Good morning, everybody, and welcome to the Hyprop pre-close operational update for the four months ending 31 October 2025. By way of introduction to those online, I am Mahir Hamdulay, and I am Head of Financials and Property Research at Absa Investment Bank. It gives me great pleasure to be facilitating the update today, and I would like to introduce the management team. We have Morné Wilken and Brett Till, who will be taking us through the four months update. Just in terms of the format, Morné will be going through the presentation as well as Brett, and thereafter, I will facilitate the Q&A session.
For those online, please feel free to post your questions in the Q&A tab, and we will handle all questions at the end of the presentation. For those in the audience, if you would like to ask a question, kindly raise your hand and we will pass the mic, and you will have an opportunity to ask your question. Morné, I would like to hand over to you to present your operational update. Thank you very much.
Thank you, Mahir. Good morning, everyone, and thanks for joining us today. Mahir, thank you for you and Absa hosting us. As Mahir has said, we will look at the operational update for July to October 2025. It is very much a summary of the information we did disclose in a sense earlier today. At the end of the presentation, as Mahir has said, we will actually open the floor for some questions. We started as a management team in 2019. The why for Hyprop is creating spaces and connecting people. The way we do that is by managing, owning, and redeveloping dominant retail centers in mixed-use precincts and key economic nodes in South Africa as well as Eastern Europe. in 2019, we set ourselves a number of priorities we wanted to achieve.
We want to reposition the South African portfolio as well as Eastern Europe to ensure it remains dominant and relevant. What we do in our portfolio is we do annual portfolio reviews to actually ensure we identify recycling opportunities as well as reinvestment opportunities, protecting the value of the Africa investments while we were working on an exit strategy and then strengthening our balance sheet. We have made excellent progress in all of these. If we look at South Africa, over the last few years, we had been working, making good progress with our reposition strategies and meeting our shoppers' needs. We secured Checkers FreshX as a new anchor tenant at The Glen, Rosebank Mall, Woodlands Boulevard, Somerset Mall, as well as Hyde Park Corner.
We reduced the energy cost on our portfolio by the installation of solar plants at all five Gauteng centers as well as Table Bay Mall. We have secured full backup power at all our centers in South Africa. We implemented the first fully integrated solar generator and battery solution at Rosebank Mall. We also have installed three days of backup water at all our Gauteng centers, as well as started with that in Gauteng. All of these changes have improved the tenants' performance, increase in tenant turnover, as well as reducing the cost of occupancy. The effort ratio on our South African portfolio has reduced to 8.1%, compared to a height of 11.3% in June 2020. From this slide, it is clear that these repositioning strategies are starting to work.
Tenant turnover has increased by 5.4% for the last 12 months up to October, and our annualized trading density has increased by 8.3%. That was mainly due to the right sizing of a number of stores in the portfolio. Foot count has increased by 0.7%, and vehicle count is increased by 2.5%. On this slide, we see the last four months trading performance compared to over a three-year period.
We see nice growth in tenant turnover as well as trading density. In July and August, we see the biggest growth in the trading density, which was 10.6% as well as 9.2%, respectively. The right sizing of the tenants are working quite nicely for the improvement in trading density. For example, we have right-sized all the Edgars stores in our portfolio, which included Canal Walk, Clearwater Mall, as well as Woodlands Boulevard.
In September, we have seen a reduction in vehicle count as well as foot count. I think it is mainly due to the fact that we did not have any school holidays in September this year compared to the year before. The positive rent reversions are continuing. Looking at the table on the top left, we can see positive rent reversions in our retail space as well as our office space.
The overall reversions was + 8.5%, and the new deals on the retail showing positive growth of 32.8%. Some of that is from a zero base. If you normalize that, it is about 13.8%. Overall retail portfolio growth was 8.7%. Looking at the graph on the top right, we show what was the reversions in terms of GLA. We had positive reversions of 31% of those renewals, 23% was flat and 26% -.
The table on the bottom left shows the vacancy. We successfully reduced our office vacancy to 13.6%, and our retail vacancy from 4.9% in July was reduced to 3.8%. Our weighted average lease expiry has increased to 3.9 years. Looking at the completed projects, at Hyde Park Corner, we have converted the old Pick n Pay store to a new Checkers FreshX, as well as a Pet Shop Science.
The store started trading on the 1st of August of this year. Checkers are still optimizing their tenant mix to cater for the Hyde Park shopper, and we have seen positive growth in their turnover over the last few months. What is very beneficial of this store, it has increased and had a very positive impact on our footfall. For October 2024 to October 2025, we have seen a 12% increase in footfall.
This is the fifth Checkers FreshX in our portfolio. At Cape Gate, we have improved the food court by removing the old central bridge that was going through the food court. What we achieved by that is we have improved the view lines between the bottom section and the top floor. We have made the seating area bigger, and we also have forced the flow past the stores, which has improved the trading. On the 22nd of November 2025, we opened the first Walmart store in Africa. This is a great achievement by the Clearwater team. The new Walmart is performing as a real anchor. The store is 5,200 sq m, and the trading area is 3,660. On opening day, the foot count to the mall was close to 86,000 people. Normally on a Saturday, it is around 37,000 people.
Walmart has confirmed it has achieved its target by 2:00 P.M. for the opening day, and they had 13,000 people going through that store on opening day. The foot count for the last week has been about 36,000 people. What is also quite positive, we have seen a report from BusinessTech where they have indicated that the average basket by Walmart is the lowest compared to any of the other retailers. Part of the project, we also have upgraded the bathrooms at Clearwater. At Somerset Mall, the phase II expansion at Somerset Mall is going very well. We opened the first section on the 20th of November 2025, and with that, we also retiled the whole mall. The expansion improved the flow from the old Edgars store to the Game store and creating a new racetrack.
We added additional 5,500 sq m of GLA, and with the focus on affordable luxury as well as athleisure. Edgars had been right-sized, and they have been moved to be the anchor on the new section, and we also have right-sized Game, which will improve their trading density. As part of the second section at Somerset Mall, the remaining old Edgars store will be converted to a new food court as well as an entertainment offering.
We also are upgrading the bathrooms in a phased approach. The new food court, the entertainment area, as well as the bathrooms, will be completed by July 2026. One of the priorities in Canal Walk is to integrate the mall much better with the bigger Century City. We are planning a food court upgrade. With that food court upgrade, we want to activate the canal edge.
We are looking at two new connections for the shoppers across the canal. We are busy with the Otter Bridge, which will be completed by the end of June 2026. Our investment in sustainability is paying off. We increased our solar capacity by 647% since 2019. We are currently delivering 13.5% of our total electricity consumption. We will further increase that when we complete the last four remaining solar projects, and those are the second phase at The Glen, Cape Gate, Canal Walk, as well as Somerset Mall. What is very positive about the solar plants is they add to the bottom line about ZAR 1 million per month. So when we complete all four of these, that will add about ZAR 48 million. We started both the solar projects at The Glen as well as Cape Gate.
We have also improved the second batteries integrated solution at Hyde Park Corner, and with this project, we will also increase some of the solar. AquaIntell and Aqua-Efficiency is a training and water monitoring plan, and that is definitely paying off. Over the last 11 months up to the 31st of October, we have saved or reduced our water consumption by 68,000 kiloliters. Just to put it in context, that is the same amount of water used by 27 Olympic-sized swimming pools. The benefit in rand terms was about ZAR 6 million. The further positive is the four Western Cape malls were only on that program for months 10 and 11. So the whole impact of the Western Cape is not seen in these numbers. We also received net zero waste certificates on five of our nine malls.
Over the last few years, we have completed the two-year redevelopment project at Skopje City Mall in North Macedonia. At the Mall of Sofia, we completed the hyper conversion by increasing the mall to 61,591 sq m. We have also upgraded the food court as well as the restrooms. We also further have upgraded the food court at City Center One West in Croatia. This repositioning strategies is definitely paying off. The tenant turnover increased by 4% for the rolling 12 months until October. The effort ratio on this portfolio has reduced to 9.8% compared to 10.9% in 2022. Footfall has been negatively impacted due to the non-Sunday trading in Croatia as well as some store boycotts due to the rising food prices. Vehicle count has increased by 4.1%.
Now looking at the four months trading over a three comparative years, we can see growth in tenant turnover as well as trading density. As mentioned before, there is a slight decrease in the footfall and vehicle count. The table on the top left-hand side shows the rent reversions. On new deals, we had positive rent reversions of 1.7%, although it was on 7.8% of the total GLA. On renewals, we see positive reversions of 13.5% on only 0.6% of total GLA. Combinedly, we have seen an increase of 2.6%. Retail vacancy is zero at this point in time. We have a WALE of 3.7 years and 25.1% of our leases expire after 2029. Now, I will hand over to Brett to give us an update on the treasury. Over to you, Brett.
Thank you, Morné. Good morning, everyone. My focus today is on the group treasury, as we have not published any detailed financial information with the pre-close operational update. Before we start with what has happened over the last four months, I would like to take a moment to look back on what we have achieved and where we have come from over the last few years to get to the strong financial position that we find ourselves in. We reduced our consolidated LTV from 52% in 2020 to 33.6% in June 2025. We improved the ICR to 2.6 x for the 2025 financial year. We increased our unencumbered property assets to ZAR 8 billion and our total unencumbered assets to ZAR 10 billion in June 2025. We settled all of the dollar equity debt that was related to the Sub-Saharan Africa portfolio.
With the disposal of those investments to Lango in September last year, we were released from all guarantees we had provided for the in-country debt in Ghana and Nigeria. We reduced the euro equity debt from EUR 403 million to EUR 87 million in June 2025. In conjunction with this, we reduced the European portfolio's LTV from 100% to 43% in June and have a plan to reduce this even further to below 40% over the next two years through the ongoing amortization of the in-country debt. We also improved our corporate credit rating. These actions have significantly strengthened our balance sheet and improved the group's credit metrics. Turning to the period under review. Our borrowings by lender and by currency have remained largely in line with those in June 2025.
We have maintained our exposure to a variety of lenders in South Africa and Eastern Europe, with the largest lender bank being Sberbank, who have funded the properties in the Croatian subsidiary in the European portfolio. Our listed DCM funding equates to roughly 25% of the group's total borrowings. 58% of our borrowings are rand-denominated, with 42% being euro-denominated. The euro equity debt represents only 10% of our total borrowings, and we are comfortable that the risks associated with the cross-currency guarantees provided from South Africa for this debt are manageable at this level. GCR has reaffirmed our national long and short-term credit ratings of A+ and A1 in October 2025. They also maintained their stable outlook based on the expectation that the group's LTV will remain below 35% and the ICR between 2.5x and 3x .
The group's LTV ratio has increased slightly over the quarter, from 33.6% to 34.3%. This is mainly due to the payment of the final dividend for the 2025 financial year of ZAR 776 million. The full effect of the dividend was mitigated by profits generated during the period, an improvement in the rand-euro exchange rate, and the capital expenditure, which is added to the asset values.
In line with the increase in the overall group LTV, the LTVs of the two portfolios also increased, with the European portfolio's LTV sitting at 43.8% in October, after it paid its fair share of the dividend back to South Africa. We are confident, as I mentioned before, that the European LTV can be reduced below the 40% group target LTV over the next two years by continuing to amortize the in-country debt at the run rate of EUR 10 million per annum.
Looking at the borrowings maturity profile and our liquidity. Cash flow and liquidity have always been key focus areas for the group. The group's liquidity remains strong and is underpinned by the outstanding cash collection rate of 102% and 97% in the South African and European portfolios in the four-month period. At 31 October, the group had ZAR 873 million of cash and ZAR 2.3 billion of undrawn facilities. This is after payment of the ZAR 776 million dividend for 2025. The borrowings maturity profile is virtually unchanged from June. The ZAR 502 million listed bond, which matured in November, was settled from available revolving credit facilities and cash. Our intention is to refinance the bond with a listed bond, which matures in April, of ZAR 240 million via a public auction.
The ZAR 740 million of unlisted bonds, which mature in quarter three of FY 2026, will most likely be refinanced via a private placement subject to pricing. We have received proposals from multiple lenders to refinance the EUR 70 million of equity debt facilities which mature between April and July 2026. Our plan is to complete these refinancings before the end of the financial year.
We are also in discussions with the lender bank relating to the EUR 70 million facility used to fund the mall in Sofia. This facility matures in December 2026, and we are optimistic that we can conclude the refinancing also before the end of the financial year. Looking at the group's interest rate profile. With the easing in the interest rate cycle and reduction in base rates over the four months, the all-in cost of rand borrowings reduced from 9% in June 2025 to 8.8% in October.
Similarly, the all-in cost of the euro borrowings reduced from 4.2% in June to 4% in October. This was mainly as a result of the expiry of some older and more expensive interest rate swaps. Currently, 77% of the group's interest rate exposure is hedged. Approximately two-thirds of the rand hedges are caps and collars, which provide us with protection against an increase in rates, but also allow us to participate in some of the savings in the softer interest rate cycle. Finally, just to comment on our dividend policy. The policy remains to distribute 80% of distributable income from the South African and European portfolios. This is achieved by declaring an interim dividend of 95% of the South Africa portfolio distributable income with the group's half-year results.
A final dividend is declared at the end of the financial year to bring the total dividend for the year to the 80% of consolidated distributable income. We have indicated that the board will review the dividend payout ratio from time to time with the intention of increasing this over time. Any changes in the payout ratio for the 2026 financial year will be communicated with the group's interim results, which are scheduled to be published in March. With that, I hand you back to Morné.
Thank you, Brett. Just on this slide, what we are looking at is looking ahead in our progress to date. I think you cannot actually see it on the slide, but the little ticks, the red ones is we have not made sufficient progress. The blue ones is to say we have done good progress, and the green one is completed. Over the last few years, we have repositioned Hyprop back on a growth path. After the first quarter of the new financial year, we are on track to meet the guidance of 10% to 12% growth in our distributable income per share. There is one CP that is outstanding on the sale of the 50% undivided share in Hyde Park Corner, and we think we will implement that transaction in the beginning of 2026 calendar year.
We have made very good progress with another disposal in the Gauteng portfolio, and that will be communicated as soon as we have finalized the necessary agreements. To date, we have not made any progress with the sale of the Lango shares. We are currently looking at five new opportunities in Europe, and we want to conclude at least one of those transactions in this financial year. On the South African portfolio, we have made very good progress with our organic growth opportunities. We started the installation of the solar, which is the second phase at The Glen, as well as Cape Gate. We are still working on some regulatory approvals for the solar at Canal Walk, as well as Somerset Mall.
We will continue our discussions with Pick n Pay, Game, as well as Woolworths, to upgrade and rightsize their stores in order to improve their performance as anchors in our portfolio. We have made very good progress with the design of the extension of CC1 East in Croatia. The tiling project on CC1 West has started, and we haven't found a workable solution yet for the solar in Croatia.
Looking at some future projects. The first one is Somerset Mall. Just to give a little bit of history, what we have done at Somerset Mall, we call it phase I , II, and III. Phase I, we took the old food court. We converted that to a Checkers FreshX. What we also did was improve the food offering, which is supporting the cinemas. Then phase II, we improved the flow in the mall.
We linked through the old Edgars store into the old Game store, and that we added 5,500 sq m, which we call phase II. What we are looking to do is phase III. In phase III, we will connect the Pick n Pay entrance and the Woolworths entrance. By completing this, we will further improve the flow throughout the mall, as well as we will increase the size of the mall to 91,000 sq m. We have made very good progress with Pick n Pay to rightsize their store at The Glen. This talks to our master plan at The Glen. What we want to do with that rightsizing of Pick n Pay, we want to add in some new line stores, and thereby increasing our income in that form, as well as improving our tenant mix.
With these changes, you will actually also improve the flow in the mall, forming a new racetrack, and that you can see with the green arrows on the plan. We further want to improve the flow from the parking decks into the center, and that can be seen with the red arrow in the plan. That will go right through to the escalators in the back, and thereby also improving the vertical flow.
In terms of the new view lines as well as improving the racetracks, I think the navigation of the center will improve quite a lot. As a phase II, we will improve the escalator or vertical connection between this level and the ground floor, which is anchored by Checkers as well as Woolworths. At Cape Gate, we also finalized our master plan to develop the satellite sites as well as the extension on Cape Gate.
Our key requirement in terms of the satellite sites was to keep control, what happens on those sites also, and to secure some annuity income. The site opposite Mediclinic was sold to Mediclinic, and they will develop a new hospital, a day hospital, and consultation rooms. What we have as a requirement, any plans must be approved by Hyprop on the final look and feel. On the three bottom sites, we have secured exclusivity with Giflo and SOM to develop three office buildings. Similarly, those office buildings need to be approved by Hyprop. We have structured a deal with these three developments on a leasehold basis. So we will get an upfront payment plus annuity income down the line. Hyprop will not take any development risk on these developments.
As part of the extension, we want to add about 9,700 sq to the mall, and that will focus on casual and formal dining, new national fashion tenants, as well as showrooms. At CC1 East, we have taken six years to secure our extension rights. Although it is negative for us, what is positive, it makes it more difficult for competition to actually secure rights and to do new malls. We want to finalize the planning in this financial year, and we are planning to expand that mall by 14,000 sq m, and that is on the back of tenant demand. The project will most probably start towards the end of the 2026 calendar year or early 2027. That is my end of my presentation. We can open the floor now for some questions.
Thank you, Morné and Brett. I am not sure if anybody in the audience has any questions. Otherwise, we will. Sure. We are going to get the mic now. Maybe while we are waiting for the mic, I will go first. Just touching on capital allocation. So you have indicated that you are looking at potential opportunities in Eastern Europe, five assets you mentioned. Maybe if you can give us a sense of how big or what the sort of pipeline size is for those assets in total and sort of on average as well as indicative yields in terms of where the market is trading.
I think you are still getting a higher from 8% to the higher 8% in terms of yields. The asset sizes vary from about EUR 60 million - EUR 170 million.
Okay. Then just from a CapEx perspective, you disclose in the update just north of ZAR 800 million for this year in terms of capital projects. If you can perhaps just touch on the mix in terms of expansion, solar, defensive CapEx, so we can get a sense of the types of returns as well for the CapEx that is going to be spent.
We had the detailed numbers at the time.
Yeah
We did the year-end results presentation, and they are not in the top of my head.
Okay.
But roughly ZAR 250 million, ZAR 300 million of that related to the Somerset Mall project. Because the largest part of the work is being done this year, as well as some big TIs that are necessary in Rosebank Mall, plus the Workshop 17 project at Hyde Park Corner. Those three or those four together made up ZAR 300 million. That left us with roughly ZAR 500 million of regular CapEx that we have to spend. I do not want to give you a number that I quoted I n September.
Okay.
I can come back to you on the.
That's fine.
Mix of what's yielding and non-yielding.
Okay. Maybe we will go over to Francois.
Thanks, Mahir.
Francois.
Okay, thanks. It is a nice venue. Thank you for that. Just a quick one on the city center, One East development, 14,000 sq m. Also, maybe just if you can give a sense of the internal rate of return on that investment, that opportunity you've got . First question, and then if you just can give some more numbers around the Somerset Mall. I am sure we are going to get quite a lot now during the tour as well.
But maybe give us, for the wider audience, how much you have spent, how much GLA was added, and the impact you expect that would have on, obviously the direct income from that additional GLA that you expect, but also just a sense of the impact you expect that would have on trading, in the rest of the mall. I know my family has been out there since that additional has been made, so it is certainly drawing, I think, footfall beyond just the regular footfall, right?
That's great. Thanks for those questions, Francois. If I does come to 14,000, we're adding in City Center One East. We're in the beginning stages of that, so we don't have the detailed numbers in terms of yields. I think it could be quite accretive because you already got the land in, you're only paying for the extension. So I think it could be quite beneficial. In terms of the Somerset Mall expansion, we've added new GLA of 5,500 sq m, and I think we did disclose the initial yield on that development, but I can't remember the number, what we disclosed.
I'm pulling it up now. I'll tell you now.
Part of the project, what we did was actually the retiling of the whole mall. We're busy with the upgrading of all the bathrooms. As a phase III, as I said, we want to take the mall to a total of 91,000 sq. Roughly, phase II cost us about ZAR 300 million. I would say phase II phase III could be up to ZAR 600 million, but it will all be accretive in terms of yield.
I think what will be beneficial for Somerset Mall, if we look at the stats and the growth in this area, we really do think it's going to be a super regional in time to come. My view is super regionals should be around the 90 to the 100,000. I think the exceptions of the 140, 160 will become something of the past. I think definitely, this mall has the potential to become a super regional.
Morné, that yield on the Somerset Mall project, it gave us an IRR of 15.7% over 10 years.
Okay. Thank you. I guess related to that as well, you are waiting for approval from the City of Cape Town for the solar on this mall and Cape Gate Mall. I think something like 11 megawatts that you can add. Two questions around that. Are you struggling these days to get permission for such large solar plants? A lot of red tape involved. Second one, just a sense of how much it will cost and the sort of return on that specific, these two malls installations.
I think just to clarify that, we have got the approval for Cape Gate actually, that is in process at the moment. Somerset Mall and Canal Walk is, we are still in process. To answer your question, it does take quite a long time to get those approvals. I think they need to look at what is the impact on the network, and it is not really feeding back, but if your solar goes down and you pull out of the network again.
So there is a lot of work to be done and to make sure you do not have grid failure due to plants you put into the system. So I think it takes long. Roughly, and this is not detailed numbers, but you are looking at a plant anything from about up to ZAR 50 million, and you get proper returns on those IRRs for 20% to 22% on those IRRs. As I said, it adds to the bottom line about ZAR 1 million per month of benefit per plant. So if we do all four plants, which we are planning, we will get ZAR 48 million in terms of a full year. This is just round numbers, Francois.
Anybody else from the floor? Maybe I could just touch on capital allocation again. Based on the narrative, it appears to me as though the focus is more offshore in terms of capital allocation, other than the capital project that they have for the existing portfolio. Maybe if you can just touch on your strategy with regards to. You previously spoke about increasing exposure to the likes of the Western Cape. Is that lower down the pecking order now because of pricing? There's potential to acquire the minority share in the likes of Canal Walk. Just in terms of your other sort of capital allocation opportunities, would it be fair to say that it's sort of ranking at the lower end given the potential returns?
I think from a capital allocation, the Western Cape and Eastern Europe is the preferred place we would put capital. In terms of opportunities available in the Western Cape for what we specifically look, most of those properties are institutional hands, and therefore it makes it difficult to get further ones. The focus is very much organic growth in terms of Western Cape.
And then obviously, we will always make sure our Gauteng malls operate also properly, and that's why you can actually see a lot of improvement in there. In Eastern Europe, we definitely want to buy more assets there. As long as the returns make sense. We're not just going to buy something for the sake of buying it. I think a lot of times the question is always raised, we overpaid for Table Bay Mall, which we didn't do.
Table Bay Mall, actually, if you look at the yield, it was a keen yield, but we know the potential where that rentals can grow to. If you compare that to something like Cape Gate, in terms of trading density, trading density is actually better in Table Bay Mall compared to Cape Gate. There's about a 40% difference in rental levels. So you actually got a lot of upside in Table Bay Mall in the years to come.
I think that opportunity, when it came across our table, was in a private individual's hands, developers. We saw it as an ideal opportunity to buy that asset at a very keen price. You can't even replace that mall at the cost we paid for it. So it was a brilliant buy, I think, and we're going to see huge growth out of that asset in time to come. Tenant demand is good. We actually applied for a further 20,000 sq m in terms of that mall. So I do think there's big upside for that mall. And even all the other ones in Western Cape. I think Somerset you will actually see as we walk out here, how much people are here every day and trading. And this mall is doing exceptionally well.
Thank you.
And here, if I could maybe add to that. I think if you look at the quantum of what we are going to spend in these expansions of the Western Cape malls, it is probably more than Hyde Park Corner is valued at. There is significant investment going to be made through these organic initiatives.
Yeah. Thank you. From the trading perspective, it appears as though momentum remains quite strong. Maybe just touch on the cost growth outlook or the sort of potential NPI outcomes and maybe what you can talk to is whether or not you are seeing or you expect to see the positive jaws impact materializing because of initiatives like your investment, your sustainability investment in water, in solar or other sort of initiatives to optimize costs, perhaps. What is your sense of sort of the cost growth relative to where the income growth is tracking at this point in time? I know we are only four months in, but maybe just give us a sense, if you can.
I would rather answer it is in line what we budgeted for it to be. The big negative in still in terms of cost is rates. It is not really. I think you can do a lot of things with electricity, you can do a lot of things on water to bring those costs down and make it more efficient and improve it. Rates is the negative. Rates are increasing substantially. Plus, you actually have to contribute for things that supposedly you will get through your rates, and that service delivery is not there.
We have to put three days backup water on our sites. If you just take that is about ZAR 5 million per opportunity. That is ZAR 45 million if you take nine sites and putting up backup water. Those are the negatives that impacts us, and we cannot control that cost. Unfortunately, the others are kind of controlled. Is it going to widen quite a lot? I do not think so. I think it is tracking in the right direction where it is at least not narrowing.
Okay, thank you. Just touching on lease escalations, particularly on the South African portfolio. Can you give us a sense of where the lease escalations are being negotiated now?
We get easily around 10% on our portfolio. I think there is more pressure on escalations. I think the big tenants, nationals, you must remember it also talks to what is the term of the lease. So the long-term leases, we are still getting around 5%-6%. Obviously, if you get a shorter-term lease, you get up to, I would say even 7%, depending on the term of the lease. The big thing which we try and do is actually getting your turnover rentals in, because that is where you participate in the upside when the tenant starts performing well. Sometimes if the escalation is too high, your rental will grow too much, and then you will have negative reversion. So to have the right escalation is maybe not a negative thing.
What I was actually trying to get at there is about the sort of lower inflation target, right?
I do not think that has had an impact.
Okay
On our lease negotiations as yet. I think if you see what happens at your house, I do not think that spend is increasing at three, but let us see.
Sorry, Trinity. There is a question that came in online from Trinity that I have looked past here. "Hi, team. Congratulations on the results. With regards to your cash position, what is the yield on cash?" I think that is the first question. Maybe, Brett, if you want to touch on that before I go into the next one.
We are currently getting just over 7% on cash. All of that is invested with the risk only with the big four banks. We do not invest with second-tier banks is where we put the cash. It is all sitting in money market funds with big four banks.
Okay. The second question, I hope I am getting this right here. Foot count is down 3.6%, yet trading density increased by 3.1% in Eastern Europe. Does this also reflect an increase in spend per head or just a general increase in selling prices?
No, it is definitely increase in spend per head, but the big thing that has happened, as I mentioned in presentation, in Croatia, you have non-Sunday trading days. What you are seeing is actually people will not come out on those Sundays, but they actually come in during the week, and then they will spend more. But the frequency and the visits and the food count will come down. But it's not spending less.
Okay. Then, Brett, just touching on treasury. We've had a recent interest rate cut. You indicated that the reduction in your cost of funding, all-in cost of funding, specifically on the SA side was due to expensive hedges rolling off. May you provide us with a sensitivity in terms of what your participation is going to be in interest rate cuts going forward given the structure of your hedges?
The comment relating to the expensive interest rate hedges, that was more in the European portfolio. Okay? Because Euribor has been very stable. It's increased marginally by 0.0 something percent over the last quarter. Our total interest budget is really dependent on some of the big capital inflows coming from the sale of Hyprop Corner, particularly.
That money was going to come in and reduce some of our interest costs. We didn't factor any interest rate cuts into our budget when we originally prepared that. So we are benefiting from these costs, but only 20 odd percent of our South African interest rates are purely variable, and then we've got the caps and the collars. I don't have a number for you exactly on what it translates to in the full year reforecast. We have reforecast our interest number, but I haven't got it off the top of my head.
Okay. And then just your expectation in terms of what is up for expiry in terms of your interest rate hedges also rolling off. Where do you expect or where can we expect interest rate, your all-in cost of funding to trend given current forward rates, as well as what we see more broadly, is the downward trend in terms of margins?
The forecast base rates, I am not going to profess to be the expert on whether or not there is going to be another 25 basis points cut between now and June. Let us see what happens there. I think we have had a lot of margin compression over the last two years, actually, as we have been refinancing loans. It looks like that is going to continue. The DCM market still seems to be an attractive place for REITs to go and refinance debt.
But at that 25% of total debt, we think that that is a reasonably sensible level. Perhaps we could let that grow to 30%, but we do not want it to get much more than that. It is good to have the exposure to the different banks. I think right now, we probably look at completing the year at the same rate as we are at the moment, the 8.8% in rand, the 4% in euros. It is just translating that into the gain that we have already booked in terms of the interest costs.
You have already answered my next question in terms of what you view to be an optimal mix in terms of DCM versus traditional funding. You have pointed to the fact that of the, I think it was mortgage funding that is expiring just north of ZAR 700 million, you are looking to do a private placement for that. Is that just in terms of flexibility or is it also partly due to the relatively more favorable pricing that you are getting on or in the DCM space relative to conventional funding?
Mahir, those two unlisted bonds are actually held by banks. It's the way that the banks were able to offer us more attractive funding is to treat them as HQLA investments. It's more about the mix of how much of the funding is actually with the DCM market in terms of the open market players.
Okay
Compared to how much funding is with banks.
Thank you. Go for it. Sorry.
Yeah. Thank you for the update. I just have one question. Just curious, when you spoke of right sizing some of your anchor tenants, maybe if you can take us through what that process looks like, then what you then sort of do with the space that opens up.
If I can use the example at Canal Walk, we had about 11,000 sq m for anchors. That was over two levels. We moved them to the bottom level, so roughly 5,500 sq m. The top level, we actually brought in three different tenants. Wayne, you must just help me now. I cannot.
Home Tech Sleep .
Home Tech Sleep and then Incredible Connection and Jet. Effectively, you take it back to space and improve your tenant mix. Just to put that in context, and that is why I say right-sizing some of the stores is beneficial in terms of trading density. That Edgars store trades the same turnover over that reduced space. You can just see the benefit for that tenant actually right-sizing it.
We have done that similarly at Clearwater Mall as well as Woodlands Boulevard. Woodlands Boulevard is a little bit of a different size. I think it was 5,000. We took it to 3,000, also Edgars. Pick n Pay, we also right-sized in that one. Sometimes, tenants also want more space. We are currently having some tenants like at Canal Walk, Table Bay Mall, and they are looking for more space. They want to add further space to actually make the offering better.
Just curious, how does the conversation go with the affected tenants? Is it a negotiation or with the agreements you have obviously in place with them? How does that actually work in terms of reducing their space?
I think it is a negotiation. It depends on where we are in the lease term. But I think sometimes what we try to get to is a mutual workable solution. It does not help a tenant sits on a big floor space and he cannot trade well, and therefore, we would rather make it him to trade better. As I mentioned before, when we look at our repositioning was focusing on making sure your tenants perform well and bringing in the shoppers and optimizing your tenant mix. It is key for us for our tenants to trade well. Because if your tenant trade well, you will be able to get rental growth, as you can see with our positive reversions coming through on the portfolio.
Thank you.
In the announcement, you touched on online gaming, gambling. Is that a concern when you look at the trends across your categories within the portfolio? Or is it more a macro type concern given the narrative that is being created around online gambling? Are you seeing pressure points materializing based on the patterns from a spending perspective?
I think it's probably more a macro issue. Because if you judge it by our tenant turnovers, it's not that our tenants are suffering because spend might be being redirected into online gaming. I mean, what's interesting, we had a presentation by one of the banks last week, and we was mentioning it to some of the guys before the meeting. The estimated spend on online gaming, according to them, has gone up ZAR 15 billion in the year. But the savings from the interest rate reductions over the last 12 months is about ZAR 45 billion. So there's effectively ZAR 30 billion of more money available to spend in the economy. That's just an observation, but we're not suffering from it at the moment.
Okay. Don't know if there are any further questions from the floor. Go for it, Francois.
Yeah, it's obviously very topical at the moment. The Game stores being replaced by Walmart stores largely. Have I got that right? Maybe if you can give us a sense of the impact that The footfall impact must be very positive, but also more importantly, the NPI impact that you expect from such changes.
Francois, I can only use the example. Unfortunately, we are on NDAs, so I can't tell you which ones are they going to convert into which Game stores they're planning to convert into further Walmarts. What they did put out in their announcements is they will retain Game, and they will retain the other brands. I don't think it is replacing Walmart in all the Game stores. That's their communication.
I'm not professing to know exactly what they are doing. What we are seeing is it is pulling the feet. I think it is also, and I was quite surprised, actually, with the Clearwater one opened, and now they also opened at Fourways Mall. I think it's positive. The big thing for us is on a shopping center, if your anchor is not performing the role of an anchor, it has a very negative impact on the mall. I mean, just to use that day as an example. Starbucks actually sent us their turnover numbers. Within their whole portfolio for Starbucks, Clearwater did the second-best performance that Saturday and in their whole portfolio. Now I think we were only behind, what's the one K?
Gateway.
Gateway. I mean, Canal Walk was like tenth on that list. It just shows you if the feet comes in, people spend and there's benefits to come. That's why the anchor tenant is not necessarily paying the big rental, but he pulls the people in and that makes it work. I think that is the benefit for us at Clearwater. Clearwater, we've been struggling with our anchor tenants. We sit there with a Pick n Pay that hasn't upgraded their store. Woolworths has also not upgraded their store, and this is actually now creating an anchor for us. It is very beneficial.
There's a question that has come through. Why hasn't guidance been increased given the strong operational performance and better financing outcomes?
We decided to keep it this way.
When we relooked at the projections to the end of the financial year, we are still within the range of 10%-12% that we published previously.
That is a cheeky one. Anybody else?
You always try.
I know we're all yearning to get to see the assets. Maybe just one more from my side. There's no further questions that have come through online as well. Just in terms of your progressive dividend policy. You've indicated that for now it's 80%. What are the catalysts that would support an increase in that dividend payout ratio? Is it still the intention to increase it? Obviously, a decision will be made at interim or are there other factors that you're considering from perhaps a capital allocation perspective, that you need further clarity on before you look to increase that dividend payout?
I think there's a number of factors we take into account when we look at our dividend policy. I think the key thing for us is rather to progressively increase it over time than increase it and then pull it back. I think what we have had in our Hyprop portfolio is a lot of catch-up CapEx, and we had to sort out our capital structure. I think Brett has touched on all those points quite in detail with our progress we've made.
It was always key for us to bring certain, that European debt to a level where we're more comfortable with it. We took it from 100% to 43%. It's coming down to 40%, and that's mainly driven by our dividend policy. To come to your question, I think we will communicate in March, potentially going up, but it won't be going up and then pulling it back. It's rather progressively increasing it.
Thank you. Maybe before we close off, Morné or Brett, I'm not sure whether you have any closing remarks.
Thank you very much, Mahir, and I think we are very positive for the growth we can get out of our portfolio. I think there is a lot of things we had to sort out. I think we are on the front foot for the first time. We are very excited about that. I think the team has done excellent work. As we call them, the high performers. I think they have delivered. We are excited about the future.
From my side, I would just like to say thank you to the Hyprop team for allowing us the opportunity to facilitate the session. Thank you to the participants who dialed in and to the audience who will now be going along with the Walkabout in the center. Thank you very much. We will call the session there. Bye-bye.
Thank you.
Thank you.