Good afternoon, everybody. Welcome to Redefine's interim results presentation for the half year ended 29 February 2024. Our conversation this afternoon will follow the usual format. I'll start off with an overview. I'll then hand over to Leon Kok, our Chief Operating Officer, to talk about South Africa's property portfolio. I will then touch on our Polish property assets. I'll then hand over to our CFO, Ntobeko Nyawo, who will talk about optimizing capital, operating efficiently, as well as engaging talent and closing with growing reputation. Then I'll wrap up with some Q&A thereafter. Okay, so just in terms of who we are, I think we all know who we are, but what I'm very happy to report on is that Redefine for the first time as a property asset platform that is in excess of ZAR 100 billion.
You'll see the geographical split there, 62% in South Africa and 38% in Poland. Okay, just some key financial outcomes. Ntobeko will talk a lot more about these, but I'll just touch on a few. We're very happy with the REIT NAV growing to ZAR 7.80 per share. Our total assets are now at their all-time high of ZAR 102.9 billion. The last time we were at a similar level, ZAR 200 million less than this, was in financial year 2019. We are basically back to where we started before the pandemic from a total assets perspective. Our distributable income per share has grown 6-odd% to ZAR 0.253 per share.
Our dividend per share, you'll see, has been maintained at what we paid for the first half last year at ZAR 0.203. Our South African occupancy has slipped slightly due to a temporary vacancy. Leon will talk about it in industrial portfolio at Cato Ridge. Our Poland occupancy, you'll see, is consistent at 98.4%. Our loan-to-value ratio, once again, Ntobeko will unpack that in more detail, is up at 42.6%, but that is principally due to the acquisition of Mall of the South, which we guided in the pre-close update. Just lastly, interest cover ratio at 2.2 x is a focus. I just wanna assure everybody we watch it like a hawk.
It is top of mind when it comes to any of the metrics at this point in time, given that the interest rate environment seems to be higher for longer. In terms of strategic outcomes for the first half, you'll note that we have not allowed anything to distract us from what matters most, and I'll just touch on a few highlights. There'll be lots more to come, but from a investing strategically perspective, you'll note that the property asset platform, as I said earlier, is at ZAR 100.4 billion. Mall of the South was acquired at an income yield of 8.5%. We've since the period closed from 1 April, increased our ownership in EPP from 95.5% to 99.2%.
In terms of optimizing capital, we've been very busy with raising new debt facilities, as you can see, of ZAR 1.9 billion. We've issued bonds of ZAR 2.1 billion, and this was principally to settle maturing debt as well as fund expansion. We've also completed the refinance of Młociny at EUR 145 million, and we've secured EUR 155 million of debt funding for 11 ELI assets. Our liquidity profile remains stable. We have access to committed undrawn facilities and cash of some ZAR 4.2 billion. In terms of operating efficiently, you'll note our distributable income growth of 6.1% to ZAR 1.7 billion. Our group net operating profit margin has been maintained at 76.5%, and our NAV growth of ZAR 0.14 Is a highlight I've already mentioned.
In terms of our staffing, engaging talent, our Net Promoter Score has improved from good to great. We have got 59 learners in the 2024 learnership program, and we've been awarded a top employer for the 9th consecutive year, and EPP has been awarded the responsible employer HR leader for 2024. In terms of growing reputation, we are very proud of our 5 Net Zero Carbon Level 2 certifications and our Net Zero Precinct award, all from the GBCSA. I just wanna highlight that the precinct award is a first for South Africa. In terms of Green Star, uh, certifications, we are 62% in South Africa certified, and EPP and ELI are 88% and 93% respectively BREEAM certified. We've also been recognized by Sustainalytics as a 2024 ESG industry and top-rated company. Those are two badges.
There's only one other REIT with two badges that I'm aware of. With that, I'm gonna now hand over to Leon, who will talk about our South African property portfolio. Leon?
Good afternoon, everybody. As Andrew mentioned, our property portfolio is just over ZAR 100 billion now and split 62% in South Africa and in Poland, 38%. From a capital allocation point of view, we expended ZAR 4.4 billion during the period. The bulk of that was ZAR 1.9 billion to the Mall of the South acquisition, as well as the final dividend for 2023 that was paid during the period of the year of ZAR 1.6 billion. We give you analysis of where we spent locally from a development and CapEx perspective, as well as principally in Poland.
From a South African point of view, our portfolio is now just short of ZAR 61 billion at ZAR 60.9 billion. The portfolio is 44% invested in retail, 35% invested in office portfolio, and the balance of 20% in our industrial portfolio. As you can see there in that bottom right-hand bar graph, our portfolio, you can see the consistent improvement in the value per square meter. That's principally driven by two aspects. Firstly, from active asset management point of view, we can see over time, we've divested out of the smaller, lower quality properties, and rather invested in the bigger, more valuable properties. That's similarly supported by a stabilization in the valuation, which we'll touch on in a minute.
In terms of our outcomes, the slight blip, as Andrew mentioned, was in the occupancy, which increased to 7.9%. What we've done is, on the right-hand side, just give you an analysis or give you an idea what that vacancy is worth to us. Now, the vacancy that we calculate by GMR, this is where we calculate the vacancy of, or the value of our vacant space based on the asking rentals. As you can see, for instance, in the retail space, there's not much value sitting in that vacancy. It's only 2.4% by GMR. Similarly, in office at 9%, and the industrial is 5.4%. The total vacancy by GMR is just over 5%, 5.4%.
The other key factor for us to focus on those renewal reversions, and as you can see, a slight improvement coming from -7.5% to -6%. That's driven principally by our retail and industrial portfolio, and there's still some weakness in that regard in the office sector. If you can see on the property valuation, those exit cap rates, which is a key driver of the valuation, largely stayed stable. It's just in the office sector that's increased slightly from 8.8% at year-end to 8.9%. You can see in our retail and industrial sectors, the valuations have largely stayed stable. In fact, some positive improvement and just a slight deterioration in value in the office sector. We'll touch on that in a minute.
The other aspect that we're very excited about is our solar PV expansion. As you can see, we've got installed capacity of 41 MW, and there is 21 MW of solar installations currently in play. We're hoping to have that finalized over the next 12 months-18 months. The big delay there is often local municipal approvals to install. The other aspect that we're very excited about is that acquisition of a stake in the Pan Africa Mall, and that is effective from the 2nd of May, so it's not yet in these half year results, but it will be included from 2nd of May going forward.
The reason why we say a stake, because it's a bit of a complicated structure in the sense that we acquired 51% stake in the existing mall, roughly about 16,000 sq m, and there's plan to expand it by a further 9,000 sq m. It will bring the mall to a 25,000 sq m development. Our total investment there at a gross asset value level is ZAR 418 million at a yield of 9.25%. In terms of our retail portfolio, as you can see, the movement in metrics in terms of GLA and number of tenants is principally driven by Mall of the South. That's roughly about 66,000 sq m large regional mall that have contributed those increase in tenants and in terms of GLA.
From a valuation performance point of view, as you can see across the board in terms of all our formats, positive performance, and that's supported by strong income and underlying operating metrics. Our vacancy in retail has improved to 5.5%. We often say that the bulk of the vacancy sits in the sort of non-core retail. Within our retail portfolio, we've got some office-related space. These are office space in a shopping mall, and also motor-related buildings, which is principally there to service motor dealerships. During the period, we actually sold one of those dealerships. As you can see, that's where the bulk of that vacancy sits. In terms of pure retail, the vacancy is only at 4%.
The key focus for us in retail in order to achieve growth from an OI point of view is on those renewal reversions. As you can see, we're certainly on our way to get flats or at least positive towards the end of the year, but at -0.5%, we're very encouraged by those signs. That's principally driven, as you can see, by the improvement in trading density, a 5% growth year-on-year, which leaves us with a very comfortable rent to turnover at 7.4%. We believe that bodes well for future lease negotiations. As you can see on the right-hand side, we'll be giving you some analysis of our renewal activity. The bulk of our renewals, either positive or flat, with a small element on the negative front.
Again, the point to make on our solar PV, the bulk of the solar PV sits within in this retail space. Over and above that 14 in progress, there certainly is some opportunity to start exploring whether we can maybe unlock car parks within some of our malls to see if that can also host some solar PV capacity. We're quite confident that we can look to even improve on that in-progress pipeline of solar PV for us. In terms of our office portfolio, on the valuation front, that negative performance there in the premium grade, that's principally based on income and expense assumptions, principally as driven by a couple of our buildings that used to be single tenanted. That's now multi-tenanted.
In a multi-tenant building, the landlord absorb a fair element of that common area cost, which has driven an element of that negative performance within the premium grade. On the other side of, or in the rest of the portfolio, we're very confident that we've bottomed from a valuation point of view, and that hopefully, as the economic cycle turn, we can start seeing an increase in valuation within our office portfolio. Vacancy there to 12.3% is principally driven by Centurion Gate office development there in Centurion. As I mentioned, those renewal reversions still at a - 13.6%. We foresee that to probably hover around that -13% to -15% for the foreseeable future.
In an environment where you've got excess supply and limited demand, that will be a key focus area and a continuous trend. We've just given you some analysis of what our renewal activity look like. As you can see on the right-hand side there, roughly it's 50/50. 50% of our negotiations is flat to positive, which again speaks to the point that not all nodes perform equally. We certainly have seen in Rosebank and certain parts of the Western Cape, that we managed to increase our asking rentals for our vacant space, and that's just drive that positive renewal performance. In terms of our lease escalation, still stay at a 6.8%, which is good, and tenant retention, particularly in this very competitive environment, is a key focus area for us. We're very pleased with that outcome of 97%.
On the industrial front, again, another very solid contribution from a very defensive portfolio. As you can see on the right-hand side, are well diversified across the various formats, and similarly, that plays out in the valuation performance of the portfolio, where consistently across the board, most of our assets have performed very well. The point about the vacancy, we call it a temporary vacancy, simply because we were quite fortunate to let Cato Ridge post period. We entered into a 5-year lease effective 1 July. As at end of March, I looked this morning, our vacancy in the industrial sector sits at 4.5%, and we would hope to maintain that to the end of the year. That renewal reversion of +4% is very encouraging.
Please just note it's on a very small percentage of the portfolio. I think it's roughly about, what's it? 2%. It's a relatively small element of the portfolio, but it does bode well for the industrial sector at large, I would suggest, 'cause, again, it speaks to the good demand within the sector. Certainly we've seen an increase in market rentals, which is very positive and will certainly bode well for the sector going forward. You could also see from a lease expiry profile point of view, fairly flat expiry profile, so we're quite confident that our industrial sector will continue to perform as expected. We're also quite pleased with some of those solar PV opportunities that we managed to unlock in our industrial portfolio, and we will look to further potentially expand that.
Similarly, we're quite chuffed with those Green Star ratings that we've managed to achieve in this portfolio, and we will look to potentially expand that. That vacancy renewal success rate of 90% was over 27%. That's obviously driven by Cato Ridge. Within this, vacancy of 7.1%, 70% is contributed by two assets, being Cato Ridge as well as Coega. Cato is let. Coega, we haven't yet signed. There's a temporary lease in it at the moment, but we're quite confident that in the not-too-distant future, we should be able to let that. Just lastly, to touch on our alternative income streams, what we used to call non-GLA. We're hoping to have this sector contribute roughly ZAR 100 million in the next 12 months-18 months. The pressure is on for the team to perform.
Certainly in terms of our LED network expansion, that's the chunk or the biggest element of contribution in this sector is within our network expansion there. There's certainly some further opportunities. The other nice thing about this is that it allows us to support a number of our SME and CSI initiatives, particularly in that we've got access, obviously, to our unsold stock within those advertising spaces and such like. Again, another nice sweetener just to enable us to manage some of these negative headwinds we've faced in the current environment. With that, I'm gonna hand over to Andrew.
Just moving on to Poland. You'll note here that over the past two and a half years we've had some nice expansion, growing the value of our Polish assets from just under ZAR 30 billion to just under ZAR 38 billion. In terms of the split, as you can see, 80% of this portfolio is retail specific, with 16-odd% logistics. In terms of some salient features for this period, I've mentioned the acquisition of the remaining EPP shares, but very importantly, it presents an opportunity for tax and operational efficiencies going forward, and those workstreams are underway.
As part of the acquisition of the EPP shares, that was a share buyback for these offshore shares, 50% of Power Park Olsztyn, which is a non-core asset, was used to partly settle the purchase consideration for the shares. The cash proceeds from the Towarowa 22 disposal is expected by the end of June, and we're hoping that this money will come sooner rather than later, because I think Mr. Nyawo would sleep far better at night with some relief on our LTV as a consequence of this money being repatriated back to South Africa. In terms of the takeover of the M1 portfolio from a property asset management administration as well as leasing perspective, that happened seamlessly from the 1st of May. A lot of planning went into that process.
In terms of solar plant installations, EPP is in the stage now of obtaining approvals, like we do here in South Africa, before they can commence the installations themselves. What is also very pleasing to note is that the energy prices are now back very close to the pre-energy crisis levels that drove that crazy inflation rate in Poland, as well as the rest of Europe. To note, draft REIT legislation is expected to be released later on this year in Poland. We'll be taking a keen interest in the legislation from a compliance point of view, and then obviously from an opportunity point of view. We're staying close to that one.
There's a draft bill being discussed at parliament level to relax the Sunday retail trading regulations, which is very good news for EPP. In terms of EPP's core portfolio, you'll note here that it's pretty static at ZAR 19.7 billion, and it's got a bias towards fashion and accessories at 37-odd%. In terms of the core portfolio, you'll note here that every metric that we report on is either stable or improving. The occupancy is stable at 98.4%. Renewal reversions are now positive at 2.7% versus a negative 6.7%. Tenant retention by GMR is healthy at 97.5%. Renewal success rate by GLA, very good at 57%. Indexation is a consequence of Eurozone inflation rates at 5.5%.
The weighted average unexpired lease term by GMR is pretty static at 4.1 years. Annual footfall is growing. The rent- to- sales ratio is still at a very healthy 9.4%. I think Leon would have mentioned 10% is the kind of ceiling there that you don't wanna exceed. In an environment of high inflation where rentals were increased as a consequence of indexation, it will tell you that our tenants are able to afford their rental bill every month. In terms of the joint ventures, a pretty stable outcome. Nothing surprising, nothing new, other than the Henderson JV that is office specific, which you will see there is taking a lot of strain on the occupancy side, having a vacancy of roughly 24 and a bit percent. That market is difficult and offices is an area of focus for us.
It is a pressure point in that Henderson's exposed to nodes outside of Warsaw, the one node that's still doing pretty well, and that's just anecdotally Łódź, Poznań, and Kraków, where those office assets are located. For the rest, everything's positive. Młociny does deserve a special mention in that its occupancy sitting at 98% is very, very good. It's starting to show very good not only trading metrics, but also from an investment perspective. Now that we have been able to secure the refi, we are able to now enjoy some dividend income from that venture as well. In terms of the ELI portfolio, it's been a quiet period. We've got three developments in progress, 100% let, and they will be completed at the end of this financial year, August, September.
That will add then to the active income GLA, which has been static at just under 1 million sq m. In terms of outcomes for the portfolio, the occupancy level sits at 92.3%. Leasing is challenging in Poland at the moment, and that's principally driven by the difficult economic conditions with Germany, who is principally the biggest trading partner of Poland, and that has an influence on the leasing market. There we have got a watchful eye on leasing, but nonetheless, it is an area that is showing some signs of challenge. Our renewal success rate is good at 67%. Our reversions remain positive at 3.9%. We have a very healthy weighted average unexpired lease term at just over 6 years. Our tenant retention is very good at 70.8%.
Our weighted average indexation rate is at 4.7%. Lower than EPP, and the reason why is because the timing of the indexation isn't mostly at the beginning of the year, as is the case with EPP, but is staggered as lease maturities arise or lease anniversaries arise. Okay, just in terms of self-storage, this is a very small part of our lives at this point, but has the capacity to become meaningful. You'll note here that our carrying value has doubled over the period from ZAR 183 million to just over ZAR 400 million. That was principally due to the acquisition of Top Box. Our active income producing net lettable area is 24,000 sq m.
Should we be able to do all seven developments that are under consideration, we'll be taking our net lettable area up to 50,000 sq m. Importantly, if you look at the right-hand side at the map of Poland, you'll see the key markets that we've circled in red. We've got at least one project per key market that we are looking at. Warsaw being the best yielding market from a self-storage perspective, you'll see a multitude of either pipeline situations or else a standing asset being Top Box over there. Okay, just in terms of adapting our strategic priorities to the evolving variables under our control for the second half of this year, we will preserve capital value through organic growth and asset optimization. That's a daily exercise for Leon and his team. Strategic allocation of capital to growth subsectors.
I just wanna assure you we are very careful and responsible with the scarce capital at our disposal. Principally generated through the dividend payout policy, but more importantly, non-core asset disposals, which hasn't been as prolific this period as previous periods, but there should be a bit more to come in the second half. An adaptation of our spaces to ensure they meet stakeholder needs is once again an ongoing focus for us. With that, I'm now gonna hand over to Ntobeko.
Thank you, Andrew. Good afternoon. If we just look at the key outcomes from the balance sheet point of view, I think it's very pleasing for us that our healthy liquidity headroom of ZAR 4.2 billion, which is made up of undrawn, committed, but undrawn facilities of ZAR 3.7 billion and our cash on hand of ZAR 0.5 billion. That gives us a strength in this constrained environment. On the LTV side, we've seen that increasing slightly just to 42.6%. That is primarily driven by the acquisition of Mall of the South, which is impacting that by 1.1%, that ZAR 1.8 billion acquisition. The interest cover ratio printing at 2.2 x.
It has come down from 2.4x, but that is something that we watch quite closely. You will see that in this environment, we are pleased that our cash generation continued to support our ICR levels at the peak of the interest rates. If we just look at the cost of debt, the group weighted average cost of debt printed at 7.2%, which is slightly higher than the 7.1%. We are pleased that the South African weighted average cost of debt remained flat at 9.4% if you compare it to the previous period. Where you saw an uptick is on the FX debt, which moved from 4.6% to 5%.
In this environment, I think we're very careful and very judicious in protecting the interest rate risk. That's why we remain hedged at 76.7, which is a stable hedging profile. We give you the split between the ZAR debt that is hedged for 83.7, and the FX debt that is hedged for 66.9. Very comfortable with our average term of debt, which is weighted at 3.5 years. If we just look at the LTV in the waterfall, when we last reported at the end of last year, it was at 41.1%. The real material mover, you can see it on the right of the graph there, which is the ZAR 1.8 billion, being the 1.1% Mall of the South acquisition.
The two items that typically move also quite in tandem to each other is the cash that we generate, which improves at 1.6%, and then the distribution that we had made as a final payment for FY 2023 at 1.6%. There is a bit of Forex, which I will also touch on now, and then you will see that also equally with the Forex coming through slightly as well in our see-through LTV that printed at 48.4%. On the covenant side, we're comfortable that we've met all, we're all within the covenants. As we generally do, we provide some sensitivities.
I think you can see that the recovery or the stabilization of asset values, those are the kind of sensitivity that it will have on the path that over a period of time as we look to bring our LTV to our comfortable medium term target range of 38%-41%. If we look at our funding profile, I think Andrew touched on that we completed the refinancing of Młociny at EUR 145 million for 5 years at a margin of 240 basis points. If you compare, that's very favorable to the previous margin that we had there of 300 basis points.
75% of this facility is hedged at 275 basis points, which you will note it is actually attractive because the spot 3-month EURIBOR is trading at closer to 4%. The floating piece, that's what is subject to the EURIBOR. The all-in cost of debt on this transaction is 5.4%.
We had a very successful issuance of ZAR 1.3 billion of bonds in SA that priced attractively on a 3-year basis above JIBAR at 135 basis points, on 5-year at 149 basis points, and then on 7-year, which is really where our sweet spot is for us because that extends our tenor at 165 basis points. I've touched on the liquidity profile. I think that's quite healthy and for all the unforeseens, that is, in the near term, I think we'll be able to absorb with that chest of our powder.
If we look at the weighted average funding margin in SA, we are pleased that it improved to 1.75%, which compares very favorable to the 2% in the prior period. In EPP, we're also pleased that their funding margin was stable at 2.5%. In the graph in the bottom, I think it gives us a lot of comfort that if you look up to 2027, we actually have a very flat maturity profile. We don't foresee any liquidity events that we can't finance given the appetite that you will have seen in the markets for our debt. I think on the interest rate hedging, that is really where our sharp focus is here.
As a guiding rail, we've maintained that more than 75% of our group debt will be hedged. Albeit that we're hedging for shorter tenors, given the fact that interest rates are higher and we're really trying to create some flexibility, if the interest rates start to shift, that we could actually be flexible around that. What we've did here in the period is we did refinance ZAR 1.6 billion of new interest rate swaps at a cost of 8.1%. That was opportunistic. If you look at where JIBAR was trading around the time, it was trading at about 8.3%. It was quite an accretive in terms of the spread.
I think the challenge here that we have, and it's really our focus, is that we'll maintain stable hedging and the inflation is expected to be persistently driving higher interest rates, and this will impact our funding cost over the period. If we move, I think, for us on our funding sources, very broad, you can quite see, but I think the pleasing point that's worth calling out is that we've improved that all the Big Four banks in South Africa are important funders now on the table, which actually for us lowers our concentration risk in terms of our funding sources. We'll continue to actively broaden our funding sources with other alternatives here.
Our focuses when it comes to this, I think, you know, the proactive renewal of our maturing facilities, especially I think Andrew touched on Henderson, that is coming up in June 2024. We'll actively with the team busy with that. As part of diversifying our funding sources so that we lower concentration. Interest rate risk management is very important, but I think we also want to make sure that we protect the earnings from the impacts of high interest rates while we're maintaining flexibility with shorter-dated tenants. In terms of recycling non-core assets and trying to promote our investment proposition will also over time open up the opportunities in terms of capital sources in the future.
If we move to operating efficiently, I think for us it is pleasing that the Active SA net property income margin in South Africa very stable at 82.5% if you compare to the prior period of 82.3%. I think also you'll see that at EPP, their net property income margin improved to 90.5%, but we do give you a footnote there that it's on the exclusion of the asset management fees. That number is impacted by that.
The number that we also truly watch is on the graph on the bottom right of the screen, which is the net operating profit margin after taking the overheads, where you'll see that the group has got a net operating profit margin at 77%. We are very clear working forward that that number we targeted over the medium term to get closer to 80%. You'll see in South Africa it's closer to that, with their net operating profit margin printing at 79%. At where we've got work to do and we're focusing on that, in EPP we would like to get that 72% higher closer to our target over time.
We do provide the sensitivities at distributable income cents per share, and largely the impact will be on the interest rates, both in the euro rate if it moves by ZAR 0.5, you'll see the ZAR 0.4 impact on the earnings. Equally also on the ZAR side, that if it moves by ZAR 0.5, it will also have an impact movement of ZAR 0.4 . We are pleased at that with our digital ratio that has improved to 29.6%. That's part of us focusing on efficiencies so that over time we'd have an efficient business that supports us maintaining those healthy operating profit margins at the group.
Just to touch on the net arrears as at the reporting period as at the end of February, you'll see an uptick in South Africa to ZAR 103. That was largely related to two tenants, and I'm pleased to report that since then, now we've been able to collect and those have normalized. Similarly also in EPP, you'll see an uptick to ZAR 86.2 million, which, as at the end of February, was the truing up of their service charges. That also I'm pleased to report that as of today, those has been recovered and collected from the tenants. Those have also normalized.
One of the things that we also very pleased about is our collection rate, which you will see in South Africa is sitting at 99.5% and in EPP on the directly held properties on core is sitting at 99.2%. If we look at distributable income, which grew by 6.1% to ZAR 1.7 billion, that is 75% of that ZAR 1.7 billion comes from South Africa, and the 25% is a contribution coming from offshore. In that offshore contribution, you'll see in the waterfall is largely driven by really us normalizing, which is something we also guided to at when we spoke at pre-close, is that we'll normalize the distribution from the JVs.
That is coming through from JV communities as well as the M1 JV. That's why you see that EPP a number there coming at ZAR 192 million. Then the NOI of active portfolios, that's really on the positive organic growth of 3.5% out of the SA portfolio. Where the pressure is, which really is offsetting some of these tailwinds, it's really just on the funding cost you'll see on the last two blocks being the net ZAR funding cost increasing by ZAR 160 million and our euro debt increasing by ZAR 97 million.
That's offsetting those, and then that's why we have the ZAR 1.7 billion outcome. If we move on to NAV per share, I think we're pleased that the NAV grew by ZAR 0.143 to ZAR 7.83 per share. I think largely what is driving this, you know, a weaker rand is NAV positive. You can see that in the second block of ZAR 12.8 coming through in terms of our offshore investments translating into ZAR. The two blocks that are also quite key here is the profits, the earnings that we generate, as well as the fact that we are in a normal dividend-paying cycle. You'll see that playing out in the NAV.
I think we look at the valuations, also that property valuations largely driven by the outcome in the South African portfolio and also a little bit of a flat outcome in EPP. I think it's very important for us that we're very balanced in trying to get to a consistent and a sustainable payout ratio of 80%-90%. The factors that are consistently looked at, we look at maintaining the relevance and how defensively we can reposition our properties. We look at managing liquidity. I think in this market-constrained environment, we really have to be careful with liquidity. Preserving shareholder value, I think we're always very clear that we will preserve that value and avoid tax leakages.
I think, given where we printed LTV, for us it's a very focal point that we have to, in the medium term, try to bring that down to our target range of 38%-41%. Then I think in these environments of higher interest rates, the ability to repay debt, which we measure through our interest cover ratio and maintaining the covenants is quite important. In looking at that, we with the earnings at a per share level, distributed income per share of ZAR 0.253, the dividend per share is ZAR 0.203. That works out to an 80% payout ratio, which is on the lower end of our range.
I think as things start to get better in the second half, we'll look at that and bring that. We're still within that range. I think on a case-by-case basis, we do look at a dividend reinvestment plan. For this distribution of half year 2024, we will not be offering a DRIP for this distribution. The focus areas here, I think for us is very clear. Preserving operating profit margin, which will be a combination of growing our rentals, being very efficient and being very disciplined around our cost measures. I think the efforts to retain and attract tenants and offering a compelling value add is very important.
Supporting all of these initiatives is leveraging technology and seeing how we can put technology into some of our key processes to transform the tenant experience. If I then move on to engaging talent. I think it's pleasing both in South Africa and in Poland that we've got a high employee retention rate in South Africa at 95.5%, which compares favorably to the prior period at 86.7%. In Poland, similarly, we have a retention of 96.3%. I think also the ethical maturity score at 88th percentile is very pleasing for us.
I think as part of strengthening our culture, we're also pleased to report that we, in South Africa, we are participants in the International Finance Corporation's Respectful Workplaces program, and we are pleased with the Friendly Workplace award that was awarded to EPP in Poland. The focus areas in terms of this, I think, building our future fit skills so that we can continue to develop the scarce skills to support the strategy delivery in our business. I think also more importantly, infusing that with a culture where we're opting for the upside. That's why we're owning the upside, is something that we're spending quite a bit of time as well with the teams across the business.
As part of the outcomes as well that we're focusing on is to cultivate an inclusive and diverse, high-performing team that is able to be creative and foster innovation. I think for us, if we just move on to grow reputation now. We're very pleased. I mean, we just shared this with you, some of the recognition and the awards that we've been awarded in South Africa. More importantly, if you look on the top right, it's really how integrating ESG is playing out in some of the key aspects in our business, like in the balance sheet.
We are quite pleased that we've raised green funding of ZAR 11.7 billion in our journey, and that translates roughly to about a third of our debt. We're seeing that over time, these capital pools will form and get larger. Our ability to obtain tenor with them is really attractive from a balance sheet point of view.
We also share with you some of the awards from an environmental point of view, like the eco certification of S&J, which is pleasing, and it's the first one outside of North America, as well as also on the social where we do being the top employer and all the good things that are done in South Africa. If we look at Poland, I think also we're just sharing the awards with you here in terms of some of the accolades. I think more importantly is if you look at the BREEAM certification of 88% of the portfolio being BREEAM certified also bodes very well for some of the initiatives we're doing in raising funding with green assets in that part of our operations.
If I just quickly cover the key focus areas here for the second half around here, I think for us to collaborate with our stakeholders so that we can really expand the sustainability initiatives. We think of it as an ecosystem, and I think also to create sustainable social impacts through how we can accelerate some of these initiatives. If you look at that from a pathway to net zero, we're always very clear. Energy efficient will always be our primary focus, and then secondly to that, we look at alternatives, and then as a last resort, we look at carbon offsetting. This, as we do, it will reduce our reliance on municipal supply utilities. It's very innovative. You've seen the.
Our initial yield, which is in mid-teens in our solar, is really coming through also in our initiatives. With that, I'd like to then hand over to Andrew for wrap-up.
Thank you, Ntobeko. Okay. Just moving on to the last stretch of our presentation this afternoon. Our business as real estate managers is actually quite a simple one in that we don't have many levers at our disposal. What is absolutely critical is knowing what those levers are and knowing what not to touch in an environment where there are a number of unknowns. For us, it's about focusing on the variables under our control. We know there'll be a lot of aftershocks to the normalized interest rate horizon. However, there also will be opportunities, and that is what we are alive to. Just from a direct influence point of view on value creation, capital allocation, absolutely critical in terms of building a quality, diversified portfolio that is capable of delivering sustainable risk-adjusted returns.
Capital sourcing, very much under our control, as you would have heard from Ntobeko, in terms of our focus on balance sheet management to ensure sustainable growth, and that is focusing on a proactive and conservative basis, that approach. Then very importantly, rental growth and cost containment. This is where new data and digital platforms are important to accelerate our endeavors, but this is an ongoing focus for us. On an indirect basis, from an influence perspective on value creation, team and culture, you would have heard from Ntobeko when he spoke about engaging talent, rather. We need to invest in and transform our human capital to enable the creativity and foster innovation. That's an ongoing area of focus for us.
Very importantly, stakeholder experience in terms of embedding ESG into everything we do by embracing collaboration to extend that reach of our sustainability initiatives. Just with that, on the outlook side, the distributable income per share guidance that we've provided previously is maintained at ZAR 0.48-ZAR 0.52 per share. Our dividend payout policy is at the 80%-90% range. We have opted for the lower end of that policy, given the ICR challenges, given the LTV numbers, and also just giving us a little bit of a buffer during this period through the elections and so forth. I wanna assure everybody, our intention by year-end is to get back to where we normally settle, which is probably at about the 85% level by year-end, if all our thinking and plans come together.
Just with that, I wanna firstly thank you for your time and attendance this afternoon. I just wanna touch a little bit on opting for the upside, if I can. You may recall that last year we adopted this as a theme in terms of seeing the opportunity in every challenge. I think as we are journeying through this higher for longer interest rate environment, the resilient approach to business is now going into an endurance approach. This approach requires a cultural shift to mindful optimism. We're doing that at Redefine, but if I can encourage each and every one of you to also join us on the upside and adopt that mindful optimism approach, it will be hugely supportive to us in our journey as we get back to normalized interest rate pro
Environments, which we know is the biggest catalyst for improvement of all of our trading metrics. With that, I want to thank you, and we're gonna now go on to some questions from you. We've got a number, and I'll read them out, and then I'll hand them out as I deem fit. The first one is from Nazeem Samsodien of Investec. He's asked, "Can you provide more detail on the takeover of the M1 headlease? Where is MPI tracking versus the previous headlease? Any potential risks of lower operational cash flows from this JV? If so, can you provide a quantum?" Nazeem, firstly, it's very early days in terms of the takeover. We took over the management of the M1 portfolio on the 1st of May.
As you know, today is only five or six days thereafter, with a weekend and a public holiday in between. We haven't had a lot of time to get to grips with the service charges, which is the unknown. At this point in time, we hadn't received any access up until now on the service charge recoveries from tenants, and that, unfortunately, gives me some degree of being unable to answer your question on MPI tracking versus a previous headlease. We will only know that in due course, and we can update everyone on that when we have clarity on it. There is no, as I stand here now, no known reasons why the cash flows out of this JV will be impaired. That's all I can unfortunately provide you with at this point in time.
In terms of Nazeem's second question, ELI leasing challenges is his question. He says there's no vacancy risk from the long WALE as per slide 25. Thank you, Nazeem. But should you not look to recycle some of this portfolio to reduce LTV? The answer is absolutely, Nazeem. You're right, we have earmarked a couple of properties that we'd like to dispose. Unfortunately, the transactional activity in Europe, not only in central Eastern Europe, is very subdued and massively opportunistic. The reason why it's subdued is because of the high interest rates. Then the opportunistic guys out there are throwing very crazy offers at us which are unacceptable to us because they would be value destructive. Moitshu Nene from SBG Securities asks, "Has the payout ratio decreased to 80% as a direct response to the 2x ICR?
Would the payout ratio change with the ICR improvements? Ntobeko, do you wanna answer that?
Yes, thank you, Andrew. Moitshu, that is quite right. I think our ICR printing at 2.2 x, we still think that we believe there's a sufficient strategic headroom, but I think we're being very conservative in the first half earnings, as Andrew alluded to, with a payout ratio of 80%, that we would like to get that in the second half closer to the median of our 80%-90%, being 85% in the second half.
Thanks. Thanks, Ntobeko. Okay, moving on to Francois du Toit from Anchor Stockbrokers' question. I must just point out this is an accounting question, so Ntobeko, you're gonna have to jump in here, please. His question is, there was a ZAR 294 million in quotes, equity accounted investment contribution to distributable income for EPP and ELI. How has this been determined? Looks like FFO from the EPP and ELI JVs. At what exchange rate has these been converted to ZAR? And how has waterfall dividends to PIMCO and I Group impacted the distributable income contribution?
Thanks, Andrew. Francois, I think just to give you the makeup of the number, you're right. It is our cash-backed income from the underlying JVs in EPP and includes the ELI component. The ZAR 294 million is made up of the community JVs, which is our share of ZAR 104 million, and then the host JV, which is the M1, distributing ZAR 177.7 million. Then there is an ELI of ZAR 11.5 million, which you must include, which excludes the interest on the shareholder loans. That's how you get to the ZAR 294 million, and this is all cash that has been pulled up through the structure.
The exchange rate that was used is the average for the period of the EUR/ZAR at 20.29. That's the exchange rate that was used. You will see the FEC that comes out in the forex line.
Thank you, Ntobeko. Okay, the next question is from Moitshu Nene, and it's for Leon, and that is: What proportion of electricity will be covered by solar by FY 2024? Please give a range.
Moitshu, in 2023, roughly 9% of our electricity consumption was supplied by solar PV. It's difficult to estimate by end of this financial year, but if we complete that 50% increase in capacity, the range would be between 10%-15% will be supplied by solar PV.
Thank you, Leon. The next question also for Leon is also from Moitshu: What is your WALE on the SA industrial portfolio?
Moitshu, I'm not sure if you, when you say WALE, you mean weighted average lease escalation. For industrial, that's 6.5 years. But if you're referring to the WAULT, the weighted average unexpired lease term, that's 5.2 years. The detail of this is on slide 83 in our supplementary information.
Okay, moving on. Francois du Toit once again has a question here: At what EUR/ZAR exchange rate was the EPP earnings converted to ZAR for distributable income in the first half of 2024? So, Francois, it would've been the average rate that, Ntobeko quoted earlier. Was it 20.29?
It's 20.29. Yes, yes. That's right.
Okay, good. All right. Zinhle Simelane from MSM Property Fund asks: Please talk to the retail trading stats and trends in the EPP core portfolio, trading density growth and sales growth. What was the like-for-like valuation growth for EPP core, and can we get an update on the Talis government office portfolio and the effects of the restructuring? Those are three parts to your question. Just, Zinhle, in terms of your first part, I think we can take that offline if you want us to talk to the retail trading statistics, because we have provided you there with the trends, firstly from the actual retail sales within the portfolio itself, and we also did provide you with the category split in terms of the portfolio itself. But we're happy to discuss that at length with you.
In terms of the like-for-like valuation growth, Ntobeko, on EPP core? Was it-
Sorry, me?
The valuation growth for EPP Core, was it?
EPP-
The valuation.
Growth was flat, actually.
Yeah, essentially flat.
Essentially flat, yeah.
Okay. All right, Leon, on the government leases portfolio?
Essentially, firstly, the full detail of the entire portfolio is disclosed on slide 91 and 92. Just in terms of rough headlines, the vacancy within that portfolio sits at 27%. This restructuring, as we indicated last time, in terms of the ownership restructuring, allows us now to actively participate in government-related tenders. We are actively participating in a number of those, and we've had some success. Unfortunately, within the portfolio, there's still, by GMR, 42% of the leases in place still on a month to month basis. We're actively looking to conclude full leases on those, which hopefully will play out in the next 6 months - 12 months.
Okay, thank you very much, Leon. Okay, in terms of other questions, Chris Reddy from All Weather Capital asks, "What are the key drivers to bring down the LTV to the range of 38%-41%, and over what time period? What are the strictest LTV and ICR covenants, and what portion of the debt stack does that represent?" Ntobeko, do you wanna answer?
Yes, Andrew. I think, Chris, just firstly on the first part of the question, the key drivers for us that will bring the LTV to the range is the stable asset values, which I think we started to see in SA. That will drive and we do give that, for example, on the sensitivities on the LTV, that if SA properties value change by 1%, which is ZAR 0.6 billion, has got an impact of ZAR 0.3 billion on the LTV. Then the other one would be the non-core disposals. I think you will have seen in the first half that that number was at ZAR 311 million out of the SA disposals.
If the market conditions improve, that number actually, you'll know in our past, used to be a much bigger number. So that would be our other approach. I think also there is cash that is earmarked, which Andrew talked about, which is the Towarowa process between EUR 39 million and EUR 42 million, that if we bring that back, our intention is to utilize that cash towards reducing debt and gearing in the balance sheet. The period, it's over the medium term, which is the 18 months- 36 months. The second part of the question, the strictest LTV is 50%, and the ICR is 2%. It's important that it's lax on the bilateral debt or the secured debt. On the bonds program, we only have the ICR covenant.
Great. Thank you, Ntobeko. Okay, Aheesh Singh asks from MP9 Asset Management, "In the FFO calculation on page 57 of the presentation, the foreign exchange gains or losses relating to capital items realized and unrealized is ZAR 931 million. How much of that number is unrealized?" Ntobeko?
Okay.
Good to know.
That ZAR 931 million, the unrealized portion of it is ZAR 453 million, and then the realized portion is ZAR 478 million, which I think just largely was driven by the settlement of the maturities in our cross currencies.
Great. Thanks, Ntobeko. Okay, Keith McLachlan from Integral Asset Management asks, "Can you quantify the gap in funding costs in your non-green to green debt pools? Even a rough estimate would be of value." Ntobeko?
Look, in the SA market, what we've seen is that between a vanilla instrument and a green instrument, it ranges based on the KPIs that are agreed in that issuance, but it's somewhere between 4-8 basis points. That's what we've been observing in the market. It's not that much of a difference, to be honest.
Great. I think, Keith, it's not the cost itself that is the driver for this. It's more the access to new funding sources and diversifying our funding sources. Maher Hamdullah asks, "Can you please speak to the rationale supporting post-period end acquisition?" Maher, I think you're referring firstly to the EPP remaining shares that we do not own, that we're acquiring, as well as in the Pan Africa Mall acquisition. Dealing firstly with the EPP remaining shares in issue, we need to, as you would have seen from the operating margin statistics there that Ntobeko showed earlier, Maher, we need to lift EPP's margin to the 80% level. Part of the rationale for the takeout of the remaining shares is principally for that reason.
From a tax efficiency point of view, we are busy reviewing how to best hold EPP going forward, and that speaks to actually all our Polish assets. Once again, having it wholly owned gives us a lot of flexibility in that regard as well. Strategically, it is really driven by efficiencies as well as, tax. I don't need to remind you that EPP now is in a dividend paying position, which is very beneficial, too. From the Pan point of view, why did we acquire Pan Africa? It's simple. Pan Africa is in a sub-sector of the retail market that is showing resilience and growth. What we are doing is we are recycling capital out of non-core assets.
Ntobeko touched on the ZAR 300 million that we sold in the first half, more to come in the second half, that will more than cover the outlay of that, investment. It is recycling into growth subsectors from non-core assets. In terms of another question from Damian Wright, he asked, "Can you give more detail on the increase in administration costs, notwithstanding the LTI?" Ntobeko?
Thanks, Andrew. Damian, you're quite right. The driver there is really the LTI, which it was the unwind of the provision that lowers the pace given that it vested about 37% of the expected outcome. That's really what drove the increase. Then, some other costs were largely, I think, within inflation.
Great. Thanks for that, Ntobeko. Okay, just Chris Reddy once again has a question: Can you comment, Leon, on any space reduction discussions with Pick n Pay?
Chris, just also to note on slide 94, we give you detail of our Pick n Pay exposure. I think it would be unfair to say that the discussion with Pick n Pay is only space reduction related. Frankly, the conversation with Pick n Pay is around how do we improve their trading densities. From that point of view, I do think they certainly have identified the core of the problem. An element of fixing trading density is potentially some space reduction in certain stores, particularly the back of house areas. Then secondly, and more importantly, is to reinvest capital in some of the stores that was deprived of capital or CapEx in the past. It is a larger conversation, and we are not unduly concerned about our exposure to Pick n Pay Supermarket in particular.
For instance, in our retail sector, 4% of our GLA is exposed to Pick n Pay Supermarket, and in the total portfolio, that translates to 1.9% exposure.
Great. Thanks, Leon. Okay, Luqman from Ninety One asks, "Can you provide any color on the pro forma ICR covenant? ICR has been steadily declining. Are we at the low point at 2.2 x, Ntobeko?
Yes. Luqman, I think our view is that if we are at the peak of the interest rates, this is the maximum pain. I think you'll have seen in our essay, our cost of debt has actually also peaked at about 9.4%. We think the European debt will peak at about 5%-5.5%. We think ICR won't actually breach the covenant at 2x. We're quite comfortable as well that I think some of our plans, if you factor if we bring back and utilize Towarowa cashflow, that ICR actually improves to about 2.3x-2.4x.
Great. Thank you very much. Okay, just from Lwando at Anchor, he asks, "On Poland REIT legislation, would you look to list the Polish assets if Poland has a REIT legislation?" Lwando, we would have to assess what this REIT legislation will look like and what cost of capital will be in that market. Note that the REIT would have to be listed on the Warsaw Stock Exchange, and you will be competing with Polish long-term government bonds as a reference point. Just rule of thumb, you know, applying a 200-300 basis points kind of risk-adjusted basis to what the current government 10-year government bond is, you're looking at a circa 8%-9% range of valuation, which I don't think would be, you know, appealing enough for us at this point.
We'll have to see how that progresses in its early days. Francois du Toit asks, in terms of the exchange rate conversion of Polish earnings to the effective rate for distributable income purposes, not the segmental. In effect, please explain the calculation of the ZAR 19 million foreign exchange profit, including in the distributable income calculation, please, Ntobeko.
Thanks. Francois, quite happy to take this offline with you, but I think what you are looking at here is that the earnings are converted for, if it's required right, at the 20.29. The 90 will relate, which comes out in our FX. You will see in slide 64 in the supplementaries, which is we always disclose how much of FECs have we brought forward in terms of the earnings that we expect. You will see for this for the full FY 2024, we expected EUR 42 million at a rate of 23.3. Of course, that will be higher than the average rate. That's where you will see the profit.
Okay, thank you for that. Okay, Maher Hamdullah has a question, a follow-up on the EPP NCI acquisition. How does acquiring minorities improve margins? I think, Maher, both of us do know that you don't acquire NCI to improve your margin. What you do as a consequence of not having NCI on the books is that you are able to reduce regulatory compliance that you currently have to maintain. For example, being domiciled in Amsterdam and having to comply with all of those requirements as long as we have external shareholders is problematic and costly for us, and it speaks to, once again, cost reduction once we have a simplified shareholding, which ultimately then translates into operating efficiencies. Okay, so it does not appear that we have any more questions.
With that, I wish to once again thank all of you and once again remind you to mindfully choose to opt for the upside. Thank you.