Redefine Properties Limited (RDF) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to Redefine's Group Annual Results for the year ended 31 August 2023. Before I begin, I just want to touch on our theme for this financial cycle. You see that we are talking about opting for the upside. The other presentation, you will note trend that, for us, signals that Redefine is at the bottom of the [ product ] cycle and well-poised for the time that interest rates do start easing. We are not relying on the interest rates [indiscernible] all of our challenges. In fact, we are looking at the variables under our control, and we are maximizing each opportunity within each challenge, and that's what we call opting for the upside. So today, a conversation, as you see, will take the usual format, where I will be talking about and the overview. Leon Kok, our Chief Operating Officer, will talk about the South African portfolio under investing strategically. I will then touch on our Polish operations and Ntobeko Nyawo, Chief Financial Officer, will be talking about optimizing capital, operating efficiently as well as engaging talent. And then I'll take over and close the session with growing reputation as well as our usual conclusion. So just looking then at the overview and focusing on the variables under our control, I think it's worthwhile just pausing and reflecting as to who we are and where we are. And you'll note that Redefine's repositioning, which has happened over a number of years now is finally coming together in a very crystallized and crisp form in the form of 62% of our group asset base being invested down in South Africa. And then the balance, 32-odd percent invested in Poland, principally in the retail sector through EPP. And then as you know, in South Africa, we have a very well diversified domestic portfolio exposed to the traditional asset sectors. Looking at key financial outcomes, I don't want to detract you from what Ntobeko is going to say. I'm just trying to reinforce here that robust operating metrics are supporting our stable financial outcomes. We are very pleased with our NAV per share, growing ZAR 0.46 to ZAR 7.66 per share. Our total assets are just under ZAR 100 billion at ZAR 99.4 billion. That's about ZAR 7 billion up on last year. Our distributable income per share, slightly down on last year at ZAR 51.5, principally due to the higher interest rates that we've largely absorbed through 2023. And then we have a dividend per share, which is slightly up on the prior year at ZAR 43.8 and that's mainly as a consequence of the dividend payout ratio moving from 80% in the prior year to 85%. Our occupancies, Leon will talk about a lot more from a South African perspective, but holding up at just over 0.3% lower from an occupancy point of view at 93%. Our Polish occupancy is growing very nicely, as you can see, going from 96.5% up to 98.4%. Our loan-to-value ratio is on the high side, driven principally by strong euro versus ZAR translations, Ntobeko will take that in due course. And then you will see a very healthy liquidity position with ZAR 5.5 billion available to us through undrawn facilities as well as cash on hand. In terms of strategic outcomes, and this slide speaks specifically to the variables under our control that we are actively managing and you'll see that they are all positive statements. Our property asset platform has increased by ZAR 7.9 billion to ZAR 96.8 billion. Asset values have stabilized in both South Africa as well as Poland. Our logistics platform has grown through development activity to just under 1 million square meters. Our balance sheet is solid. Our credit metrics have been maintained. Our funding sources, we are very pleased to report have been broadened through ZAR 4.2 billion worth of listed green bonds. And our debt maturity profile going forward is flat with no significant debt maturing over the next 4 or so years. In terms of operating efficiently, you'll note our operating profit margin has been maintained in South Africa despite the administrative costs being a big challenge at 78%. Our tenant retention rate in South Africa has improved 0.7% to 92.8%. And very pleasingly, EPP's operating profit margin has increased by 9% to 74%, but ZAR has its contribution to the overall Redefine Group distributable income, which Ntobeko will explain. In terms of engaging talent, our staff are highly engaged with a score of 90%. That compares to a benchmark of around 60-odd percent. Our ethical culture maturity score has been maintained at the 88th percentile. And our Learnership Program, which is in its 10th year, will deliver 411 graduates by the end of this year and Ntobeko will take us through an audio visual clip on that point. In terms of growing reputation, I'm very, very proud to report that by GLA, 56% of our South African portfolio is Green Star certified. EPP and ELI are 83% and 80%, respectively, BREEAM. Our retail tenants with a combined occupancy of roughly 574,000 square meters have been actively engaged to collaborate on environmental and social initiatives. And this is just the start. We're going to be rolling this out far more aggressively in the new year, because there is so much more we can do as a collective when it comes to responsible consumption behavior and the like to reduce our carbon emissions. In terms of the claims that Metro AG instituted against the M1 joint venture, I'm happy to report that those claims have been dismissed through a final and binding award by the tribunal in the international courts based in Poland. Okay. I'm now going to hand over to Leon, who's going to be talking about the South African portfolio. Thank you.

Thanks, Andrew, and good afternoon, everyone. I'm very pleased to report today on a number of very positive outcomes within our South African portfolio. Just a snapshot of what the group looks like. So our property assets under management, just under ZAR 100 billion at ZAR 96.8 billion, split roughly 65, 35 between South Africa and Poland. The GLA under management just over 6 million square meters of space in South Africa, we've got the 3.8 million square meters and in Poland, 2.2 million square meters place. So it really is a significant portfolio. From a capital allocation point of view, during the period, we expanded ZAR 6 billion. As you can see, roughly half or just less than half was the distribution during the year. And then our development and capital expenditure within South Africa and Poland is roughly split based on what the portfolio composition is. So 60% in SA and 40% in Poland. And the bulk of the SA spends being spent on the SA office portfolio, and you'll see in a minute the effect that it had in terms of our outcomes from the SA office portfolio. For me, the point to make on the South African portfolio is that we are well diversified in quality assets. If you look at, for instance, on our tenant grade, 71% of our tenants are what we classify A grade. So significant tenants and tenants that are typically able to meet their rental commitments. And those are the tenants that we so desperately try to keep and retain and Ntobeko will also speak about our collection efforts, which have been very healthy over the period. You can similarly see the impacts of the active asset management undertaken over the last 5 years. The number of properties in 2019 at 302 and is down to 241 properties now as we speak. For me, the most significant point to make there, though, is that our average value per square meter has certainly improved back to 2019 level. And that's not a function of valuations necessarily shooting the lights out, but more function of the properties that we currently own is of quality and certainly through that have managed to increase that average value per meter. From a risk management point of view, you can similarly see that our lease expiry profile over the next 4, 5 years is fairly undermining, and we're reasonably comfortable that we can absorb any shocks that those lease expiries may present within the normal course of business. Let's move on to some of the key outcomes. For me, a fantastic achievement was that renewal reversions, which is certainly progressively becoming better. Last year, we posted a negative 12%, and this year, it comes at a minus 6.7%. You'll see the biggest driver of that in a minute when we touch on office. From an occupancy point of view, the slight blip in the increase in vacancy is consequence of our retail and industrial portfolio, and we'll touch on it now. Another point to make here is if you look at that level of letting activity, albeit down on prior year, simply as a function of the portfolio size being smaller, but also the number of leases that came up for expiry in the period was lower than the previous year. But still, we concluded letting of over 745,000 square meters during the period, of which roughly 40% was new deals. So certainly, in my mind, indicative of very healthy and active market. We've similarly managed to retain the average unexpired lease term, which again speaks to the defensive nature of the portfolio in general. The 2 areas that we focus on religiously from a property management point of view is our tenant retention and renewal success rates. So those are the 2 measures that we measure ourselves on. And as you can see, at a negative reversion of 6.7%, we're not desperate to do super deals. In terms of what we managed to achieve, I think those retention levels at a high 90% is fantastic and similarly with our renewal success rate, touching on close on 80%. Someone earlier said that our non-core disposals is surprisingly low, but as Andrew answered, is that all the heavy work in terms of our disposal activity is already in the base and undertaken over the last number of years. So at ZAR 650 million roughly from African point of view is relatively low. But again, it seeks to the good work we've managed to do over the last number of years. The other feature that we're very proud of is that in solar PV capacity see roughly 35 megawatts of installed capacity as we stand with a further 9.5 megawatts in progress. And you may have seen a number before we quote that we actually got 40 megawatts of installed capacity, and that 5 -- megawatt difference is simply more of the South, which we will acquire in December and which we install that large one, in fact, one of the top 5 biggest solar rooftop installations in the African continent. So that will certainly stand as a good stead going forward to mitigate some of the cost challenges that we anticipate from an energy point of view. In terms of the property values, you'll see that largely overall, the portfolio has remained flat. And again, I suppose indicative of having a diversified portfolio. Retail and industrial proving reasonably strong. And on the office front, from an income point of view, slightly negative on the valuation front. If you look at the weighted average exit cap rates, largely stable to what we've printed last year in August '22. On the retail front, again, a portfolio that is well diversified from a format point of view, roughly 80% of our portfolio sits in regional and convenience centers and then the one super regional Centurion Mall. And from a valuation point of view, as you can see, a fairly consistent performance in terms of across the 3 formats. The number of tenants at 2,600 tenants and GLA just over 1 million square meters of space, again, indicating that it is a portfolio of scale that will certainly stand as a good step from a defensive point of view. As you can see that active occupancy had a slight blip in that. And the reason for that 2 percentage point move is largely within what we call the other format or principally our motor dealerships. If you can look at the right-hand side, the vacancy might type there. The other, the 23% is 3 motor leaderships that during the period has gone vacant as a consequence of some of the consolidations happening in that subsector. But in terms of other formats, regional convenience, superregional, very good and solid performance. The other big point to make on the retail front is the real impact is not necessarily going to be on letting of vacant space, given how low it is in our view, how low value that vacant space is, is more on the renewal of versions. So over the last year, we've had a concerted effort to make sure that we're very deliberate in those renewal conversations, particularly being supported by good growth in trading density as well as footfall stats, and we are certainly going to target that metric for the 2024 year to see how best we can get that as close as possible to a flat outcome. As you can see, 20% of our lease expiry are -- lease by GMR is coming up for renewal this year. So that's going to be a key focus point for the team. Again, you'll notice on the solar PV capacity, the bulk of the installation is in our retail portfolio, simply given that this is the sector that allows given the access to roof space and good demand on site for application of solar PV. Our weighted average lease escalation staying flat at a 6%, obviously, in the current environment, were we're operating with elevated inflation levels, but also supported by good performance. We are anticipating that an escalation, there certainly is opportunity for us to eke it up slightly, I would suggest. On the office portfolio, a fantastic bar chart to look at is that one on the right, our value buy rate. So 95% of our portfolio is now invested in A and premium grade space. And again, if you look at the outcomes, that is certainly what's driving that. So the improvement in most of our metrics is given the quality of the underlying portfolio. As you can note, there's a marginal traction in fair value that we experienced over the period as a consequence of certain income assumptions, but also some of the early renewals that we've conducted in some of our larger properties that has obviously caused a bit of an impact on the near-term income. Our active occupancy at 88.6% compared to 85.6% last year. I think that is a phenomenally good outcome. If you just look on the right-hand side, the redefined vacancy at 11.4% comparing to a SAPOA average, and that is the September '23 report at 15.5%, just cast your eye down some of those notes. In Rosebank, we are posting a 3% vacancy versus SAPOA 12, Bryanston 7% versus SAPOA at 20% and then Sandton, which is often catching headlines for all the wrong reasons, our portfolio sits at 9% versus SAPOA average of 19%. Now again, that speaks to the quality of the underlying portfolio, which is similarly reflected in our letting activity. We've concluded deals just short of 230,000 square meters of space during the period and 44% of those were new deals. As you can similarly see our weighted average lease escalation where there was a trend where there was certainly was reducing a bit, we believe that it stabilized at the 6.8%. And in fact, there's opportunity to potentially get it back to that 7% level. On the retention side and a new success rate, again, that speaks to the underlying quality of the portfolio. Now in our office portfolio, we're very proud of all those green stars we have and for us, the real benefit of that. Again, it's an indication of quality. And again, it's an indication for us another kind of tool within our arsenal to attract tenants and to retain tenants because through that initiative, it certainly help us to manage our properties better and engage with our tenants around consumption of energy and water. On the industrial portfolio, another portfolio that has proven to be very defensive and a stable and steady performer over the last number of years. Just look at the distribution by type, the bulk of our assets sit within logistics, modern logistics and high-tech industrial. And that certainly will stand as a good seat. And you can see that in that valuation performance across the board, where all our properties generally have done reasonably well from a valuation perspective. On the outcome front, that's a small increase in vacancy to 4.8% as consequence of Kraków where Isuzu vacated. We relocated Isuzu from Kraków up to our S&J property or we built a new facility for them at our S&J estate. And so that's kind of caused that blip. 17 Winnipeg, which is the other big mover last year, we've managed to fall during the year. So unfortunately, it's just a bit of a timing issue, but we're reasonably confident that a Kraków facility is well located and there's reasonable demand, and we had a number of inquiries already. The other big point to make here is on the renewal reversion activity. 94% of all our deals done in the industrial space was either flat or positive. Now that certainly speaks in my mind, to a very active property management and leasing environment and speaks to the quality of our portfolio. In other words, the tenants are prepared to pay the expiry rent or, in fact, even achieve a slight improvement. So that plus 2.1% certainly is, in my mind, a phenomenal outcome in a very, very tough and competitive environment. In terms of the weighted average unexpired lease term, maintaining at that 5.3%. So it certainly gives us some tenor within our lease expiry profile and will bode well for the entire South African portfolio to eke out growth within the next financial period. Our weighted lease escalation at 6.5%, staying steady. And then on the retention level, similarly quite high. The other pleasing factor to note in the industrial portfolio is that increase in Green Star certifications from 15 to 27. Now again, that speaks to our endeavors and efforts to see how better we can manage our properties, particular in the industrial space in collaboration with our tenants. The solar installed capacity is relatively small within the space, which is a pity because you've got access to a lot of roof space. For us, the big catalyst to really unlock the solo opportunity within the industrial portfolio is our ability to wheel. So we are reasonably well advanced in a number of jurisdictions in terms of trying to embed a framework that will enable wheeling, obviously, Eskom to Eskom sites is well documented, and we're really participating in one such initiative. But for us, the real catalyst here is going to be when there's wheeling going to be available or allowed on scale throughout our portfolio, and there is ample opportunity within our industrial portfolio. And then just lastly to close on the South African stuff. Just we're giving you a snapshot of our alternative income streams. I think the nice one of the cool features here is our new 3D screens, the most prominent one, which is that I Alice Lane space, please check it out. It's very exciting. And this for us is simply just an initiative to see how better we can enhance the income-generating ability of our assets, not necessarily through traditional GLA letting, but through other opportunities. And with that, I'll hand over to Andrew.

So let's talk about Poland. So as you can see, our property asset platform is just under ZAR 37 billion and it has a total GLA of just under 2.25 million square meters. Just looking at EPP's core portfolio, you'll see that it's a steady situation. We haven't added to the portfolio. However, in rand terms, you'll see quite a big boost in valuation terms going from ZAR 16.8 billion to ZAR 19.2 billion principally as a consequence of valuations remaining firm, but also then ForEx coming through. In terms of EPP's core portfolio, and I must say that this is a very, very healthy and pleasing performance during a period of unprecedented inflation as well as high interest rates. And as you know, Poland are expected to adjust dodge recession in 2023 for the calendar year coming out at roughly, I think, 0.2% positive GDP growth. But next year, looking to really start the recovery coming out at about 2.4% at this stage from an expectation point of view. But having said that, you'll note, occupancy is at a healthy 98.4%. I'd like to suggest that there's some churn in the portfolio that is natural and you'll never get to 100% occupancy, but that is a standout achievement in these challenging times. Rental reversions despite the headwinds faced economically, maintaining at 7.2% negative. And that's the only real negative yes. The rest are all positive, as you can see. The rent to sales ratio is at a healthy 9.5%. Footfall has grown. We're very proud of our BREEAM rating there of 83.3%. And we believe that this portfolio has done very, very well in a challenging environment and will benefit from what's to come going forward. Not to mention on this slide, but is a factor that needs to be considered is that there will politically a change in ruling party, which will be very positive for retail, particularly and similarly also for logistics as EU friendly policies are rolled out, et cetera, which is expected to unlock frozen funds. And even there may be hints at phasing out the trading ban on Sundays, which we hope will happen, which was, by the way, a pre-election promise. In terms of the joint ventures, all of them doing very, very well. None of them are standing out as battling, but I do want to just focus your eye on Galeria Mlociny. Unfortunately, we don't have comparators on this slide. It is available if you look at last year's presentation. But Mlociny was flagged as a property that required intense focus, and you can start seeing the benefits of that focus coming through now in terms of occupancy at 97.5%. Positive renewal reversions albeit on a small component of the overall gross leasable area. And as you can cast your eye down, all the metrics are very, very positive, a 10-odd percent like-for-like footfall, for example, rent to sales ratio is work in progress. It's still high at 12%. And we do believe as trading picks up, that sales ratio will improve to under 10% in due course. In terms of logistics, we continue to expand. As I said earlier, we are now at just under 1 million square meters of GLA. We completed 9 developments during this period, which added 275,000 square meters to the portfolio. Of the 9 properties that were developed, 6 were 100% let, 3 were at an average 53% occupied and that would impact it. What you can see on the overall occupancy of ELI slipping about a 1% in its occupancy down to 92.5%. We are confident that we will let up that space in due course. However, I must just caution that the development pipeline is starting to slow up, and that is mainly as a consequence of bank funding being very, very circumspect around speculative developments, which is good because it is actually assisting in the reduction in the previous generous tenant installation allowances and the like. And similarly the costs that we saw that were coming through on the construction side have been pulled off, impacted on market rentals positively with indexation playing its part, but the rental is holding up. So you'll see renewal reversions up 6%. The indexation rate 7.6%. That is a function of the EU inflation that played its part there, but all the rest of the metrics from tenant retention by GMR at 90.1% to our renewal success rate, all very positive. So this is a portfolio now that is of scale at just under 1 million square meters, but also benefiting from a growth in market rentals, something we haven't seen in this market for a very long time. In terms of self-storage, this is a very, very small component, 0.2% of our overall asset base. However, it has the capacity to become significant as we grow with the developing sector. As you will see, we have got a net debt able area of 19,000 square meters. It was supplemented by the acquisition of Top Box, which added 4,500 odd square meters in Warsaw. That's a developed property and 6 developments are underway, which will grow that [indiscernible] area by a further 260,000-odd square meters. That pipeline, although secured will probably take about between 3 and 4 years to build out. So please don't think that we're going to have spent our entire EUR 50-million-commitment all in one go. It's going to probably take us 4 or so years to get to that point. Okay. Just looking forward at 2024. I don't need to remind you that we are already 2 months and 6 days into financial year 2024. I had to remind our staff about that this morning as well as myself that the new year has already begun. But as you'll see that our focus is starting to shift to the evolving market dynamics, they haven't changed. They have just evolved and they are moving and we keeping pace with it. And we'll be looking going forward to further preserve value through organic growth and asset optimization. The reliance on municipally supplied utilities is an ongoing focus through innovative solutions. And this is where ESG is very, very important as well as that collaboration with our tenants in terms of how do we together work on consumer behavior, because that's probably your biggest mover when it comes to saving on your carbon emissions and also your costs. Selective deployment of capital, it goes without saying that we will be absolutely responsible with how we recycle proceeds from non-core assets. We say it's growth sectors here, but I just want to make the point that when we are in that position of allocating capital, we won't just look at allocating capital to assets. It could well be if it's sizable. It could well be to the repurchasing of shares. It could be paying down debt. And Ntobeko is nodding furiously about paying down debt is right. It is probably the best place to allocate capital. But once again, I need to remind everyone that we are in a property business, and that is the principal focus going forward where we need to look, but opportunities will come our way, and we are alive to every one of us. Good, I'm going to now hand over to Ntobeko who's going to talk about...

Thank you, Andrew. Good afternoon, everybody. I'm really pleased to be sharing with you our results for FY '23. Really just starting on the balance sheet side, I think you can see that our credit metrics have remained very stable within LTV coming out at 41.1%, which is just slightly outside our medium-term target range of 38% to 41%, largely on the weak currency, which I think we saw the rent depreciating in the current period by about 20-odd percent. I'll unpack that just shortly in the next slide. Then if you look at our liquidity profile as well as the interest cover ratio, stable at 2.4x. And our liquidity, if you look at access to committed but undrawn facilities as well as cash on hand, it's at ZAR 5.5 billion. I think in this environment, you could also quite clearly see that to protect against the higher interest rates, we've got 77.1% of our total group debt that continues to be hedged. But I think also one of the pleasing things for us is that if you look at the sources of cash, we are able -- our business is able to generate cash flow, and that also continues to support our liquidity profile into the foreseeable future. Then if we look at the cost of debt from a group average, it's coming out at 7.1% compared to 6% last year. That's a 110 basis point increase. And just breaking that down between the rand dominated debt coming out at 9.4%, which is an increase from 8.7%. And then our euro hard currency debt coming out at EUR 4.6 billion. Just the percentage of debt, then that is hedged between the rent dominated debt and improving to 86.7%. And then the ForEx slightly coming to ZAR 63.8 million, but maintaining a very healthy tenor of debt at 3.6 years. Then just to look at the LTV, I think Andrew touched on the weak rent. That's really what you see having an impact of 0.4%. Otherwise, the other 2 are big items that you see, it's 3.2% improvement to the LTV, just coming from cash that we generate as well as then our continued commitment and rewarding the investors with a consistent payout that also taking out and having an impact of 2.9%. And we do provide the sensitivities that we usually provide, which are probably rather than looking at the property values outcome, their impact, we also then also just provide the other sensitivities just around what happens with the foreign exchange movement. Our forecast, I think, on a see through [gearing] point of view continues, largely based on 2 aspects. One is our payout ratio is between 80% and 90% that will be earnings retention, but also the underlying euro debt in EPP amortizing at 2.5%, that will help us in that part, which peaked in FY '20 at 54.2%, and our focus would be to try and bring that down over a period of time. And then I think for us, if we look at our funding maturity profile, is very, very low, and you can see it's very flat. I think just a couple of points to call out here is that we've completed all our FY '23 maturities. And now we are proactively dealing with FY '24 maturities and those being about 14% of group debt, which shows you the profile, the pocket that is coming out is not significant if you look -- we've got some optionality. We've got ZAR 5.5 billion of liquidity. We can -- if really there were any short-term shops in the market, we could be able to deal with some of this quite comfortably. But also in this environment, the focus is just on the margin of debt, which I think we're pleased that we've maintained in SA at about 2%. In EPP, that's where we've really seen a slight uptick in the margin. I think that was largely just on the 2 big refis that we did of Echo and Marcelin that show our margin in EPP going to 2.5%. And then I think we continue just -- and I'll touch on this in the next -- in a couple of slides as well is that we've got -- we've really know what our concentration risk. We've got a very meaningful presence in the burn market. We're pleased with our last bond, which was ZAR 1 billion which is a part of the ZAR 4.2 million that Andrew spoke about earlier. That ZAR 1 billion was oversubscribed green bond by 1.9x. And what was pleasing for us was to see an appetite really going into the long data tenants, which improves our funding and matching rate in the balance sheet. And we're also very pleased to report that Mall of the South acquisition, the funding for that has been secured, and we are practically with the team just working on financing of Henderson, which EPP has got a 30% exposure in. Then just to talk about hedging. I think this in an elevated interest rate environment. For us, our preference is really to shorten our hedging tenor so that we don't bake in the higher costs, and it gives us flexibility as we expect the rates to start normalizing that we could also just benefit from that. But I think that is quite evident even if you look at the Cafe that the long outdated shops are actually very expensive. So we're very careful with this. But I think we're doing it with a very -- within a very sound guardrails of our group policy where as a minimum we would like to keep up about 75% of our debt hedge. So that work for us, is ongoing work. And I think we do share with you yet, just one of the points where there is opportunities closer to some NPC cities where you could take a bit of a margin off from Jibar like we did a subset of about ZAR 1.4 billion, where we thought it was quite attractive and we'll continue to pull that in line with -- to just protect against the higher interest rates and not bake in the pan. And if you look at our funding sources are really for us, I think, across the group. This is one of the work streams that receives a lot of attention from the team. And you could clearly see from each type of debt, be it the bad debt, be it the presence in the pawn markets, and we've also started to introduce some DFI funding. It really give us a low concentration risk in terms of being -- have an ability to really tap into various sources of funding to continue to fund our business. I think in terms of optimizing capital, our focus really for '24 just around looking at making sure that the facilities that are come up for debt will be renewed and we are proactive on that as well as looking where it -- there's an ability within reasonable commercial lines just to extend debt maturity profile, we look at that quite carefully. And the interest rate cycle, given where it is, it requires very proactive management like we've demonstrated. And then I think just to manage concentration, we'll continue to diversify our funding sources. Then if I move on to just operating efficiently, where really our biggest focus is the sustainability of our operating margins in the longer term, just from some highlights for FY '23, I think the number that we show you for active assay of income margin at 81.8%. The only difference between this number and the profit operating margin of 78% is really just the overhead. So we watch both these aspects because I think in the environment we're in, also even our operating cost structure requires a proactive management, while also the positive print of our SA and EPP portfolio is quite pleasing, as you can see from these very high and improving, especially if you look at EPP sitting at ZAR 88.7 million. And then I think we do also, I think the quality of the earnings that is coming from -- that is supported by that is that we're very -- we're not relying on any one source items to produce our distributable income. It's very, very small and if you look at our ZAR 3.5 billion in terms of what is nonrecurring. So therefore that is also a pleasing aspect in terms of the quality of our results. Then some of the work that we do, it just -- if you look in terms of continuing to put efficiency and focus on the business, one, in terms of our continued investment in technology, that is playing out with improvement in the digital ratio, but also dealing with the demand side of electricity, you could see some pleasing consumption reduction in EPP that came out at 10.7. And all of these things for us underpin what we really -- the last 4 aspects that it's our ability to collect cash. And you can see in South Africa, the average collection rate at 100.1%, which is very pleasing for us as well as also a very good collection rate of 99.1% in EPP and we don't see, I think, just if you look at the net areas, if we were to recalculate that number for SA being at 11.4% at 31 August, some of the collections that we made, we -- just related to some tenants in industrial. That number will be around about 5%, which is where longer term, even the pre-COVID levels in terms of net area as we'll see. So we're pleased that we're able to collect and our business is continuing to generate cash. And I think just touching on the solar outcome. For us, even though financially, you can see that the initially it is very attractive at 18.1%, but I think the points that Leon made around improving our energy mix collaborating with tenants [indiscernible] area and reduce consumption but also support our -- the sustainability of our operating margins in the longer term. And then just to touch on some sensitivities, just in terms of, I think, interest rates it's something that we've discussed quite a bit, but you can see that a hike of 50 basis points will have a 0.7% impact on the earnings. Then if we just unpack the earnings a little bit, I think for us, a pleasing outcome is just the improved contribution of EPP that we see on the first block at ZAR 202 million, which really post the restructure of EPP as we start EPP-yielding. And you can see also some of the positives just which are after the organic growth in SA, that ZAR 90 million from active properties as well as some of the properties that we acquired, they are coming in at ZAR 47 million. But really, the bigger story is on the impact, which is all of these things are helping us to maintain the impact of ZAR 369 million, which is as a result of higher funding costs coming through in our net funding expense line. Then I think for NAV for us, it's quite pleasing that we grew the NAV to ZAR 7.6 per share. Yes, this is largely driven by the ForEx movement, which you can see they are coming in at ZAR 0.64, but I think for me, what is pleasing is that we also -- we've been having absorbed, which is our ongoing and stabilized our payout in terms of dividends that we're able then to still grow the NAV to ZAR 7.66. Just on the dividend policy, I think for FY '23 for us to peg at 85% payout ratio just given the healthy liquidity profile that we're seeing, it's right in the middle of our 80% to 90% distribution range. But I think what is very important for us here is that consistently, these are the things that when we talk with the Board and engage just around setting a payout ratio. We look at the earnings that are supported by cash, we look at liquidity, we look at the gearing levels across the group, but also more importantly for us. We also just do on a preserve value and not lick any of this in terms of tax leakage. So we are pleased that an 85% payout ratio, there has been no tax leakage in terms of FY '23. And I think we -- this question has come up in our previous discussion with you. We do consider DRIP on a case-by-case basis. But for FY '23, there is no DRIP that will be offered on the distribution that has been made in FY '23. Then in terms of the focus items just on operating efficiently here. I think for us, one, to present the margin, it goes with our same because that's where we look at efficiencies. We look at disciplined cost control. And also we continue to roll out our renewables, but that gives us the platform then to engage on consumption and change behavior over a period of time. Our efforts in terms of what we're doing for the tenants, I think that also to drive retention is our first price in terms of the longer-term profile of our margins. And I think our investment in technology is an important factor because we just shared with you some of the highlights there, some of the outcomes and the things that we've delivered in FY '23 with a singular focus of transforming the tenant experience to say how can we serve our tenants a bit better. And those are the aspects that we work out with, and we are pleased that our digital ratio has improved to 23% in the current period. Then I will just cover up engaging talent where I think really for us, the focus is just around the diversity of thought, so that we continue to drive the consistent delivery of strategy that you're seeing playing out even in these results, which actually just stems to the fact that we very clear focusing on what we believe we can control. Those are the variables are under control. So we are retaining people. If you look at our retention rate in South Africa, playing out at 86.7% as well as in Poland at 88.1%. And we've introduced a Net Promoter Score, which between South Africa and Poland. If you look at the food note in terms of the scale, it means that it's in the good range and our focus in terms of the things that we're doing in terms of strengthening the talent, hopefully, we'll take that to also improve to a greater space. But I think the big thing for us here is also on the future-fit and the things that we're doing so that we've got enough skill set to navigate the current environment and strengthen our focus on the variables that are within our control. So -- and as a closing remark in this before I queue up the video to play is not really -- this is our 10th where about 411 learners have come through our Learnership Program. That is a huge impact, and that is changing lives and we're pleased that, that will continue. And I'll really let the video will queue up before Andrew comes back and then just show you some of the impacts that we've had in changing lives. [Presentation]

Okay. So we're back now. And I'm sure you'll agree with me that video clip is something to be proud of, and I want to thank all of you for supporting us in that very important endeavor to grow our own talent. In a sector where you know there is a very shallow pool of our property expertise. Sorry, I just wanted to make the point on this slide here. And Leon did talk about the Mall of the South rooftop. But this picture here gives you a very good appreciation as to what 5.1 megawatts of solar rooftop capacity looks like. Okay. Just in terms of our vision, which is to be the leading South African REIT, the best way to demonstrate that is through recognition from recognized independent external agencies. I'm not going to go through this, but what I can say is please look at it. You'll see our trophy cabinet is full. We are very proud of this. We do not set out with the objective of obtaining these recognitions. This is merely supporting our statements around our vision and also supports our belief that a strong ESG proposition underpins sustained value creation for all stakeholders. I'm happy to report that EPP has been fully integrated into Redefine. And you'll similarly see a lot of progress being made similarly on the ESG front. In Europe, it is especially important to deal with the EU taxonomy that's coming in 2028, as well as debt funders' energy efficiency requirements that we are already being exposed to. And we are very well positioned to deal with both those 2 issues. In terms of socioeconomic development in action, this is part of living our purpose to create and manage spaces in a way that transforms lives. You'll see that we are very active in both South Africa as well as in Poland. And we will continue to roll out our strategy in this regard. In terms of looking forward from a 2024 focus point of view, we will continue to implement multipronged and sustainable energy, water and waste solutions. It's not just to reduce reliance on grid-supplied energy, municipal and water and waste services, but it's also equally important from an efficiency point of view that we focus on this given that a lot of these elements are administered in terms of tariffs, et cetera, which is outside of our control. So we are down to managing consumption. Creating sustainable socioeconomic impact through SMME development as well as direct involvement with the communities in which we operate at our properties is an ongoing focus across the group. And then building sustainable partnerships, which I alluded to earlier with tenants suppliers and community-based organizations, absolutely important to further our ESG endeavors going forward. Just in terms of wrapping up, we have our work cut out for us in 2024 around navigating the effectiveness of the structured energy transition, managing the expected shift of the interest rate cycle and very importantly, an ongoing focus on responding to evolving stakeholder needs. In financial year 2023, I'm sure you'll appreciate when I say that we have faced on a number of market shifting dynamics this past year. We do know that these dynamics evolve, they do not dissipate, but what gives you that sense that they are dissipating is that we are responding and adapting to them on an ongoing basis. So as you can see, the overlapping aftershocks of the pandemic are largely behind us. Our operating metrics have now stabilized, and this is a function of adapting to changes in user behavior that's coming through, particularly around the offices, which is very pleasing as well as our retail statistics. Elevated inflation has been a landlord friend in terms of driving higher escalations on the leasing front. We'll see more of that to come down South Africa as well. But more importantly, we have absorbed into our cost base for higher costs. We've maintained our margins very, very important. We are looking to improve those margins through efficiencies going forward. The energy crisis in both Poland as well as in South Africa has created opportunities for us on the renewable energy front. The higher funding costs for Redefine have been largely absorbed in financial year 2023. And in terms of our outlook, which I'll get to, you'll see that we believe that what we are still doing, we can absorb the residue of that impact playing out into 2024 financial year. In terms of constrained liquidity, you would have heard from Ntobeko Nyawo. We have broadened our funding sources, largely off the back of a very strong ESG presence in terms of the green bonds. So just in terms of outlook, we are looking to maintain our guidance that we did for financial year 2023 at ZAR 0.48 to ZAR 0.52 per share. Our payer policy, as Ntobeko said, we'll maintain at 80% to 90%. We believe that we are opting here for the upside in terms of building on the positive momentum that you would have seen in the stabilized operating metrics. And we've given you a couple of variables over there that can play out positively and negatively. We need to be balanced here, but we believe that through managing the variables under our control, and this is by no means easy, we will have a flat outcome for financial year 2024. In terms of the real estate investment clock, I thought I'd include this year because I firmly believe that Redefine we've been quoted in the press wrongly by suggesting that it's the sector, I'm suggesting this is a Redefine prediction where we believe that in terms of the clock, we had 5:00 and the clock will strike 6:00 for us as Redefine during calendar year 2024 as interest rates begin to ease. As you know, we have a year-end that ends in August inclined to think that interest rates will start easing in the latter half of calendar year 2024, which will impact on 2025. And that's one of the benefits, by the way, of having higher gearing. We've taken the brunt of the higher interest rates into our numbers already. But as those interest rates start falling, we will get a disproportionate benefit, if you like, that will flow to the bottom line. I also want to add that this clock turns very, very slowly. When I joined Redefine in January 2011, we were at 6:00. So I would have gotten full circle here in about 14 years. Property is a long-term asset class. Patience is required I thank you for your patience. I thank you for your confidence in us, and I thank you for always supporting us even though sometimes we do agree to disagree. In terms of our investment proposition, we believe it's compelling. We have a simplified high-quality asset platform, which is diversified. Our funding model, as you would have seen, is backed with solid credit metrics. Our staff are engaged, they're passionate, they're innovative and that's playing out in everything that we are doing here and very importantly, consistent delivery of strategy. So in essence, we do what we say we will do, by putting people and ESG at the heart of that. And with that, I want to thank you, thank you for your time as well as all your support during the past year. And as you can see, you have a team here that are opting for the upside by believing that 2024 will be the turning point for Redefine. So with that, I'm going to now hand over to you for any questions you may have. I see we already have a couple, and I'm very pleased to see that most of them are actually from my colleagues. So I'll read out the questions, and then I'll volunteer colleague here to respond on behalf of the reporting team.

So the first question is from Mweishö from SBG Securities. He is asking and thanks for all the kind words Mweishö. I won't repeat them. But his question is, what is RDF's change in cap rate being in offices from peak to trough since 2019. Mr. Kok?

And the second one?

Sorry, Okay. So Leon wants to answer both your questions, no issue. The second question is what drove the 2.9% premium office grade devaluation. On Slide 13 what impact do you feel load shedding is having on office demand from tenants.

Mweishö, thanks for the question. Just -- it's quite a difficult comparison to make to compare 2019 exit caps with 2024, given the change of '23, given the change in portfolio, but the number is printed in our 2019 result was an exit cap of 8.6%. And obviously, as we show you now, it's 8.8% in 2023. Now a factor that would have driven that is that we don't hardly have any secondary properties in the current portfolio, whereas in 2019, there was roughly about 15% of the portfolio invested in that metric. So I think that marginally moved out in terms of widening of cap rate is understated somewhat given the change in portfolio. But yes, we're in 8.6% to 8.9%. In terms of what drove that 2.9% devaluation in our premium office grade as I alluded to, was principally driven by 3 large early renewals we've done on significant tenants within that premium grade office category that obviously in the near term, because we early renewed it would have an impact on the income assumption, but with that, we've got extended tenor. In terms of your question around what impact the load shedding has on demand for office tenants, I don't have any hard data to support my views, but I think principally, there is 2 factors, positive and the negative. On the positive front, that net positive for office demand is that clearly people that do not have the ability to sort themselves out from a backup electricity point of view at home is kind of forced back to the office when load shedding occurs. Obviously, they don't have access to Wi-Fi and charging of laptops and such like, that's the positive. On the negative front, from own experience certainly load shedding does exacerbate traffic congestions at peak times. And again, that's a bit of a negative, I suppose, for someone that has choice whether to work in the office or not. So those 2 kind of compete. But on large apart from the bigger macro impact of load shedding in terms of sentiment, I don't think there's a specific a positive or a deep negative associated with load shedding with offices. Clearly, what is important, an office without a backup power solution is a no-go, and that is your ticket to the game. All offices must have backup power.

Moving now on to Francois Du Toit from Anchor, and he's got a couple of questions. you'll think we'll deal with each one, Ntobeko. The first one is I see there's a new cross-currency swap in place, replacing the one that matured in the first half of 2023, and it's priced at durable plus 1.6%. Do you expect to refinance the other maturing cross-currency swaps on similar terms over the next year? Would you anticipate closing cross currency swaps in light of existing euro-denominated leverage levels?

Francois, I think we -- in the environment we are in, we think it's prudent for us just to refi the gross currencies. And you're right. We do fund them, I mean, if you take the Euribor and the margin of 1.6% at about, say, between 4.5% to 5% and we do expect that, that's where the market will be pricing and with that we will be able to refi the ones that are also coming up for maturities.

Francois second question for, Ntobeko. Is with the Henderson JV debt maturing this year and the Galeria Mlociny debt maturing in FY '25, what do you expect funding costs will be in these 2 joint ventures by the end of FY '25 assuming Euribor 4% and will it be fixed or floating mortgages?

Francois look, It will depend on where the rates go in Europe. But I think just given what we've seen, our view is that it will probably be somewhere between 5.5% to not more than 6% at the end of FY '25 in those 2 JVs. But I think also it's important that the ZAR 3.1 billion for Henderson, we only have a 30% exposure to that.

So Francois, just bear in mind when Ntobeko quote those percentages, it's an all-in rate, that's your base rate of 4% plus our margin. So the margin, which I suspect is your real question is about 200 basis points. Okay. We'll move on to Pranita Daya from SBG Securities. She's got 2 questions for us. Can you give us an idea of your diesel spend and recoveries per sector? Quite honestly, Pranita, we actually forgot about that because we've absorbed it into our cost base, and we're getting on with life, but someone like Leon, I think Ntobeko can answer that question. And then the other one is, what type of distributable income growth do you expect over FY 2024 for EPP. Ntobeko, you're going to talk about EPP's contribution and then Leon you're going to talk about diesel consumption.

No answer from me. Andrew can you take that?

By the way, Leon's very good at [indiscernible] not only [indiscernible] but also side wise.

I think we expect EPP to grow in the region between 3% and 5% in FY '24. I think that's largely with an assumption that the indexation that we'll achieve on the rental will be somewhere around 4.5% to 5%. So that's what we expect for EPP. Then and if I just deal with the diesel, I think for diesel in FY '23, we purchased -- we spend about 8 million liters at an average price of ZAR 21 per liter, that works up to the gross cost of about ZAR 168 million. And with a recovery ratio of about 75%, then the unrecovered pushing at 25% works up to about ZAR 42 million, which has got about 1.2% if you look at the current earnings of ZAR 3.5 billion. And per center, we can provide you that detail. But I think office will be slightly higher than 75% and then retail will be just a little bit less just because of the common areas.

Thanks, Ntobeko. Then moving on to my Mahir Hamdulay. Mahir, It's good to see that you're mentioning your company as Redefine. The last I checked you were with Absa, but anyway, thank you for that accolade. He wants, that's my area, he wants us to confirm now the euro income contribution from EPP in financial year '23 as well as the cash-back component. He also wants us to confirm the much carrying value. That's Mall of the South carrying value, acquisition value and indicative terms of funding. And then he's also asking how does the cost of funding compared to the forecast NII NPI yield? And Ntobeko, can I give that question to you?

Yes, Andrew. And I think I'll deal with the large components of it and then maybe Leon you can help with NOI. I think with EPP in FY '23 in euro terms, produced EUR 41 million of earnings. And out of that, what we cash flowed out of it back to SA was about EUR 35 million. So you can see that, that is slightly ahead of the range we had given when we last spoke. It's more than 60%, is about 80%, 85% of what -- and then the others were retained just to continue with the refinancing of debt and the other things that need to be done in EPP. The other parts of the question on MOTS, I think the carrying value of MOTS is around 1.8%, if I'm not mistaken. And then the funding terms. It was 3 months -- it's a 5-year facility that we've secured, which is at a margin of 1.45%, over 3 months JIBAR which -- JIBAR [indiscernible] I think you're the moments it's at about 8.3% plus that 1.45%. That is the all-in cost of the deal in MOTS.

And in terms of our cost of funding compared to the forecast NII yield, so for budget '24, the MOTS acquisition will be slightly accretive. So our forecast NOI yield is marginally ahead of the cost of funding that Ntobeko just spoke about.

Francois Du Toit got another question, an impressive solar installation on the Mall of the South. Thank you for the recognition, Francois. His question is how much of that malls electricity needs are met by this plant? And how much did this plant cost? And was there any battery storage included, Leon?

Sure. So Francois, the solar PV installation of Mall of the South cost us ZAR 45 million. Unfortunately, that installation does not or did not include any battery storage for various reasons. But we are still trying to sort of work around the feasibility on exactly how our battery story solutions can potentially supplement that installation. In terms of how much of the electricity needs are met, is roughly between 25% to 35% of the mall's needs. Obviously, in the middle of the day, in fact, on a perfect day from a weather point of view, we are actually producing more than what the mall will need. But on average, over 7 day, 24/7 cycle, that total consumption is only between 25% and 30% of the consumption.

Okay. So Chris Logan from Opportune. As a question for us, and he asked on your net asset value of ZAR 7.66, you are on a 52% discount at your current price of ZAR 3.58. What do you ascribe such a wide discount to? And any ideas on creating value given this 52% discount. So Chris, it's a difficult question because we ask ourselves the same question on a daily basis, the wide discounts perhaps discount greater than the average for the sector and so forth. So the one thing we can pinpoint is our see-through LTV. We acknowledge it's how we are going to work on it and when opportunities do present themselves to reduce it. I can assure you that we will definitely look at that organic growth similarly. But as you would have seen stabilized operating metrics now, we'll provide that platform going forward to get organic growth momentum into the business. From opportunities, Chris, what I think you're alluding to is buying back shares. So just to be absolutely clear on this, we are not for a minute averse to buying back shares. What we need to do is apply trade-off thinking, should we be in a position to have surplus capital at our disposal that will enable us to consider the best allocation of capital. Now clearly, at a 52% discount, Chris, you're absolutely right in your thinking, buying back shares makes absolute sense. We get it. Unfortunately, we're not in that position with our LTV sitting at 41.1% and the share price where it sits in terms of raising further equity. So should we be in a fortunate position that we have surplus capital that we can pay down the debt attributable to those assets that could be sold. Yes, we would obviously factor into all the various opportunities that responsible capital allocation allows us for. There may be opportunities to buy properties at discounts, which may also be an option. Chris, we are alive to this. We're thinking about it on an ongoing basis. And then the last question that I see is from [indiscernible] from MSM Property Fund and she wants Ntobeko to talk us through the debt reduction progress within EPP as well as the EPP portfolio. And another question is, would you say the distribution of EPP earnings was within your expected 79% to 89% of distributable income range given in FY 2022. Sorry Ntobeko, can you take that?

Yes, let me take that one, Andrew. So [indiscernible] I think -- let me tune in the first part of your question. I think if you look at where our group see-through LTV peaked at 54.2% in FY '20. We've made very decent progress and reduced that by 6.9% to the 47.3% peaked that you see in the current year. But I think some of the things that we continue to focus is some retention of earnings in EPP. That's why we don't distribute outside of our range. But also the most importantly is that EPP debt amortizes roughly at about 2.5%, and that gives you a 0.5% reduction in that part. So why you don't see this year slightly just because of the currency that is what they're out, but that will be our focus going forward. And then in terms of the -- I think when we spoke of where we expected EPP during FY '22, where we expected it to distribute in FY '23, it was at about 60%. So the 85% that you see now is actually ahead of what initially spoke about. So restoring EPP is ahead of what we projected.

The next question is from [ Nick Kricker ] And his question is from Leon and his question is, can you comment on the recent like-for-like revenue growth of tenants in the Polish shopping malls. There is anecdotal evidence that it has turned negative. Nick, I'll refer you to the core presentation where we do provide EPP specific comparators going back to 2019 by year from 2023 versus 2019. That is in our malls. It's not for the Polish sector after all. If you still have difficulty with that in terms of your source of information versus ours, we're happy to take that off-line with you. Nicolas [indiscernible] could you please provide us with more information on negative reversions in EPP? And when do you expect these reversions to turn positive? So Nick, if you look at the core portfolio of EPP, that's principally where the negative reversion sits at about 7.2 odd percent. We do believe that it's on a very small part of the GLA. In fact, there's a footnote there that I think refers you to how much it is in relation to the overall portfolio. It is really a small component. We believe that the worst is over, given that, as I said, EPP has been trading through very close to a recessionary environment this past year, and we believe that it will start turning positive. So I'm saying in FY '24, that is. We've got another question from [indiscernible] just talk us through the impact of the battery and PV hybrid installation at Kwena Square, has it healed diesel and electricity cost savings?

Certainly, [indiscernible] Kwena got an interesting one. So we actually had to install battery when we constructed this shopping mall given that COJ could not give us a sufficiently big connection to the grid. So we actually had to supplement the electricity at peak demand levels, the electricity capacity of that [indiscernible]. So that's why there is a battery hybrid solution in Kwena, and most certainly, what -- we also have our solar PV generated rooftop. So during periods of load shedding, we can run on solar PV as opposed to diesel. So we've achieved significant diesel cost savings.

A question from Suren Naidoo from Moneyweb. He's asking, what is Redefine see-through LTV, that is 47.1% Suren. [indiscernible] is asking talk us through the diversification of income streams going forward. Today, I'm assuming you're looking at our alternative income streams. So we've set ourselves, quite a number of years ago, a target of ZAR 100 million. We are getting close to it now. And I'm talking about 5 -- minimum 5-year journey. It is not going to shift the dial significantly. But what it is going to do, it's going to add value to our properties without us having to rely on our tenants' income or support. And that is very, very important. So it is a supplementary if I can use that term initiative, it's by no means going to replace rental income in due course. We are a property business. We are a REIT, and we'll always be one. In terms of [indiscernible] question from [indiscernible], his question is, is the intention still to reduce your sheltering and community joint venture to 25% and over what period? So [indiscernible], just to go back, the 2 pressure points for our see-through LTV would be the metro and the community joint venture within EPP. If I could dispose of them at a price that makes sense, I would -- I can promise you, and it's something we are looking at. It doesn't mean to say that off for sale. Market dynamics at the moment need to first settle. For example, the Metro joint venture has a master lease with Metro AG, which will run its course to April next year. We need to get through this patch of uncertainty in terms of getting a proper handle on operating costs before we can even be in a position to entice a potential investor. The community joint ventures are very solid way, and we believe is capable of realizing book value or carrying value. Should I sell it at a crazy discount today, and reduce my see-through LTV. I think considering all the trade-offs, I don't believe it's in anyone's best interest at this point in time. But it is on our radar, and we will update you as and when we are in a position to confidently complete a disposal, which will significantly improve LTV to a level closer to the regular LTV ratio range between 35% and 45%. Good. Well, thank you very much. It seems like we've exhausted all your questions. If you have any more questions, I urge you please to reach out to us via our Investor Relations e-mail. We look forward to engaging with you on our one-on-ones and drop us at WhatsApp or e-mail, if you really need something urgently answered, Ntobeko, Leon and I are here and we are at your disposal. Just in closing, thank you very much. We appreciate your support, your patience, your confidence and more importantly, I'm going to challenge all of you to start thinking like as REIT Redefine for our sector and start opting for the upside. As a sector, we need to start attracting new inflows. And the only way we're going to do it is if we support one another in a positive way, I know we can't have our blinkers on and look past the realities that we face. But if we can collectively work on a way to attract very necessary inflows back into the sector, not only will our lives tremendously get improved and it's so well yours. So please, let's opt for the upside and thank you and all the best. And if we don't see you, have a wonderful festive season as well. Thank you.