you can see that including the CapEx, we've actually spent more or less ZAR 300 million over most of the last financial years -- sorry, including the solar. And so I still think that's the steady run rate. If we get to an expansion of Capegate, if we get to doing something on the Canal Walk Food Court or on implementing The Glen master plan, I think those projects will be in the planning stage for long enough in advance for us to warn the market of some big increases in CapEx for those specific projects when they are approved. None of them are in the [ ZAR 550 million ] for this year.

Yes, I suppose what I was trying to get at is, I mean, would it be fair to assume that we're going to see a relatively higher CapEx spend compared to what we sort of -- you mentioned normalized number of ZAR 300 million over the next couple of years still recurring as you roll out these pipeline projects.

No, I mean Somerset Mall has been approved and is ongoing. So that's going to add to 2025, 2026, and there will be a small amount in 2027 for that. The other projects, if they get approved and we decide to go ahead with them, yes, they will add to the baseline number.

Okay. And then just last question on CapEx. Somerset Mall...

Before we go on, I think you must just differentiate between maintenance -- repair and maintenance CapEx and then what we do to enhance our properties. I mean, if you take Somerset Mall, although you're spending ZAR 300 million plus, the value is going to increase with more than that. So there's accretion in terms of that where normal repair and maintenance is not a benefit. It's just looking after the center.

I mean you've given sort of guidance in the Somerset Mall spend. Maybe an indication of what your yield is on that or return on that spend will be or is estimated to be, if you can.

I think we have given it in the results presentation.

June presentation, if you give me a second, I'll just pull it up, Morné just so we don't quote the wrong number.

And then maybe just moving on to some of the questions that have come through, Brett, while you are sort of looking at the number. There's a question from Mweishö Nene, says good results. May you please tell us how operational expenses have changed given this period had no load shedding impact?

Just give me a second. Can I only do one thing at a time?

Brett, I'll look for it. You go...

Brett, that's fine. The number is there. I can find it.

It's there. It's 15.7% IRR over 10 years is the return that we expect on the Somerset Mall project. So Mahir, to -- I mean, the impact of load shedding, I think what you've got to remember with that is we recover 85% to 90% of the load shedding costs that we incur. So even if there's no load -- I mean, if there's no load shedding, it's the expense itself might drop by ZAR 50 million, okay, which is what the number reduced by in the 2024 financial year because we had no load shedding in that last quarter. But we don't save ZAR 50 million because we lose roughly 85% to 90% of that as a recovery. And therefore, your number is more or less -- ZAR 5 million to ZAR 10 million is what you're actually looking at in terms of a change in net bottom line because of load shedding.

Thank you. Mweishö, I trust that answers your question. Just a question -- also a question on the Workshop 17 lease. Maybe if you can elaborate on the terms of the leases, the fixed versus variable structure?

As you would know, it's a co-working space. So we've got a fixed rental in terms of that escalating over the 10-year period and the upside they created is for them.