Redefine Properties Limited (RDF) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to Redefine's Group Annual Results Presentation for the Year Ended 31 August, 2022. Before I start, if I can please ask all of you to follow our LinkedIn page, please. A lot of details flow through that media and a whole new world, if you're not already there, will be opened up to you. So please do follow us. So our conversation today will focus around our strategic priorities, which is to grow reputation, invest strategically, optimize capital, operate efficiently and very importantly, engage in talent. I'll be assisted in the presentation with my colleagues, Leon Kok, who is our Chief Operating Officer; and Ntobeko Nyawo, who is our Chief Financial Officer. So just looking at some of the strategic outcomes as highlights of this results season. I just want to take you through a couple of the key ones here, but these will be themes that will be playing out throughout the presentation, and you'll see more elaboration on them during the course of this afternoon. But in terms of growing reputation, we are very pleased to report that our indices, one of them being GRESB, are showing improvements on 2022. We are on track to meet the obligation of energy performance certificates by the December deadline, that's a 145 certificates. And we were very pleased that in our annual ethical culture rating, we were able to maintain an already very high 88 percentile. In terms of investing strategically, we are pleased to report that we have completed the refocus of our property asset platform. A lot more that will be discussed in due course this afternoon. And what we are starting to see now is that our downward cycle of asset valuations has bottomed, and we are now seeing pleasing improvements and growth, which Leon will talk about in due course. EPP, as you know, we acquired during the course of financial year 2022, and it is largely stabilized. Once again, we'll talk a little bit more about that in due course. From an optimizing capital point of view, we are very happy that eventually, we are at the stage now where we can report that our loan-to-value ratio of 40.2% is within our target. And Ntobeko will talk a lot more about that in due course. Just after the year-end, we issued a green bond for ZAR 1.5 billion. Although, we'll talk a lot about it in a moment, what I want to stress is that this will be the first time that Redefine has been able to issue 10-year paper, something not previously available to us. So as you can see, going the ESG route is paying off in this regard. Our liquidity headroom, once again, Ntobeko will talk about, has been improving. It's ZAR 400 million better than it was this time last year. And that is despite paying 18 months of distribution in this period. In terms of operating efficiently, you'll note that our active -- our local active occupancy has improved to 93.3%. We have 160 Green Star certifications. Our expansion of solar PV continues. As you can see there, it will be just around 43-megawatt peaks by the time we complete what is in progress. And then from an engaging talent point of view, we are very happy that we've been able to maintain an already high engagement score of 87%, which is well above the national benchmark, which sits at about 62-odd percent. In terms of diversity of thought, our executive committee has been totally refreshed. We have reported on that previously. But that stands us in good stead going forward, not only from a diversity or thought point of view, but similarly from a succession point of view as well. 391 learners have gone through our Learnership Program since inception, and that program will continue going forward. Just moving on to growing reputation. If you have a look at our 3 pillars there. In terms of environmental, we have saved energy of about 94 million kilowatt hours during the past year through our solar PV projects as well as lighting retrofit projects. 85% of the South African office portfolio is Green Star rated and 20% of both the retail and industrial portfolio are now also, for the first time, Green Star rated. We have initiated 3 pilot net carbon certifications in our office portfolio. This is to provide us with better insight on our zero carbon journey. And then 85% of EPP's office portfolio, as well as 70% of their retail portfolio is BREEAM certified. In terms of the social impact, we, for the first time, have measured both in South Africa and in Poland, our socioeconomic impact. I'll talk about that in a short while. And we've concluded supplier sustainability audits for local suppliers. We have developed green leasing frameworks for both South Africa's office portfolio as well as the EPP retail portfolio. And very importantly, we've initiated tenant ESG awareness campaigns across the group. Without the collaboration of all stakeholders in this area our ESG endeavors will fall flat. And from a governance point of view, we were very happy that we were place second in EY's 2022 Excellence in Integrated Reporting Awards. And I might add that this is the sixth consecutive year that Redefine has been placed in the top 3, which we are very proud of. From an agenda point of view, we achieved third place at the Gender Mainstreaming Awards for JSE-listed companies. And we've aligned our Nonexecutive director succession framework to future strategic objectives. Very importantly, we have bolstered the Board's real estate and asset management skill set with the appointment of Simon Fifield and most recently, Cora Fernandez. Just in terms of our socioeconomic impact, ZN South Africa, the standout outcomes here from an impact point of view, I will go through, but I think just to explain first of all. This study was performed by JLL and it only focused on Redefine's contribution to the socioeconomic dimension of South Africa. It takes into account the CapEx for the year as well as local operational expenditure. You'll see that from this ZAR 8.3 billion of total new business sales were generated. From an SMME point of view, 8,353 jobs we created. And broadly speaking, 12,850 jobs were created as a consequence of expenditure into the marketplace. What is noteworthy is that, roughly 55% of the jobs, 7-odd thousand jobs comes from the retail sector. Looking at Poland, you'll note that the GDP contribution is EUR 94.7 million. The retail sector had an employment impact of 2,113 and the office sector, 400. From a social impact point of view, you'll note that 714,000 people on average live within a 30-minute drive from our retail assets and -- sorry, 112,000 people live within a 30-minute drive from our offices. What this all does is, it provides us a baseline from which to measure future impacts. Looking ahead, you'll see that our focus will continue on diversity in our operations. Our climate resilience framework has been developed. It's now in the implementation and refinement phase. And as I said earlier, we need to enter into sustainable partnerships with key stakeholders, particularly tenant suppliers and community-based organizations to accelerate our ESG strategy. Without that collaboration, it won't be possible. So with that, thank you very much. I'm going to hand over now to Leon, who's going to take you through investing strategically.

Good afternoon, everyone. On the investment front, our properties under management now accounts for ZAR 88.9 billion, just short of ZAR 90 billion. The bulk of that increase from ZAR 73 billion last year is, of course, of the consolidation of EPP. From a geographical diversification point of view, 66% of the portfolio is based in South Africa at ZAR 58.9 billion and Poland accounts for 34% at ZAR 50 billion. During the year, we were quite active on the disposal front. We sold ZAR 9.4 billion worth of assets. Again, the bulk of that being part of the EPP reorganization. And similarly, erased ZAR 1.4 billion worth of assets at an advanced stage. And again, we give you details of both those 2 numbers in the back of the booklet in the annexes. Of that ZAR 1.4 billion, ZAR 400 million is local and ZAR 1 billion relates to offshore in Poland. On the uses of capital, you can see we generated ZAR 12.9 billion worth of cash during the year. The bulk of that went to repayment of debt, ZAR 6.8 billion to be precise, and roughly ZAR 1.7 billion was spent on local and Polish development and CapEx. We give you an analysis of where that capital was expended. The bulk of it was around protecting locally what we've got, some expansion within the retail sector. And again, the detail of that is contained in the back. So with that, from a disposal point of view, as Andrew mentioned, largely complete -- completed that strategic reorganization that we commenced in 2019. But you'll see that going forward, the disposal activity will largely be around our active asset management, where we continuously look to recycle and refine and improve the quality of the overall portfolio. On the South African front, our portfolio has ZAR 58.2 billion. These are spread to -- between our retail, office and industrial front, 41% is in retail, 38% in office and 20% in the industrial portfolio. That's roughly about 3.9 billion square meters of space, 4,000 number of tenants. Net average value per property of ZAR 225 million is as a consequence of over the years, as you can see, the number of properties declined, but that is principally as we've sold our secondary assets which typically would have been smaller. And a small uptick in '22 is also as a result of the revaluation, which, in our view, have bottomed, and we'll deal with that in the next slide. For me, the most important factor here is that we've managed to derisk the portfolio to some extent with that expansion of the unexpired lease term. We've managed to increase that in a very tough economic environment from 3.4 years to 3.6 years. And also if you can see that, lease expiry profile on the right-hand side, where we list both GLA and GMR, it's a fairly undermining expiry profile. And we're trying to keep that and to deal with any undue spikes well in advance of those expiries going forward. So for 2023, we got 14% by GLA and 16% by GMR to deal with. On the geographic splits, the bulk of the portfolio sits in Gauteng and then secondary exposure in the Western Cape and KwaZulu-N. And again, from a tenant grading point of view, the bulk of the portfolio is sitting as A-grade tenant category. In terms of the outcomes, as we said, on the portfolio revaluation, a total increase of 1.4% versus that minus 3% we experienced last year. And as you can see, it was across all 3 sectors, retail, office, as well as industrial, where we've seen a positive uplift in valuation. Particularly, on the office front, we're quite pleased with that 0.8% increase which definitely, in our view, is indicative of good outcomes on the operating metrics and certainly does bode well for the future going forward. And on the retail and industrial were similarly performing quite well. If you look at the average exit cap rates across the 3 sectors, marginal movements to the prior year. And again, I think it's indicative of good work that was performed during the period within the portfolio. For me a standout feature here is also the total letting. If you can see, we've let just over 1 million square meters of space across the 3 sectors, of which 40% was new deals. So definitely, from a leasing point of view, our team has done exceptionally well. Solar PV continues to be an area of focus for us. As you can see, there is roughly of ZAR 150 million with the projects in progress. And we would look to increase that. So our total installed capacity, once the projects are completed, just short of 43 megawatt peaks. In terms of our tenant retention, in the current climate, particularly has a strong focus on there. So cash flow management is represented in that number. So at 92%, we're very happy with the tenant retention level. And as I indicated, the ZAR 2.8 billion are related to the disposal within the South African portfolio. On the reversion front, I will deal within each sector. But at a total portfolio level, our total reversions for the year was at minus 12% compared to the prior year, 12.8%. So that certainly is starting to taper off, and we're hoping, particularly within the retail front, that it should start being slightly moderate to flat to marginally negative going forward. On the retail front, our regional portfolio is now at ZAR 24 billion, 60 properties. That drop in 68 is, obviously, through the disposal of property. And you can see it's very well diversified across the different formats. Our super regional, that's being Centurion Mall and then nice diversification between convenience and regional centers. Total GLA of just over 1 million square meters. And again, I'll point to that lease expiry profile, which for 2023 at 16%, we believe is very manageable. In terms of the outcomes on the retail front, our trading density stats, we compare that ZAR 31,000 per square meter to what we call pre-COVID. And for us, the number there is the half year '21, so that's the 12 months up to February 2020. So a decent improvement in tenant turnovers. You'll note in the back, footfall is in the deep 90s, whereas on the turnover front, we're standing about 107% over pre-COVID level. On the vacancy front, we've managed to reduce that to sub-5%, so at 4.4%, which is obviously due to that letting activity at 287,000 square meters of space. Again, on the retention front, by GMR at a 93% level, which in our view is a very good outcome. The reversions at minus EUR 8.6 million, despite all the positive metrics, that is still a number that for us, definitely going forward, will be a focus point. And to hopefully get through this cycle of negative reversions and forward-looking, we're hoping for that number to be substantially better than that and hover around the close to flat to marginally negative going forward. In terms of the lease escalation, there continues to be pressure on that front. But the total portfolio in-force lease escalation at 6%, I think, is also a decent outcome. We've given you a breakdown of the vacancy by type and the contribution led to the total vacancy. If you can look at the far right and said, our regional and convenience centers, in particular, performing very well. On the office front, portfolio worth ZAR 22 billion, that's represented in 101 properties and just over 1,000 tenants. And again, if you look at the composition of our portfolio, and that's where we believe we will certainly benefit of this flight to quality. 88% of our portfolio is within the A and B-grade space, and we believe that will stand us in good stead going forward. Similarly, on the lease expiry profile, only 16% coming up in '23 and a further 17% in 2024. In terms of the outcomes in our office portfolio. We're very proud of the green certification within this space. The bulk of our portfolio in the office space is green-certified and we certainly believe that will stand us in good stead, particularly as there is this drive back to the office. And from a tenant point of view, looking to make the office environment far more attractive for the employees and convincing them back to the office. So we certainly believe that will stand as a good stead. That vacancy at 14.4%, it is a substantial improvement in the number we showed at half year, which is just over 16%. So it certainly is coming back. So we had some very decent letting activity in the last 6 months. Our tenant retention level at 91%, again, is indicative of the focus on cash flow retention. On the reversion front, the minus 16.9%. Again, if you can recall at half year, that number was in excess of 17%. So we did pull back a bit in the last half of '22. That number, however, will continue to be under pressure, particularly in an environment with excess demand. And from a supply point of view, the negotiating power definitely does still remain with the tenant. So we're hoping that, that number will moderate slightly to roughly about minus 15%, but we don't foresee much letting up in that area. On the in-force escalations, still a healthy escalation at 7.1%. And even on the office front our solar PV activity has been very good during the period. We've got installed capacity of just short of 3 megawatts. In terms of the fair value, you will see where the best performance was, it was in our premium grade, and that was on the back of very decent letting activity. On the industrial profile, we've got ZAR 11.6 billion worth of industrial assets, spread across 94 different properties. And what is very encouraging for us is that lease maturity profile, very much skewed towards the back end of 5 years, so that certainly does bode well from a risk management point of view. And also this portfolio is very well diversified across the various types of industrial properties. In terms of the outcomes, first for us in terms of the Green Star certifications, and that certainly is an area that will be of continued focus. The added benefit of that, of course, is assisting us to get a better insight into the performance of the buildings and look at how we can mitigate and reduce operating costs within this space. On the vacancy front, at 3.1%, very good outcome, and this sector continue to be defensive for us. On the retention front, similarly very high, and the renewal reversions at minus 2.6%, which is in an environment where office rentals -- industrial rentals haven't really escalated, we think, is a very decent outcome. And also at a weighted average lease escalation of 6.5% speaks to all the decent letting activity of just short of 0.5 million square meters during the period. In terms of the vacancy, you'll see that the bulk of our vacancy sits within the warehousing space, that's secondary kind of grade warehousing space. So we're not overly concerned about that. You can also see that performance in the fair value adjustments on our warehouse in particular, but that's a tiny part of the portfolio. And the rest of the portfolio, obviously performing quite well on the valuation front. And then lastly before I hand over to Andrew, just to give you insight in terms of our alternative income streams, what we previously used to call non-GLA, certainly is a good performer. That revenue level of ZAR 83 million is above what we managed to achieve pre-COVID, so we're quite excited about this. And this will continue to be a focus area for us to grow that number in excess of ZAR 100 million, and will give you a bit of an idea of where our attention is focused on this. With that, over to Andrew to talk [Technical Difficulty].

Thanks, Leon. Okay. So moving on to Poland. As you would have heard earlier on, around 34% of our property asset base is invested in Poland. The platform carrying value is ZAR 30 billion. EPP, property asset base, ZAR 25.1 billion. ELI, ZAR 4.7 billion, and then we've got a very small investment in Lango, as you know. From a proportional share of JVs point of view, you'll see that our assets sit at ZAR 24 billion versus debt of ZAR 11.8 billion. And although, Ntobeko will talk about earlier, let me just make a point. Our see-through LTVs at 46.9%. That is coming down. It was at 49.7% last year, and it will trend lower through selective repayment of debt as well as debt amortization in those joint ventures. From an outcomes point of view, on the international side, you'll recall EPP was delisted. The reorganization of its balance sheet is largely completed, and it created much needed liquidity to settle the maturing debt. And you'll see from Ntobeko's slides, a significant amount of debt has been repaid as a consequence of that. In terms of disposals, EPP disposed of its Power Park in Opole as well as its equity share in a development plot in Central Warsaw, Towarowa 22, that realized net proceeds of ZAR 900 million. ELI disposed of 7 logistics assets during this period, which generated about ZAR 1-odd billion that totaled 274,000 square meters of GLA. I'll talk a little bit about that just now. In terms of tenant demand, from a logistics point of view, it remains strong. Nearshoring has now morphed into friendshoring, were friendly territory such as Poland are net beneficiaries of new users coming into the market. And yield compression hasn't diminished further, but is starting to settle at very low levels, which is fueling continued expansion in this area. We did record very pleasing valuation uplifts in -- I'm sorry, in ELI this period, ZAR 1.3 billion, on the back of a whole lot of new developments, which I'll unpack shortly. We did dispose of our last student accommodation property in Australia, Swanston Street that generated gross proceeds of ZAR 2 billion. And then the retail valuations, we are very pleased to note in Poland, are stable despite the ongoing geopolitical uncertainties in that region. From an EPP core point of view -- I just want to stress before I talk about EPP core, the joint ventures for those of you've who have asked for information, we've provided. It's not in my presentation yet, but it's in the annexures. And there's been complete disclosure there, I must add. But just from an EPP core point of view, the value comes out at ZAR 16.8 billion. The vacancy is a very pleasing 3.5%. The carrying value of the investments in the joint ventures is ZAR 8.2 billion, and the weighted average unexpired lease term is a very encouraging 6.2 years. Renewal reversions, they are in Poland as a consequence of the broader economic dynamics that are at play at minus 7.1%. It's not a [ try and smash ]. We are managing it as best we can. And then just on a like-for-like basis, the footfall has grown 25% year-on-year, but it is down 12% on, let's call it, pre-COVID levels. Turnover is very different. It's actually positive. But just in terms of BREEAM for the usage -- for end-use ratings for the EPP core assets, you'll note that it's 83% certified to be excellent or very good. Just in terms of EPP joint ventures, as I said, in terms of operational statistics, all in the back of the presentation. But just one or 2 highlights for each of the joint ventures. You'll note from -- on the M1 joint venture, we've had a very busy time in terms of reletting or renewal of leases totaling 64% of the GLA or 55% of the NOI to extend the maturity of the lease term beyond the M1 master lease, which expires in March -- sorry, April 2024. The M1 portfolio now has been put back together through the acquisition of M1 Marki initially through Redefine and then on sold into the joint venture. And then from a EPP community joint venture point of view, the extension of Zamosc is complete. This month it will be fully operational and occupied with 4,000 square meters fully let. And then we've also replaced Tesco and Leclerc hypermarkets with other grocers and fashion retailers in the portfolio, which was a challenge previously. Galeria Mlociny is a new development in Northern Warsaw, which during COVID battled. A marketing plan that we've put in place in March this year is starting to deliver very encouraging results. The footfall is up 14%. But very importantly, the tenant turnover is up 31%, which for us, stands us in good stead from a renewal prospects going forward. And then just in terms of funding, we've repaid the very expensive mezzanine debt, but then there is an element of funding still that needs to be optimized that has remained. That's work in progress. Henderson is an office joint venture. The occupancies are good in a very challenging environment, particularly outside of the usual nodes, in Krakow, Lodz and Poznan. But nonetheless, there's letting activity occurring there. And then very importantly, 100% of the properties have got green energy certifications. In terms of ELI, you'll note that the carrying value of the properties, this is now for 100%, not our 46.5%, but for 100%, it sits at ZAR 12.2 billion. The vacancy is high at 6.5%. That is a consequence of a order of developments coming on stream. I'm pleased to report that it stands here now, the vacancy is more like 4%. You'll note that the GLA for the income-producing portfolio is at 724,000 square meters. That is despite selling 272,000 square meters during the course of '22. You'll note that 306,000 square meters of GLA was added through new developments that were completed during this year. We have a very healthy unexpired lease term at 6.2 years. And what you're starting to see now, which hasn't been a phenomena for a very, very long time, is that through the higher inflation rates being reported in the Eurozone, we are now starting to see growth in expiring rentals. You'll see 2.4%, for example, on expiring rentals. But more importantly, on new developments, we're starting to breach the EUR 4 per square meter mark, something previously not seen. Our weighted average lease escalation you'll see is sitting at 5.3%. That speaks to what I'm talking about from an underlying Eurozone inflation rate impact point of view. We have a number of developments in progress totaling 190,000 square meters, 62% of which are pre-let. And then from a BREEAM certification point of view, 68% of our portfolio is certified to be either very good or excellent. And all new developments similarly will be rated on a similar basis. In terms of undeveloped land available, you'll see it totals 280,000 square meters, and that will stand us in good stead to meet that ongoing tenant demand from a development rollout point of view. It's always important to sit back and do a back testing analysis of something you motivated. So we're very happy to provide you with our analysis of EPP as an investment proposition. And we've gone back to our strategic imperatives when we motivated this transaction. So I won't focus on the greens. I'll just look at the ambers, which is work in progress and the red, which is requiring focus. But you will see that from an organic growth point of view, EPP is forecast in the 2023 outlook to deliver EUR 37 million of earnings that will be in our numbers that Ntobeko will talk about, but it's still work in progress. This is by no means where we are comfortable. We would like that number north of EUR 40 million. In terms of the M1 portfolio, we are still working on refinancing the M1 tranche 1 facility. It has been extended to early January, but there's still work in progress in that regard. In terms of looking at a sustainable funding model by removing gearing-on-gearing, that is actively being worked on, where you will note that now if you compare our international assets and our international debt, we're sitting at 55.6%, previously at 80%. That we expect to still reduce in due course with our see-through LTV improving. In terms of the restructure and flexibility of the funding profile, this is something that Ntobeko and his team are still very much focused on with our Polish colleagues. In terms of optimizing costs and efficiency, I think this will always be read in terms of requiring focus, especially in the current inflationary environment. Yes, we did save EUR 1.7 million this year, but we would like that number to be more to protect and preserve our operating margins, which, once again, Ntobeko will talk about. Just in terms of capital allocation priorities, our total is about ZAR 1.7 billion. You'll see the bulk of it, about ZAR 1.4 billion sits in the top right-hand corner. And that's where we really want to be applying most of our efforts to ensure a high income growth potential as well as a significant long-term value creation potential. What is central to this is our rollout of further developments in the logistics, particularly in Poland, but also ZN South Africa. I think Leon did speak about ongoing refinement improvement and making sure that our core sectors are still relevant to our users' needs on an ongoing basis. So just looking ahead from a strategic point of view, we will continuously improve, expand and protect our asset platform. The stabilization of EPP is largely done, but there's still some work to be done from an operational point of view, from an efficiency point of view, in particular. And then providing a purpose for being in our space is an ongoing challenge to build a quality and stable occupancy. So with that, thank you. I'm going to now hand back to Ntobeko, who's going to now take you through optimizing capital, operate efficiently as well as engaging talent, before I close. Thank you.

Thank you, Andrew. Good afternoon, everybody. I think it's very pleasing for us this year to check. If you look at the strength that we've restored into our balance sheet, which is really evident in our credit metrics, LTV coming out, improving from 42.4% to coming out this year at 40.2%. As well as the interest cover ratio that really also has improved from 2.6x in the previous period since we reported that to 2.8x. Now that also is -- I think if you look at our liquidity profile, which is quite strong, if you look at that we've got access to ZAR 6.2 billion of liquidity, which is roughly made up of ZAR 1.7 billion of cash that is on hand and then the ZAR 4.5 billion, which is really just our committed but undrawn facilities. And in this time that we find ourselves in, I think we're quite happy that our debt that is hedged as a percentage is of our group debt is 82.9% in this period compared to the 82.8% in the previous period. I'll chat a little bit just about that hedging profile in the next couple of slides. And then if you look at what we did this year largely in terms of sourcing capital that Leon talked about, it's -- we've raised the ZAR 12.9 billion. And large chunk of that from non-core disposals at ZAR 6 billion, and then a massive liquidity point as well for us was coming out of the EPP reorganization at ZAR 3.3 billion. And I think we -- then we have quite a healthy cash-generating business. As you will see that our average collection ZN SA on our gross billings is just slightly above 102% -- coming out at 102% because we started recovering in this year as well some of the deferrals that we had given in the prior period. And then we did also did -- see a bit of a move in our vendor loans, which is also quite pleasing because that also was a nice point source of liquidity for us. We did settle debt. I think if you look at the graph at the bottom there, you will see in SA that in FY '21 and to the movement from 21.6% coming down nicely to about 19.1%. And in total, though, from a debt that was repaid across the group at ZAR 6.8 billion if you factor EPP. And then one thing that we also did quite well, there was like -- I'll chat a bit up about that. Is that our weighted average term of debt has really improved to 3.9 years from 2.7 years. And I'll just expand a bit on that and also share with you the work that we've done around our debt profile. If we look at our LTV, I think for us, we always are clear that in the medium term we have a range that ranges between 38% and 41% that we think gives us flexibility in the balance sheet. It's pleasing this year that 40.2% is coming within that. Some of the key things that you will see that are in that [ light path ], I think the cash that we generate, it's always pleasing because that is the core focus of our business. We are a cash generating business. And then the reduction initiatives, which we've spoken about, which really if you go back to -- from when this program started, which is largely completed now, we've also done very well in this year in terms of the reduction in the initiatives. On the derivatives, I think the [ JAB ] when you look at how much it is corrected, back to about -- now is about 6 -- between 5 and 6. At the beginning of the year, we had [ JAB ] of 3. So that's the impact on our derivatives valuations, which also helped to the LTV coming down. And then we did pay, if you look at the far right of that column, we did pay catch-up on the dividends as well as the DRIP that we did. And then there's a little bit of timing on the 2 Power Parks that we had initially said that we'll dispose in EPP. But I think we also provide the sensitivities just in terms of -- just in terms of the key variables that will impact our LTV. But I think from a see-through point of view, the point that Andrew touched on earlier. At the peak of our group LTV, we cleared at 54.2%, and now that has really nicely come down to 46.9%. That is a 7.3% improvement since the peak. So which is our ongoing focus. We really got to look at this and make sure that we continue to drive that down. And from a covenant point of view, quite comfortable. I think if you look at our ICR at 2.8x, very comfortable with the headroom that we bill against the covenant of 2x as well. As in terms of our LTV, we also got a very decent headroom. Now just to chat a little bit about some of the funding profile outcomes. I think quite significant maturities. I think we had about 60% of our group debt that actually was maturing in FY '23. If you look at the outcome in the graph that we've provided here at the bottom, very stable and flat profile, which is really what we would like to consistently keep in our funding profile because it doesn't have spikes and puts us -- if maybe through the downtime settles, then we have quite significant maturities. But out of the ZAR 23.3 billion that we refinanced in the period, about ZAR 18 billion of that was in South Africa and then the ZAR 5.3 billion was in EPP. There are some maturities that are we continuing to work on, which is in FY '23 of ZAR 4.2 billion. The ZAR 1.3 billion in SA, I think that's just largely the listed debt in the bonds that we'll deal with. And then also in EPP, there is some 2 assets in Echo and Mlociny that come to ZAR 2.9 billion. But there is also the work around the JVs. But one of the things that as we extend the tenure that we're really careful about, it's a balancing act for us, it's really around the actual margin in the cost of debt. In SA, it crept up by 13 basis points and in EPP, it moved up by 20 basis points by achieving this tenure that we did. I will chat about just the green bond, which is our first use of proceeds bond that we launched, which achieved ZAR 1.5 billion. And it was well oversubscribed in the market, which is also was quite pleasing. But I think the telling point for us there is really that we tapped 10-year money. The ZAR 500 million out of the ZAR 1.5 billion actually came out in the 10-year bucket, which we're quite pleased because that also improves our margin in terms of our funding because we are in a long-term asset class. Let me chat about the interest rate hedging, which I think you will see that we -- in the rising interest rate cycle that we're in, we're quite well hedged in terms of we are in the 80s -- just hedge above 80%. But we've got work in '23 and '24, where we really then have to maintain a stable profile. Our hedge of 82.9% of group debt is actually at the end of the year. It was 1.5 years. But subsequently to that, in September, we did conclude 2 big REFIs in EPP, which was Pasaz and Galaxy for ZAR 4.7 billion. That moved that average term of our hedge to just ZAR 2.1 billion, which is -- it really brought it back to where we would like to keep it as we navigate these tough times, which is around about 2 years. That's where we think we would like to have it. But also, I think, we have to be -- as we chat at I think during Capital Markets Day that it is -- we are at the peak of the cycle. So you also don't want to bake all of this. So we will hedge and build a gradual policy and build a profile that is within our policy, which actually states that we need to have about 75% of our group debt hedged. Just interestingly for us as well, if you look at the reserve bank, the quarterly projection model at '22 with the base policy rate of 5.6% being projected versus where it actually sits, which is at about 6.25%. Clearly, evidently from the reserve bank, there is a front-loading in terms of the inflation fight. So we also got a factor that in our thinking how we build that profile and make sure that it's stable, but also we don't create undue concentrations later on in the profile. Significantly transformed our funding sources. I think we really have -- if you look -- go back to FY '20, you look at where it is now, no single counterparty makes up more than 15% of our debt profile, which is really pleasing for us because that's where we really get also to keep some price tensions in terms of our REFIs and make sure that the balance sheet can really support what the business needs to do. Some of the focus areas in terms of optimizing capital, I think expanding our -- because ESG is right in our strategic direction as a business. We'll continue looking for opportunities there so that we can really diversify and broaden our funding base. But also, as Andrew alluded to, I think resolving EPP -- I mean, I think I'm very glad that the immediate REFIs that EPP has been solved, it's more really working now and saying, look, how do we put a lot of flexibility to that balance sheet in terms of the tenure. And I think without a doubt, of course, those 2 aspects of our work will be impacted by the rising rate and which we will carefully manage and responsibly build a profile that will take forward. What I would like to do before I go to the next session is just to play you a short AV, just around our green bond, which is -- was anchored by the IOC after the end. [Presentation]

If we move along then to look at operating efficiently. I think in this environment that we find ourselves in, really, our task is cut out in terms of all the efforts that we -- the good efforts that we're putting in and stabilizing our operating margin -- and we did share with you just here what is our active asset portfolio margin looking like at 81.9%, which is still above 80%, but we'd like to take that number closer to the 84% times over -- as things stabilize. And also we -- to share with you what is looking like in EPP. But the business in the period, I'll just give you that now, generated ZAR 3.6 billion of distributable income in this period. If you compare that to the ZAR 2.877 billion in the prior period. And also, we do place -- I think, Andrew touched on being working in the business and doing things efficiently, servicing our tenants slightly different. So we do measure that with our digital ratio. And also, we're pleased with that, that has moved from 5.1% to 14.5%. Also, I think the work that we're doing in installing the solar capacity around -- the PVs and then the number, which is really that -- ZAR 144 million that is in progress, but the attractive yield is also part of the thing that on a holistic basis are really helping us to try and really mitigate against rising energy costs and all the things that are actually in our environment. We did just provide a little bit -- I mean, we always especially here in SA, where you -- we are dependent on infrastructure and service delivery on municipalities we do keep a watch. We share with you here some of the audit status from the auditor general in terms of the state of the municipalities in our country, which is something that we continuously have to keep an eye on. The ZAR 3.6 billion of earnings translates to ZAR 0.5371 of distributable income per share, which is slightly up on the $0.5296 that we reported last year. And then we -- the dividend for the year coming out at $0.4297, which really works out to around about an 80% payout ratio in the period. We are also quite pleased with the ZAR 0.3108 improvement in our net to EUR 7.20 per share, which I'll just touch on in terms of the key things that were in the moving around that point. I think to have tailwinds of ZAR 953 million compared to headwinds ZAR 203 is largely, I think, really a function of taking over EPP in our numbers. That has really given us that uplift into 3.6 with ZAR 280 million contribution of earnings since we took over EPP on the 8 March, 2022. We do share on the headwind side, just as the effect of our [indiscernible] properties, the NOI of those disposed properties at ZAR 151 million, but that you also have to factor the savings that as we pay down debt, as you could see, the ZAR 128 million uplift in terms of our net financing charges. I think also for a while now, it's good that we do over have to speak mainly about the pandemic. It's largely behind us. You can also see the effect of that repacing and recovery coming through. In terms of our NAV, that move to ZAR 7.20, I think largely also a function of our international assets. If you look at EPP coming in at ZAR 0.70 as well as the uplift in ELI of ZAR 18.7 that come through there. We've spoken about the cash that we generate as well as, I think then on the fact that product down a bit is really the dilution as part of our reorg of EPP where we issued 1.1 billion of number of shares as well as also the function of catching up with the dividend and getting back to the normal dividend cycle that also did pull us a bit back in terms of the NIM. Now I just want to chat a bit about our dividend payout. Just for -- if you look at some of the things that we truly factor here, I think the accounting earnings and you have to factor how much of that you receive in cash, especially in the case of EPP, the earnings that we've spoken about were not received in cash, so you do have to factor that. And I think in the -- one of the key points there is the tax leakage, which we're quite sensitive that we will rather leave that decision in the hands of the investor. We always make sure a case-by-case basis, we will consider in terms of -- if we can attach a DRIP next to our distributions. But at this point, I think if you factor all of those things and also managing the liquidity and the environment that we're in, it works out to a payout ratio that will range somewhere between 80% and 90% on a normalized basis as we progress with our business. Defending the margin is probably where our work is cut out for us, but I think we do have a decent plan. That is really focused in the assay portfolio in terms of looking at -- and all the energy that is going into our solar rollout and really getting that opportunity and mining it so that it does help us to defend the margin. I think similar also in Europe, our colleagues, we all know about the energy challenges that are there, doing a lot of work around how you could purchase that energy quite differently is also part of our plan our quite pleased that we've put it in the business. Our focus on it, you can clearly quite see that this is a plan that will likely focuses on the things that are within our control. And while we're quite cognizant of the rising inflation environment and the impact that will have on our business. Now in terms of the focus issues here, I think we'll continue to really do all the work around digital so that we can pivot and stay with our tenants differently. But the key focus from a business model point of view is operating margin, which you really will have to, in this environment, try get it to stabilize to the levels which we think are just above 40 -- above 80%, sorry. Then I think in this environment as well, the broad-based business resilience for us is really the ability that we need to put into our business model so that we can be resilient. There's many things that we can't predict. I think if I take you back, nobody could have predicted the Russia-Ukraine issue. All the things that are coming at us, we have to be able to withstand those and continue to deliver sustainable value for our shareholders. Just briefly on talent before I hand back to Andrew, is I think for us here, it's about the consistency in the environment and the culture that we're driving in the organization. For the 7 years in consecutive year now, we've been accredited as a top employer and with very high engagement scores of above 80% in our organization, which also bodes very well if you look in terms of the staff turnover, which is coming out at level, which is also just below the average in SA. And also, we're pleased with the work that we've done around the Learnership Program and the success rate in terms of the people that have graduated there. We've also found lot of interesting talent in that space, and it continues to bolster our overall ambitions in terms of building a talented pool, embracing diversity and providing meaningful work to our people. The focus areas here is, of course, I think the transition that we're going to make in our culture, make sure that you we're data driven, focus on inclusivity and embrace that and as we go along, embrace diversity and take the business forward. Thank you, I'll hand over to Andrew for wrap-up.

Thank you. Okay. So just in terms of wrapping up. In terms of key takeouts of today's presentation. You would have seen from all the slides that we presented, we did what we said we would do. We live by our values through our stakeholder-centric value creation strategy. Our ESG journey is well underway, and we are actively incorporating it into leasing property management, capital sourcing as well as allocation. We are serious about FX, and we take steps to hold ourselves and our stakeholders to a high ethical standard. Our property asset platform is focused, it's diversified. It is of high quality and positioned for growth. We have derisked our capital base and our funding sources have been broadened. We are harnessing technology to enable operational excellence, to deliver quality and sustainable earnings. And then very importantly, we are investing in the power of inclusion and diversity, a thought to support the evolution of our group culture. So just in closing, it's safe to assume that the scene is now set for a new area of low growth, elevated inflation and normalized interest rates. So we're not going to sit back and complain. We are going to get on with our job to ensure that we rethink how we cost effectively source and responsibly allocate capital, continue to operate in the environment of higher operating costs efficiently to preserve margins and then very importantly, continuously adapt our value creation endeavors to our evolving stakeholder needs. Now with all the distractions around us, it's absolutely imperative that we intensely focus on the variables under our control, while placing people, purpose and ESG at the heart of what we do. We believe this will position Redefine for the eventual upward cycle. In terms of outlook and guidance, we have been very prudent here given the volatility and the uncertainty out there in that we are sticking with our prior provided guidance at our Capital Markets Day of between ZAR 0.542 and ZAR 0.564 per share. And we will apply a payout policy as Ntobeko explained, of between 80% and 90% there too.

I'm now going to stop and ask for questions. We have already received a number of questions. And what we will do is between Leon, myself and Ntobeko, we'll mix it up a little bit. I'll read out the questions, and then I'll volunteer someone to answer. So the first question is from [ Christian Govenzami from Marriott ], and I ask. Do the renewal reversions differ significantly from the reversion signed on new leases? So Leon will you answer, please?

No, they don't. Frankly, the one is a function of the other. So tenants are very aware of what you're offering, what you're advertising our vacant space on. So that's why for us, our composition, our portfolio, where we predominantly sit in the peak space versus lowest vacancy sits, will certainly stand as some good stead in future renewals on that front.

Thank you, Leon. Okay. So [ Calin, Vandaya, Jonathan Dutoy and Jared Houston ], you all are asking the same question around EPP's rent indexation. Remember, I reported it as 2.1% for financial year 2022. And the essence of everybody's question is, how does this work and what is the impact going into 2023? So if I can just answer all 3 questions simultaneously. How the rent indexation works, it's backward looking to the prior 12 months upon lease renewal. So if you ever look at financial year 2022, it was comparing to the 2021 Eurozone inflation rate, and that is where the 2.1%, depending on how the renewables fell would have come about. Going forward, absolutely. If you look today at where the Eurozone inflation rate sits, it's circa 9%. So if you look at the average for 2023, it's probably going to range between 5% and 9%, depending on where the renewals fall. There are some leases, I must caution that have got caps in place, so it won't just translate into wholesale or overall renewal increases, but -- or reversionary increases, I should say. But you can expect both in logistics as well as in the retail as well as offices, for indexation to definitely offset a big part of the pressure points coming in the form of higher cost of operation. I just want to make sure that I've covered everybody's question. That I haven't missed out anything there. I think I have. Just in terms of [ Jonathan ], just to come back to you, renewal reversion, slightly different question. Why is EPP at minus 7.1%? There's a couple of reasons there. If you have a look at EBP's exposure to high fashion, it's about 50-odd percent of the GLA. That is a pressure part of the portfolio in terms of trade, so there's a lot of -- to retain tenants I need to be a bit more generous on lease renewal terms. But also Tesco was removed from the portfolio and had to be replaced with a number of large users resulting in that negative trend. Okay. Just moving on. [ Kitiboni Maquina ] from Risk Insights, ask 2 questions, we'll deal with both simultaneously. The first one is, in addition to green building certificates, green lease agreements are likely to become market standard in the short term, what has been Redefine's strategy regarding this? Leon, can you respond to that question?

Certainly, [ Kitiboni ]. I think it's a bit early to say it will definitely become a market standard in the short term. What we have seen is that, particularly on the office front, some like-mind attendants have started to reach out and have discussions with us on this. Our own strategy is that for all 3 of our sectors, office, industrial and retail, we have a standard kind of templates around green leasing, and we have developed KPIs and undertakings that we are discussing with our tenants. Clearly, this is important. If we really want to make a meaningful difference, the only way to achieve that is with joint commitment between tenant and landlord. So we definitely on renewal, start seeing that we can -- exploring opportunities with like-minded attendance to do so. But I wouldn't suggest that this time, it's -- or in the short term, will become market standard as yet.

Okay. Thank you, Leon. Okay. Just moving on to [ Kitiboni's ] next question. I'll answer this. And the question was, has Redefine got a commitment to net-zero. The answer is yes. At our Capital Markets Day, we were very clear that -- we will, by 2050, be net-zero for all our properties. But by 2030 for all newly developed buildings, we will be at a net-zero position. As I said earlier, we've got 3 certifications underway that is providing us huge insights in our journey in that process. Going back to Ridwaan Loonat, who asked a question regarding the Metro claim. His question is, what probability would you place on it being successful? And if unsuccessful, with this impact on property valuations? So Ridwaan, firstly, we've got 2 independent legal opinions and both a sign a very low chance of success against EPP in this regard. We don't believe that the claim has got anything to do --- because it's without merit -- has anything to do with property valuation. So we see the 2 as separate matters. In terms of the head lease that carries on. In fact, this court proceeding will probably take 2 years, which will go beyond the April 2024 expiry of this lease arrangement. Pranita, you asked about guidance on EPP. I don't know if you were present when I actually stressed that in 2023, there will be EUR 37 million of earnings that we've provided within our guidance. And then on a stabilized basis going into '24, it should be at least EUR 40 million mark. Anthony Berman from Anchor says, how do you intend to apply the ZAR 1.4 billion forecast property sales in 2023? Well, Anthony, here we go in terms of recycling capital. So initially, it will go down to pay down debt. We will draw upon that as and when opportunities arise to expand our portfolio in terms of our commitments of about ZAR 1.7 billion, Ntobeko and I spoke about earlier on in terms of developments in Poland, for example, as well as defensive capital here domestically. Mahir Hamdulay asks 3 questions, all on EPP. When will EPP be in a position to pay a dividend? Mahir, I hope, I pray and all our endeavors is for 2023 to be that year. And then the ZAR 37 million guidance that you picked, Mahir, is a cash backed distributable income per share figure. Mahir, this is the million-dollar question. When we do our dividend payout policy, we will have to look very carefully at amortization and the like. But you can safely assume about 60% of that '23 guidance of ZAR 37 million will be a dividend to South Africa. The all-in cost funding on euro expiries in EPP, please break it down into base and margin. I think may have it -- let's look at that on a one-on-one basis because that is really a granular detail that you're asking that we've done necessarily at our fingertips here. Another question from Anthony Berman, cash expectations from Poland. I think we've answered your question, sir. [ Albi Solies ] has asked in terms of solar, why is there a difference between estimated and it's actually annual. So I think, yes, maybe estimated shouldn't have been put into the presentation, little bit confusing. Those are actuals that we are reporting there,[ Albi ]. And then [ Damian Wright ] says, Ntobeko intimated that DRIPs would be considered on a case-by-case basis. Is it being considered for this dividend? So [ Damian ], the short answer is no, it's not being considered for 2 reasons. One is, we are applying an 80% payout ratio. And in addition to that, given where we defined share price sits relative to its net asset value, it would be hugely dilutive, and we've got a very healthy liquidity profile at the moment, which means we don't really need the cash. So we'd rather not consider DRIP in this case. Okay, we have another question from [ Albi Solies ]. He says your solar installations are significant, circa 27% of GLA, saving 17% of annual electricity usage, how do you value your solar plants discount rates, immediate uplift in value versus installation cost? Is it including your property valuations? I'll let Leon answer this one for you, [ Albi].

[ Albi ], I think your last question is where it fits in. So the solar PV Board is accounted for in the future cash flows within that property. So it's effectively part of the forward projection on property cash flows. So if there's a vacant property with solar PV installation, for instance, the reserve cash flow assumed or if there is an in-force lease and a clear evidence of production as well as usage. The benefit of the improved margin over time will be captured by the underlying property valuation.

Okay. So that brings us to the end of our questions. I thank all of you for your ongoing support, your encouragement and for your patience in allowing us the space to get Redefine to the position we are in today. We are looking forward to meeting with all of you on a one-on-one basis. EPP's management will be available should you wish to spend some time with them. So please, if you haven't already communicated with our Investor Relations, Jaclyn Lovell, in particular, just to ensure that we secure them from a timing point of view. So with that, thank you very much, and all the very best.