Redefine Properties Limited (RDF) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to Redefine's Pre-Close Investor Update for the half year ending 29 February 2024 this morning, you'll see that our conversation will be centered around a strategic overview that I will go through. Leon Kok, our Chief Operating Officer, will talk about our local property asset platform. I will follow with the Polish property asset platform, and then we will close with our CFO, Ntobeko Nyawo, who will take us through some financial insights as well as end with what is probably most important to all of you being our trading outlook for FY 2024. So just looking at the strategy and our operating context, we are very, very positive that the macro challenges that we've been facing for quite a while now will start easing during 2024. And we all know that interest rates are now at the peak. We see it from those JIBAR and EURIBOR rates below there, where you can see that the banks are actually pricing in, particularly in Europe, you'll see some easing during this coming period. And what is very positive is that the elections that were held in Poland last year are going to be very positive for the Polish economy, but more particularly for the commercial real estate sector where there are a number of interventions and initiatives will start playing out very positively in that market in the form of relaxations potentially of Sunday trading bans as well as increased social grants. In terms of the energy supply crisis in South Africa and the energy cost crisis in Poland, we are seeing a softening in both of those areas which is positive going forward. Yes, in South Africa, we have a long way to go. We know and it will be bumpy, but it does seem like things are getting better. And then just lastly, despite the challenging economic environment that we are still seeing in South Africa across the board, and I'm talking about South Africa as well as in Poland, you will see from this presentation that our operating metrics are showing ongoing improvement, and this is giving us a huge amount of hope for FY '24 into financial year 2025. In terms of our ever-changing landscape, there are some clouds on the horizon that are beyond our control that could disrupt inflation expectations. And I think we just need to be wary of these. It's not to say we're going to be caught up in the headlights of these matters that are way beyond us. But just to note that we are going into an election period here in South Africa as well as globally. This could lead to social instability and some policy inertia. Inflation, we know has a glide path that is downwards, but it won't necessarily be in a straight line. And this could mean that our anticipated rate softening could be delayed or perhaps stalled a bit. But be that as it may, I think we also just need to be aware that the intensified global, our geopolitical tensions in both the Eastern European as well as Middle East regions are also potentially inflationary as well as disruptive to supply chains. But I might add in opting for the upside, that could well be very beneficial to our logistics business in Poland. From a climate change point of view, we all know that it's real. We feel it daily. Johannesburg, I can tell you it has been very, very hot. But be that as it may, there are other impacts that one doesn't always think of that happened, for example, erratic water levels in key sea routes which similarly could lead to delays in the routing of goods, but also the cost could be inducing further inflation into the system. Moving on then to our response to our market shifting dynamics. As you know, we focus on the variables under our control. We do not allow factors beyond our control to distract us from what matters most. And here is a very detailed list of focus areas for 2024 with anticipated outcomes and you'll see that we have broken it up into our 5 strategic priorities, the first one being investing strategically. And this is an ongoing process of looking at how we are strategically allocating capital, capital is scarce. So there's selective deployment of capital from recycled noncore assets into growth sectors. And similarly, we are looking at preservation of value as well as protection of value through a number of interventions, and Leon will talk a lot about that as well as in the Polish sections as well. In terms of optimizing capital, it goes without saying that we need to be proactive in maintaining a very disciplined approach to how we manage the balance sheet. And it's all about maintaining our credit metrics. We need to optimize our offshore gearing levels. We know that the LTV on a group as well as a see-through basis is high, and we will when opportunities arise look at how we can reduce sustainably those key metrics. But I think more importantly, in this environment, we need to keep a watchful eye over interest cover ratios. That will be going through this time that we get into the easing of interest rates, something that we have to look at very carefully. In terms of operating efficiently, it goes without saying that organic growth is not going to come from the top line in a constrained environment. We have to look at efficiencies, and this is happening across the board. Our digital transformation journey is critical to that. But similarly, we do need to intensify our efforts in terms of retaining and attracting tenants by offering compelling value. And you'll see that in the statistics that will be presented to you in due course in terms of outcomes. In terms of engaging talent, absolutely important that we need to promote our employees well-being during this testing time by encouraging a work-life balance. But I think it's very important that we invest in our people so that we can foster an inclusive environment to not only attract diverse talent but also create that environment to stimulate creativity as well as innovative thinking. From a growing reputation point of view, yes, we have lots of work to do in terms of understanding the deliverables that are demanded of us by our stakeholders and similarly what we, in return want to ensure that they are effective relationships. But for us, it's very important that we focus on a multipronged sustainable energy, water and waste solution approach to reduce reliance on the grid, and this can only come through collaboration with all our stakeholders. So building sustainable partnerships with our tenant suppliers and community-based organizations, absolutely important if we are going to ensure that our ESG endeavors are deepened throughout our ecosystems. So just looking ahead, in summary, we opt for the upside by identifying the opportunities within our sphere of control. So as I said, a focus on conservative balance sheet management, absolutely important. Building that quality, diversified portfolio that you will see is starting to bear the fruit that we expected to, to deliver sustainable risk-adjusted returns. Investing and transforming our human capital to enable creativity and foster innovation, understanding our stakeholder needs, I've already spoken about. Accelerating new data and digital platforms to create smart and sustainable spaces. And then lastly, but very importantly, embedding ESG into everything we do by embracing and fostering stakeholder collaboration to extend the reach of our green initiatives. So with that, I'm going to now hand over to Leon, who's going to talk to you about the South African property asset platform.

Good morning, everybody. As far as this African performance are concerned, as you can see, the scorecard in general terms, I think we've performed exceptionally well in the last 5 months. Only marginal [indiscernible] on the occupancy stats, which has increased or decreased slightly to 92.7%. And just to note, that occupancy is expressed as a percentage of GLA. On the right-hand side, where we show you the value -- portfolio vacancy analysis, we give you an indication of what we believe that vacancy is worth. So if you can see the vacancy by GMR is substantially lower, simply because that reflects where the vacancy sits typically in the lower quality spaces. For instance, if you look at retail by GMR, we believe that is only representative of 3.5% of our gross monthly rent simply because that sits in that lower quality retail space. The same goes for office and industrial. So far as renewal reversions are concerned, the pleasing trend that we've seen last year continues and that number is gradually reducing down, although there is still weakness in the office sector, and we'll touch on that in a minute. On the right-hand side, we give you just an analysis of the activity taking place. And again, the reason why we just give you the number of leases in terms of GLA is just to indicate that it is a dynamic market. It's not just one-way traffic that all leases are averting negatively on renewal. As you can see, there's a number of our leases that, in fact, are positively reverting. So in other words, on renewal that we are managing to renew at higher rates and similarly, a big chunk of our leases is flat reversion. In other words, reverting at the same level than what they expire. The big element of negative reversion sits in that office sector, and we can touch on that in a minute. In terms of our lease expiry profile, again, a key focus point for us to make sure that we don't have any undue spikes within that. And we are reasonably comfortable that our lease expiry profile going forward does not present any undue areas of concern that produce weakness in the system. And again, the point in terms of lease escalations and our weighted average unexpired lease term, again is indicative of healthy leasing activity do taking place despite this very challenging economic backdrop that we do find ourselves in. In terms of our sustainability initiatives, a slide that we're extremely proud of and in particular, our efforts around renewable energy. If you can see on our solar PV installed projects, these are projects that are commissioned. We've got installed capacity of just over 40-megawatt peaks across our 3 sectors, with the bulk of that obviously sitting in retail. But what for me is extremely exciting about this slide is that the installation is in progress. That is just over 17 megawatts and again, we can see within our industrial sector, we're certainly starting to capitalize on those opportunities. And then feasibilities and progress just over 17 -- sorry, the installation progress 27 and the feasibilities and progress over 17-megawatt peaks. So if we complete those in progress and those feasibilities prove to be successful, we can conceivably look to double our installed capacity over the next 2 to 3 years, which I think is extremely exciting. So we'll have an installed renewable energy fleet of solar PV projects of just over 80 megawatts in the next 2 to 3 years. And so far as wheeling is concerned, very good progress has been made. Very pleased to say that we've managed to conclude some of the technical assessments for our wheeling pilot project in the Western Cape and the network upgrades are underway and also the infrastructure development that will allow us to implement that 5.7 megawatt peak roof minder solar installation at our Massmart DC and Brackengate. That is planning to go live towards the end of this year and being commissioned in January or February of next year. The 2 off-takers will principally Blue Route Mall and Kenilworth Centre as well as potentially The Towers in the Western Cape. So that, again, for us, is an extremely good opportunity and an example of where we believe our renewable energy efforts will move into the future. We similarly made good progress and albeit somewhat frustrating in terms of negotiating our power purchase agreement in the office sector, which is a wheeling arrangement in the Eskom connect to all our Eskom connected buildings and the supplier in there with the generator, which is the third party is similarly supplying into the Eskom grid. We're hoping for that installation to come online the back end of 2025 calendar year. And as far as the Green Star ratings are concerned, I think our Green Star rating efforts in so far as the office sector is well documented. What we are pleased to report on is that we've made some good progress within our retail and industrial sectors, as you can see. And then again, we're extremely proud of our Net Zero certification within the office sector where we've got 3 buildings that are net 0 certified. In terms of our efficiency and consumption endeavors, particularly as far as water and energy is concerned, ultimately for us, that is the key element of our sustainability efforts is to reduce consumption. We've made good progress, and we continue to install our water-efficient Propelair toilets within our retail and industrial and office sector. Obviously, the opportunity with industrial is less so. And similarly, we're exploring opportunities to look at how we can better optimize the utilization of our HVAC systems. As far as energy efficiency is concerned, we've made substantial progress within our retrofitting of our lighting technology within the retail and office sectors. Industrial, it's been a bit of a laggard, but again, the focus will be grown to that sector in due course. And in terms of waste management, similarly, I think this is an initiative that does take time to implement simply because you're reliant on having to outsource waste recycling to third parties. So obviously, there is a cost involved, but I'm very pleased to report that we've made substantial progress in this regard across the 3 sectors. And so far our South African retail portfolio is concerned, you'll see on the vacancy front, a slight uptick. But again, the point we make here that is principally sitting not in our traditional retail space, more -- that's skewed towards the office element within some of our malls as well as the motor-related dealerships where we've seen some increase. So if you can look at the bottom bullet point, we note that our core retail vacancy stood at 4% and then office at 1.3% and the motor-related 1.2%. Now certainly we had motor-related for assets as noncore, and we will look to potentially dispose a number of those assets. And as you can see, we have been successful in selling one of those buildings. The renewal reversions for us is a key focus area within the retail sector. That certainly for us is the revenue opportunity within retail. Not that we won't attempt to let the vacant space, but the real opportunity is to get that renewal reversions to revert closer to 0 and potentially even push into the positive sector. Although not quite this year, we're hoping for that to occur during the course of next year. But at 1.4%, albeit still on a relatively small percentage of renewals, only 8.6% after 5 months. We're very encouraged by that. And obviously, that is driven by the actual performance of the malls. As you can see in our footfall increase of 3.5%. And similarly, with our rent-to-sales ratio sitting just at 7.4%, which in our mind, indicates that there is opportunity to grow those in-force rental levels. In terms of our priorities, the key focus area, as I said, is to be proactive on renewal negotiations to get those reversions as close as possible to positive and then to try and reduce -- further reduce our vacancy. For us, store upgrades, particularly in so far as the national grocers are concerned, is critical. We've had good success and a number of examples where that has occurred, where some of the grocers have upgraded their stores, and we've seen a commensurate increase in turnover and trading densities for us more. So that for us is the key focus areas. And similarly, to look to unbundle some of our banking courts, which potentially in the past has always presented a bit of a challenge, in that it was typically located in sort of deep -- difficult to let space. So for us, the real opportunity there is to have -- detangle those banking courts and to integrate it into conventional retail. And that's also where the opportunity sits and for us to increase our exposure to essential services and value-focused brands. We also note there, and you'll see that in our LTV slide, the Mall of the South was acquired with effective date of December at amount of ZAR 1.8 billion, an initial yield of 8.2%. And so far as the office sector is concerned, it has been challenging. I'm not going to lie, although we are encouraged by a very decent lease demand, particularly in some of the prime nodes. And they specifically referred to Rosebank, Sandton as well as the Western Cape in Cape Town in particular, where we've seen renewed demand and very healthy leasing activity. In fact, in all 3 of those nodes, we've been able to increase asking rentals over time, particularly in Western Cape. We certainly still have some catch-up to do to Sandton and Rosebank but we are very encouraged by that trend. So the increase in vacancy from 11.4% to 12.1%. Principally, the biggest vacate there that contributed to that was at Centurion Gate with Kumba vacated during the end of last year towards December. But we're reasonably encouraged that there is still some decent letting activity that we can try and mitigate that vacancy despite those notable vacancies that we do note that's coming up, that particularly in Black River Park and certain buildings within the Sandton node will kind of cover for those upcoming vacancies. The renewal reversions will continue to persist. If you have a weighted in-force escalation of close to 7% and very little market rental growth in general, any lease that come up for renewal, there will be -- there certainly will be negative reversions. That's why for us is so important to proactively manage that lease expiry profile and potentially entertain early renewals and such like. But at 13.4% or negative 13.4%. We do believe it's manageable. And that's a figure that we certainly do try and mitigate and sort of reduce to at least trend towards minus 10% or below that. But for the foreseeable future, negative reversions within the office sector will persist. We are encouraged though by our tenant retention, which is for us a key focus area, particularly in environments where there's a lot of competition for tenants. So in the deep 90s, that's certainly where we want to see that number and that continues to progress well. Again, just on the vacancy by grade. You can see our premium growth assets most certainly, is mopping up most of the demand, and that is performing well. Now just a reminder that the bulk of our portfolio, just touching on 90% of our portfolio is in that premium and A-grade space. In so far as the industrial sector is concerned, another dependable performance by a very defensive portfolio. We are extremely encouraged by that positive renewal reversion, albeit on a very small element of the portfolio. But again, it's the first time that I've certainly seen that we've managed to achieve that level of positive reversion with in the industrial sector. And it certainly speaks to, in general, market rentals having increased over the last while, which certainly is encouraging for the sector and this speaks to demand, particularly in the warehousing and modern logistics space. So the slight uptick in vacancy principally was at Katowice as well at [indiscernible] in the Eastern Cape. And we're reasonably confident that there is decent demand. We just haven't been successful to concluding leases, yes. So we can't report on any of that. But in the foreseeable future, we are quite confident that the vacancy figure will again fall back to sub 4%. Again, a key focus here for us is on tenant retention. And then particularly in the industrial sector, operational matters is a challenge, and that certainly also drives some of the demand. So water efficiency, electricity efficiency, safety and security is a key focus area within our industrial sector. Hence, why you can see those variation is just that we do look out forward to implement. And we certainly are encouraged by the solar PV projects that we've recently commissioned within this industrial sector. As we always said, the big opportunity, particularly given that we've got access to large real estate on our roofs, does present a very attractive opportunity within our industrial portfolio. So we'll continue to roll out those projects and similarly explore opportunities, and we even gone as fast to explore potentially carports within some of our industrial parks to implement solar there. So I'm quite encouraged by that. I should also see some decent development activity has taken place. We've completed recently at Brackengate development for Herholdts Group and we're looking to complete that Lluvia Sugar development similarly at Brackengate towards the end of this year. So very encouraged by demand in the sector and our sector that continues to perform well. And again, on the vacancy side, you can see where the vacancy sits. And again, just a point to make that we're reasonably confident that increase in vacancy is certainly is not indicative of weakness in the sector. It has just been 1 or 2 big vacates that have contributed to that. And with that, I'll hand over to Andrew to take us through the Polish sector.

Thanks, Leon. Okay. So just moving on to EPP. We are very happy to report that there is underway a growth in household spend on the back of improved disposable income and that will play out in the retail statistics in due course. So you'll note that from as overall retail point of view that the sector is in the final stage of recovery from the pandemic with all sectors now experiencing good growth. Entertainment and restaurants were last to join the party on the way upwards. Development activity remains focused on retail parks with no new large format shopping centers under construction, which is positive for EPP. Retail consumer preferences in Poland continued to be for convenience, value retail as well as omnichannel. And this is obviously to meet the needs of the consumer to have that flexibility to shop when and where and how they choose to. Footfall across the EPP portfolio grew by around 2% for the period 1 January to 31 December '23 compared to the same period. And if you look at like-for-like turnover, it has increased by about 5%. The best retail category performance over this period has been entertainment coming off a low base, up 31%, services up 19%. Restaurants, cafes, food courts catching up now, 17%, 16% and 13%, respectively. Health and Beauty up 12%. DIY has been a laggard coming off a high base, shrinking by 9% and fashion, which is the largest category, around 38% of GLA in the EPP portfolio is fashion-related recorded an increase of 3%. The rent collections for both retail and offices remain very healthy with a collection rate of almost 100%. From an ESG point of view, EPP is progressing with the obtaining of the necessary permits to start work on the installation of solar PV on the retail property roofs. Climate reports for financial year '23, we're prepared for both EPP as well as the community joint venture. Happy to share that the reduction in greenhouse gases for the period since 2019 is a 22% reduction. And then workers commenced on the implementation of the EU taxonomy reporting as well as Corporate Sustainability reporting directive. And these are on track to be finalized by the end of this financial year. So just from an EPP core portfolio point of view, you'll note from a trading stats point of view, every stature is positive or flat. There is stabilization across this portfolio, which is very, very encouraging. In terms of priorities for EPP, you'll see that the takeover of the M1 group property management and leasing operations from May 2024 is a task well in hand and will happen, as I said, from the first of May. The completion of the zoning process for Towarowa 22 which was sold is in the process of finalization so that we can receive the remaining purchase price. The timing there is slightly out of our control given that it is with the council for approval. That's the city of Warsaw. You need to complete designs and permitting for EPP solar PV plants. The refinancing of Galeria Mlociny as well as the Henderson joint venture debt, which Ntobeko will touch on are both well progressed. And then once we've got total control over the M1 property portfolio we will progress the disposal of surplus land that is within the portfolio. Just in terms of the EPP joint venture portfolio, you'll see here is a very, very busy slide with a lot of statistics. And you'll note that it's generally stable, positive, much like the EPP core portfolio, but the Henderson joint venture debt in which EPP has a 30% interest and is exposed to offices is a sector facing headwinds. And I'll just highlight the vacancy at 25.6% there as a standout. And yes, it will come down slightly by February once we have the National Health Service in Malta in occupation -- sorry, it's in June 24. It's not in -- by February. And that will reduce by about 4%, that vacancy level. But the principal pressure points is outside of Warsaw. It's in the areas of Kraków, [ Lódz ] as well as in Poznan where there is a challenge around the letting environment. In terms of ELI, the logistics market is recovering. Last year was a very slow year in terms of expansion. The banks are requiring higher levels of pre-letting due to the higher interest rate environment. And this has created a barrier to speculative development activity, which has been very positive in that the gap between effective and headline rental rates has narrowed, and what we are also seeing is that given that there's limited speculative development as well as lower construction activity, that's leading to more keen pricing on developments resulting in better yields. It's a matter of interest. But as at 31 December, you will see that the GLA of the ELI portfolio is the same as last year. There were no new developments completed since August last year. Lease renewals of around 54,000 square meters were concluded at an average rate of EUR 4.37, which is a positive reversion growth of 1.6%. New lets of about 20,000 square meters were recorded at an average rate of EUR 4.64 per square, which is a 10.5% increase on the vacating rental. So we are seeing market rental growth as well as a consequence of less speculative development, but also as a consequence of indexation that played its role during the course of this period. And then first time, lettings of 54,000-odd square meters for new developments achieved an average initial rent of just over EUR 5 per square meter, which in itself is record territory. In terms of developments, we have got 2 developments that are fully let in progress totaling just under 51,000 square meters at a cost of -- and this is for 100% -- we own 48.5% of ELI of EUR 42.2 million. There's a fully let development in Warsaw with a GLA of just over 11,000 square meters under planning which will cost around EUR 17.8 million that we are considering at the moment. And then as you will see, we've got a lot of land for development. Now this is a area totals 207,000 square meters, we will be looking here in due course to dispose some of that land if the prospects of development in the near-term is not a reasonable prospect. In terms of ESG, 78% of the ELI portfolio has BREEAM certifications for new buildings. 21% of the completed portfolio is undergoing the certification process, and we're expecting either very good or excellent BREEAM certified levels to come from that process. And we've appointed Deloitte to analyze the carbon footprint for the portfolio, which will include decarbonization targets and that we will have in place by the end of this financial year. So just from a priorities point of view, for ELI, an absolute critical priority for us is to reduce that vacancy of 7.8%. It's in 3 nodes, and it is top of mind in terms of reduction, and we are going to be putting an extra focus on that. As I said, it's in 3 areas. It's in Lublin, It's in Warsaw, [ Blonie ] North as well as in Kraków North. Completing the developments currently under construction is a priority, securing pre-letting on landholdings for future development at attractive yields is ongoing, but we will look then, as I said, at that surplus land pipeline as well. We can't hold on forever to that land in the hope of a development given the holding cost and the drag on the overall yield. Recycling older assets to fund new developments at attractive yields will be an ongoing focus, but I must add that the transactional activity in Poland during the course of last year, did slow down. But we are starting to see renewed interest coming back into the market on the back of the prospects of interest rate reductions. Refinancing the portfolio is an ongoing process to look at those margins, to reduce them and also to look at where we can avoid amortization requirements. And then just lastly, we will constantly look for opportunities to the develop quality low-risk developments in sizable and key logistics hubs. But just looking at the trading stats, you'll note apart from that vacancy that's moved up a bit. The rest of the stats are positive. All right. Just in terms of self-storage, this is a market in its infancy. We see a tremendous growth opportunity here. It will take time. So please be patient with us. But you'll note that the estimated capacity of the Polish self-storage market exceeds 1.1 million square meters. And this is where the growth opportunity is. So we believe that we will still see a number of opportunities here in time to come, and this is where we want to play at this point in time from developing a new sector with the capacity to generate good rental income as well as fantastic yields from both an income as well as from a valuation point of view or capital uplift point of view. So you'll note in the Polish market, demand is underpinned by robust micro business needs, representing 48% of overall users. This is well above the EU average of just under 30%. There are numerous single-site operators in the market, offering mostly low-quality facilities. And this is our opportunity to get that market up the institutional grade curve. The largest concentration of self-storage facilities are around major cities, like Warsaw, Kraków, Poznan and Gdansk. And those are the areas where we want to focus from an expansion point of view. As you know, we acquired Stokado last year. Subsequently, we acquired it's called TopBox. It's a single property in Warsaw which is fully developed and operational. And this provides us with a solid operational platform from which to grow the self-storage business. So the company through which we'll be transacting is Stokado. TopBox is a bolt-on acquisition. So as of 31 December, Stokado is operating 16 facilities including TopBox. And you'll note that the overall occupancy at this point is just under 70%. So there is still a lot of work to do on that letting. In terms of the net lettable area, it's just over 24,000 square meters, 12,400-odd are in containers and just under 12,000 are in units. Units are where we're going to focus. That's the institutional grade area in which we want to develop. So you'll note, there are 7 developments of just under 6,000 units underway with a net lettable area of 32,500 square meters. Total cost of EUR 63.8 million. Now this will be a slow build out. It's not going to happen quickly. And the reason here is that it's all dependent on zoning approvals and these things take time. So over the next 3 years, we will be building out this development pipeline. And as I said earlier, we will focus on those large urban areas. But the 2 that are really very, very promising would be Warsaw and Kraków. Wroclaw where Stokado has its home base where it started. We are pretty well established already. And then you'll see that -- as I said, all future development activities will take place through Stokado. From an ESG point of view, self-storage has a very low carbon footprint. As you know, it's really uses energy only when people arrive at the facility. And generally, your heating requirements or your [ cooling ] requirements are limited. So yes, we do install LED lights and where -- it's practical solar PV on the rooftops and so forth. But as I said, from a BREEAM point of view, we expect to get very good levels of certification for our new developments. Okay. Just in terms of the priorities for self-storage, as I said, we'll continue to expand in major cities. So we're on the lookout for secure attractive locations. The leasing and operational performance of Stokado and TopBox is top of mind. We have to fill these facilities. 70% is too low. We're aiming to get to between 85% and 90% on every facility. There is some integration work to be done between Stokado and TopBox where we are selecting the best of whichever system, and we are having operational synergies as a consequence of that integration. And then just in terms of bank funding at attractive terms, this is going to be secured once the developments are ready for construction. So I'm now going to hand over Ntobeko. He's going to now take you through financial insights, as I said earlier, and also he will close for us. Thank you.

Thank you, Andrew. I think on the financial side, for us, it's quite clear that the medium-term outlook will largely just be driven by organic growth. And that if you see that our continued positive operating metrics and our proactive margin management is really driving the quality of our earnings. We're quite pleased to report that our net operating profit margin, which is calculated after admin costs, but before funding costs in South Africa portfolio, it's stable at 78%. And from a group point of view, if you fact adjust that EPP printed at 71% year-to-date, it's coming out at 75%. We're quite clear that in the medium-term outlook, that number would like to drive it closer to the 80% level. Then if you look at the quality of the earnings, just in the quarter 1 of '24, we've almost visually eliminated nonrecurring income at 0.1% and 99.9% of our distributable earnings is actually recurring. We always provide the sensitivities at distributor income per share level. And you can quite see the first 2 items that it will be largely the changes in the interest rate, both in the euro base as well as in the ZAR debt, and those are the impacts at ZAR 0.7 and ZAR 0.4, respectively. Then we do also provide just on the SA occupancy portfolio, which as Leon has touched on very positive that if it were to move on a change by 0.5%, that will be a ZAR 0.4 impact on the earnings. And then in Poland, we look at rent indexation, a change of 1%, that works out to ZAR 0.4 impact. And then on the SA reversion rate, it will really have to move by 3% to have an impact of ZAR 0.2 on the earnings. Very pleased as well with our balance sheet, quite stable. And I think our focus on sustainable organic growth of our simplified asset platform is playing very well. As you can see that the liquidity that we've maintained of ZAR 6 billion at year-to-date. That compares quite favorable to the comparable period of FY '23 at 5.5 billion. Then the group, there is a bit of a 20 basis point uptick on our group weighted average cost of debt that increased to 7.3%, just largely on the back of the increase that you've seen in the period of the Euribor rate. But we've maintained as an outset, we've maintained a 2.4% offshore debt amortization which is really just part of our gradual reduction of our see-through gearing levels. We value our portfolio twice a year. We're currently pleased with our interim valuation. Our expectations is that it will be largely stable and then we'll share that with you the outcomes in the interim results. I think in this environment, Andrew touched on this, our healthy cash generation is really a good mitigant to the ICR pressure because of a higher interest rate environment. But if we look from a rand denominated cost of debt, we are quite pleased that it's stable at 9.4% compared to the 9.4% in FY '23. And then the 10 basis point movement on our ForEx debt, will that move to 4.7% from the comparable of 4.6% in the previous period. We'll continue to hedge our interest rates. I think at year-to-date, we are sitting at a hedge profile of 73.5% compared to the 77.1% of last year and taking tenure of 1.7 years. There's opportunities that we see in the forward pricing of the interest rate swaps. So we will look at filling that up to the interim period and maybe get it back to the 75% level by half year. Then if we move to the tax maturity profile, I think, for us, it's really pleasing that if you look from FY '24 up to FY '27, we're not really dealing with significant amounts of debt maturities. In FY '24, we have only 14% of our debt maturing. In FY '25, we're projecting a 12% majority profile and a 13% in FY '26 and 13% in FY '27. So it is a quite low-risk debt profile. That is bolstered by a very health and liquidity profile of ZAR 6 billion, which is made up of ZAR 3.8 billion of available committed facilities that have not been drawn as well as ZAR 2 billion of cash in hand. Just on some progress, which is very pleasing that we've made on the refinancing of the debt that is in FY '24, that is made up of the ZAR 2.4 billion of bank debt as well as we've got ZAR 3.1 billion of bonds that are coming up. Out of the bank debt, we've successfully closed ZAR 1 billion of that. That was refinanced in December and it was also pleasing the margins that we compress about 24 basis points in that and the rest of the bank debt is actually progressing very well. We did raise ZAR 1.2 billion. You will see this when we touch on the LTV. That was just to fund the acquisition of Mall of the South at very attractive rates of 144 basis points on a 5-year tenure. And then the balance of that was funded with an unsecured 5-year bond instrument at 149 basis points. We will -- we've got -- we repaid ZAR 1 billion of bonds, and we will go to the market. We're seeing some very attractive liquidity positions in the debt capital markets. So in March, we look at raising ZAR 500 million with an ability to upsize to ZAR 750 million. The refinancing of Mlociny, we expect to complete that in March. But what we have is that it's a 5-year facility term at a margin of 240 basis points with the requirement to hedge at 75% of that. But what is very important with this refinancing of Mlociny is that it's a TAM facility, and there will be no amortization requirement as that was there previously. And on the refinancing of Henderson JV that is underway, and we expect that facility actually matures in June. We expect that by the time it matures will have agreed terms with the funders. On the LTV side, I think our forecast is really just largely that we will have to bring the LTV back to our medium target range of 38% and 41%. When we provide the forecast for LTV, I think it's quite important that it's very conservative as it assumes flat property values outcome as well as a stable ForEx. So you will see that for this year, we -- it has year-to-date, our LTV is printing at 42.5%, and we expect that to gradually come down to about 42% at the end of the year. But I think the real big movement in our LTV is really that 1.1%, which is the acquisition of the Mall of the South that we've always disclosed to you guys. And I think then the normal commitment to the paying of dividend and the cash generation that plays out and then it comes out at 42% at the end of the year. We do provide some sensitivities just in terms of the property values, both in SA and in EPP. If you look at in the SA, a 1% movement, which is -- in absolute terms, it ZAR 0.6 billion will have a 0.3% impact on our LTV. In EPP, 1%, which will be in absolute terms at ZAR 0.2 billion will have a 0.1% impact on the LTV. And then we also provide for the JVs. And then the ForEx movement will -- if we try to move, if the rand were to depreciate, or appreciate by 5%, that will have a 0.2% impact. Our forecast, which continues to be mitigated by our gradual debt reduction. It's really just on the see-through LTV post the payment of the FY '23 dividend and the weaker end, you will see that uptick -- our see-through carry uptick to 48.5% in the first quarter. But we're also pleased that our interest cover ratio at year-to-date is very stable at 2.3x. And then we maintained a Moody's credit rating of Ba2 with a very stable outlook. Then to close, if we look at our trading update for 2024, I think the environment we're in where our continued operational -- positive operational print, offset by the elevated interest rates we're just quite pleased to report to you that we've maintained guidance range of between ZAR 0.48 and ZAR 0.52 distributor income per share. There will be, I think, on a proactive basis, you can quite clearly see that proactive margin management is really driving sustainable organic growth. And I think our very strong cash generation both in our South African portfolio as well as our Polish portfolio supports a healthy ICR in a higher for longer interest rate environment. Some unknown, some of the risks that we think are lying on the horizon. I think the low growth prospects of the South African economy may be impacted by the 2024 general election outcome. But our focus is very clear in offshore to develop our long-term strategy. And I think in that, as Andrew alluded to, if there are opportunities to recycle capital, we'll look at those and also some disposals so that we can continue just to gradually bring our LTV to the medium-term range. On a macro basis, I think we can all attest is very unpredictable in terms of the global geopolitical environment. The impact of that on the trade flows as well as the inflation levels, which will consequentially drive what happens to the reduction of the interest rates that is expected in the second half of 2024 and the pace, therefore, too. So we're quite pleased that with this, we would like to take a close and then I'll ask Andrew to come and moderate on the questions.

Great. Thanks, Ntobeko. Okay. All right. So we've got a couple of questions. I'll just read them out and then decide as to -- who is best placed to answer them. The first is from Mweishö Nene from SBG Securities. His question is, what proportion of your offices are P grade? So Mweishö, thank you well quick off the mark, so we were able to get you that answer. 54% of our office portfolio is P grade. But if I combine it with A grade, it takes it up to 95%. In terms of the next question, [ Mihir Hundley ] from [indiscernible]. He's got 2 questions for us. The first is for Ntobeko. What is the all-in cost of debt on the new Mlociny facility, including the hedge? And then secondly, given the increase in LTV, would it be fair to assume that dividends may be trending closer to the lower end of 80% to 90% in terms of the dividend payout ratio. Ntobeko, would you like to answer that question?

Yes. Thanks, Andrew. Mihir, I think all-in cost of debt on the refinancing of Mlociny is actually at about 5%. That is made up of the margin at 240 basis points. The requirement there for us to hedge is sitting at 75%. But I think there is one important thing if you also linked to your second question is that this refinance of Mlociny takes away the requirement to amortize debt at circa 2.4%. So it does free up some cash. In terms of our commitment to paying dividends, it will be within that range, but I think we factor a couple of things. We look at the earnings and the flows that we could pull out of that business. Secondly, if there are opportunities to dispose, that will also be positive in terms of bringing the LTV down. But yes, you're quite right. Then on a balancing factor plus CapEx, we will look at retaining some earnings but very carefully on a tax-efficient basis. We won't leak tax on that.

Thanks Ntobeko. Okay. The next question is from Nazeem Samsodien from Investec. And his question is, what is the rationale for selling ELI land? Is it due to lack of access to capital or lack of demand to build our product? So I think, Nazeem, the short answer here is we need to look at the optimal yield out of ELI. So if the development prospects are low for that land in the medium-term, the holding cost is going to price us out of contention in terms of getting a decent yield on development. It's not a lack of access to capital that's driving this decision. It's more a strategic decision around allocation of capital in a constrained environment that's driving this thinking. And yes, it's not an easy process just to sell land as we know because the purchase -- as somebody is going to have the same questions that we have in terms of development prospects. But I must say that this land was acquired at a reasonable price. So it does enable us to dispose of these properties at an undemanding pricing level too. Yesh Pillay asks and he's from Anchor stockbrokers. Have you dealt with any inquiries from business process outsourcing firms, i.e., call centers for your office space, especially in Sandton? Secondly, you mentioned store upgrades for national grocers in your retail portfolio. Can you share which national grocers these are and what it entails? His third question, how is Pick n Pay corporate and franchise stores performed in your portfolio. What is the scope for Pick n Pay to rightsize their store space given their current operational challenges. Leon, I think those questions are all yours.

Sure, Andrew. So Yesh, just firstly, on your question around call centers, yes, we've seen exceptional demand for call centers, in particular in the Western Cape. So we've placed and signed a number of leases with call centers within -- in our Cape Town portfolio and in particular, at The Towers. We haven't necessarily seen the same level of demand within [indiscernible] especially on Sandton, we have had a couple of inquiries on the West Rand and some of our more outlying areas. Obviously, rental levels did take that but we are encouraged by that growth of the BPO market, particularly within Cape Town. And there are some opportunity potentially within [indiscernible] to expand that. In terms of your question around store upgrades, yes. Unfortunately, it has not been Pick n Pay. It was driven largely by Shoprite, their close competitor and some of the other grocers. Your question around Pick n Pay and how they performed, I think at a franchise store level, we've certainly seen continued good performance at a corporate level, where they are certainly lagging in particular, Shoprite-Checkers performance. You ask around the scope for Pick n Pay rightsize their store space. We're not necessary of the view that the size of the space is the challenge. The real challenge is that I think the [indiscernible] terms of the capital spend in terms of upgrading stores. So our biggest ask at this point and the biggest one of contention in discussion with Pick n Pay is store upgrades, not reduction in space. We are quite comfortable with the store space we do have, and I think they are in prime locations and well located. What is needed is capital to refresh those stores, and there's ongoing engagement with Pick n Pay on that.

Thanks, Leon. Okay. Moving on then to question from Mweishö again. And his question is, are current lenders happy to extend further credit for both the EPP and ELI businesses or is liquidity still tight. So Mweishö, I'm glad you're asking this question now and perhaps not 9 or so months ago because things have changed for the positive. The banking sector has certainly had a change of sentiment towards retail, and this is particularly coming from the German banking sector, and we are seeing appetite for lending again. The offices is a more selective story given the headwinds they face. I think LTVs and so forth, they are sensitive to, but they're not closed for business when it comes to lending to EPP, particularly happy to lend on the retail side, a little bit circumspect on the office side. But ELI, I can assure you we are getting very good support from the banking sector, for the logistics sector and for the quality of the developments we've undertaken as well as the quality tenants we have in occupancy at those facilities. So liquidity is not tight like it used to be. It certainly is much, much better. Nazeem Samsodien has is a question for us on amortization requirements on refinancing. He's saying, will you manage the LTV by maintaining a conservative payout from EPP to RDF? Or will you distribute all of the cash earnings, which should be higher given the less amort. Ntobeko, will you take that question?

Yes. Thanks, Andrew. Nazeem, I think what is specifically to more Mlociny debt where the actual LTV in Mlociny is quite attractive and allowed us I think it's circa 44%. It allowed us to restructure the debt in Mlociny and take out the amort. So you will recall that in terms of that improved cash earnings that you could pull out, it fits within our targeted payout ratio from EPP of between 60% and 74%. But you're quite right, I think it will be on -- it does improve our ability to do that, but we will consider the gearing on that as well as part of looking at how we play that cash out.

Thank you, Ntobeko. Okay. So the next question is from [ Mihir Hundley ]. He's asking, can you confirm the value of the remaining proceeds from T22 disposal. So Mihir, the short answer is I don't know. And I'll tell you why is because the zoning that is approved by the council will then be audited by an architect, which will then, according to our calculation, give us that final amount. And I'm not too sure what the council will finally approve as the final GLA for T22. However, there is a range. So on the lower end of the range, it's EUR 38 million and on the upper end of the range, it could be as much as EUR 44 million. I know you guys like to divide it in the middle somewhere and say, that's the answer. But the truth of it is, I'm not sure of the exact number at this point. It is that range that I'm talking about. And yes, hopefully, it will be the higher. But I can't tell you that as we stand here, given that the council has to have the final say on the GLA. Mweishö has got another question for us. What is your target for self-storage exposure as a percentage of Polish investments? So Mweishö, the answer is that if we just look at last reported numbers, about 37% of our exposure from an asset platform is to Poland. If we build out our self-storage platform to where we want it to be, which is a gross asset value of EUR 100 million. That's roughly ZAR 2 billion. It will take us up from a Polish exposure point of view by about 2%. So the 37% will grow to about 39%. And that's basically where it will be in the next 5 or so years' time. At that point, then we will introduce an equity investor. That's why we want the EUR 100 million gross asset value to attract that institutional investor, then to further expand like we did with the ELI platform. In terms of -- Mweishö, he's having a very busy morning. He's saying, what is the current structure of the balance sheet? Does ZAR weakness increase or decrease the NAV on a cents per share basis? Mr. Nyawo?

Short answer, Mweishö, is that, yes, the weaker rent on -- when you translate then your ForEx asset, it has an impact on the NAV and the invest will also be consequentially true.

Thank you. Okay. So Francois du Toit from Anchor Stockbrokers has asked us, how do you expect the debt amort to impact dividends from EPP and ELI and their JVs? Please confirm that distributable income is not impacted by the amortization rate given RDF distributable income definition. That's a very technical question, Mr. Nyawo.

Francois, it's almost similar to a question that was asked earlier by Nazeem. I think as we explained, is that the amortization, if we stop it in Mlociny, it improves the cash earnings, which back our -- any that we can pull out from that business. And it is, in our view, within the range that we target to pull as earnings out of EPP, which is between 60% and 70% of earnings. And I think it's just the last point to make on that. It's one of the most tax-efficient mechanisms for us in this environment where we are able to retain earnings in EPP without leaking tax and also address as part of a multi-pronged plan to address our see-through gearing.

Thank you. All right. Craig Smith from Anchor is asking us, what is the profile of occupier for space inquiries in Sandton and Rosebank. The BPO operators have been very active in Cape Town or the Western Cape, how active are the BPO operators in Johannesburg. Leon, I think that's a similar question to earlier, if I'm right. You got anything to add to that?

Yes. Andrew, just in terms of the profile of occupier for space inquiries in Sandton and Rosebank. I couldn't say that it represents a specific sector or industry. It is, however, smaller inquiries. So the large spaces in excess of 1,000 to 2,000 is very limited. So these are smaller occupiers but there is decent activity. In terms of our BPO, call center operator is very active, as you say, in Cape Town, less so in Johannesburg. There has been some 1 or 2 inquiries but at this point, it still feelers out. And I do think that the state of City of Johannesburg certainly has something to do with that.

Great. Thanks, Leon. Okay. Zinhle Simelane from MSM Property Fund asks us, can you talk us through the planned disposals for the rest of the year and total disposals thus far? Zinhle, can I ask you to be patient with us. We will answer this question. As part of our results announcement. As you know, this is a trading update. It's not necessarily a disposal as well or balance sheet out that -- given that there's some work in progress is deal risk on a couple of things we're working on. But I just want to caution everyone's expectation in that the transactional market, both in Poland as well as in South Africa is muted. It's quiet given where interest rates sit. Nonetheless, we have got some disposals that we can talk about. As I said, a lot of them will be committed to writing in and we won't be in a position at this stage to share that with you yet. Pranita Daya from SPG Security asks, given your previous stance to close out cross-currency swaps and considering the recent renewals, what is the stance on cross currencies going forward, Mr. Nyawo?

Pranita, our stance hasn't changed. I think we are quite committed that when the opportunity and the right environment arises, we will gradually take out cross currencies with a consideration given that we don't want it to be too earnings dilutive. So in the current environment, like we have said, the ones that are coming up for maturity, like what we did in October '23, the EUR 45 million as well as what we just recently did in January, the renewal of the EUR 65 million cross currencies, is just part of maintaining until the environment is right. And then over the medium-term, we would like to eliminate them when the opportunity arises.

Yes. Okay. All right. So -- the next question is from Craig Smith. His question is, what is your exposure to Boxer stores? And can you comment on how these stores are performing versus the likes of Shoprite? Your second question is, can you comment on activity in the direct property market? And how you see liquidity and investment values panning out in 2024. I think -- that second question already, Craig, we've kind of answered already when we spoke to Zinhle's earlier question. But I think Leon will answer your Boxer question for you.

Okay. Just in terms of your question on exposure to Boxer, I don't have a split in Boxer between Pick n Pay and Boxer but just to give you an idea, our total exposure to the Shoprite Group, which include all their brands, it's roughly about 6% of our gross monthly rents and Pick n Pay is roughly 5% of our gross monthly rent. That includes all the brands within those 2. We've certainly seen in terms of Pick n Pay's performance relative to the Shoprite Group. Boxer stores is certainly holding its own and performing well. So that is one element within the Pick n Pay table that it certainly has continued to perform well and is not lagging as much as Pick n Pay relative to [ Checkers ].

Great, Thanks, Leon. All right. I hear there's a question, and this is -- I can put it, a very pointed one in that he wants us to give an exact answer. I'd say the question is can you please elaborate on guided Mlociny cost of debt of around 5%. 3-month Euribor is currently 3.9% plus margin, 2.4%, already greater than 5% guided. Ntobeko, can you answer that?

Yes. Thanks, Andrew. -- the 3.9 Euribor, that's floating, and that will be 25% of what we guided. Remember, we -- the requirement for Mlociny is to hedge 75% the 3-month Euribor, so the weighted on that is trading on a 5-year tenure is trading much more closer to 3%. I think actually, in February, it did touch 2.9%. So you -- if we hedge it out, it actually works out to about the 5% that we guided.

Thank you, Ntobeko. Okay. Luqman Amit from 91 has a question. He says, "Can you comment on the spread between expired cross-currency swaps and the renewal thereof given Euribors moved more than the South African repo rates.

Yes. Luqman, we do provide, I think, on the 2 refinancings that we did, the one that we did in October. You could kind see that the expectations there drove the spread at a fixed rate, we achieved a fixed rate of 5.07% compared to the expiry rate of 1.89%. And then on the refinancing that we did in January '24 with a much more better outcome on the fixed leg at 4.82% compared to the expiry rate of 1.81%. On the floating leg with the JIBAR plus, it has remained consistent at the margin of 15%.

Great. Thanks. Good. Well, from what I can see, there's no more questions. So with that, I want to thank all of you for your time, your attendance, your patience and most importantly, your support of Redefine throughout this period. We look forward to seeing you on the sixth of May when we do release our results. And I wish you a very pleasant week further. Thank you.