Redefine Properties Limited (RDF) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to Redefine's interim results presentation for the 6 months ended February 28, 2022. Before I kick off, I just want to remind all of you, please follow our LinkedIn pages, and you can click on this link on the presentation before you to take you through to our page. Okay. So just in terms of today's conversation, we will be talking about what matters most to us. These are themes that you'll see throughout the presentation. As you know, we structure our presentation around our five strategic priorities, which is growing reputation, investing strategically, optimizing capital, operating efficient and engaging talent. But just some key themes that you'll see emerge from the presentation will be the fact that from an ESG perspective, we continue our good work in that we have been ranked 36th out of 1,045 REITs globally by Sustainalytics. We have formulated a climate resilience framework. We'll talk a little bit about it in due course. And also, we've extended ESG into stakeholder relationships. From an investing strategically perspective, we are happy to report that the asset values are at a stable level, no longer declining. And very importantly, our asset footprint now has been rightsized. So disposal activity has some momentum still to work off in our LTV analysis, you'll see. But largely, the work has been done in this area. And then very excitingly, we've actioned the corporate reorganization of EPP. In terms of optimizing capital, you'll see that our credit metrics have improved and are very solid. Our liquidity headroom, despite paying a full year's distribution this past period has been maintained, and we've developed a sustainability-linked finance framework. From an operating efficiency perspective, our tenant retention rate, very happy to report, has increased. Leon will talk about that in due course. The number of green star-rated buildings is still increasing. It's now at 169. There's more on the way. And we have commissioned -- our capacity expansion to almost double our existing capacity. However, we are hamstrung by a local council approving such expansion activity, which Leon can also touch on in his section. From an engaging talent point of view, our senior leadership team has been reorganized and restructured from both an executive as well as from a management committee perspective. We have a very strong focus on diversity of thought. And for the seventh consecutive year, we've been accredited as a top employer. In terms of growing reputation, just some key outcomes from an environmental point of view. Green leasing frameworks on a per sector basis are in the process of being finalized. Science-based targets are being set, which will guide our long-term decarbonization journey. And then what we were very proud of this period was that our rain water harvesting project at Wonderboom Junction, not only resulted in 2 megaliters saving of water in 5 months, but was recognized by both SAFMA as well as the global FM organizations, to give us excellent awards. In terms of social, the humanitarian initiatives displayed by Poland, around the Ukrainian war, I'll talk a little bit about, but EPP and ELI have played their role in that as well as your domestically with the floods, the recent floods in KZN, we've similarly provided support to those affected, which demonstrates our continued commitment to supporting our communities. Supply and sustainability desktop audits will be introduced towards the end of this calendar year, and that is really to understand our ESG risks in our value chain. Very importantly, sustainability cannot be done single handedly. So tenant awareness campaigns around this will be prioritized essentially into the next financial period. From a governance perspective, our ESG strategy has been refreshed. This takes into account changes to our business strategy as well as a map of our key stakeholders. And then from a sustainable finance framework point of view, this will guide our future issuances of the use of proceeds related, green, social and sustainability bonds. Sustainalytics management score is now at 62.1. That's an improvement from last year's 54.6. And then lastly, as a consequence of a review of all governance processes in the company, we announced on Friday that we -- that our noncore as well as our Board has resolved now to discontinue the lead Independent Nonexecutive Director function. Just in terms of stakeholder centricity. For us, it's all about maximum impact. And with that -- to be able to create maximum impact, we need to understand stakeholders better. So for us, there's a constant refinement of our stakeholder engagement process, which is an ongoing journey, and we believe will result in our ability to understand better value expectation and value delivery. Turning our focus to the second half of this financial year. Delivering our purpose is absolutely critical to achieve inclusivity. The implementation of our climate resilience framework will reduce climate risk. And then very importantly, embedding ESG in all aspects of what we do will result in lower strategic risks so that we're better able to control the environment in which we operate. I'm now going to hand over to Leon, who's going to take you through the local portfolio from an investing strategically point of view. Thanks, Leon.

Good afternoon, everybody. As far as the property investments platform is concerned, it now values -- it's now valued at ZAR 71 billion compared to the ZAR 73 billion at the previous financial year end. This now largely concludes the strategic repositioning of our asset platform. During the period, we had property asset disposals of ZAR 4 billion, ZAR 2 billion of that was Swanston Street , ZAR 1 billion within the ELI portfolio and ZAR 1 billion locally. Over and above that, we've got a further ZAR 3.7 billion of assets on the local front, and these are typically our secondary assets that is at a reasonable advanced stage of being concluded. So that will be looking to be concluded during the next 6 months. The bulk of our development activity was focused towards expanding our logistics platform, predominantly within ELI, our Polish platform. And the platform, as at 28th February was just short of 84% locally. Now that picture will substantially change, as Andrew will allude to later on when he touches on the international platform. So that does not include the EPP transaction takeover, and that was unconcluded post the interim period. On the local front, the asset platform is now at ZAR 58.6 billion. The average value per property is just under the ZAR 220 million mark, as you can see the trend over the last number of years and also, the results of active asset management taking place over the last few years is not just as a consequence of our latest LTV reduction initiatives but is also a project we've been undertaking for an extended period of time. You can see now in terms of the number of assets under management as well as that average value starting to hopefully flatten off. In terms of our weighted average lease escalation, we have seen some pressure on that. But I think at a 6.6% total weighted in-force escalation and still kind of where we would like it to be. Where we are quite pleased on is on the letting activity that managed to increase our weighted average unexpired lease term from 3.4 years as at the year-end to 3.7 years. The portfolio continues to be retail dominated, 41% of the local portfolio is retail and then 37% in office and the balance largely in industrial. And also the portfolio is very much skewed towards Gauteng where 74% of our properties are located. In terms of some of the key outcomes locally, the property valuation has flattened off, as you can see, a 0.3% movement from what we've seen at the August year-end. And you can see across all three sectors, largely staying stable compared to the year end. And we're certainly hoping that the valuations would have stabilized and that we've created a base from which we can grow those values from. The vacancy has increased from 7.1% to 8.3%, and that's largely within the office space, as we alluded to during our preclose presentation, where we have seen an increase in vacancy. We're very excited about our solar PV projects in progress, just over ZAR 200 million we're looking to spend in the next 6 months, and that will be predominantly skewed towards our retail portfolio. On the letting front, it has certainly been a very busy last 6 months. Yes, the conditions are very tough. Revenue levels are under pressure. But if you just look at the number of deals we've done just under 500 square meters of space, there is activity taking place. It's just a question of making sure that we can manage that negative reversion, which is certainly coming under pressure, and we continue to see pressure playing out in that space. The way we mitigate against that typically is to make sure that we don't have any undo spikes in our lease expiry profile. Therefore, we very actively look at any renewals and such like to manage that number. We are very pleased with our tenants' retention level is now in excess of 95% and that's an area we continue to focus on from a cost management as well as from a cash flow management perspective. On the local front, as I alluded to earlier, we've concluded disposal of ZAR 1 billion. And the new developments and progress on the local front, predominantly is within our retail space, that's the conclusion of Phase 2 of our Kwena Square development, which is a convenience center -- 10,000 square meter convenience center on the West Rand. Some of the retail portfolio outcomes. Our portfolio is now valued at ZAR 24.2 billion. A pleasing trend for us and an indicator is that annual trading density, which increased to ZAR 31,200 per square meter on an annual basis. That represents roughly a 5% increase on pre-COVID levels. So that if you compare that to 12 months, ended for February 2020 of ZAR 29,000. So from a turnover point of view, at the tenants' turnover is about 106%, or 6% increase on that, and footfall is between 95% to 100%. On the vacancy front, that slight uptick in vacancy to 5.9% was driven by a couple of our CBD assets within Svane. And we're hoping that based on current letting activity that the active vacancy would reduce to below 5% come year-end. In terms of the tenant retention, again, this relates to the entire tenant population and not just on the renewals, and you can see the renewal success rate, what we've managed to achieve. But our total tenant retention continues to be very healthy at about 95%. The renewal reversions of negative 8.4% is indicative of the parent market within which we operate, and there continues to be pressure on those renewal rentals. So from that perspective, it's an area of focus for us. And again, we try to mitigate that is to look at opportunities to either early renew or to extend renewal conversations to a different kind of maturity profile. The weighted average in-force escalations continue or remained at 6.1%. And the bulk, as I indicated earlier, of our solar PV capacity will be focused within our retail space that lends itself the best to expansion in this space. So we're looking at another 17 megawatts of solar PV installation within the retail portfolio. On the office front, the portfolio is valued at ZAR 21.7 billion. You can see the number of green stars, and we've progressed -- or we started with 21 new certifications within this space. And we certainly are seeing an increased demand for green star and ESG-friendly offices. We're not suggesting that there's any new net demand, but the demand that there is, is certainly skewed towards quality and to assets that lend itself to better ESG fundamentals. So on the vacancy front, as we alluded to during our pre-close has increased to 16.4%. We still got some pain to come in this. We think it's going to top out for us between 17% and 18% come end of the year. On the tenant retention front, at a 94% level, slightly lower than what we had in the previous period, but still kind of where we want it to be. The renewal reversions at minus 17% has tapered or pulled back slightly compared to what we had last year. But certainly, in the office markets, the national high vacancy levels and availability of stock certainly is putting a lot of pressure on the rental levels. So that for us is a key metric to focus on, and we don't foresee any change in circumstances in the office space on that front for the next 6 to 18 months. In terms of our weighted average lease escalations, still a very healthy 7.3%. And we also are looking at a number of solar PV opportunities, albeit at a smaller level within our office portfolio. One area that we are particularly pleased about within our office portfolio is the composition. And if you look at that value by grade, we're roughly about 88% of our portfolio is now skewed towards premium and A-grade which, in our view, places us in a very good position to attract the little demand that there is out there. And you can certainly also see from a vacancy perspective that our better performing -- or our better quality assets certainly are performing better from an occupancy point of view. And in particular, the one area to highlight, and I think there's been some confusion around the vacancy by node, our Sandton portfolio, which is again predominantly skewed towards premium A-grade is sitting at a vacancy at 14.6%. And Bryanston, also another area where we're well represented, only sitting at 7.6% and Rosebank at 3.3%. On the industrial front, the carrying value is at ZAR 12.2 billion. We've also progressed some work around trying to identify sites that lend itself to green star certification, and we've got 20 new certifications in progress in this regard. And we do believe that in time, it will certainly place us in good stead to attract new demand within this space. Our vacancy at a very low 4.4%, and we're very pleased with the letting activity that's taking place on this front. And that's also reflected in our tenant retention ratio of 96.6%. The renewal versions is continues to create a small drag and one negative I suppose one can mention about the industrial portfolio is the lack of real market growth in rentals. So if you do have these long 10-year leases coming up for renewal, you do experience negative reversions. So our outcome in this period, albeit at a fairly small percentage, and we indicate to you what percentage of the portfolio contributed to that with a negative reversion of 10.5%. On the escalation front, still at 6.3%. We're quite happy with that. And again, in our industrial portfolio, we're also looking at opportunities, albeit at a small level. The larger opportunity going forward, potentially within our -- in our industrial portfolio will relate to potential wheeling opportunities, and that's something that we are close to investigating as we speak. Just to round up the local portfolio, the alternative income streams or our secondary assets or noncore assets, predominantly it relates to vendor loans, of which there's ZAR 1.1 billion. Of that, roughly about ZAR 800 million is local, and then there's about ZAR 300 million in the offshore ELI structure. These loans are predominantly secured by underlying property assets. Now one of the initiatives that we do potentially look at doing there is when we do have a particularly underperforming loan or such like to see if we can't exchange out of that loan structure into getting access to the underlying properties directly, but that is ongoing work for us. The key focus within the alternative income streams is certainly to look to expand, as we alluded to earlier, on our solar PV installations. And then we're also very pleased to note that our non-GLA income opportunities, that's predominantly around electronic billboards and such like and maximizing roof space from an antenna point of view and so on, has recovered to a pre-COVID level, and we are certainly looking at expanding that opportunity to maximize revenue opportunity within the portfolio. And then lastly, on the Lango Real Estate, still a noncore asset. And we are having long extended conversations in trying to sort of dispose that and monetize that into a more liquid asset for us. With that, we're going to have a quick look at a video of our development Kwena Square in Little Falls, and then I'll hand over to Andrew to deal with the international portfolio. [Presentation]

Okay. So moving on now to our international portfolio. From a profile point of view, as at 28th February, our platform had a carrying value of ZAR 11.5 billion, comprising EPP at ZAR 6.5 billion. Our logistics platform, ZAR 2.6 billion, that's equity accounted by the way. And then M1 Marki that we acquired, having a carrying value of ZAR 2.2 billion. From a proportional share of assets, we've got ZAR 25.2 billion with associated debt of ZAR 20.5 billion, which translates into a see-through LTV as at 28th February of 47.5%, slightly down on the prior year's 49.7%. Moving on to some outcomes for the period. Clearly, the standout work that we did was resulting in the takeover of EPP that happened on the 8th of March. However, all the legwork, as you know, would have occurred during this period. And the demand for logistics store continues, and that is fueling expansion going forward, which we'll talk about in due course. We banked proceeds of ZAR 1 billion in respect of our logistics platform. We'll talk about the detail in due course. And also M1 Marki that we acquired in December was onsold to the EPP Pimco joint venture, just subsequent to the conclusion of the takeover of EPP. Swanston Street was disposed of and settled on the 31st of January, realizing gross proceeds of ZAR 2 billion. And just a point, although we'll talk about it in a bit more detail, the war in Ukraine has had no material impact on carrying values to date. Looking at ELI or our logistics platform, you'll see that our value -- and just by the way, these are all 100% numbers. And note that Redefine owns 46.5% thereof. But in gross terms, if I can use that, we've got ZAR 8.1 billion of income-producing assets. We sold a build-to-suit property in Tychy, which realized ZAR 400 million in cash from a net point of view. Our income-producing GLA is 574,000 square meters. Yes, it is down on last year, but that's as a consequence of disposal activity that caused that. In terms of our equity commitment going forward it's ZAR 700 million. It will be part funded by certain earn-outs of circa ZAR 100 million. And then in terms of completed developments, we've got ZAR 2.2 billion of cost into those developments with an uplift of 39% thereon. And the GLA that we added as a consequence was just over ZAR 157,000. So six of the initial portfolio assets were disposed of for net proceeds of ZAR 1.8 billion. Our active vacancy is up at 8.1% versus 3.9% last year. This is as a consequence of the disposal of the six properties that were fully let, but also 2 or so developments came on-stream with some vacancy. That in due course, we believe, will be reduced given the buoyant market for leasing at the moment. In terms of new developments in progress, the total is ZAR 2.8 billion with GLA of ZAR 229,000 to be added in due course. And lastly, our weighted average unexpired lease term sits at a healthy 6.4 years. Just looking at EPP. We believe that this organizational restructure was very well timed given the most recent events. And we're also very pleased to say that all the transactions that were interlinked with the delisting on the 8th of March were all consummated subsequently. We, as we defined now, hold 95.5% of EPP as a consequence. And as you know, the main thrust of the restructure was around the creation of two joint ventures that created liquidity of ZAR 3.2 billion, which has already been deployed into reducing loans which came up for maturity. We have also concluded subsequent to the takeover, 2 disposals, Power Park Opole and Towarowa 22 which will bolster liquidity with a further ZAR 924 million. And the reorganized property portfolio is now valued at ZAR 35.1 billion. Just on a C3 basis, you'll see that our GLA is around 618,000 square meters. And just a note, like-for-like footfall grew by 9% in '21 to 2020, but is down by 29% compared to pre-COVID levels. That is an area of focus and challenge for us, and it's something that we'll be watching closely. Our weighted average lease escalation is at 4.3%. I'll talk a little bit about market rentals and escalations going forward. And then just lastly, there is another power park that we are in the process of selling, which will realize a further ZAR 300 million to bolster our liquidity for further loan reorganization, which Ntobeko will touch on in his section. Okay. Just in terms of the war in the Ukraine. From a Polish real estate perspective we understand that the inflation and the interest rate cycle prior to the war was accelerated, but that impact on consumer spend is expected to be offset by the spend from the Ukrainian refugees coming into the country. Market rentals will lift due to indexation referenced off the Eurozone inflation as well as higher development costs. We're already seeing that in our logistics platform where for the first time, on new developments, we're seeing rentals reaching the EUR 5 per square meter level, which is very, very encouraging, especially for logistics, which has been lagging significantly the rest of Europe in terms of its cost per square meter as well as growth. So we are very excited by that, but we expect that Eurozone inflation to play out in all forms of indexation, both on retail and the logistics front. Development activity, we expect to slow down, and this is mainly due to constraints as a consequence of the war in terms of higher cost of materials as well as availability of materials and labor. Debt funders, we are pleased to report still have a strong appetite to advance asset-backed funding to both EPP and ELI albeit at higher interest rates and lower asset LTVs. Just anecdotally, the higher interest rates come in the form of the interest rate swap curve, which is currently pricing at about 125 bps, which compares to a spot rate of negative 0.4%. We are seeing Ukraine-based companies, such as those in the IT sector relocating to Poland. This is translating into demand for office space. And we already made the point that it has been confirmed that valuations are expected to remain stable in Poland. Nearshoring is expected to drive demand for logistics, which is good for ELI. And then just from a real estate transactional activity point of view, we stress the point that from a passive institutional perspective, transactions are largely on hold. I must say, don't read too much in this because Google Poland acquired three office towers as a conglomeration for a record EUR 583 million in March. And just last week 7R who is a very active logistics developer in Poland, sold a portfolio of developments as well as land to its Czech counterpart, CTP, which translates into roughly developable GLA of about 1.2 million square meters. So these 4 transactions underway, but more of an active rather than a passive perspective. We also see that demand for light manufacturing space is coming through as a consequence of companies moving production from Russia and Ukraine to Poland. And then lastly, but very importantly, we expect Poland to be a beneficiary of strong self-reliant economic centers emerging amid supply chain disruptions and competition for natural resources. And this is all driven off the lower cost of doing business in Poland and also having a very skilled workforce to support the services. Just in terms of our committed capital allocation priorities, you'll see the bulk of our spend going forward is in expansion, and it's around our logistics platform, our local retail developments, some redevelopments around office and then also on the industrial front. Okay. Just in terms of looking for the second half, we will continuously improve, expand and protect our asset platform. This is to ensure that our value is maintained, that's protecting our value. Integrating EPP into Redefine's way is well on its way. And I wanted to say to my colleagues who are with us this afternoon, not only welcome, but thank you for your total cooperation. We love working with you. And this is expected to create value. And then lastly, providing a purpose for being in our spaces is a top of mind focus across the portfolio so that we are able to build a quality and stable occupancy. Lastly, Leon did allude to this earlier, but on a see-through pro forma basis, if you look at our platform going forward with EPP included, you'll see that our Polish exposure grows to 41%, and the South African asset base is 59%. I must just stress, both EPP's investments that are joint ventures and ELI that is equity accounted have been reported here on a see-through basis, giving rise to these percentages. I'm going to close the session by providing you with a little bit of an insight into EPP's platform and thereafter, you will be joined by Ntobeko Nyawo, our CFO, who will take you through the bulk of the rest of the presentation. Thank you. [Presentation]

Thank you, Andrew. And then as we just progress and just looking at the optimizing capital, I think some of the key outcomes that we're pleased to report for the interim results is really just around our stable credit metrics. And I think just a note that our LTV as well as our NAV have been -- we've adopted SA REIT, best practice around those reporting metrics. So at half year now, we have an LTV that has been reduced to 41.9%. If we restated the comparative, it was at 42.4% in the previous period. Also quite healthy around our very stable and improving interest cover ratio of 2.7x. And I think these metrics actually do bode very well from our focused approach in terms of how we, over a period of time, aiming to put more strength in our balance sheet as we forge forward. Very healthy, our liquidity profile. I think if you take into the fact that, we've absorbed a full JV that relates to FY '21, and coming out with excess to ZAR 5.7 billion, which is made up of ZAR 4.5 billion of committed undrawn facilities as well as cash on hand of about ZAR 1.2 billion. I think we're all anxious. We've got to see what happens on Thursday, but there is a rise. We are in the rising environment from an interest rate point of view. So we'll see where that goes. That puts some pressure in terms of our funding. But we're quite happy that if you look at our weighted average term of debt at 2.3 and the maturity that we're facing in FY we've largely done with the maturities for FY '22. We're just focusing now on FY '23 and FY '24. That is going very well. And you will see that, that tenure, as Andrew alluded to earlier, our focus is really a trade-off between the cost of the debt as well as the tenure, which will afford the balance sheet, the flexibility that we think it needs over a period of time. Then another call out here is really just around that our business continues really to have its cash generating ability remains quite solid. We're collecting our rentals. But what is also pleasing is that our approach to supporting our tenants in a tough period that we all, hopefully, is behind us of the COVID-19 pandemic. Some of the support that you offered them in relief of deferrals, we're also starting to collect it. And you can see that in our collection ratio, which is above 100, which actually just refers to that. And I think if you look over a period of time, where we think the LTV optimally will show certainly in our balance sheet is a range of 38% and 41%. That's really just to accommodate. I think we're not always going to be selling our assets in terms of the noncore assets when we are responding to the pressure in the balance sheet. We will also get to a point where we have to do deals and see opportunities. I think in that range, it provides a decent headroom around that. But equally so, I think the 1 in 100 tier events, you all agree that the frequency around those have just become so unpredictable and actually more often than the 1 in 100 tier. So I think also to leave some room in the balance sheet, so that it's got an ability to absorb some of the untold or the unforeseeable parts going forward. But I think if you look at the past that we've provided here, it's very clear that our commitment that we shared with you people, where we would like to settle in the current period, we're quite optimistic that we should be able to reach an LTV level of about 40%. The key metrics in those, I think, which is quite the movement, the items, it will be very pleasing to achieve that because you can see that on the right-hand side, there is a dividend that's reflective. So hopefully, with all back now to normality in terms of dividend cycle, being able to absorb the dividend, being able to continue to, I think, Andrew touched on our forward-looking capital commitments, which are also factored, you could see that a 0.7% lift that it will come through. But also, if you look on just the cash that we'll generate in the period, which is showing a reduction in the LTV [indiscernible] of about 2%. So if you factor all of these things, I think we do also -- we always provide just a lens in terms of some of the sensitivity analysis around where we see some of these things going forward. I think one of the issues, it is property valuation, which Leon touched on. Hopefully, those are bottoming out, we should see any significant write-downs. Hopefully, things are stabilized and then we're going to see a little bit of a NAV uplift and capital uplift going forward. The exchange rate, the range is quite volatile. We also do provide some sensitivity analysis around that. We just show you that in terms of that part that we're aiming to achieve by end of this financial period. I've touched on this earlier on, which is really just around our collection. And you can see the average in the period. But also in terms of the real thing that also further boosts our confidence going forward is the fact that the majorities that we currently deliver, there's really very healthy appetite from our funders on Redefine, which is pleasing for us because that is going to help us to manage the balance sheet quite very well going forward. And I think further on to that as well, I think you can see that our derisking plan, which is tapering off but the disposals that are still a part of that part includes ZAR 3.7 billion of disposals that we factored into our liquidity profile going forward. And I think our ability to execute in a very tough environment and dispose will hopefully come through for us there and be able to continue to manage the balance sheet prudently. And I think significant majorities, but I think we're quite -- that's why this is our top priority in our group because we -- as part of restructuring and reorganizing EPP, we're always quite clear that the objective was to really restore this interproductive asset. I think it's quite pleasing if you see the disciplined way where we really source our liquidity. I think just the reorg on its own generated ZAR 3.2 billion, which if you go to the product side there, you can see where we've actually applied liquidity in terms of just purely focused on reducing debt and managing the balance sheet overall exposure. So I think with the environment that we're in, we're pleased that under negotiation at the moment, we actually do have appetite on -- that is going on around deals of about ZAR 8.1 billion, which we hopefully will conclude, and it will become part of the liquidity profile, which will help us to actually fan and restore this asset into a productive asset going forward. If you look at -- in terms of the focus, where the bulk of our focus will be in the second half of this year, it's actually absolutely remains around further completing the way that we started on the funding of EPP. And I think with that, we're also quite clearly managing the group balance sheet in terms of flexibility, where we are starting to see -- if you see some of the refinancings that we are dealing with, they're really going far much more into the buckets of about 5 to 6 and 7 years, which is pleasing to see in this environment. But I think we just have to be careful there that we manage, I think, the cost of bad debt while we extend tenure. We're not going to extend tenure at all costs, but will be prudent around how we manage that. If I move on to operating efficiency, I think to me, this is one of where -- if you look at just some of the key operating metrics that we are active portfolio margin just slightly down at 81.5% compared to the previous period of 83.6%. And the active occupancy in the portfolio, very stable at about 91.7%, which Leon touched on but if you compare it, it's just slightly down to the 92.9% in the previous period. But what is really quite a pleasing for us is the fact that if you look at the quality of our earnings, the distributable income, that showed just an uplift growth of 5.9% to ZAR 1.5 billion has got 97% recurring income and only 3% of it is nonrecurring. And we did touch on the net COVID relief, which actually we're pleased that it has turned around from -- it was -- last time we spoke to you around this period, it was at ZAR 60.7 million, and now that has improved to a net relief recovery of ZAR 6.3 million. To maintain bad debts in this environment, at 62.7, we think it's a pleasing progress. Just some highlights. I think if you look at per share, your distributable income, but just marginally up from the ZAR 0.2618 to ZAR 0.263. And then out of that, we -- with a 90% payout ratio, we have a dividend per share, which is a current dividend of ZAR 0.2369. And then I'll tie on just us now on the slide that provides just a bit of detail and the key items that affect our SA REIT NAV, which comes out at ZAR 6.718. I think it's also just to note that as the interest rates do rise, the base rate will actually impact the cost of debt, and we'll continue to monitor that even though while we're well hedged against that, we'll continue to make sure that our hedging profile, which is very clear from a policy point of view, that we have to hedge north of 75% of our debt book. Then just some contributors, some key items in terms of our distributable income of ZAR 1.5 billion. You will see that the first line impact there is really some of the disposal activity that we've touched on that has impacted by ZAR 56 million but that it controls and the benefit that we track in your net financing charges which has improved by ZAR 74 million because it includes as well some of our swaps that we've taken opportunity when the interest rates were still a bit low. And then the other material line item here is really just around the fact that there is no material COVID-19 relief that is in the current period. That's why we see that movement of ZAR 63 million in the key movements. Then just to touch on the net, which goes to ZAR 6.718. I think the key item is the adoption of a dividend at 23.6x. But if you recall, when we did the FY '21 distribution, we had a dip, so we also have to just show you the dilution of ZAR 0.134 that was related to that. If you look at -- right at the front of that, it's also the fact that it's starting to normalize with our cash that we've generated coming in at ZAR 0.225 in the NAV. So we're pleased, hopefully this cycle can -- we can maintain it as we go forward. And then we've given some of the items that are material just in between that, which I think -- we will continue to monitor those, and we've touched on most of them as right through the presentation. I think just to give some sense to the statement that Andrew made earlier around really EPP for us, the restructure is quite transformative because if you look at the NAV that you've added, it moves our net asset value from ZAR 38.5 billion to ZAR 46.3 billion. That is quite material from a balance point of view. And we do give the accounting pro forma end to the year, which show you the assets that we brought on to the balance sheet -- which takes our ZAR 71 billion asset platform to ZAR 87.1 billion And that addition, you can work it out. And then we also do show the fact that the debt that is related to that to, to end up at an NAV of ZAR 6.8 billion. But from a per share NAV point of view, I think that at ZAR 6.85 works out to about ZAR 0.131 improvement in the NAV that we expect going forward, which is quite material. And it is pleasing that we've been able to get this restructure bedded down. And now we're just doing the follow-up work, which is to just deal with the maturities and then get the asset to really produce and yield the income that we expect from it over the medium-term outlook. From the focus points in the second half, I think one of the things that you can quite clearly see is the fact that we are highly focused on really getting our SA portfolio to really get its organic growth humming. And that also, why we're doing that we're quite clear that the way we operate has to adapt. We see technology as a huge enabler in some of the things that we need to do in terms of building resilience and hopefully put the business and absolutely have our tenants to really experience our business quite differently, where hopefully, we can also introduce things like the ability for our tenants to sell savings via the digital-enabled platform that we defined is ambitiously building up. Then I will just cover engaging talent before I hand back to Andrew. I think some of the key call outs here for us are around the fact that by embracing diversity, we're quite hoping that, that will be one of the drivers for the very talented workforce that we have to actually contribute to the growth profile that we want to build and see in the business. But while doing that, we are quite also pleased that the organization is quite healthy. If you look at our ethics behavior coming at 91st percentile, that was quite pleasing. But also in these tough times that we find ourselves in to have an engagement score of 87%, we think will also stand us in good stead as we try to steer the business going forward because we all know that the skill that actually gets generated in the business is largely a reflection of the talent profile of our organization over a period of time. And I think with those, we'll continue even in the second half, I think our culture around innovation and trying to explore things, we will definitely lead to one of the things that we need to do as we try to embrace being a data-driven organization. And then [indiscernible].

Thanks, Ntobeko. Okay, just to wrap up, I want to emphasize agility and adaptability will differentiate Redefine going forward. So just in summary, we will remain focused more intensely on the variables under our control by creating a platform for ecosystems of talent, technology and information. Continuously improving, expanding and protecting our property portfolio. You've heard from Leon, that is going to continue. Recycling through the disposal of noncore assets, will be to a lesser extent a feature, given what has been said already. But nonetheless, if we get to the point where we have exhausted all forms of possible alternatives, then clearly disposal would be the last resort. And then unlocking value through active asset management and development opportunities, that will continue, particularly in the Polish logistics, for example. But from an active asset management perspective, that is across the entire portfolio, driving innovative and data-driven projects to ensure we provide a reason for being in our spaces is an imperative, as is the digitalization of our entire business, where we've got a lot of work to do, which Ntobeko alluded to earlier. Continuing to embed ESG into all aspects that we do will continue. And then very importantly, understanding our stakeholder needs to ensure that our impact on them creates meaningful sustained value. And you, as investors, clearly are a key stakeholder, and we'll be having lots of conversations with you in due course to ensure that we're on track in terms of meeting your expectations, so that we will have a share price, which we believe will be reflective of value in time to come. Okay. Just lastly, in closing, we understand that the environment in which we operate is difficult. It's a low confidence one. It's highly uncertain. Also, if we look at tangible policy action, some has been taken, but from an implementation point of view, there's still a little bit of a lag. And as a consequence of that, because the fundamentals of commercial properties are largely a function of economic growth and business confidence, we are not going to rely on external factors to change our fortunes. We will rather focus on what we can control by putting our purpose and people at the heart of what we do, so that we position Redefine for the eventual upward cycle. So in closing, I just want to say we've put out our next year. And as you know, we haven't been giving market guidance now for quite a while. But we believe now that we are in a bit more certain environment. We are able to report to you that we expect our full year 2022 distributable income per share to be between ZAR 0.50 and ZAR 0.55 per share. So with that, I'm going to thank you so far with our presentation. And I'm going to now open the floor to questions. We have received a number of questions already. So thank you. We'll work through them. I'll read out the questions, and then I will introduce whomever is going to address it.

So the first question, I think, is leveled at Leon. And it's from an investor called [ Joyce Neville ]. And the question is retail reversions at the pre-close was actually minus 4.6%. At the results, we have seen the deterioration to 8.4%. What is the reason driving the large change over a small point of time? Was this one tenant or a portfolio?

Andrew, that specifically relates to an opportunity we've taken to earlier renew leases and particularly in our CBD assets, small through more points is customized. So it's a function of having to early renew that. And within our CBD assets, the trade is not yet back at pre-COVID levels. So we did short-term renewals and it relates predominately to that.

Great. Thanks, Leon. Okay. Another question from Joyce. Have you seen any pressure on property costs at EPP? Joyce the simple answer is yes, we have and this was pre -- the war in Ukraine. There were two major pressure points, 1 in the form of labor costs, where the entry-level labor costs are legislated and they were increased by the government by 34%. So you're cleaning, your security and those kind of costs did show an increase as well as energy costs. Now roughly 59% of Poland's energy costs are carbon emission taxes because like South Africa, they rely on coal to power the coal -- the energy generation. So the answer is yes. And that trend will continue as inflation creeps upwards, especially around energy. Joyce, once again, another question. So you've had a very busy afternoon. Thank you, Joyce. When does the vendor loan relating to the Delta property shares mature? Is it this year? Will you take the shares back? Well, Joyce, this is a work in progress. The answer on when does the loan mature, it's at the end of June this year, that's quite soon. And there is a possibility that we will take the shares back. There's a couple of alternatives we're pursuing. We're not yet in a position, unfortunately, to elaborate on that just yet, but you can expect some developments in this regard soon. Another question from Joyce, the last one. Have you seen a slowdown in new BTS developments in the European logistics platform? Joyce, we have not seen a slowdown per se. As I said earlier, passive institutional investments -- or investors, are largely pausing whilst they get a better feel for how the war in the Ukraine is going to play out. So there is one BTS development, [ Sajay ], which is on hold, which we did a deal with a Canadian REIT on. So we will see what transpires from that. But as we sit here now, we've just come across -- or have been presented with another BTS opportunity. So it's by no means dead. There's definitely life in the sector. Yes, there might be a little bit of pause, as I said, but we don't believe it's going to be permanent. Okay. Then just moving on, Francois du Toit from Anchor Stock Brokers asked, Andrew said that short-term debt funding costs increased as a result of the war. Just on that point, Francois, I must correct you, it's not short-term debt funding costs. It's actually long-term debt funding costs because I spoke about the 5-year swap rate, which is driving that cost upwards. But be that as it may, your question is, can you give some details around the cost in terms of the ZAR 1.4 billion debt raised in the EPP community properties JV in March. Now Francois, the cost of that, and I speak from -- and I'll correct myself with you when we meet on our one-on-ones, it's roughly 6% as an all-in cost, and it's for a 5-year term. Another question from Francois, he says ZAR 1 billion was invested into [ Galeria Marcina ]. At what yield on book value based on cash flows? So I think this is not a new investment, Francois. This is actually a loan of EUR 54 million that matured in April which we repaid. Our counters called it an equity investment. It was actually -- that's how the cash flowed. It's not a new investment. So it's not really a yield. It's actually just a repayment or a funding, if you like, by EPP of a debt obligation of Galeria Marcina. Also given -- this one is Francois now, given the 70% ownership of the JV, could we request more detailed disclosure around this JV in the future? Can we also see JV accounts for the other EPP JVs in the future at interim and final? Absolutely, Francois. We've already spoken to our accounting counterparts, and your question is spot on. We will be providing full details around every joint venture. There's nothing to hide, and you'll get full access to the underlying accounts. Hence, the reason why we included a see-through analysis of the asset platform. Pranita Daya from Standard Bank Group Securities asks us 2 questions from what I can see. The first is at what discounts to book were the local disposals executed? Similarly, what was the pricing of the logistic asset sales in ELI versus book? Let me just deal with that quickly. The first part of your question, Pranita, is that we are disposing at book slightly above, but we are not selling at discounts to book. And then in terms of the pricing for those logistics assets, the 6 that we disposed off of the original -- or the initial portfolio, came out at a yield of around 5.25%. And the BTS for the project that we sold was around about 5%. So we are seeing further yield compression. The BTS transaction that we -- that has been placed on hold, broke the 5% level. It was in the 4% range from a yield point of view. Then in terms of your second question, Pranita asks, you mentioned some valuation decline in EPP due to government policy changes around COVID relief. What was the actual decline experienced? And how much relief is still being provided relative to prior periods? So I don't have the exact number, Pranita, and we can provide that with you after this presentation in terms of the valuation decline. It wasn't significant. What happened was the weighted average lease expiry changed because what happened was the government introduced a new law whereby should there be a lockdown and you provide relief to your tenant, there was in the prior legislation, the ability to extend your weighted average lease term. What the government then enacted was that you can no longer -- you provide the relief, but you can no longer extend the lease term. And there was some correction in the WALE that was reported in around September. But from a valuation point of view, only came through in the December valuations. We'll get that number to you. Then also, you also asked about how much relief is being provided. There is no more relief being provided, Pranita in EPP. Okay. So Francois come back with another question. He said, are you comfortable with the existing funding structure and hard currency leverage? Specifically, do you expect to keep cross-currency interest rate swaps of circa ZAR 7 billion in place long term? I'm going to let Ntobeko respond to that question.

Okay. Thank you, Andrew. I think Francois, your question is twofold. Firstly, just around the funding structure and the hard currency leverage, which really I think you're asking about, are we comfortable with how we've exported our balance sheet option. Largely quite comfortable given the way that we've done as well on the balance sheet around the restructure of EPP. On cross-currency swaps of circa ZAR 7 billion, the net exposure, interestingly, is you've got to knock off the local led, which is a EUR 6.2 billion from that ZAR 7 billion, and then you end up with a net impact of about ZAR 0.7 billion. Now we -- what we're doing there in the space is that we think it is a quite healthy way. Also, if you look at the tax advantages that it brings to continue using cross currency stocks, as part of our funding mix. But of course, if you say long term, how long term that will be, will depend to be a function of other opportunities that we image with our restructured group balance sheet.

Thanks, Ntobeko. Okay. [ Maher ] from Asset Capital and ask us a question on distributable income per share as well as dividend per share guidance. And he says, what range of dips and DPS have you assumed for EPP in the second half, if any? Ntobeko, can you respond to that?

Yes, Andrew. I think you're right, Maher. So what we have done, we factored the attributable earnings of EPP from the 8th of March when we actually effectively took control and it was classified as an investment in a subsidiary. The amount that we factored, I think it's in the second region of about at ZAR 300-odd million, that is part of our range that we gave early as part of guidance. But to your point, that is the attributable earnings and then the DB cycle will have to come then to pay that with cash over the period as we normalize.

Okay. All right. The next question is from Francois du Toit and his question is very attractive returns from solar installations. Is the 18.7% yield fully realizable in so far as you're able to charge tenants for the electricity generated? And also how big is the sale of pipeline per year each of the next 2 years? Leon, can you respond please?

Certainly, Francois, the 18.7% yield is realizable, not just from recharges to tenants, but as well as in the retail portfolio, for instance, where we pick up a common area of cost that's not being recharged. So we also have the benefit of lowering the actual expense that's not recoverable. So from that perspective, yes, it is fully realizable. And obviously, that is the year 1 yields, and that will only improve as the Eskom tariff over time, increase greater than what our ability to generate costs or generate electricity as that. In terms of how big is the opportunity -- it depends. I mean, this year, there's a 19-megawatt power plant, and that is -- that was driven principally by our ability to increase existing plant sizes. So when government lifted the self generation cap of 1 megawatt, that opened up the opportunity for us fairly quickly to be able to expand existing installations on our retail malls in particular, that was previously captured that. So I can't see that we will be able to replicate a 19 megawatt installation every year. It will be substantially lower than that. And the other reason that we'll have to wait and see our regulation develop in this front is the ability to make use of winning opportunities. In other words, if we can generate through solar PV on a well-located industrial site, if we are able then to wield that electricity to other buildings within our portfolio, that will certainly open up ample opportunity, but regulation remains to be seen how that's going to be implemented and developed.

Thanks, Leon Okay. [ Jared ] from [ All Weathers ] asks, what explains the disposal at an average of 11.9% yield versus the weighted average SA cap rate by sector between 8% and 9%? Jared, I'll answer that simply by saying these are noncore assets we're selling. And clearly, being noncore, the yields will be out of kilter with the average for the overall portfolio. Anthony Berman from Anchor Securities ask, can you impart more detail on EPP's contribution to dips going forward in time frame? I think Ntobeko has already answered that question. And then lastly, Yesh Pillay from Anchor asked 2 questions. His first is, what was the like-for-like percentage property valuation change in SA retail and office segments? And secondly, can you please give us a sense on the average premium discount to book on recent SA disposals in retail and office segments respectively? Leon, can you answer Yesh, please?

Certainly, in terms of the like-for-like retail performance, as we said, was marginal growth, was a 0.2% improvement or ZAR 52 million and office was virtually flat. There was a marginal ZAR 1 million move year-on-year and -- which caused the overall portfolio. Obviously, that was offset by a 1.1% growth in industrial. So the total like-for-like portfolio change in valuation was 0.3% or an increase of ZAR 171 million. And as Andrew indicated earlier, the disposals undertaken during the course of this period was X to a slight premium to book.

Great. Thanks, Leon. That concludes all the questions. We look forward to spending face time, and I'm talking across the table with all of you in our one-on-one sessions, and thank you so much for your patience and your confidence in us. We hope that after this week's one-on-ones, you'll be convinced that Redefine certainly will deliver on its investment proposition. So thank you very much. And thank and all the best, and go well. Cheers.