Good morning, ladies and gentlemen. Welcome to the Equites 2023 Year-End Results. Obviously great to see you all here, and I believe that we've got quite a few people online watching the presentation as well. I'd like to think that we've actually got a great presentation today. We're gonna start obviously with the results, with life that was and what we've delivered. I think, you know, we obviously and our board were very pleased after yesterday's board meeting with what we've managed to achieve in the year behind us. We're gonna spend quite a bit of time today, though, talking about what lies ahead.
I think, you know, part of that is that we are entering or we've been in a period unlike anything that we've experienced since we've been in the capital market since 2014. As a consequence of that, we've obviously spent a lot of time relooking at the very essence of our business, and we've gone through a process with our board where we've come up with some processes and some, I suppose, quite fundamental change in strategy. Obviously we would like to unpack that with you guys today. Quite a bit of emphasis on that at the back end of the presentation.
I think let's start with the financial overview, and I mean, I suppose, you know, the statement speaks for itself, and I suppose it reiterates what I've just said, is that, you know, notwithstanding very, very tough trading conditions, I mean, interest rate movements that are unprecedented in our lifespan as a REIT, notwithstanding all of these things, the underlying business of Equites on a day-to-day operational business has never been as strong as it is at the moment. The demand drivers for the product that we put out there, the actual assets that are underlying the portfolio, the quality of the portfolio just seems to be getting stronger and stronger and obviously of that we're very, very pleased with that.
We remain extremely optimistic for the year ahead or the years ahead. I suppose part of that, we also benefit from being in a sector which still has got massive demand drivers behind it, both from an operational point of view, but also from an investor point of view. We can see that by the quantum of money that's still very interested in this particular sector. Maybe let's start with just a quick update in terms of where we're at. This is not specific Equites, this is just general market update. I mean, 2022 was I think the second best year on record in the U.K. in terms of take-up. I mean, 48 million sq ft. The all-time record is 55 million sq ft, which was the year before.
A great year that was last year. What we're seeing in this year in the first quarter is that take-up seems to be normalizing to a sort of pre-COVID level, and we're expecting take-up to end up somewhere in the high 30 millions kinda thing. That's where we're expecting it to go. Vacancy rates have ticked up a little bit, but the vacancy rate they've ticked up is, I mean, what the English refer to as gray space. There has been some space that has been given back, but a lot of that space tends to be a little bit older and obviously there's the race on the ESG front and people wanting to be into, in the U.K., what we would call BREEAM excellent buildings going forward.
What I would like to identify though is that within the actual vacancy in terms of the really A-grade, top-notch, brand-new stuff, the vacancy rate still remains quite low and depending on whose report. In some reports, I've seen it slightly below 1% and in some slightly above 1%. Notwithstanding that, it does remain fairly low. The one thing that obviously is pleasing is that rental growth remains robust in the U.K. and we're seeing it, you know, really propelling through and that is a combination obviously of cost of capital and developers will not put product into the ground unless there is a return for them. That really does push the rent. I suppose land prices haven't really come off in terms of the service land cost.
What's come off is the cost or is the price that is being paid to the sort of natural landowner. He's been sort of squeezed a bit because of inflation around construction costs and the likes. The service land costs have gone up slightly and as a consequence, the actual service land cost is slightly off, but it's not massively off. Because of the development part obviously is compressing the amount of money that obviously the actual underlying landowner gets. That's the beauty of the U.K. market. It's dynamic, it's large, lots of players and you always get that equilibrium based on what's actually happening in the market at that particular moment in time.
What we've seen obviously is prime logistics go from, you know, highs of 3.25% yield probably back end of 2021 into the beginning of 2022 and very quickly as the year progressed, you know, probably sort of hit 5%. Coupled with that, obviously you've also had interest rates, and we'll talk to that a little bit later in the presentation go in one way. Like everything, things are never quite as bad as you think they are and probably never as good as what you think they are. You what you're seeing is the stabilization of the market and if anything in the last month or two, what we're seeing is actually yields probably creeping in 25 basis points on the high-quality stuff, which is obviously where we play.
Our expectation, obviously, as a consequence, is that through the year and as we go into 2024, we do believe that pricing and values will start to increase. In SA, we're seeing obviously massive activity amongst the third-party logistics guys and the retailers. The amount of new footprint, you know, across the board, you know. Obviously, we're doing a lot with Shoprite. Obviously, one of our competitors has done quite a bit with Pick n Pay recently. I mean, PEP are putting up a big facility in Hammarsdale and also looking at other stuff. I mean, Truworths are putting up a massive facility in Cape Town at the moment, you know. The various DHLs, DSVs, Kuehne + Nagels, you know, they're definitely in the market.
I mean, they're looking at identifying new space. I think what's also driving this is load shedding obviously playing its part in a lot of these big companies having obviously got probably 20-30 ESG metrics that they need to fall in line with. The consequence of the electricity problems is that you need to make a decision now. Do we go and retrofit all that electricity into a 20-30-year-old shed that we're gonna probably have to move out of in the next two or three years, or five years, should we say? Do we just bite the bullet now and look to plan for the next 10 years?
What we're seeing more and more is people are sort of saying, "Well, let's bite the bullet and plan for the next 10 years." What we're seeing is obviously as a consequence of lack of really high caliber vacancy in the A grade part of the South African business is that the rentals and obviously with the construction inflation coming through, the rentals are definitely up in the last year. I mean, we've seen 20% sort of growth in our rentals, and we're seeing it also in our really high quality, sort of older boxes, but still that tick most of the ESG metrics, or we are going through processes.
I mean, last year we did a sustainability sort of audit on all our portfolio, and as a consequence of that, we've identified the properties in which we can invest in and the ones that we probably doesn't make sense to invest in. What we're seeing is e-commerce is starting to creep into the narrative of some of the bigger retailers in terms of the thinking. Historically, it was only Takealot that had an impact in terms of real estate making real estate decisions because of an e-commerce platform. What we're starting to see now is more and more of these bigger retailers are starting to make very specific investments in e-commerce. We see that side of business really starting to influence real estate, which is positive.
We always thought it would take a bit longer, but it seems to have sort of come a little bit forward. Strong demand for big boxes in Gauteng is still there, especially on the R21. R21 has become logistics central. If you drive up that corridor, it really has become extremely popular. Obviously with that, the big challenge obviously is serviced land, available serviced land with electricity, water and sewage, which is a challenge. Lots of land everywhere and you know, getting stuff through a process is a challenge in itself. You could probably do that. To get the services there and make them functional so that you can actually build something, that's proving to be very demanding.
In the Western Cape, where we have a little bit of influence, obviously, and we do play, the size and scale of the boxes there tends to be a little bit smaller. KZN is not really probably a market that we've been particularly strong in or managed to sort of break into. Very tightly held market. Also what we're seeing there with the lack of available land, I think, you know, the only meaningful piece of land that's left is basically the other side of the highway from Riverhorse, where Investec Bank own the old Corobrik site. I think they've got about 70 hectares of land that they can unlock in three phases, which is great land, well-located, and the way they've incorporated the infrastructure there will work well.
The level of rents they need to achieve there to make it work is probably north of 100 ZAR/sq m. This all talks to this narrative of rental movement upwards, which is great. As I said already, obviously ESG is making a big influence in terms of people bringing decision-making forward. It's you know, you can't operate six, seven hours a day without power. You just physically can't. You know, and that that's forcing people to make decisions, let's put it that way, which is great. Let's maybe just talk about us for a quick bit, and Laila will go into a lot more detail obviously in terms of the numbers, but just the basic one. Obviously very pleased.
DPS up 4.1% for the year. So within our guidance. Obviously, the disappointing one is the NAV down 10%, obviously completely driven by the U.K. revaluation. U.K. portfolio down 21%. So pretty strong devaluation across the U.K. portfolio. We believe, and again, we believe that the consequence of that strong decline will result in us having a sort of slightly probably quicker or a bigger bounce, should I say. I think, and we'll talk to it in a bit of detail a bit later on.
You know, we've sold two assets in the recent period, and the value at which we sold those two assets, which sit in a very similar scope to the assets we still retain, the value that we've achieved in the open market is significantly better than we got valued on. That I think remains positive with the outlook going forward. Obviously we've taken that on the chin now and we move on kind of thing. Total return and you know, the consequence of that devaluation obviously has an impact on total return. We wanted to share that.
It's obviously not a positive, but it is a reality and, you know, we need to live it and we still believe though that the future is really bright and that we'll be sitting here and hopefully in a year's time with a completely different metric that will be up there. Loan to value at 39.7%, probably the highest loan to value, I think the highest loan to value we've ever printed, and obviously it's a consequence of a massive development pipeline that we are undertaking at the moment. We are going through a process at the same time though, of recycling some of our older assets and recycling that capital into these newer ESG compliant assets.
The ambition, and we'll talk to it in more detail, the ambition for us as a group is to sort of try and keep the loan to value sort of around the 35% or lower. That really is to ensure that we always have the headroom to take advantage of the opportunities that are coming our way. The final one, obviously from a liquidity point of view, I mean, the positive is obviously cash is not really a problem in our world at the moment, which is great. Property valuation. This is, let's start with the U.K. As I said, I mean, obviously our portfolio down 21% in the U.K.
If we strip out the Tesco facility in Hinckley, which is obviously an older facility, everything else was built from scratch through our process. If you take that out, our devaluation on the portfolio is about 18%. Portfolio remains GBP 305 million of property in the U.K. at current valuation. You know, I'm a bit more optimistic. I personally believe the value is actually much more than that, but that's fine. The value, as I've said, is 305, so 305 it is. I mean, what's actually happened to our portfolio is we've gone from a net initial yield across our portfolio with a lot of reversionary rent in it, and we've gone basically from 4% to 5%.
As I said a minute ago, what you can see is in the sale of the two Peterborough assets that we sold with a full reversion in them. The DSV is going to rent review in August this year and the Coloplast in April next year. We sold those off the old rental at 4.4%. Now, the valuers are telling us that we should have valued that at 5%. We've sold it at 0.6% yield less than the valuers have given to the rest of the portfolio. I think that's what gives me a lot of comfort, is I think we've got a fantastic portfolio in the U.K. It is without doubt, in our opinion, slightly undervalued, but that's great. It's a great base.
It's a platform, the benefits of which we will see coming through in the year ahead, and that's great. The 8% discount to book obviously on the two Peterborough assets is based on last year, August's value. I'm sure if they'd valued it at this, we would trade at a 5% yield of that income, we would have sold it probably at about 8% premium to book. Yeah, it's semantics, I suppose. The consequence of obviously these rent reviews that are coming through over the next 24 months is that our portfolio is probably at the moment being valued somewhere between 6.5% and 7% on a stabilized basis.
Now, that really speaks volumes, is that there is no chance that an ESG compliant portfolio of state-of-the-art facilities, predominantly in the East Midlands, some of them in the Southeast, I think only one in Wales, could be valued between 6.5% and 7% yield. I mean, it just. The numbers just don't add up. So effectively, based on where we currently are, we are of the opinion across that portfolio that our rent reviews, as we go through them, we will get increases of between 30% and 40%. Obviously, as those rent reviews come through, even if they decide to value us at a 5% yield or 5.5% yield, it will be significantly better than the 6.5%, which is what the stabilization is showing.
At the same time, obviously, the sale of the two Peterborough assets, one of them had five and a bit years left on the lease, one had six and a bit left on the lease. You can see the consequence of those two. Our WALE in the U.K. has obviously jumped up to 15.8 years, which obviously remains massively positive as well. In terms of SA, obviously very pleasing to see that the portfolio in SA has really contributed for the first time in quite a few years. I mean, I think the last time we had a meaningful increase in value of the portfolio in SA was probably pre-COVID. And the 4.3. Obviously, this really does talk to the fantastic underpin that we have with the Shoprite assets that we currently have in the portfolio.
As we go forward over the next two years, as we develop out what we're currently developing, that underpin will become even more manifested. I think our SA portfolio at the moment is really looking in fantastic shape, and we're really pleased with it. The market rental growth obviously is a story that has been around now for the last year. You know, for us to be doing developments at, you know, anything probably less than probably about 8.75%-9% yield today probably wouldn't make sense with the cost of capital where it's at.
For us to do that based on the land prices and the cost of land and the cost of construction, the reality is that you're probably gonna need to be getting rentals ZAR 85 a sq m and north of that. That is where the market is, and I think a ZAR 100 a sq m rental for an Equites base spec build is something that is not far away. Land values have retained value, and if anything, they've ticked up slightly, and that's just scarcity factor. It's go and try and find me a site. Well, in Cape Town, try and find me a site to build a 30,000 sq m box on. Just doesn't exist. Even if you go right up the N1, I mean, people are trying to get land rezoned up the N1.
For people that know Cape Town, where Value Logistics is up there's a lot of work going on there. People are trying to do stuff around the film studio on the Baden Powell off-ramp off the N2. A sizable, meaningful chunk of land to build a proper facility. I mean, I think once King Air Industria, which Atterbury control at the airport, I mean, I think they've probably got one or two sites left, but I don't think they can do 30, but they can probably do 20. Once those two sites are gone, I mean, yeah, I mean, there's really very little left to do big stuff. I mean, to do 5,000-10,000, there's lots, but we don't tend to play in that space. We tend to play in slightly larger space.
As I said earlier, the challenge of getting land serviced is a problem. Again, I think this is quite an important one, the last one, in terms of you know our all-in cost today to build a base spec build, Equites build is sort of between ZAR 11,000 and ZAR 12,000 rand a square. I mean, you can do the sums. I mean, if you do sort of ZAR 85 a square for 12 months on ZAR 11,000, I think you'd come in at about 9% or just north of 9% yield. If you're not doing deals at plus minus that with current cost of capital, yeah, you'll be taking a bit of pain.
I'm gonna hand over to Laila, and she can take us through some of the detail of the numbers, and then Riaan will follow her with some operational highlights.
Okay. Thank you, Andrea, and good morning, everyone. Let's start off with the distribution statement. Just a couple of items that I wanted to point out. We start off with gross property-related income, which is obviously what drives our business. What I wanted to indicate is just firstly, this is driven by strong or healthy like-for-like rental growth of 5.4%. I'll touch on that a little bit more. Second, what I wanted to point out very importantly is this does not include any development income. When you look at our income statement, you'll see that there's a separate line item that talks to net development income. We've said time and time again, we don't distribute this. For the purposes of constructing this distribution statement, there is no development income included.
If we look at the property-related expenses, it's grown relatively in line with revenue, and that gives us the net property-related income. If we touch on administrative expenses, there was a fair increase in administrative expenses, and this is as a result of an increase in head count as well as other base admin expenses which have come into the base. Net finance cost has increased quite substantially, and that talks to Andrea's earlier point. Our LTV has increased from 31.5 to 39.7. In line with that increase or at the same time, we've also had quite a substantial increase in base rates, both in South Africa and in the U.K., and this has driven that net finance cost line item. Other income or loss, that's a small item really relating to other, we call them rats and mice in the business.
Importantly, the antecedent dividend. For the first time, you'll see a negative antecedent dividend. We haven't spoken about this much, but we do speak about it both in the commentary and in the presentation, where we've actually started embarking on a share buyback program. We've seen shares trading at historical high discounts to our NAV, and as such, we have started buying back shares in the market. We adjust for our non-controlling interest. We've listened to you guys. A lot of you have asked for extra disclosure around non-controlling interest, and we know that the business is getting a little bit complicated with ENGL, PIP, RLF, all the acronyms. We've included detailed disclosure in note 11 around the breakdown of that non-controlling interest number.
Based on all of those line items, we arrive at the distribution per share growth of 4.1%, which is in line with the guidance which we provided to the market. I promised my team I wouldn't make any comments about bridges and say how much I love them, so I didn't.
I know, but indirectly. I mean, really, if we talk about what drove our distribution per share growth for the year, the first item which contributes 3.6% to our growth in DPS is the like-for-like rental growth. Now, the like-for-like rental growth is 5.4%, but if you look at our in-force escalations, it's around 6.5%. What impacted that was there was a small vacancy during the period. It has subsequently been let, and Riaan will talk to that in his section, and there was a slight reversion on one of the leases. That's what basically is the difference between the 6.5 and the 5.4. The U.K. portfolio contributed 0.8% to the growth in DPS, and this is primarily driven by our rent review at GXO in Coventry.
We have estimated a 30% increase in rental. We are in the final stages of negotiation. We've agreed a base rental, and now we're sort of trying to get that number a little bit higher, and we expect that to be in mid- to high eights once it's finally negotiated. If we talk about the funding costs, I think I've touched on this before, but really the increase in base rates, 325 basis point increase in South Africa and 375 in the U.K. over the 12-month period. We are hedged. Our term balances are hedged. 96% of them are hedged. However, our hedge ineffectiveness, so the portion that is still exposed to fluctuations, is 38%.
For every 100 basis point increase, we're still exposed to 38 basis points of that, so naturally there would be an increase in those funding costs. It's not that Warren isn't doing his job. It's just that naturally it wouldn't be a 100% effective. There were some acquisitions during the period. There were small acquisitions completed at a fairly profitable yield, and that contributed 0.3% to our DPS growth. There were some other items, and that's how we arrive at the 4.1% DPS growth for the year. If we just touch on the balance sheet, there's a couple of items that I'd like to draw your attention to. Our investment property, if you look at it on an aggregated basis, it did increase for the year.
We spent ZAR 1.9 billion on development and construction costs and ZAR 400 million on acquisitions. If you look at that line item, the second one, held for sale, that line has increased dramatically. Now, Andrea touched on the fact that we have a disposal program. Riaan will touch on the disposal program a bit later on, but that really is indicative of the assets that we intend to dispose of over the upcoming 12-18 months. What is important is that in that number, I'm sure you would have seen the cents referring to the Peterborough disposal. That number is included in that ZAR 2.4 billion, but that's already transferred. That's already out of there, and the remainder will transfer over the next 12-18 months.
If we look at the liabilities, I'm gonna skip over the rest, but if we look at the liabilities, you'll see that the liabilities have increased from ZAR 9 billion to ZAR 11.2 billion. That is really driven, as you're all aware, we haven't raised equity. There hasn't been an accelerated book build over the last 12 months, and that is really driven by the increase in development expenditure and acquisitions, which has been funded through the liabilities. Again, I mean, just touching on the non-controlling interest, that really is the allocation of profits to Shoprite, RLF Venture, to EPPF, which is the DSV joint venture, and then to Newlands, which is our U.K. joint venture.
I mean, we arrive at our net asset value, and we in terms of growth in NAV per share or decline in NAV per share, that's decreased by 10.5%, as Andrea said, mainly driven by U.K. valuations. I'll touch on it a little bit more, but we started the year with a NAV of ZAR 18.61. The U.K. portfolio declined by 21% over the period, which really drove the majority of the decrease in the NAV. If you remember, we entered into a turnkey development at Hoylands Plot Two, and the profit on that turnkey development contributed ZAR 0.12 to the growth in NAV. Finally, our South African portfolio started showing up and showing some healthy growth, and that contributed ZAR 0.65 to NAV growth.
Lastly, there were some other items, deferred tax movements, which detracted ZAR 0.10 from our NAV growth, and that's how we arrive at our final NAV number of 1665. LTV is essential, and it is imperative in terms of our focus areas. It is probably the single or one of the most important metrics which we are focusing on. What we're doing here is really just showing you how that LTV moved over the period, and later on in the presentation, we'll talk about our flight path and how we intend to reduce that LTV.
We started the year at 31.5, and I think it's important that going into a cycle where we were capital constrained, it was so important for us to have this LTV at the bottom end of our guidance starting at 31.5, because that allowed us to still develop our pipeline, to still, you know, go ahead and continue with our operations as per normal. Firstly, the U.K. devaluation increased our LTV by 2.3%. The SA portfolio helped to decrease that LTV by 0.6%. There was some CapEx in SA and the U.K., 1.6% increase in LTV as a result of U.K. CapEx. We were completing the EVRi facility. In terms of SA CapEx, that increased the LTV by 3.6%.
Finally, there were some other items which increased the LTV by 1.1%, and that took us to the total value of 39.7 or to the LTV which we're printing at Feb 2023 of 39.7. As I said, later on in the presentation, we'll really touch on our flight path and how we intend to reduce this to closer to the 35% or range or number which we'd like to achieve. ESG. Andrea touched on this earlier, but really it's part of our our differentiation strategy. It's part of the offering which we offer to tenants. Because of the current energy landscape in South Africa, we find that it's important and essential to really offer our tenants with solutions to ensure their business continuity.
Not only that, it also does assist with the grid crisis or the ongoing crisis, as we know that private producers have to start contributing to the grid in some way. At the moment, we are producing 9.4 MW of power across our portfolio. This is the equivalent of powering just over 5,500 homes. When we look at our short-term or medium-term ambition, we want to double this in the next two to five years. That ambition, we would say, is probably quite conservative still, and there is room for improvement, but that really does depend on the development activity over the next three to five years. We have been accepted into the City of Cape Town Wheeling project, and what we see this as a opportunity as is to really start generating additional sources of revenue.
We hope that by selling electricity back to municipalities, the City of Cape Town was the first to do this, but in doing so, we have the ability to generate alternative sources of revenue. In running the numbers, we found that it's actually quite a compelling investment case, which we hope to roll out over the next few years. We also focus on water. Andrea spoke about the sustainability audits which have concluded on our portfolio. In all of the buildings where these sustainability audits have been concluded, we have introduced measures to improve water efficiency, and this is now up to 30% more efficient than it historically was. Lastly, we have a large focus on social and social enterprise.
We have a KPI as one of our sustainability-linked loans, which is linked to this, and our target is to improve ESD or enterprise and supplier development spend by 20% each year. Over the past year, the spend actually increased by 122%, and we hope to increase this going forward. I'm going to hand over to Riaan now. We're available. I know that there's a lot to digest in the numbers, so we are available after this and in the upcoming weeks to talk through this. Thank you. Riaan.
Thank you, Laila. It's always a highlight for me to present the slide on the property fundamentals. I mean, ultimately, it's the property fundamentals that creates a sustainable, predictable rental growth, and it's also these fundamentals that shields us from adverse market conditions and unexpected events. Bear in mind that we've been listed for nine years, so to have these fundamentals nine years in is a product of applying very strict investment criteria and also proactive asset management. I mean the first metric is our weighted average lease expiry profile, which is currently at 13.8 years. Andrea touched on the fact that our U.K. WALE is now over 15 years with the disposal of our two Peterborough assets. The second important metric is our in-contract escalation profile in South Africa of 6.5%.
As you know, in the U.K., there's a rent review every five years. I mean, the escalation profile in our South African portfolio is something that we are very keen on preserving. We do agree to lower escalations in exchange for 20-year leases, which are absent of any rent review mechanisms, which we think is in the interest of the business. We grew our portfolio by 4.6%, and it's now just shy of ZAR 27 billion. I mean, the vacancy of 0.1% I think is remarkable, and those who followed us from the outset will know that we've never had any significant vacancy in our portfolio. I think that again is testament to the quality of our buildings, the focus on developing and buying assets in the right location. We always assume that what...
We ask the question, "What would happen if we lose a tenant or if a tenant moves out?" The most important aspect on buying or developing is to do it in the right area, because the key logistic nodes will always attract new and good tenants. Lastly, the A-grade tenancy is just shy of 98%. You know, we've got 38 slides on the business and very little about the underlying property portfolio, and I think this is a reflection of why Equites in the five, 10 years to come will continue to be able to provide investors with predictable, sustainable growth as a result of these fundamentals. Secondly, we want to talk you through our portfolio split. You will see from this slide that 78% of the portfolio is made up of SA and U.K. logistics assets.
8% are properties held for sale. Included in that number is the two Peterborough assets that have already transferred, and 8% is U.K. and SA land. More and more as we grow our portfolio, the focus is for a larger percentage of our portfolio to be made up of pure logistics assets. We started introducing this slide in our pre-close presentation, and before looking at the specifics of the slide, just a couple of comments. Firstly, the dates that you see in the slide refer to the lease commencement dates. Now, in practice, in the market, these leases are normally negotiated 12 to 18 months before the lease commencement date.
Secondly, 2021 and 2022 relates to the COVID period, where as a consequence of the uncertainty, most landlords were conservative and didn't push rental as much as you potentially could have, just due to the uncertainty as to what would happen as a result of COVID. Looking at the slide and the outcomes of it, you'll see from 2022, when the average rental at which we commenced leases was ZAR 65, to 2023 at ZAR 78, that's a 20% jump. We've concluded two leases with a commencement date of 2024, and there are three that have already agreed terms, and there the average is ZAR 85, which is a further 10% jump.
I think we're very encouraged about this evidence and we are finding in the lease negotiations that we're currently involved in that there isn't much resistance. I think the reason for the healthy increase in rentals are that the type of properties that we develop are highly desirable. ESG requirements are getting more attention, and tenants more and more realize the efficiencies of occupying buildings that are developed to the specifications that Equites do them. That's all for me for now. Andrea.
Okay. Thanks. So that really is what was, and I think the numbers I mean, we obviously as a management team are very pleased with the numbers. The board were very pleased with the numbers, and I think
It really speaks to a business that was set up to deliver on. I suppose the alpha in the Equites delivery was always the development pipeline and what we could do and how we could bring the high caliber assets to boot. Let's maybe just start with our offshore strategy. In 2015, our board approved a strategy for us to go into the U.K. market. That was as a rand hedge and also as an exposure to a first world market where we felt that we could learn and potentially grow. The final element obviously is that the
At the time, the quantity of top grade, A -grade space in South Africa was limited, and our ability to buy it was not very good. I mean, people who had access to those assets wanted to retain them. The U.K. gave us an opportunity to actually deploy capital at a time when a lot of capital was available to us. A combination of all these things basically put us into the market. We entered in 2016 with our first acquisition, which was the Tesco in Hinckley. From there, we sort of entered the market as yield compression was starting to come into the marketplace.
As a consequence of that yield compression, and notwithstanding the very low interest rates that were still available at the time in the U.K. market, we then effectively what we did is to counter the process of not having an escalation every year. We were adding product on an annual basis, but we weren't buying anymore now. We had sort of gone a little bit up the risk curve, and we started doing forward funding deals. What we did is that we brought some in-country debt, and then we basically put in place a policy framework on treasury, which allowed us effectively up to a maximum of 45% of synthetic debt. Now, in reality, we kept that synthetic debt.
I think when we started, we were quite high, but we've quickly realized that too much of it wasn't probably a good thing, and we've sort of managed to limit it and keep it sort of between the 20%-25% mark. Cap rates continued to decline through this entire process, and obviously when COVID came in, they really were fueled, and they went particularly hard during that period as demand drivers and the narrative around this new world of logistics and e-commerce, especially in developed markets, was going all guns blazing. As part of the process of these forward funding deals, we did two deals in Peterborough, which are actually the two properties we just sold. We met what were then Roxhill, and we did those two deals with them.
The Roxhill team obviously decided to start afresh and created Newlands, and that relationship through those two Peterborough deals allowed us to be in the conversation with them, and we eventually in 2020 managed to agree terms to create the joint venture, which we refer to as ENGL today, which is Equites Newlands Group Limited. What did ENGL afford? It afforded us the opportunity now to go, yes, slightly up the risk curve in terms of being involved with greenfield land and then trying to take it through a planning process. What was quite obvious is that it firstly, it gave us the opportunity to operate at a level of ambition which matched management's ambition. We were operating out of a market that had given us a lot of support.
The available equity available to us to deploy in the U.K. was at the time fairly abundant. The market, in terms of where interest rates and where development yields were, afforded fantastic foresight and growth and opportunity for Equites. The ambition was really to grow that portfolio to about GBP one billion. Once we got it to that kind of scale, we felt it would have been big enough to have then created an event of some form of unbundle or listing in the U.K. or there would have been an event. Unfortunately, we got it to about GBP 500 million.
In that, obviously, we did create within the ENGL platform. We did three transactions to a value of GBP 163 million, which were highly profitable to Equites, and created two stabilized property for us and a little bit of equity as well. The pipeline that was created effectively as it stands today can probably deliver in excess of GBP 2 billion of stabilized assets over the next five to seven years. This is the journey that we went through. In that, we currently sit at a valuation of property in the U.K. of GBP 305 million, and we do have a development pipeline which is very highly desirable. Next, obviously, the interest rate changes to the world.
As you can see on the graph here, in terms of where the base rates are and where sort of the spreads are, as you can see that these spreads obviously have completely collapsed in the U.K. They're almost nonexistent. Obviously, once you layer a little bit of bank margin on there, you're probably looking at being north of 6% in terms of a sort of a three-to-five-year swap on that. The rising interest rate environment obviously made the opportunity for us to deploy capital into developments in the U.K. Basically, the allocation of that capital didn't make sense. It was deploying capital into something that would give you potentially you would be coming out at a 6.5% yield.
Your gearing on that would probably be somewhere between 6%-6.5%, so you had no gearing benefit. And ultimately, the yields and the distribution growth that we were needing to afford our shareholders here would have resulted in the level of synthetic gearing that would have been needed to make those things viable, completely unsustainable. The combination of these things effectively have resulted in a market shape in the U.K., which obviously can change. I think the beauty of where we are as a management team is that I think we're quite nimble, and we obviously have sight of things 6-9 months and a year ahead of everybody else.
As a consequence, we are in a position to make allocation decisions, which we believe are in the best interest of our shareholders. We get to a situation now where we've got a potential pipeline of in excess of ZAR 2 billion. We've got a loan to value of 39.7%. We've got capital markets which are firmly shut. What is the next step? Well, the market, and I suppose the beauty of the U.K. market is that it is so dynamic, and it's so fast-moving. The market actually came to us, and at the back end of last year, we started receiving a couple of unsolicited offers to see is there any opportunity for us to get involved in your development pipeline. 'Cause obviously it's known within the development community that we had this fantastic pipeline.
As a consequence of that, we at the same time, obviously were doing our own calculations, and we realized that the ability for us to put GBP 50 million, GBP 60 million, GBP 70 million into a development in the U.K. was something with our current balance sheet, was something that we physically couldn't do. We sought approval from our board to engage with service providers in the U.K. with a view to trying to bring in some equity into the U.K. business. In that process, we interviewed various parties, and we ended up appointing Rothschild & Co to assist us in that. In the process of the communication with the market, it became very apparent very quickly that there'd be a lot more value if Equites actually removed itself from the NGL rather than stay in as a third incumbent in a partnership.
Partnerships at the best of times are never the easiest things in the world. Not to say that we've got a bad partnership with Newlands. We don't. We've got a very good partnership with Newlands. Now you're introducing a third partner into the whole thing, and the advice basically coming back to us was that it would be easier to achieve much better value for the platform if we were to actually sell out of the platform. We've started that process and Riaan and myself have recently spent quite a bit of time in the U.K. going through a process of interviewing, and that process is currently ongoing. Obviously, I can't sort of say much more than that apart from the fact that it's going well. The level of interest has surprised us.
The level of engagement has been really positive. I think in the Rothschild & Co team, we've got, you know, a seriously high caliber team that are holding our hands and advising us through that process. That said, if the correct price is not achieved through the process, Equites will not just give the platform away. What we'll do is we'll probably be forced to slow down the process. In slowing down the process, we will seek forward funders for individual schemes on an individual basis, rather than being able to sort of have a bulk sale where you give it to one party and you receive a payment for that in some way or form.
I think what's very important and Newlands are very much aligned with us in this, is that we are not wanting to give the platform away. We've worked extremely hard to get it to where it is today. We currently in the platform have four schemes that are basically have got planning and are basically ready to be rolled out. Now, the big question mark in this process is, do those four schemes add more value to be left in the whole platform and sold as part of the platform? Or would it be more value for Equites and Newlands to actually keep those outside of the platform and maximize the value by selling them individually as schemes to be forward-funded? Those are some of the things that are happening as we speak, and that process will have an outcome.
The positive thing obviously is we have a lot of money obviously tied up into the platform. The consequence of selling out of the platform or selling out of even the green ready-to-go operations will result in a significant amount of capital basically being able to be repatriated and redeployed into schemes that will deliver return for shareholders in the immediate. I think this is a fundamental change for us. It is obviously a realization that we physically do not have the cost of capital available to us in South Africa at the appropriate price for us to deliver on this exciting pipeline.
However, it will be a very viable pipeline for some big pools of capital from all over the world that will take advantage of it, and no doubt we'll be looking back at this platform in five or seven years' time and saying what could have been. Notwithstanding that, it's not something that Equites can do and there is a realization, a very clear realization of that from our point of view.
I'm gonna bring Laila up, 'cause as a consequence of this change in strategy in the U.K., the repercussions that play out into the balance sheet and various other metrics result in change in strategy number two.
Okay. I'm gonna run through this fairly quickly, and I'm looking at Mvula, who would always ask me about cross-currency swaps. I'm talking to you. No, I'm kidding. Basically, I mean, Andrea has spoken about it. When we decided to enter the U.K., cross-currency swaps served to hedge our net investment in the U.K. and to neutralize that interest rate differential. I mean, essentially, if you look at it really is just matching the currency portion of your South African debt. As a result of the change in our strategy, the disposal of the ENGL platform, as well as potentially selling down, you know, a couple more income-producing properties. We've just disposed of the two Piesang property.
We've had to reevaluate our use of these instruments, and we've decided that from this year, from FY 2024, we'll stop trading cross-currency interest rate swaps. We will exclude them from the calculation of our distributable earnings. In the current year, they contribute ZAR 205 million or 16% of our distributable earnings, and therefore, the exclusion of these will dramatically impact distributable earnings. Andrea will touch on it a little bit more in our prospect slide, but that is a reality. We weighed off giving investors pure exposure to hard currency and potential in sharing in that upside over time, and we've decided that that is the best outcome for shareholders.
We've also decided that given where our business is going, given how we want to focus on quality of earnings, we decided that this is the best course of action in terms of winding down these instruments, really giving investors direct exposure to underlying depreciation in the rand should it come, and ultimately just closing off these cross-currency interest rate swaps. I think, I mean, we'll talk about it a little bit more in the presentation slide, but that's really it. Yeah, Riaan.
Thank you, Laila. This slide sort of shows our flight path in terms of LTV and where we wanna be at the end of February 2024. I think I wanna make three comments before we go into the detail. Firstly, we've got very clear criteria in terms of how we identify assets for sale. We look at assets with a specialization component, slightly older ones. We look at ESG compliance. We look at some of the smaller assets. Firstly, we select them against those criteria, and then secondly, we're very fortunate that we've got a highly desirable portfolio. Both in the U.K. and SA, we've seen that there are many people and many parties interested in acquiring these assets. Because of the underlying quality of the A- grade tenants, it's a situation where one has a wide variety of potential buyers.
Thirdly, the assets that we have sold to date, we've sold either at book or slightly better than book. This is gonna be a process that will be managed very carefully, and it will be implemented in a way that is in the interest of our shareholders and will unlock value. Looking at the transactions that have already taken place. The two U.K. properties have been transferred, and the ZAR 1.1 billion has been paid. We've also concluded legal agreements in respect of South African assets to the value of ZAR 850 million. These assets will be transferred before our interims on period ends on the 31st of August 2024. They're well advanced, and they'll be implemented over the next month or two.
Further planned disposals to reach our 35% target. We are planning to dispose of approximately ZAR 3.3 billion of assets. That process has commenced. We've identified most of the assets. We've got investment and board meetings to get the approval at the end of the month, and we're confident that we'll be able to achieve it. I mean, interest in the logistics space in South Africa is very high, and we've forged relationships in the past where we have sold some of our assets where most of those parties have indicated their interest of transacting with us again. Just an important note to also take cognizance of, the flight path doesn't include any proceeds from the disposal of ENGL.
We felt that it's difficult at the moment to predict the exact quantums that'll come out of that, but that obviously will be in addition to our planned and approved disposal program that we'll be implementing. I mean, in essence, we wanted to give you some sense of what we're gonna do and how we're gonna get to the LTV. Certainly, we're in May at the moment, so we've got ample time to implement the program in a very responsible way and to make sure that we create value through disposals. That's all from me. Thank you. Andrea.
We have flight path change, and as a consequence, we have prospects that we wanna share with you. I think, again, I want to refer back to what I said at the very beginning of the presentation is that the underlying portfolio and the assets that will remain in the portfolio post this fairly aggressive sales program will result in a U.K. portfolio and a South African portfolio, that will have weighted average lease expiry profile of above 14 years. Obviously, there's quite a lot of Shoprite coming through the system, there's quite a lot of TFG coming through the system, and then quite a few other sort of smaller and medium-sized assets coming through the system, which will all add to the long-term benefit of the portfolio.
We've been running at almost zero vacancy now for a few years, and as part of that, you're almost setting yourself up for failure. In terms of our planning, we've instituted from this year a decision to effectively work on the basis that we should have a 2% vacancy factor. In all our planning, all our sort of prospective numbers and stuff, notwithstanding the fact that from time to time, we may be fully let or we may be less than 2%, we for planning purposes, we're working off 2%.
We just feel that, you know, that we're coming up to our ninth year, and as we get more and more mature, you know, there has to be a realization that at some stage you potentially have a vacancy for four or five months of a year. Obviously, the scale of some of the vacancies could be quite large, and as a consequence, we need to allow for that. What we've seen in the metrics, obviously, of our portfolio is that the purification of it, if you like, in terms of getting really top-quality core assets, A-grade properties. You can see from a few years ago, we were at 90%. I mean, we basically are expecting to be 99% plus there.
The combination of that obviously sees the non-core assets going from 4% obviously to less than 1%. I think the escalation rate obviously has come down, and that has been underpinned obviously by the escalation rate in the Shoprite transactions. I think I want to really unpack that a little bit more because some people say, "But 5%, isn't that really, really low?" Now, what I would like to sort of counter that with is, so you've got a great asset that you've let and you, let's say for hypothetical reasons, you've got 7% escalation on it.
I can tell you three years ago, we had a whole bunch of assets that were five years into a 10-year lease, and most of these presentations, the question would come up, "Sorry, but don't you think that you're over-rented? With 7% escalations for the last seven years, surely you're over-rented." You can't have it both ways. You know? That's the first element that I'd like to put on the table. The second element I'd like to put on the table is that at the end of a 10-year with 7% escalation, will you get a reversion? I don't know. I don't have that crystal ball. Historically, that is, has shown that there is potential for reversion. Okay? Secondly, could you lose the tenant at the end of the 10 years and he moves out?
Absolutely, you could lose the tenant, which means that now you need to put it out there. You potentially have a charge to a broker for bringing you a new deal. Coupled with that, the new tenant moving in will need a tenant installation, which obviously will also cost money. Now, if you start stripping out all those costs and you counter impose a 5% escalation with no chance of reversion, no vacancy, everything basically coming in on the button every month. If I'm a betting man, I'd put money on the 5% escalation rather than the 7% escalation on a 10-year lease. The underpin that that Shoprite portfolio will give us, and obviously a portion of it is joint, in a joint venture with them. We'll have one asset which we'll own outright.
The combination of that portfolio in terms of what Equites will own will be north of sort of four, somewhere between ZAR 4 billion and ZAR 5 billion of Equites ownership of that portfolio. You've got, as things stand, 20% of your portfolio, which for the next 20 years basically guarantees you stability. I think that really is a very powerful metric and a massive underpin to our business. I think another sort of big change is on the land holding. We've historically had, especially during COVID, in one period, a significant amount of land holding. We've obviously consumed a lot of that.
With the sale of ENGL, obviously, the land holding in the U.K. will dissipate and, you know, I'd like to think by, let's say, February next year, our U.K. land holdings will be zero. If the sale obviously goes through successfully. In SA, you know, we've I think made a conscious decision, and we've discussed this at length with our board, that we don't really want our land holdings ever to be above 5% of our total portfolio value. I think that's important. I think what it will do, it will also, you know, the other elephant in the room, I suppose, is the capitalized interest on land.
It will greatly reduce that as a number within the business going forward, and I think, again, will be another stepping stone to giving more cash back, sort of DPS growth and DPS distributions over time. The focus is really on cleaning up on that aspect. Loan to value, I mean, I think, you know, between Laila and Riaan, I think we've spelled that out very clearly. That balance sheet strength is, in our opinion, absolutely vital to us, especially on the basis that we have this development pipeline. I mean, we can't support a development pipeline if we don't have the strength of balance sheet to be able to execute on it.
Obviously cross currencies are gone, and as you can see, our underlying business in terms of it as a contributor to being a fantastic corporate citizen within the sphere that we trade in. You can see we've gone from level 4, basically we're currently level 3 and we do have a lot of things sort of working behind the scenes where we've really got an ambition to try and get ourselves to level 2. Over and above that, the final element obviously is the ESG. You can see we've gone from one building meeting all criteria. We're currently sitting at 21 buildings, and the intention is obviously in the next couple of years to get that to 35-40.
I think our total portfolio at the moment, I think it's 52 buildings or 54 buildings, something like that. Is it 70 buildings? Apologies. Sorry. Obviously with the sell-out of some of the lesser buildings over the next 18 months, obviously that 70 buildings will become less, and the new buildings that come on board obviously will improve that criteria significantly. Let's get down to, I suppose, ultimately one of the most important metrics that the South African shareholder wants is distribution, but where does the distribution come from?
I mean, Leila mentioned it earlier, you know, our like-for-like income growth in SA is between 5% and 5.5%, and, you know, with an escalation clause which is slightly higher than that, the question could be asked, "But why isn't it slightly higher?" Within that, we've got a couple of reversions that have come through in this year which obviously have muted that a little bit. The U.K. portfolio as well with the rental growth coming through the system is growing nicely and we're anticipating 5%-6% for the year ahead. That's obviously as a consequence of getting five years of growth in one fell swoop, effectively. Those are the real positive contributors to our DPS growth.
What's holding us back this year, obviously is the higher interest rates in SA and U.K. As hedges come off and new hedges are entered, obviously the rates at which they are done won't be quite as beneficial to Equites. Obviously also within the hedging strategy we follow, there is a bit of headroom for us to lose a little bit on the way up. Obviously, as soon as the cutting season comes, and hopefully it doesn't come too late down the line, as soon as that starts coming through, that we start benefiting from that. We've also, as I said, for the first time, allowed for the vacancy provision.
We currently have two spec builds that basically were completed at the end of April, so they've recently come onto our vacancy. We're quite far down the line in negotiations actually on both of them, and we'd like to think that hopefully by July they'll be gone. But notwithstanding that, we're wanting to leave that provision in there just to give us a little bit of a safety net. Some of the sales of the non-core assets are obviously some of the older assets in the portfolio. The consequence of that is that they're probably slightly better yielding in the short term, but have got much lower prospects for growth in the medium to long term. Hence, we're redeploying that capital out of those assets as the money comes back, and we're redeploying it in brand-new state-of-the-art facilities.
There is a little bit of a mismatch in year one on that capital, which obviously has an impact in this year. The next part obviously is with the decline in valuations in the U.K., obviously our loan-to-values have gone slightly out of kilter. Consequence of that is that we've had to deploy a bit more capital into that U.K. sort of hedging process and that obviously will come at a higher cost of interest in SA than we would have had in the U.K. That's also having an effect. Obviously the exclusion of cross-currencies from distribution obviously is the biggest impact on it. There's two small other things that sort of sit in here.
The one is there will be a small factor, Shoprite factor in this year in the sense that we've just acquired Wells Estate and Canelands, and the acquiring yield and the cost of money that we're using, obviously there is a slight mismatch, and that will have a slight impact on DPS, but it is quite small in this year. That effect, we'll probably see it a little bit more in the subsequent year when all the developments that we're currently doing come through to fruition and become income producing. Obviously the portfolio is constantly getting bigger and delivering the income growth through the escalation, and the consequence of that is we believe that that won't be a massive consequence thereafter.
We've also had a small amount of reversion in the SA portfolio and again. I mean, I think at last results period, we were asked, I mean, it's not a number that keeps you up at night, but it is a number which needs to be taken into cognizance basically in where we're at. Prospects. The key takeaways that we can take away, I mean from an Equites point of view obviously, is that the world has changed. The economic environment that we operate in has changed dramatically to the point where obviously development deals through a pipeline that we've created and taken many years to create is no longer viable for Equites.
As a consequence, we have reacted, I think, very proactively and made the decision to find a buyer for that. We're restructuring the U.K. business, which we believe will unlock a fair amount of capital. Our underlying business still remains massively vibrant and strong. Lots of opportunity being presented to us. The deployment of that capital when it does come home will be used in a very meaningful and fruitful way for the business going forward. Then I think very importantly, the allocation of capital. I mean, you know, two, three years ago, the U.K. was full steam ahead. We made some very big decisions to allocate a lot of our balance sheet and capital to the U.K. market. Incredibly, you know, three years later, the allocation decisions are the complete opposite.
At the moment, our allocation decisions are very much SA-focused, notwithstanding the multiple challenges that SA faces at the moment. Notwithstanding all of that, we have never been busier in SA with high-caliber clients building high-caliber facilities which will stand the test of time in SA. Could that allocation criteria change? Absolutely, it could. I think we've got a management team that is aware of these things, is nimble to the prospect of things changing. Should the opportunities become more viable and more lucrative for the Equites shareholder to be back in the U.K., you know, I think, you know, we will stay very close to that market and we still have, you know, over ZAR 6 billion worth of assets in that market. It wouldn't be really clever to sort of ignore it.
You know, ultimately underlying all of this, the performance of the SA and the U.K. property portfolios will continue to deliver very positive metrics going forward, notwithstanding very trying economic conditions globally. Notwithstanding all of that, I think we are really well positioned to continue to grow the portfolio in a meaningful and improved property metric manner. Hopefully, you know, like everything, the cycle will turn, and when it does turn, Equites is in a position to take advantage of the opportunities that will constantly be presented to us, in a meaningful way.
I think, you know, we haven't specifically spoken to the number in terms of the guidance, and obviously the guidance that we're putting out there is at the moment. I mean, this year we're just north of ZAR 1.69 distribution. The guidance is basically between ZAR 1.30 and ZAR 1.40, which is approximately between 17% and 23%. The reason for the range is, I think Riaan sort of highlighted it, the impact and the timing of an ENGL sale and what the value proposition looks like will have a massive bearing because obviously we're in pounds there and multiplying those by 23, the consequence of those in terms of our balance sheet are notable. It's very difficult, hence we've given the range.
As we have more precise information, which we can share with the market, we certainly will share it with you. You know, that's really what it is. You know, thank you for being with us today. I hope we didn't overstay our welcome. Please, we're gonna open up the platform now for questions, and we can start. I mean, if there are any questions, obviously the management team are here available for answers. Okay. Moesh.
All right. Thanks for explaining the settlements of the cross-currency swaps. It does seem to add up and make sense. While we're on that, you guys have about a 34%, let's say, asset exposure to the U.K. right now. What is your current debt split after you settle those cross-currency swaps?
Leila?
The debt after we settle the cross-currency.
Yeah, what you'll see in the results is, there's a combination of the cross-currency swaps and the pound debt that we're settling. Obviously, our synthetic gearing of swaps plus debt was between 60% and 70%, but obviously you had a 20% devaluation in your portfolio. We essentially want to rebalance that debt structure between the two jurisdictions of SA and the U.K. The kind of GBP debt against the income producing portfolio was low 40s, and it moved to mid-50s, and we want to obviously bring that down to a very normalized level of, let's say, in the mid-30s%.
Moesh, on the previous slide, one of the, I think it was the converting.
The ZAR 1.5 billion.
One further. Yeah.
Yeah.
It was converting that. That includes rebalancing the relative proportions of GBP and ZAR debt, and then including closing off the swaps, we wanna get to that 35%-40% in-country U.K. LTV.
Okay. Granted, the actual debt splits, ZAR versus pounds, do you guys have that, or I guess I can work it out as well.
Yeah.
Yeah.
Yeah.
Okay.
Get to that.
Okay.
The second question with regards to the expectations on the reversions on the U.K. side of things, I know quite a few of your leases are expiring in FY 2024. Is that expectation to be sort of around, I think it was maybe 4%-5% of a rental uplift before? Is that still expected, or has that changed now?
Well, sorry, say that again.
The rent reviews in the U.K.
Yeah.
If you move forward,
I mean, the rent reviews in the U.K., I mean, our expectation is that it'll be north of 30%. Some of them will be even north of 40%. We sort of, as an average across them, obviously, apart from the Tesco's in Hinckley, we're talking about everything else. That is the expectation. I mean, GXO, I mean, Leila alluded to it in her presentation. I mean, we're currently sitting off a base of GBP 6.25, and we're talking north of GBP 8.50 in terms of where we will settle.
Yeah, we've already been made an offer at ZAR 8.25, which we've rejected. Yeah, just to give some-
We've included on slide 39, which is in the appendix, we just moved it to the back, but we've included each of our assets with rent review date and estimated or ERVs.
Yeah, or the lease expiry.
Yeah. Yeah.
Okay, cool. Lastly, just what were the reversions on the SA portfolio for FY 2023?
Yeah, they weren't big. I mean, as a total, I mean, they were small. I mean, there was nothing to concern us about. I mean, we haven't given the specifics on it.
Because obviously some of them have been positive, some have been negative. But the total reversion number effectively was a few percentage points as a total of the portfolio. It has an impact. In fact, part of the reason it didn't actually get its own number here, and it was an addition, it was a late addition, was because these five elements are much more impactful on the number. But we thought we'd still mention it, but it's nothing meaningful. We've got the year ahead, obviously, and then we've got the year thereafter. For those of you that have been following us for long enough, I mean, obviously, we bought the Intaprop portfolio in 2015.
Then we bought the Waterfall portfolio in 2016, and a lot of those assets in the Intaprop portfolio are going through their rent reviews and expiries of those ten-year leases basically from this year into next, and then the Waterfall ones will be from next year into the year thereafter. We are basically renegotiating. I don't think we've lost a single tenant there. We've kept every tenant and obviously we're also using ESG upgrades to buildings to factor in and things like that. The reversions are there, but within the greater portfolio, they're not a meaningful number.
Okay. Thanks.
Any other questions? Anything from online?
We've got a couple, so is the floor okay. Okay, maybe just to start off with Alistair's question from Property Flash, in terms of South Africa, are you finding there are enough opportunities and top grade tenants to essentially, you know, occupy our buildings? How thick is that market and the market depth essentially?
Well, yeah, I mean, I think we can say that we've never been busier in South Africa. At the moment, I mean, Laila, correct me here. Our development is about ZAR 1.9 billion for the year. You know, that's a significant amount of capital being. That's not including land. That's just in construction costs. If you add land, it's significantly more, and then you add a little bit of valuation uplift on some of those assets as well. Yeah. At the moment it would seem that the South African market is very buoyant.
A lot of the larger users, as I said earlier in the presentation, the 3PLs and the big retailers in particular are deploying significant capital into real estate decision-making.
Okay.
Yeah. Sorry.
Hang on.
There's a question from Lukman just on which assets will be included in the disposal program leading up to our flight path towards 35%. Just as I indicated, we've got a meeting at the end of the month that we will have some clarity on that towards the end of the month. If any sales are triggered, we'll obviously announce them, or otherwise we'll give an update at the pre-close.
Pre-close in August.
in August.
Awesome. Thank you, Riaan.
Okay, following on the topic of the U.K., just a question from Reuters. To be clear, does this signal an exit from the U.K.? Maybe the second question on that is how do we think about reentering the U.K.?
To be clear, is this an exit? I don't think there was anything in this presentation that spoke about clarity about exiting the U.K. I think the statement is factually incorrect. What we are exiting is the development pipeline in the U.K. because we do not have the capital to execute it in a manner which will be accretive to the business and afford us the creation of a substantial portfolio in the U.K. That is what we're exiting. We have a stabilized portfolio of assets in the U.K. of in excess of GBP 300 million. The intention is to remain in the U.K., to remain relevant in the U.K.
Also, as I said, I think in the closing slides, at the moment, the allocation of capital decision-making would tend to skew to South Africa because the level of opportunity and the return metrics that we are managing to achieve in South Africa make sense for that capital to be deployed in that way. Should circumstance change in the next two or three years, which it quite clearly can, we have no control on the open capital markets and both debt and equity. And as a consequence of that, could the opportunities to do more deals in the U.K. become a better allocation of capital in two or three years' time? Absolutely, they could. But we don't have that crystal ball at the moment.
At the moment, with the information that we currently have and the pipeline that we currently have, the best allocation of our capital at the moment would be in SA. As a consequence, the ENGL development platform that does need a significant amount of capital would be best served in someone with a much bigger balance sheet than us. If we can get that money and redeploy it in our opportunities that we have available to us today, that would be good for us and good for our shareholders.
Okay, I think I wanna combine two questions from Ahir and Lukman, essentially around capitalized cost overage as well as capitalized interest. How are we thinking in terms of our policy, especially given the potential exit out of ENGL?
I think firstly, I mean, if we just think about capitalized interest, if we exit ENGL, that's effectively ZAR 1 billion of land. There'll be no capitalized interest on that any longer, so you can calculate what that impact is. I think it will reduce significantly. In addition to that, I just wanna touch on South Africa, where we're saying our goal, our target is to only expose less than 5% of portfolio value to land. If you look at really the capitalized interest on land, that number will become insignificant.
I think at the moment it sits at 3% as well.
Yeah. Secondly, in terms of overheads, the one specific item which will fall away is at the moment there is a retainer which we pay to ENGL to contribute to their overhead. I don't think we've ever disclosed that number. Have we?
I don't think so, no.
Yeah. I mean, it is a meaningful number, and that number will effectively no longer exist once we exit the ENGL platform. That will completely disappear from our overhead cost, and then from the capitalization of that overhead cost too. There will be a reduction in the capitalization of both interest and overhead costs as a result of the exit.
I mean, I don't know, should we just Riaan, do you wanna just quickly touch on obviously, the SEGRO claim and just to sort of maybe
Yeah. There was a claim by SEGRO which was settled in the last couple of months, and the settlement has been paid, and it's all been resolved.
I mean, I think on the previous financials there was a contingent liability, I think, on the financials. Obviously, that is now an actual. It's there, it's a once-off, and it's gone, and it will no longer be. That's been settled and obviously we're glad to see the back of that. Yeah. I think it's important that for full disclosure that you are aware that it has gone. Obviously the settlement number was a lot smaller than the contingent liability that we had on the balance sheet prior. Okay.
Yeah.
Any other questions from the floor? No questions from the floor? Okay. Last ones from online. We done?
No, I think that's.
Okay. Well, fantastic. Ladies, gents, thanks for attending today. Obviously, it's always a pleasure. Bit of coffee and a few nibbles outside and obviously the whole management team here. Warren's here, Chris is here, Ku's here. Who else? Mpilo's here if you wanna talk hardcore developments. There's our gumboot lady. She's fresh off the site, but you would never say that looking splendid. And yeah, so please feel free to engage with the team. Any questions, there's nothing that they won't say that we wouldn't say. They're probably just a bit more informed than us. Yeah. But yeah. But thank you for coming and yeah, cheers.