Now.
Okay. Afternoon everybody. Apologies for that. We've lost a few minutes, so we're going to get cracking. I think everybody will know Morne and Brett, but because backgrounds are relevant to the task at hand, I'm going to start, Morne, with asking you to just run briefly through your background.
Okay, thank you Andrew and thank you for everyone that's here. Obviously it's not an IT background otherwise I would have been able to resolve this matter. I have 10 years with RMB and in 2009 I moved to Atterbury when they secured the Waterfall development. I was a total period of nine years with Atterbury and Attacq. I was effectively involved with the tax listing and during my time at Attacq I had to resolve a number of transactions or related-party transactions. One of the first that I had to implement was the buyback of the MEA's 20% shareholding in Attacq after they exercised their put on Attacq that was terms of the agreement they had with us. We also had to clean out Attacq to make it ready for the listing in 2013 and in total I had to implement about 23 transactions just for that listing.
We also had to buy out the asset manager agreement with Atterbury after the listing. Another two transactions we did was to buy back the Atterbury Greece 20% shareholding in the Waterfall development as well as ending the development rights agreement which they had on Waterfall. Attacq was also one of the initial investors in MAS. When I left MAS we had a shareholding of just under 15% in MAS. I joined MAS in 2018 and one of the first things when I joined MAS was to look at the dividend growth strategy. I do believe you always must just pay cash-backed distributions otherwise you effectively pay out capital. I left MAS for personal reasons and then returned to South Africa to join Hyprop at the end of 2018.
Morne, when you were at MAS you were there first as a Non Executive Director and then for a short period you were CEO. You were CEO in 2018. The development relationship between MAS and Prime Kapital had already been created. What were your views of that relationship?
I think it was actually a good initiative. It was a deal done by Lucas and Malcolm. They secured the deal with Prime Kapital and as you mentioned it was in 2016 and that's when the development joint venture started. It aligned with where we wanted to go and gained exposure in Eastern Europe. I believe Martin and Victor had an excellent track record with Netbe and what I also liked about the transaction. When it was initially structured, I think the developer had skin in the game. The ordinary shareholders, which was MAS and Prime Kapital, had to put in ordinary capital. They put in a total of EUR 50 million. There was a prefshare that was provided by MAS. Initially it was around EUR 200 million and that has grown over time to EUR 470 million.
What I always understood or the intention of the DJV was to build out a portfolio of around EUR 1 billion, effectively using the prefs and the ordinary shares as your equity and buy external debt. During 50% you will get your total of roughly EUR 1 billion. What I also liked about the transaction was the waterfall of payments was quite clear. It was external party debt first, then the coupons on the pref, then the pref itself and then these proceeds would have gone to the ordinary shareholders. There was also the income JV that was formed that was 20% owned by Prime Kapital and 80% by MAS.
Okay, so Morne, you left MAS in 2018 after 11 months as CEO and you joined Hyprop. Brett, you also joined Hyprop in 2018 as CFO. Brett, when you took over as part of the management team, there was a lot to sort out. Tell us what you've sorted out as CFO of Hyprop, part of that management team.
Thank you very much, Andrew, and good afternoon, everybody. Andrew, one of the first things we did was to implement a policy of paying only cash-backed dividends. In particular, we ignored the accounting income that was being recognized from some of the African investments we had that was in the form of interest which was being earned and accrued on shareholder loans but was not being received in cash. Back in South Africa, we did quite a lot to address the capital structure of the group. We reduced, over the six years that we've been here, the consolidated LTV from a peak of 52% during the COVID era down to 36.3% currently. During this time, the South Africa portfolio valuation also reduced by about ZAR 5 billion. We settled all of the dollar equity debt that was used to fund the African investments undertaken by the group.
We've also reduced the European equity debt from EUR 403 million down to currently EUR 75 million. The LTV on the European portfolio is now only 47%. We also recycled certain of the non-core assets with the disposal of Atterbury Ballymart in South Africa and the two Delta City malls that were previously owned by listed. One of the other things we addressed was the disclosure of the group's financial results. This we improved, particularly with regards to the high state assets which initially were not consolidated on the group's balance sheet due to the accounting treatment of that investment. We started to provide information to the market in advance of consolidating those assets to allow the market to understand what was going on in that venture. We've also done work to improve governance, ML policies, and general compliance. We've improved the group's credit rating and our treasury management activities over the six years.
Morne, what's your question?
I think what we also had to solve out is we've set ourselves a few key priorities. One of them was to implement our estate liquidity event. How we did that was to acquire. It was a total of six assets. As Brett has mentioned, we sold two of those, and the other four assets were acquired by Hyprop. We actually have repositioned those assets quite nicely, and we actually have seen very excellent growth opportunities or growth from those specific assets. Some of the other priorities we put ourselves down was to exit the African investment, and that we have done successfully. We only sit with a number of Lango shares, but what's also good with that transaction is we sold a whole historic African structure with that transaction.
The repositioning of our South African portfolio was also key to us, and you always see how we improve the tenant turnover on our portfolio. The tenant turnover has increased substantially, and our effort ratio has reduced from 11.5% to around 8.5% currently. We also acquired the Table Bay Mall. It fits very nicely in our strategy where we want to focus on growing our exposure in the Western Cape as well as Eastern Europe. We also started the extension at Somerset Mall.
You've cleaned up Hyprop and it's been a big job over several years. Hyprop's now in good shape. It's widely recognized for good governance and straight talking. The question that a number of participants have raised is why would Hyprop have any appetite to get involved in the complexity and the reputational concerns surrounding MAS and Prime Kapital?
I think Hyprop has got a specific diversification strategy, and we are retail specialized, and we want to seek some geographic diversification, and that's why we actually have got the portfolio offshore. One of the things we can do is we can buy one by one assets. I think here's the ideal opportunity where you can buy a whole portfolio. I think the MAS opportunity definitely fits in our diversification strategy, and it will definitely complement our existing European portfolio. I do believe the MAS shareholders have been suffering and have run out of patience with MAS as well as Farm Capital, who have, I believe, created the problems they are sitting with. I do believe we have the right team to resolve complex matters, as our track record has shown.
I mean a number of the comments particularly raised by Prime Kapital deal with euro earnings versus Rand earnings and diversification. Brett, what's your analysis on that?
If the transaction gets implemented, given Hyprop's current European portfolio and the earnings we generate from that and the MAS earnings which would be attributed to Hyprop, I think the euro-based earnings would get to approximately 60% of the group's earnings post transaction. Similarly, the net asset value of the group would increase significantly to probably 40% of those assets or net assets would be euro denominated.
Morne, this is another participant question. What would you do on day one if you've got shareholder control?
I think the first thing we have to make sure is we've got the right people on the board. Obviously, there's a number of people being presented to join the board, but I think it's to ensure we have the right board. I think more critical is to appoint the right management team. I think it's also important to get a strong independent person on the DJV board. Understand the terms of the DJV agreement, and I want to actually ensure all parties act in terms of the agreed terms, including one thing I think the DJV should do is paying coupons on the pref share. Understand the implications of the financial assistance that has been given by MAS to the DJV whilst acquiring MAS shares and the potential implications on that.
I think it's to improve shareholder engagement and reporting as we have done at Hyprop, resolve the liquidity of the EUR 170 million bond, and stop the cash drag. I think we want to revisit the capital structure, improve corporate credit rating, and then I would like to start getting MAS to pay dividends again. I think it depends on whether the DJV starts paying the rest of the coupons on the pref.
You've emphasized the right management team. What are Hyprop's proposals regarding management?
We've got access to Spiro and Nick. They've been the management team of Rob Castle. I think they come with an excellent track record. They understand the European markets. They also have got a network in Europe. I've been working closely with Spiro for the last four years as the Chairman of Hyprop. I do know he's got the ability to have a big impact on MAS. What I also like about Spiro is he's aligned to our culture, our ESG focus, corporate governance, and sorting out issues.
Okay, so you've got a management solution. You've seen that MAS has today put out a notice of EGMT regarding some changes to its board. What's your view on the proposed board slate?
If you look at those series, they look quite impressive. The only person I really know is Robert Emsley and Destabille, but I think Des' track record speaks for itself. I think he's a very good candidate. Like any board, you need to have a management team you can trust because that's where the real things happen. As a group, strong board, if you don't have the right management team, I don't think you will actually get the right changes you want.
Okay, so moving on to Hyprop's voluntary offer. Brett, how did Hyprop get to the swap ratio and the cash price that underpin its offer?
Andrew, the swap ratio is based on the trading prices of the Hyprop and the MAS shares on 23 May 2025, which was the last day before we made our initial announcement of the intention to contemplate the voluntary bid. These are the market values that the shareholders of MAS and Hyprop put on the shares and on the businesses themselves. Both are at discounts to the net asset value. We appreciate that the MAS share price has been at about 50% discount to its net asset value, while the Hyprop share price trades at about a 30% discount to the net asset value.
I think the big difference between the Hyprop group and the MAS group is that the Hyprop balance sheet is relatively clean and has been cleaned up by us over the last couple of years, whereas MAS had the investment in the DJV around which there are several questions being asked, and that DJV asset accounts for roughly 50% of MAS net asset value. The nature of that asset is also unusual in that it's a significant investment for MAS, yet it has no recourse or guarantee or security within the DJV to ensure its repayment. We would prefer for MAS shareholders to actually take the long term view here and journey with Hyprop on this venture. That's why we prefer the share alternative so that those MAS shareholders can participate in the value unlock that we see coming as we resolve some of the issues within MAS.
The other benefit to MAS shareholders from their Hyprop share is that the share is very liquid and any shareholder who wishes to then trade out of their shares should be able to easily do so and convert that into investment into cash should they not want to journey with us long term. On the cash price, the R24 per share has been based on the highest price at which MAS shares traded since we announced that initial intention to do the voluntary bid. There were about four days where the share traded over ZAR 24. Obviously, the people who accept the cash offer are people or investors who are going to exit completely and won't participate in any of the future growth. Depending on the total cash acceptances that we receive, we may consider increasing the cash cap from the ZAR 800 million.
That's one of the reasons why we've left the capacity to do the vendor placement if we need to raise additional cash to satisfy those cash acceptances.
Thanks. Morne, why have you formulated the offer with such a short period for acceptances?
I think there's two key things for us to get over the line. We will need access to the DJV agreements. We also want to know if there's sufficient traction with the major institutional investors, which are also shareholders in Hyprop, where you get traction with them in terms of the transaction. If we don't get the necessary support initially, we would rather start looking for other opportunities than proceeding with this transaction. There's a lot of costs associated with this. If you just take the management time we have been spending on this, it takes a lot of time and there's a lot of costs. We've got corporate advisors, we've got legal advisers. It's a complex structure if you look at how the company is set up. There's a lot of wasted cost here.
I think we need to get to a situation where we know whether we proceed or rather proceed with some other opportunities we're looking at.
Brett or Morne, what do you say to Prime Kapital's complaint that acceptance of the offer just gives you a free opt?
Andrew, I think our approach to this transaction has been like any other transaction that we would do. Initially, we make an offer to sellers in terms of putting that offer forward and setting out the conditions precedent to implementing that transaction. The sellers, in this instance the MAS shareholders, would need to indicate their acceptance or rejection of that offer. That is really what the first phase of this transaction is all about. Should the MAS shareholders accept the offer, we would then set about implementing the transaction and fulfilling all of the suspensive conditions or, to the extent we deem appropriate, waiving those. Some of these conditions are regulatory in nature and beyond our initial control. For example, the Competition Commission approvals, or we would require Hyprop shareholder approval to implement the transaction.
As is normal in any corporate transaction, once the seller has committed to sell their assets to Hyprop, they are prohibited from selling those to somebody else who may come along and give an alternative offer. The seller also cannot walk away from the transaction until those conditions have been fulfilled. In some cases, as in this case, we would set a long stop date. That is the target date by which we believe we should be able to implement the transaction. The long stop date can normally be extended if some of those regulatory conditions are taking a bit longer. All parties are moving towards an implementation.
I think, as Morne has pointed out, the reason we want to get the two major conditions initially resolved up front is that we are going to deploy a large amount of time, effort, and even money will be spent to fulfill those conditions. We do not want to go to that effort unnecessarily if we cannot clear those initial two main conditions for ourselves.
Brett, while you're talking, I mean, we saw MAS's comments on the Hyprop offer come out on SENS yesterday. What are your comments on the MAS announcement?
I think a lot of it's repeating the content of the offer document that we presented. The MAS commentary does highlight certain risks to the transaction, but it doesn't address the risks to MAS shareholders if they don't accept the Hyprop offer. We believe that those are risks that MAS shareholders should very carefully consider. It says in it that Hyprop can amend the offer terms. What we tried to make very clear is that we cannot amend the offer terms after we close the initial offer period. Once we get to the closure and the receipt of acceptances from MAS shareholders, and we have the necessary 50% acceptance level, we cannot amend the commercial pricing of the transaction after that date. As Morne said, we've highlighted the two main conditions that we need to have fulfilled up front.
That is obtaining the 50% acceptance and also getting copies of the DJV documentation that we can assess for ourselves and conduct our own due diligence on those documents. The other thing that the MAS announcement does reflect, obviously, is the premium at which the cash price and the share swap ratio are to bring historic MAS prices, or, sorry, MAS and Hyprop prices prior to us indicating our initial interest or intention to make this voluntary offer.
Morne, a lot of the participants on this call have asked you to speak to your initial thoughts about the DJV. I mean obviously you would have some recollection of what was in place many years back when you were CEO of a free period. You've had a look at the MAS summary that's come out, but as yet you haven't been provided with the underlying documentation which would allow you to form a view on that summary. What are your initial thoughts about what you know as at today ?
Andrew, I think there's a number of amendments that have been made on the DJV agreement, and I think they have been structured, as my interpretation as I see it, very favorably to Prime Kapital. I do think the initial intent of the DJV has been lost when they started buying MAS shares. I think that was never the intention. The intention, as I mentioned right in the beginning, was to build out a portfolio and participate in the benefits from that. There was a number of buyout proposals that has come to the market, and I think it looks quite favorable again for Prime Kapital. I mean, there's a number of premiums that has to be paid to Prime Kapital. I mean, the last transaction was around EUR 97 million premium to Prime Kapital. It depends on how you calculate it.
There was a second proposal when they came out with the EGM, when they called for EGM, where they said they would like to get a 15% discount on Bipre funding. So, I think Hyprop hasn't created this situation, but I do think we're well positioned to fix it.
Okay. That leads into more specific questions. Nazin Samsuddin says why do you believe you have the tools to solve for MAS issues versus MAS solving them itself.
I think Hyprop has got a strong corporate culture and credibility with investors. We have got the experience and we have got a proven track record to solving complex shareholder matters as well as joint venture matters. We have executives who can appoint to MAS and to implement the necessary changes.
Brett, Bizima asks, he says the earnings it looks like this transaction if it happens would be earnings accretive for MAS on consensus forecasts. How much will you be able to distribute from these earnings? This is questions.
Andrew. Currently, MAS cash back to earnings is roughly 55% of their total distributable income. This amount emanates directly from the directly held portfolio. Increasing the payout ratio would depend on the DJV starting to service the coupon on the preference share and paying any ordinary dividends out of the DJV.
MAS has indicated they aren't able to pay dividends due to liquidity constraints. How do you think about that?
I think before MAS can resume paying dividends, I think it goes without saying they need to have certainty and a solution to the redemption of the bond which matures in May 2026. We believe that Hyprop can assist with that given our access to funding and our relationships with lenders. Once that debt and liquidity refinance constraint has been resolved, MAS should be able to resume paying dividends even if only at the 55% distribution level. The one caveat to this we would say, as Morne has indicated, is that we don't think MAS should start paying dividends while the preference share coupons from the DJV are still outstanding.
I mean, the other lever that some participants have highlighted is Hyprop's ability to increase its payout ratio and retain MAS earnings.
Quite correct, Andrew. Assuming that MAS distributes 55% of its distributable income as a dividend, we don't expect that the transaction would negatively impact Hyprop's distribution per share to its shareholders as we have the capacity to increase the payout ratio on the existing Hyprop assets while still maintaining an overall conservative distribution ratio for the new group. Post implementation of the transaction.
Morne, a re you making assumptions about a cost to collapse the DJV or otherwise simplify the MAS business?
I don't think it is in terms of that. I think the DJV was implemented for a specific purpose. I do think it can actually extract a lot of value for Prime Kapital as well as for MAS. Obviously, if we can't get to the right terms and the parties are not acting in terms of the obligations in terms of the DJV agreement, you will have to negotiate with Prime Kapital to see how you can terminate this agreement on a slim basis. Like I said, that's not the initial intention. I think the intention is, I think the initiative is always good and I think we can actually extract a lot of value from that initiative.
There is no doubt if you get this deal done, you step into a complex set of legacy arrangements. Might it be easier to simply seek to buy assets from MAS?
That is an opportunity, obviously. I think what I said before is we would like to buy a whole portfolio one by one. Assets you could potentially do, but the transaction as we see it is the better transaction is to actually get involved in buying a big stake in MAS now.
Okay, one question which we don't see often is will you pay a few shareholders a better swap ratio from a MAS perspective if required to get the necessary 50%?
I think the answer is easy, Andrew, that all shareholders are being offered the same terms as set out in the voluntary bid document. No special treatment for anybody.
Cuthbertman Capital asks what tools are available to early terminate the DJV? That's question one. Question two is how will Hyprop create value for MAS shareholders when in control of MAS?
I think there's a number of tools that we can use, but I think the first thing is actually ensuring everyone has been acted according to the agreement. If you can't, it's going to come down to negotiating with Prime Kapital and coming to a workable solution. I do think there's certain things they want and there's certain things MAS wants, and there's always, like they say, hopefully everyone is unhappy and get to a solution. I think there's definitely ways to do it, and I think we had a track record of doing that. We came into Hyprop as a management team, there was complex transactions that was done pre our time, and we have successfully resolved it. I do think we have the means to do it.
Kaufman asks, would Hyprop prefer the DJV to continue to develop or would it prefer to terminate the DJV?
As I mentioned before, I think the intention is if Prime Kapital keeps on developing the DJV as intended, could be beneficial for us and or for MAS and for Prime Kapital.
Meher Humdeli asks, is the MAS board cooperating with Hyprop?
As you will have seen, the MAS board did respond to our request to publish a copy of the voluntary bid document on their website. As I mentioned, we do disagree with some of the commentary and the risks they include in the Ascends announcement, and we've commented on that already. We've requested certain information from the MAS board, including relating to the conditions precedent that we set out in the offer document, but we haven't received any information yet, particularly relating to the DJV agreements.
There are a lot of questions coming up that say a key suspensive condition is line of sight on the DJV agreement and all the amendments that have been contracted. The question is, how much of an unknown are you willing to tolerate in terms of DJV legal clarity?
I think it's quite key for us to have complete clarity around the DJV agreements, and therefore we want to see it. I think there has been the document that the MAS board has put out in terms of the relative terms. I think you can't just look at that coldly. I think you need to see the actual agreements, and if you strip out the DJV as we mentioned before, I think the DJV is about 50% of the NAV of MAS, then the share price where it even is trading at at the moment doesn't make sense.
Nick Kricker of Signal Asset Management says he doesn't understand the logic. He can sell his MAS shares today for ZAR 23, which he can use to buy Hyprop shares, and the proposed deal wants him to sell his shares for ZAR 19 worth of Hyprop shares. What's your comment?
I think he's correct. It depends on the volume of shares you have to sell. I don't think if you're going to sell a big volume of shares you're still going to get to ZAR 23 and I do think if Hyprop walks away from this voluntary offer I think it could have an impact on the Hyprop share price, the MAS share price, the MAS shape. Maybe a positive impact on the Hyprop shares.
J. Nudi from Oyster Catcher asks about the agreements as well, and he says is there a mechanism to force management to provide the agreements?
The only way we can do it is to have a CP out there. Obviously, I do think most agreements always have the proviso in if it's requested by a regulated body you actually should supply it. We've put it down as a CP. If we can't get it, obviously we can't proceed with the transaction.
There's a number of questions about elaborating on your concerns relating to governance at MAS.
I think one of the biggest things that worries me is the consent by the board for the DJV to buy MAS shares. I think it doesn't make sense giving financial assistance to an associate of yours to actually buy your own shares. I think the DJV agreement was always set up to develop. If they were sitting with surplus capital and they couldn't deploy it, I think the more rational deal you should have done is actually returning it to MAS, buying its own shares back, and when the development starts happening again you actually could re-advance that loan or the prep to the DJV.
You've made a reference or there's been a reference in a number of participants' questions to the DJV mandate change in 2020. In your view, this was a question from a participant. What are the risks relating to the relationships between PK , PKM , and MAS, and how would you address these?
I think the first step you have to make is have everyone act in terms of the agreement. If you can pick up someone hasn't, then you will have to put into task to actually start doing what the agreement requires. If you can't get to that settlement, you'll have to negotiate a deal where you can settle the matter.
I'm looking at the agreements. There's a lot of overlap in agreements coming in, in questions coming. When we've c overed a fair amount of ground. Morne, I think let's perhaps give it a high-level closing summary in terms of your perspectives on what we've covered today.
I think there's something that has been mentioned, and the fact that this transaction is not regulated is a result of MAS structure, which was created by them and that was not created by us as Hyprop. We would have preferred a transaction which is more regulated in terms of the TRP rules. I do believe we would have had an even playing field with PK . The complexity in the deal is created by the DJV, and this was created by MAS and PK l. We also have been denied access to the documentation of the DJV, which has put all the power in the hands of MAS and PK . The mechanisms we put forward to implement our voluntary offer are based on commercial terms, and our offer is legitimate and fair, and it gives MAS shareholders this option.
They can stay with the status quo, wait for the PK offer to come, or they can take up the Hyprop offer, which I believe is a fair offer, and we try to mitigate the risk on stuff we can't control.
Good. Brett, I mean, anything you want to add?
No, I don't think so, Henkel. I think Morne summarised our sort of overall view quite nicely. At the end, we think that the offer is fair, and it provides an alternative to MAS shareholders for them to consider.
I guess the clock is ticking and time is short, and we'll see by the end of the week where we are on these two kind of first priority conditions that are really the basis for Hyprop considering whether it stays in this by extending the closing period, or whether it chooses at this stage to deploy its time, its energy, and its capital elsewhere.
That's great. Thank you, Andrew.
Thank you.
Good. Thank you, everybody. Thanks for listening. I think a recording of this will be available, and of course you're always welcome to contact any of us in the course of tomorrow. Good evening.