Good afternoon, everybody. Welcome to Redefine’s group interim results for the half year ended 28 February 2023. Before I start, I'd just like to pay tribute and acknowledge the significance of the loss of Thabo Ramushu, who, as you know, recently passed away, and who was a dear friend of all of us. I'm sure we all have many, many stories to share about the good times we enjoyed on property tours, on investor discussions, and the like. We will miss him, and we would like to express our condolences to his family, his colleagues, and all of those people whose lives he touched during his illustrious career within the real estate sector. Moving on to our results and the outcomes for the first half. I'll be talking about the strategic outcomes. I'll also talk about growing reputation. Leon will talk about investing strategically from a local perspective.
I'll talk about investing strategically from a Polish perspective. Ntobeko will then take over and talk about optimizing capital, operating efficiently, as well as engaging talent across the board, and I'll wrap up at the end, just to give you a flavor of our conversation this afternoon. In terms of growing reputation, we are very proud to be the first South African REIT to have achieved three buildings to be net zero carbon rated, and that is from the GBCSA. Following that, we've also received substantial recognition from a number of ESG ratings agencies, specifically Sustainalytics, where you'll see that at this current reporting period, we were recognized as an ESG industry as well as an ESG region top-rated company.
Unfortunately, it's not a headline per se from a good news point of view, but something that we do need to note, and that is that our current pace of diesel consumption jeopardizes our achievement of our greenhouse gases short-term reduction targets. In terms of investing strategically, I'm very happy to share with you that we've finally restructured the ownership of our government tenanted office portfolio. We'll talk about it in due course. EPP has finally been restored to a cash-generating investment proposition. We've also made further progress on establishing our presence in the Polish self-storage sector. From an optimizing capital point of view, our loan-to-value ratio has been maintained within our medium-term target range. This period, we issued ZAR 3.2 billion use-of-proceeds green bonds. That speaks to our underlying ESG strength that's enabled that.
We've been able to secure renewal of all our loans maturing in 2023, which is a significant milestone from a reduction of liquidity risk point of view. In terms of operating efficiently, we are very pleased to report that our active SA net operating income margin has improved in this challenging environment by 1.1% - 82.4%. Our tenant retention ratio by GMR is a healthy 96.6%. That's well up from last year's 92.1%. Our expansion of solar PV continues. Around about 13 MW peaks is in progress at this point in time. In terms of engaging talent, 71.4% of our local staff were promoted from our African colored and Indian component, and that speaks to our ongoing endeavors to create a diversified workforce.
In terms of future fit skills, our Exco and Manco members are all underway in terms of being trained as to how to approach situations where there's ambiguity and paradox, which is much of the environment in which we find ourselves now in which we operate. In terms of our learnership program, it still continues to be rolled out. We've got 60 learners in the program in this year. That's our calendar year. Just in terms of growing reputation, you'll see on the environmental front, I've already mentioned the diesel consumption challenge we've got, and unfortunately, that is as a consequence of running extraordinary amounts of backup power generation during intensified load shedding. Waste stream audits have been introduced to 78 properties in the South African portfolio, which will improve our waste management being diverted from landfill.
Water saving initiatives continue to be rolled out with our Propelair water- efficient toilet system across the South African portfolio. You'll see that 29 Green Star certifications, including retail and industrial properties, is in progress, as well as 26 recertifications. From a social perspective, we have looked at our business continuity plan to make sure that it will respond adequately to extended periods of power outages. Our view is that a national grid collapse. It carries a low probability. However, it is possible. More likely is extended periods of power outages, and that is what we've addressed through bolstering our business continuity plan. In terms of supplier sustainability, ESG self-assessments, that's underway. We've already got nine suppliers having done that or completed the assessments. From a tenant awareness point of view, we are now starting to extend our ESG awareness.
Tenants occupying 280,000 sq m of GLA have already been formally engaged on our strategy. In March, we launched Maponya Mall's Community Hub. There'll be more on that shortly, so I won't talk about that outcome at this point in time. In terms of governance, we've strengthened our compliance post gray listing with the adoption of a standalone anti-money laundering policy. We're incorporating ESG in our due diligence processes from an acquisitions and disposals point of view through a building score matrix. We've improved our Sustainalytics management score, which has lifted from 62.1 last year to 66.8 in this reporting period. Then just lastly, from an EPP integration point of view, our climate risk framework is close to completion.
Just in terms of our purpose, our vision, and mission, just to note that they've been refreshed in line with our moonshot so that we have an integrated approach to everything we do and everything fits together seamlessly. In terms of our pathways, similarly, we've refreshed them. We haven't changed them. We have just made them easier to understand, to explain, and also to adopt from an actions point of view. Very importantly, what we've done is we've attached outcomes to each one of these pathways so that we can actually not only describe the pathway, but also demonstrate through actions where we are in terms of outcomes going forward, as to whether we are actually arriving at that destination set out in our mission. In terms of socioeconomic developments in action, you'll see here that in South Africa, we have got a number of successes.
Once again, there will be an audio visual outlining far better than I can all of these points. Then in Poland, we continue to support the Ukrainian refugees there through a number of initiatives, from financial support through to helping children, providing collections of essentials, as well as training adults so that they are able to sustain themselves going forward. In terms of the second half outcomes, our focus is on reducing consumption from the grid in terms of energy supply through efficiency interventions, collaboration with key stakeholders and solar expansion. We aim to create sustainable socio-economic impact through SMME developments and also the restructure of the Redefine Empowerment Trust. Lastly, strengthen the oversight and reporting, including the levels of assurance applied to non-financial information.
This is especially important when we are looking to reduce our carbon emissions, et cetera, where we need to focus specifically on that non-financial information. What I wanted to also draw your attention to before I hand over to Leon, is the graphic on the right-hand side. Throughout the presentation, there will be three of these, one for each of the sectors, this one being Queen Square. These are live examples of best-in-class ESG design features. They're not just graphics. Please look at them. We'd love to talk to you more about them with Anelisa when we do our ESG roadshow, which I think we're planning towards mid-year. With that, I'm gonna hand over to Leon .
Good afternoon, everyone. As far as the property asset platform is concerned, our property assets under management is now at ZAR 94.1 billion. That increased from last year at the ZAR 88.9 billion- ZAR 94.1 billion, principally on the back of a weaker rand and the benefit of the geographic diversification coming through from the investment in Poland. You'll see it's been a relatively slow year compared to Redefine standards from a disposal point of view. During the last six months, we executed disposals of ZAR 1.4 billion. As you can see, these were the transactions that we highlighted to you at year-end, where they were in progress at last year. Similarly, for the remainder of the year, there's about ZAR 200 million of asset disposals underway.
That's why we do make the point that we believe the asset platform is now largely repositioned and we will focus on improving what we've got. From a uses of capital point of view and capital allocation point of view, the bulk of the CapEx locally has been spent on the three sectors, as you can see, and there was focus on expansion as well as improvement to make sure that the properties are well-positioned for once that cycle turns. Offshore, the focus of capital allocation has been on expanding, in particular within the industrial portfolio. Locally, the asset value of ZAR 58.9 billion. As you can see, we continue to be retail biased. 41% of the portfolio is invested in retail, followed by office at 38%, and then lastly industrial with a small component of our specialized portfolio.
That is just short of 4 million sq m of space, so it is a very sizable portfolio. As you can see the trend line on the right there, the portfolio is starting to stabilize at an average value per property of ZAR 227 million. In terms of all the other operating metrics, and as we touched on the sectors, you will see that largely we've had a very stable period, which is underpinned by very active property management as well as asset management. That's why we do believe that we've hopefully reached the bottom of this trough, and once the cycle turn, we will hopefully benefit from that.
Similarly, if you look at that expiry profile on the right, not a very demanding unexpired expiry profile as far as GMR is concerned, and we actively look to make sure that we don't have any undue peaks in that profile. Our unexpired lease term at 3.6 years, as well as the weighted average lease escalation of 6.4%. Now, obviously, that's been a focus area for us, and particularly in an environment of higher inflation, hopefully will assist us to conclude escalations at a similar level. In terms of our outcomes, the portfolio valuation is largely stable. If you can see the movements on the bottom right-hand side is principally driven by the office side. The fundamentals in terms of exit cap rates have largely stayed the same.
Discount rates have slightly moved up on the back of high interest rate numbers, but the movement in valuation is largely driven by income assumptions, particularly forward-looking on the office front. The active vacancy at 7.5%, a slight uptick from 6.7% at year-end, and as we signaled at our pre-close. The reason for that was principally within the industrial portfolios. Not necessarily indication of underlying weakness, was more two single properties that have gone vacant. We're quite comfortable that there is decent interest expressed in those, and we'll touch on that during our industrial slide. The solar PV projects in progress, ZAR 142.5 million. That certainly is a continued focus area for us. However, once we're done with this pipeline, further massive expansion, that is limited.
As you would know, in the office portfolio, where there is big demand for electricity, we don't necessarily have access to large roof space. For us, the next real opportunity as far as solar PV is concerned is once we've got a more user-friendly and commercially viable wheeling framework, which would allow us then to generate in, for instance, our industrial portfolio and wheel that to high energy users in our retail and office portfolio. On the letting front, we often show this number, and not necessarily to say anything else, but there is decent activity underfoot. Yes, we can get caught up with the very negative news flow, and it is tough out there. However, activity is still very healthy and active for us. As you can see, 450,000 sq m of letting.
ZAR 160,000 of that was in new deals, and that's across all three of our sectors. The tenant retention, which is a key operating focus for us and from a property management point of view, give us an indication of tenant satisfaction and our ability to form long-term partnerships, for us is a key focus area. We're very pleased with that 96% outcome. Renewal reversions at -7.5%, certainly not where we want to see it still, and driven principally by the office portfolio, but we are seeing a decline in that. As you can see, at half year last year, we had -12%, and at full year last year was even higher in the double teens. That certainly for us is trending in the right direction and will be a continued focus for us.
On the retail front, a portfolio of ZAR 24 billion. As you can see, we've got a very nicely diversified portfolio split between regional and community and convenience centers, principally. Only one superregional in Centurion Mall, making up that 15%. Then again, the points on the lease expiry profile. The team have already actively been working on that 22% that's coming up for renewal next year. In terms of operating metrics, we're very pleased with the underlying retail performance. Our trading density is up by 5.5%. Our active vacancy, similar to other levels. You can see the analysis on the right-hand side of where that vacancy sits. We're quite comfortable that, in fact, we can look to reduce that. The other component is more of the office component within some of our retail nodes, which is driving that up.
Tenant retention continues within the sector at a 96%, and the renewal success rate at 75%. I think it's a very pleasing outcome, particularly if you take into consideration the renewal reversions is only a -3.7%. That, for us, is a key focus. We've given you an indication there on the right-hand side of where reversion sits. You can see it's not just one-way traffic. On the negative reversion front, 26%-28% of the deals by GLA reverted negatively, where the bulk of it was either flat or positive. That's indicative of underlying footfall growth, turnover growth, supporting those lease negotiations. The weighted average lease escalation, we think has bottomed at a 6%, and we will continue to look to do deals at 6%-6.5%.
Again, on the solar capacity front, our retail portfolio is the sector that lends itself best to it, in that it operates seven days a week and it's got access to large roof space, and that's why the bulk of our investment in solar PV sits within the retail space. On the office front, ZAR 22 billion portfolio, but the biggest point to note on this slide is that composition of the portfolio, where 86% of the portfolio sits in premium and A grade. You'll certainly see in the next slide how that supports our letting efforts. As far as vacancy is concerned, a slight improvement from 14.4% - 14.3%.
Again, if you look at the right-hand side, our premium grade office space, which I must remind you is 50% of the portfolio, sitting at a 6.7% vacancy. Absolutely very attractive, and the key focus would be then on that, secondary and A grade space to sort of let that. We continue to see very good demand in well-located office buildings, particularly in the Sandton node. Access to public transport and such like certainly does support lettability of those buildings. In terms of our tenant retention, a very healthy 97% and very good letting activity. Even though our renewal rate at 49% is not quite where we want it to be, I think in the current environment, where it is absolutely a tenant's market, where there's abundance of space available, that is a very good outcome.
In particular with the reversion rates at a -12.4%. We indicated before, we continue to foresee that rental levels will be depressed, and we don't see this revert or reducing substantially over the short to medium term. At those levels, it certainly is trending in the right direction. Again, giving you analysis of where it sits. I think the positive to take out of those positive and flat reversions is that it's not just one-way traffic. 30% of our lease negotiations, we managed to either negotiate a flat renewal or slightly positive. That is a key focus area, and that's potentially where we will foresee the most pressures on the rental front within the office space.
Our lease escalation at a 6.8%, again, given the heightened inflation environment, we would look to tweak that up slightly. On the industrial portfolio, certainly a portfolio has been that's proven to be very defensive for us. The nice thing to note here, if you look at that analysis of the portfolio by type, it's well diversified across the various aspects. We don't have any undue concentration of any other type of assets. Again, a very nice long flat maturity profile on the lease expiry. In terms of the outcomes on industrial, the active vacancy, as I said, there was the slight tweaks to buildings. In particular, one's Wynberg that has gone vacant.
However, we're very confident that there's healthy interest in that building, and we would look to have it let at least come August. In terms of letting activity, also very good, 161,000 sq m, 36% new deals. The most pleasing aspect or the outcome for us on the industrial front was on the renewal front, where we managed to increase to a positive reversion of 1.3%, which is indicative of good demand within that space, obviously limited supply. We're very hopeful that we can see a continued growth in market rentals that will support positive renewal reversions. Now, lease escalation, we managed to tweak that up to 6.5%. Solar PV certainly is also starting to look quite attractive within the industrial space.
Again, our industrial portfolio will be the beneficiary if we can start or if we can solve the commercial arrangements around wheeling, because obviously we've got access to large roof space, and we can look to wheel that within to our office sector. Lastly, just in terms of income streams, I'm not gonna go through the details. Suffice to say that this is not a massive revenue part of the business. However, it is an important part because it assists us to improve profitability at a building level, and it is capital light and through very creative means that we can look to unlock further value at a building. Quite a nice cool feature is that right-hand picture there, which is our new 3D screens.
A number of our screens are now digitally enabled in order to support 3D images, and it's actually very cool. That picture on the right-hand side is in fact our LED screen here at Alice Lane. With that, I'm gonna hand over to Andrew to talk you through the restructuring of the office government tenanted office portfolio.
Thanks, Leon . Okay, so as I said earlier on, this transaction has been taking forever. It's been through many, many iterations. As a consequence of that, although we initially had Competition Commission approval for the initial transaction, given all the machinations that happened subsequently, we now are back at the Competition Commission for approval once again. Just to go back, Redefine's 11 government tenanted office buildings are 92% occupied on a month-to-month basis. Yes, the market rentals are higher than what you would have on a long-term lease, but it's not sustainable, and we are very susceptible to tenant flight.
To secure long-term leases with government, which requires a 51% black ownership, and without financial institution support who are reluctant to take on increased exposure to this asset class, we have concluded a deal with Talis Property Fund to preserve the value of these assets through a sale to a joint venture in which Redefine will own 49%, Talis will own 51% of the venture. We will sell this to the portfolio carrying value of ZAR 1.1 billion with cash funding for capital expenditure up to ZAR 175 million to enable this portfolio to secure the long-term leases which Talis has already procured to now be effected upon. Talis will provide an asset management service for a fee of 1% of the gross asset value, which will include leasing, managing the relationship with the tenants, et cetera.
Redefine will provide the property management services on the usual commercial terms. As a consequence, Redefine's interest that it will earn on the loan will be effectively the net operating income less the fees that will be paid. As and when these properties are sold, Talis will benefit from any further capital upside. Moving on to the international property portfolio. As you can see, our carrying value is ZAR 34.7 billion. That bump from ZAR 30 billion last year to ZAR 34.7 billion is mostly due to, and Ntobeko will elaborate thereon in his section on it. It's effectively as a consequence of rand weakness against euro, converting these assets into rand that causes that bump up by 4.7.
If we look at this, if you look at the asset base on a see-through basis, you'll note that 45% of our group assets sit now in Thailand. In terms of EPP's property asset base, it's just under ZAR 29.5 billion. ELI is at ZAR 5.1 billion, showing good growth, mostly as a consequence of four developments that were completed during this reporting period. In terms of proportional share of JVs, we do set out there the asset and the debt, for those of you who are interested in those numbers. Just moving on to the Polish retail market. I'm happy to say that the market has absorbed several challenges. As we know, high inflation, rising energy prices, and the impact of the Ukrainian war weighed heavily on the retail sector. Those factors are mostly absorbed into the market.
You'll note from the next slide that EPP is actually responding favorably in that environment. Consumer preferences have shifted. You'll note that market share growth, particularly by the value retailers and food discount chains, is growing as a consequence of that consumer shift. Poland's retail sales are expected to outperform the Eurozone over the next three or so years. Very important retail categories, such as fashion, are still holding up in this environment, which is good for us. What is very pleasing is that online retailers are also now opening physical stores. There is a very good synergy between brick-and-mortar and online shopping. In terms of ESG, it is becoming increasingly important for retailers who are implementing recycling and renewable concepts to support eco-friendly initiatives.
Just in terms of EPP's core portfolio, I just wanna add, for the joint ventures, there's a lot more detail in the supplementary section of our presentation, which you are welcome to question us on, if you so wish to. In terms of the core portfolio of EPP, you'll see it stands at EUR 18.2 billion. I must note that there were two power parks last year in the core portfolio that have been subsequently sold to the EPP's M1 JV. That is gonna mess around a bit, but you'll see with gross lettable area and the like. Parking that aside, you'll note that EPP's core portfolio's vacancy is a very pleasing 2.9%. It has improved from last year's 3.5%.
The carrying value of the investments in the JVs has grown to ZAR 10.1 billion, for reasons I explained earlier. The average unexpired lease term by GLA, 5.5 years. It's very healthy. The renewal reversions, still negative at 6.7%, but stabilized. It's no longer going down more. It's actually starting to stabilize at 6.7% versus 7% last year. Very happy to share with you that like-for-like footfall is similarly improving, currently at 18.3 million versus 16.5 million. I must add here, though, that the masks were taken off in March last year in Poland, and that like-for-like footfall, I would suggest, is going to not be as pronounced from a growth point of view in the second half.
In terms of in new BREEAM ratings for EPP, you'll see a very pleasing improvement to 83.3% of the portfolio has now been rated, which speaks to ESG in Poland now becoming very much part of the way they do business there as well. In terms of indexation, you'll see it sits at 7%. The Eurozone inflation rate was about 2% more than that. This is as a consequence of some limitations on certain leases where they couldn't apply the full inflation, as well as a different inflation rate used on certain of the other leases, causing that to be only seven and not the full 9% Eurozone inflation rate.
Okay, just in terms of the outcomes for the joint ventures, I'll summarize this to say that high leasing activity has been achieved across the board despite challenging market conditions, whether it's in the retail or in the office sectors. The M1 joint venture, you'll see in anticipation of taking over from Metro, the leases, a lot of work has gone into renewal of existing leases. You'll see there around about 75% of GLA is already being addressed as part of that takeover program. There's an operational program also attached to that. The Metro claim is being rejected by EPP. Not much has developed in the time that we last spoke about this, but we are still confident that this claim will not be successful. In terms of the EPP Community joint venture, you'll see lots of leasing going on.
The retail park in Zamość was successfully opened, and there's been good success on the office front at Park Rozwadów, Oxygen, and Astra in Kielce. The latter two now 100% occupied. Galeria Młociny, an underperforming new development in northern Warsaw, is showing signs of establishing itself and stabilizing, with footfall now significantly more than it was last year. As you can see, 30% up in January and 22% in February. Vacancy now at 2.5%, much better than before, and a number of new brands coming into the center as well.
The joint venture with Heitman, which is an office joint venture, you'll see good leasing activity, as well as a strong focus on the environmental side coming through as well. Just in terms of the logistics sector in Poland, you'll see here that indexation and higher construction costs are having a huge impact on market rentals, which are increasing around 20-odd%. You'll note that increased finance costs and pre-letting requirements by the bankers is now creating a slowdown in new and speculative developments. That's good news from narrowing the gap between effective and headline rentals. We've seen a huge reduction in tenant incentives. Rent-free periods, for example, are reducing, which is great news for us, being developers in that market. BTS projects, there are still opportunities there to expand and grow, and infrastructure spend is continuing, which drives demand.
In terms of valuations, they are stable. I will add, though, that the lower the WALE in this case, the more the premium is on the valuations, given that the softening yields are being offset by higher rentals. In terms of geopolitical and economic instability, that has had an impact on portfolio transactions. What we are seeing is a number of single asset sales going through. If we are to sell, assets in this sector, it will be not on a portfolio basis, but probably one or two assets at a time. In terms of ELI itself, you'll see good growth in terms of the carrying value. Yes, helped by the weaker rand from a rand perspective, but there's been underlying euro growth as a consequence of four developments that were completed during the period.
The active vacancy at 5.9% is principally due to one of the four developments that was completed in Lublin, which is contributing to that vacancy. It's around about 30% occupied at the moment, and we believe that will be filled in due course. In terms of the income-producing gross lettable area, it's just over 838,000 sq m. The weighted average unexpired lease term, just under six years. And as you can see, a lot of activity in terms of active lease renewals, where we're getting good growth of 8.9% on expiring rentals. In terms of letting to new tenants, we're getting growth on expiring rentals of just under 10% at 9.7%, which is very, very pleasing.
In terms of developments in progress, we've got four developments in progress of 153,900 sq m, 81% pre-let, and we're very excited for those to come through in our numbers. BREEAM certifications, slightly up at 74%, and you'll see that about 114,000 sq m of GLA was added from developments that were completed during this period. In terms of self-storage, we did speak about the acquisition of Stokado, which means in Polish, storage, at the pre-close. I'm happy to announce that we have now concluded the transaction to acquire Stokado. It is still subject to some conditions precedent, which we expect will be fulfilled at the end of May. What is very exciting is that there are already four developments under consideration.
Three in Kraków, totaling 12,646 sq m, and that will be a rough development cost of EUR 21.9 million, yielding 14-odd%. The high-yielding facility in Warsaw, which you'll note is yielding 37.8%, is principally due to a lease arrangement where ELI will develop the structure and Stokado will do the fit-out effectively. That is what delivers that high yield and low CapEx requirement for the 4,500-odd sq m of net lettable area. Okay, just in terms of capital allocation, as you can see, the bulk of our money is in the expansion quadrant to ensure high income growth as well as long-term value creation potential, and so it should be.
Okay, just moving on to the second half focus areas. We'll continue to preserve value through organic growth and asset optimization. Reliance on municipal supplied utilities needs to be reduced through innovative solutions and resource-efficient green initiatives. Very importantly, creating value through selective deployment of capital from recycled non-core assets into growth sectors. The growth sectors being Polish logistics, self-storage in Poland, and select developments here in South Africa that are tenant demand driven, principally around the industrial sector. Okay, I'm gonna now hand over to Ntobeko to take you through the next three sections of the presentation.
Thank you. Thank you, Andrew. Good afternoon, everybody. Just on key outcomes in terms of the balance sheet and capital management. I think our medium-term LTV ratio that we put out is between 38% and 41%. We're pleased that the outcome for the half year is sitting within that to the higher end of that at about 40.9%. I think in these times where the environment remains volatile, we're also very quite happy with our interest cover ratio headroom that is sitting at 2.5 x.
That's supported with a very healthy liquidity in terms of ZAR 6 billion liquidity, which is made up of our committed but undrawn facilities as well as cash on hand. I think from a rising interest rates point of view, we've got a very steady, prudent policy that we stick to, and in that policy, we've maintained just about 81.2% of our debt remained hedged as overall. But I think the impact on the floating portion of our debt, that has an impact, and you'll see it in the SA average cost of debt coming at 9.2% compared to the 8.7% in the prior period. From a group overall point of view, that cost of debt coming at 6.5%, which is up from 6% in the prior period, in the prior year.
Now with that, but I think we're also still quite happy that in terms of if you look at our average term of debt, we're sitting at a healthy 3.6. I'll touch on that a little bit later on. Lastly here, I think also just from an ability of our business, really some of the drivers that support our cash generation, we're quite pleased that we're collecting 99% of our gross billings in SA, which is a testament to quality of tenants and quality of our properties. If you look at the bridge that we normally provide just on two key variables that drive this, it will be on the 1.4, which will be the operational cash flows that we've generated, which really is the point I touched on in the previous slide.
On the right-hand side of this is that we are proposing a payout distribution of 85%, which I'll touch on as well. You'll see that those are the main key drivers in the path to us achieving a 40.9% LTV ratio. I think what we do in the bottom left of the slide is also just to provide the sensitivities in terms of I think if you look at the property values, if they were to move by 1%, you'll see that there will be a 30 basis point impact on the LTV, and that will also provide for forex as well in terms of what that would look like.
What we're pleased about is really, if you go back to FY 2020, the progress that we've made on a see-through gearing in our group, which is coming out at 47.4, and through the continued amortization, we'll continue to degear that, and we expect that to gradually as we amortize that in Europe to also support that path to improve. In terms of our funding profile, I think we are quite pleased that all our FY 2023 maturities have been secured, which recently were in Echo and Marcelin facilities of ZAR 3.2 billion facilities in EPP. Now, in the market, what we see, I think it is very constructive, and we're seeing appetite to refinance these facilities.
I think albeit the fact that the cost of debt is on the uptick, as I've alluded to earlier. In SA, I think proactively now we're starting to look into the FY 2024, which is really largely our bond program of ZAR 3 billion. We will look into the DCM market because we've got a very strong, good presence there, and we think our debt will price a bit better in that space. From an ongoing forward point of view, I think in line with our strategy, we're really broadening our funding sources, but also we are managing the tenor risk. You can see that we've got a very smooth maturity profile, so that in any given year, we really don't face massive liquidity risk in the balance sheet.
It's very topical in terms of where interest rates are sitting, whether we are near the peak or we're at the peak. It is with some further upside or downside risk, especially I think in the South African context, where we're continuing to see the weaker rand being a very key consideration by the Reserve Bank in as part of its monetary response policy. With that, we did continue in the period that we are hedged for 1.7 years at 81.2%. I think, there's no doubt that the inflation with the rates will impact our cost of funding, and I will touch on that even in terms of the impact in the FY 2023 results.
I must say, the swaps are looking a little bit expensive, especially on the currency risk, which is the weaker rand. That is a consideration from an imported inflation risk point of view. Gradually, as in line with our policy, we will continue to build a very stable maturity profile. You'll see that we did ZAR 1.4 billion of three-year swaps at 7.7% that we completed during this period. If we move on to show you a year-on-year movement in terms of how we've repositioned our funding base, you can clearly see that concentration well managed, but also I think for us is introducing very different players. You will see in the period there is the IFC, which wasn't there in the prior period.
Those are relationships in terms of longer-dated capital, which will help us to achieve much more matching of our funding in line with where we expect our assets to generate cash flow. We'll continue to expand on those. If we are just to touch on the key focuses, I think without a doubt in this environment, managing maturities because that could create liquidity risk in the balance sheet. We are very focused on that. As well, I think the interest rate cycle, it is heading where it is, but our interest hedging, we are quite confident that it will remain stable. We'll continue to build on it. I think from a funding and risk point of view, we'll also continue to manage the concentration risk by diversifying our funding sources.
If I move on to the outcomes, just in terms of the financials, I think our business very decent and healthy from a healthy business if you look at our NOI, especially if you look at the SA portfolio growing at 3%. A testament to that is the operating margin, which came out at 82.4% of the active portfolio, an improvement from 81.3%. In EPP, similar as well. I think we are pleased with the operating margin coming at 85.7%, which is an improvement from the 84.0% in FY 2022. Now, this give you a sense that our business is operationally, you know, from an operational point, quite strong.
Where we are impacted, it will be on the funding cost, which I'll touch on when I look at the headwinds and tailwinds in the income. From a collection that I've touched on, you'll also see in SA our areas are improving, which is a reduction from 278 in the prior period to 263. So we're quite happy with our cash collection. I think with a very focused, I mean, given the energy, I'll touch on this, our installed solar capacity at 31.9 in SA, and also the management on the demand side of energy in EPP yielding that 18.8% consumption reduction. One thing in this slide that I'd also like to touch on is really the sensitivity in terms of the distributable income or a cents per share basis.
You can see that you can never really predict or project where the load shedding and its intensity is gonna go. You, if it were to double in the second half what you've had in the first half, you can see the impact that we provided of 0.1. Then also, I think we also show, share with you in terms of the impact that might come from the interest rate as well as the currency, which I'll touch on as well, which as we spoke about a bit earlier.
In terms of our headlines in the financials, I think the biggest thing for us in this period to report on is that the restoration of EPP has really helped us in improving the quality of our earnings. If you look at the distributable income per share of ZAR 0.239 that we produced in the period, and also upon that, then applying an 85% payout ratio to get to a ZAR 0.203 dividend per share, which is slightly just lower than the ZAR 0.237 that we paid in FY 2022. Then, on a nominal rand basis, point of view, distributable income increased to ZAR 1.6 billion.
We're also quite pleased with our NAV improvement of almost ZAR 0.31. That represents about a 4.3% improvement in our NAV that went up to ZAR 7.5076. I think with those, you'll actually continue to see that if we just move forward in terms of the headwinds and tailwinds in our performance and dealing with the big contributors. I think the first one is really the interest rate on the floating component of our debt. That is what is putting a bit of an impact of ZAR 148 million in the period that we're in.
Compared to, if you look on the other side, on the tailwind side, quite pleasing contribution of EPP at ZAR 269 million that it has contributed this year. I think the point Andrew touched on as well earlier is that in the full year, in the second half, we expect that contribution to be improved by the underlying JV's distribution that comes in the second half. We're still confident that overall in FY 2023, EPP will deliver the EUR 37 million earnings base that we had talked about previously. The other point here in terms of the headwinds that I'll touch on is really the net diesel cost, which I'll speak on just now.
From a NAV point of view, a big rand weakness coming through if you look at the contributors. FX international investments at ZAR 0.449, as well as then if you look at the statutory profit, which is really just us continuing to generate and cash in the business. The offset on the other side is really the distribution that is coming out, the interim distribution at ZAR 0.203. I think when we look at the considerations that we always put in terms of balancing our liquidity requirements in terms of what do we think are the cash back earnings.
We look at where we can alternatively apply the cash, maintain the portfolio fresh by deploying capital to it. Managing, especially in these times we find ourselves, some liquidity risk to reduce debt. Looking at LTV, and I think also more sensitivity. Lastly, there is that we do look at optimal tax payout point without any leakage. Our 85% payout ratio is supported as well by the cash contribution. In February, we received an interim cash distribution from EPP of EUR 15 million.
That on a case-by-case, we look at our DRIPS, but in this case, we are quite comfortable that we'll apply an 85%, and then we won't apply a DRIP to this payout. The point I touched on earlier, just around really managing the impacts of the energy crisis, I think you can see the impact in the earnings of 1.5% that we recorded in this half year. At the pre-close, we gave a range that was also very close to that. I think the point for us here is really the first point in terms that our focus going forward is to try and build a business that can continue to actually demonstrate long-term value creation.
If you look at some of the upsides in terms of the yield, initial yield in our solar rollouts at 18.1%, that's very accretive, and we'll continue to pace those as part of diversifying our energy mix going forward. I think in terms of the focus, for us, I think it's very clear that preserving operating margin in this tough environment, you know, where you've got impacts from the revenue as well as from the cost point of view, and also exploring our alternative energy sources is our key focus going forward. I think that is on the back of very good maintaining, attracting quality tenants so that what we offer continues to be relevant.
Lastly, I think we'll continue with our digital journey where we're driving efficiencies in the business to try and actually do things better, going forward. Just then to cover engaging talent, I think we're quite pleased that if you look, this is our third year where we are participating in the SDG Innovation Accelerator for Young Professionals, where up to 12 of our employees continue to participate. That's also another way where we really broaden and bench our talent in terms of people coming up with innovative ideas, also contributing and accelerating our ESG strategy. In terms of staff turnover, I think we...
You know, the staff that we regret to have lost, that we would have liked to keep in SA is coming at 6.2%, which is a slight improvement from last year at 7.2%. Similarly in Poland, we're seeing an improvement from 8% that coming out at 4.3%. I think also just the other two points here is that we're very pleased with our staff extending a hand in terms of supporting our communities where our assets operate. 75 of EPP employees in the period participated in our CSR, as well as the 196 employees in SA that also lent a hand. This also helps us to integrate our assets in terms of the communities where we operate.
I think the last accolade in terms of being a top employer for the eighth consecutive year, we're also very pleased with that because it's part of us retaining and attracting talent. In terms of creating a pipeline where we really want to build a future-fit workforce, if you see where we will leverage technology and actually help the business to drive sustainable value creation, I think we want to try. If you look at refining our talent and succession plan, our focus is really on recruiting and developing talent where we could strengthen our bench strength. I think that we're trying to harness that by really embracing diversity across the business.
I think some of the points that, in terms of readiness and assessment to fast-track talented individuals in specific role with focus on women, we'll also continue to focus on that. Our focus areas here, I think very clearly we want to attract talent and retain it and develop it so that it can really enhance our skills, competence and profile. That will be our focus. We'll continue to do that.
We also, I think in these times that we find ourselves in, from a wellness point of view, you know, is to really drive awareness so that employees can have access to very resources that the company provide around our wellness programs, which is very comprehensive, right across financial, mental health and all the things that are important from an individual holistic point of view. I think the last point of our focus is really around an inclusive environment to harness diversity, to continue to drive innovation in the business, which is really our focus. Before I hand back to Andrew, I think there is a socioeconomic impact video that showcases our development action plan in South Africa that we would like to play for you. Andrew will come back after that.
More than just a bold statement, Redefine's moonshot is the vision that drives us forward. With the purpose of creating and managing spaces in a way that transforms lives. While our pathway to this vision is clear, we know that in this day and age, it starts with the fundamentals, being kind, creating lasting impact, being a catalyst for good. Corporate social investment forms part of socioeconomic development, committed to moving beyond incremental progress to transformative change. We're harnessing the power of our business by focusing on the communities around our buildings and taking a demand-driven approach to understand community needs and co-create solutions. Our CSI program features three types of interventions, namely, flagship programs, non-flagship interventions, and ad hoc interventions. We are proud to say that our efforts across all CSI initiatives are transforming lives.
Let's take a closer look at two of our latest flagship programs and their considerable impact on the communities in which we operate. Launched in November 2022, in conjunction with the Mr Price Foundation's HandPicked program, this urban rooftop farm on top of Canal Walk Shopping Centre uses the African grower hydroponic vertical growing system in greenhouse tunnels. The HandPicked City Farm initiative aims to create a meaningful and sustainable long-term solution to tackle youth unemployment and, in turn, food security in the Langa community. Two unemployed young people from Langa are upskilled each month on how to develop an agricultural business in an urban environment and provided with the resources to set up and run their own productive entrepreneurial urban farms in their backyard. The produce is sold to restaurants and businesses, and a portion is donated to local NGOs on a weekly basis.
Through the NGOs, 27 residents and 170 community members are assisted. The Maboneng Mall Community Hub opened its doors in March 2023. This state-of-the-art facility drives skills development for youth and exciting opportunities for entrepreneurs and small businesses through capacity building initiatives, skills programs, information, and partnerships to aid economic development and social inclusion for the Soweto community. The hub offers a youth accelerator program in partnership with Afrika Tikkun, which guides out-of-school youth to develop a keen sense of self, community, goals, and skills. Two additional youth skills development programs focus on the retail and information and communications technology sectors to develop the skills candidates need to enter the employment market in those industries. The hub, which also hosts quarterly online training programs for NPOs, focusing on local fundraising and mobilizing support.
I'm sure you'll agree with me that the audio visual and its demonstration of our socioeconomic actions is far more powerful through the AV than I could give it justice. Moving on now to key takeouts. Now, this is one page. If you wanna lose the entire presentation, hang on to this page, because this is effectively what summarizes the entire period, as well as looking forward from a Redefine perspective. As you know, our moonshot pathways have been refreshed. Our ESG reach is now being extended to stakeholders, most importantly, our tenants, where collaboration is absolutely critical going forward. Our property portfolio has been diversified and is positioned for organic growth, and with that, EPP being the last piece of the puzzle now finally stabilized. Deleveraging is complete, and we're quite thankful for that, given that the leasing.
I'm sorry, the transactional activity is dropping off in this current environment. Our quality tenant base is driving strong cash generation, as you would see, both domestically as well as in Poland. Our liquidity profile is healthy. We have a proven ability to absorb cost headwinds, and our solar PV fleet mitigates the impact of load shedding. Most importantly, we have a diverse team of engaged real estate professionals managing these assets to their best potential. In terms of closing, we all know that the prosperity of commercial property is underpinned by solid confidence, predictable interest rate expectations, economic growth, as well as constructive physical and human capital investment. We are not going to sit back and wait for those factors to play a role in what we are doing. We are going to focus on what matters most, given the uncertainty of the environment in which we operate.
However, given that there's rising costs, a lack in the cost of energy, low economic growth, as well as illiquid financial markets, which bring higher interest rates with them, given the inflation outlook, we need to continually look at how we rethink cost effectively sourcing and responsibly allocating capital, as well as efficiently operating in an environment of higher costs in a competitive rental market. This situation does cause mismatches, and we need to be aware of that, and we are focusing on that on an ongoing basis in terms of lease negotiations, on escalations, in terms of where we're gonna be sourcing debt funding going forward and the like. Similarly, as well as deployment of capital.
What I'm saying, in a nutshell, is we simply need to remain focused on the variables under our control, given the uncertainty of the market, and we'll unpack how we get to a lower guidance of ZAR 0.48-ZAR 0.52 per share for this period. We will apply a payout policy, as Ntobeko outlined, of between 80%-90%. I think in the questions, we will come to some of the unpacking now that we're gonna talk about. Before we deal with the questions, I just wanna thank each and every one of you for your time, for listening to us today, and for supporting us throughout this whole period where we've been up and down, and hopefully now we are well-positioned for the eventual upward cycle. I'll just go through the questions, if that's okay. The first one is from AfriFocus.
That's from Zintle, and she's asking: What is the proportion of the government tenanted portfolio as a percentage of total portfolio? This is the office, GLA as well as GMR. The short answer there, Zintle, is that the GLA is 5% and the GMR is 6.3%. We don't call them C-grade offices, we call it secondary grade. Just to be clear on that. Nazeem Samsodien from Investec has asked: Can you please confirm that European JV dividends are not included in the first half, and will it come through in the second half? That's your first question. The quick answer, Nazeem, is yes, that's right. From a timing point of view, unfortunately, the JV's dividends will come through in the second half. The question is: Have there been any revisions to the JV dividend expectations of EUR 13 million?
Nazeem, my number is ZAR 12 million. I don't think it's a revision. I think our number was always.
Thank you, Ntobeko. That's ZAR 12 million. Jonathan du Toit from Oyster Catcher. He's asked: Please, can you reconcile the reasons for the large decline in forecast distributable income from ZAR 0.542-ZAR 0.564 as given with the full year results to the guidance today of ZAR 0.48-ZAR 0.52? Ntobeko, please can you answer Jonathan? Thank you.
Yes. That range of between ZAR 0.54-ZAR 0.56, if you look at that, it's about ZAR 0.05 or ZAR 0.06 reduction to ZAR 0.48-ZAR 0.52. A large chunk of that ZAR 0.06 is actually about ZAR 0.05. It's attributable to the higher interest rate cost of debt. The ZAR 0.01 is roughly just what we think, given load shedding impact in the months ahead of winter coming, we think that could build up to that. That's the downside in terms of the load shedding.
Thank you, Ntobeko. Jonathan's got another question. He asks: In the South African industrial sector, total revenue declined from ZAR 828 to ZAR 28.5 million in the first half, down to, let's call it ZAR 615 million in the first half of 2023. Please can you provide an explanation? Jonathan, very simply, this is due to disposal activity. We disposed of two significant industrial properties in the second half of last year in Isando. If you like, Leon can provide you with a more detailed reconciliation of that decline, but that is effectively it. It was disposal of those two properties, one being Pepkor Isando, and the other one was a Range Road property.
Mahir Hamdulay from Absa asked us: What do you expect the cash back from EPP's contribution to be for FY 2023, given that EUR 15 million was received in February 2023 appears to be tracking ahead of the 60% cash back earnings from EPP previously guided or expected. Ntobeko, please, can you answer Mahir?
Thank you. Mahir, I think, what we said here, firstly, we do expect EPP earnings to be largely cash backed. That's the first point. What we said in guiding to the 60 is that when we look at the group payout ratio, we'll then might allow EPP to actually leave some liquidity to deal with the refinancing of its maturing debt profiles. Given that we are largely have dealt with most of the immediate short-term refis, we are quite comfortable that that 60 will slightly improve. You're quite right, it is slightly ahead of time.
Thank you, Ntobeko. In terms of another question, AfriFocus' Zintle asks: What are the key factors that led to an improvement to the net property expenses to 14.5% of revenue, given the highly inflationary environment we find ourselves in? Zintle, there's not one magic intervention here or one magic bullet that cured everything. It's across the board, relentless focus on every variable under our control by everybody in the business that has enabled us to absorb these extraordinary cost pressures that we have faced, which Ntobeko has outlined in his presentation. Moving on to Nazeem Samsodien once again asking: How much will euro amort reduce group LTV by or all else equal? So Nazeem, the short answer is that roughly 2% of our offshore debt is subject to amortization.
If you look at Ntobeko's sensitivity analysis, you can actually work out from that the impact on group LTV. Ntobeko tells me it's roughly 50 basis.
That's around about 50 basis points, Nazeem.
Okay.
The 2% amortization.
Good. Okay, it seems like it's the last question. It's from Pranita Daya from SBG Securities. She asks: Thanks for the presentation. You're welcome, Pranita Daya. Are you still looking to unwind your cross-currency swaps upon expiry, or will you renew them given earnings pressure? Also, what are the key drivers behind the -6.7% reversions, given positive reversions amongst peers in the region? Okay. Ntobeko , if you answer question number one, and I'll answer question number two.
Thank you, Andrew. Pranita, like we said, we'll do a gradual unwind that takes us up to 25 or 26. In the current period, like the one that came out for maturity, cross-currency in late last year, we actually refinanced it and extended it. Given the environment we're in, we'll probably have a very gradual approach until 2026. Thank you.
Good. Thank you, Ntobeko. Just in terms of the EPP negative reversions, I don't think a simple comparison to peers is that easy, Pranita, given that you need to look at the underlying tenant base and the shifts in what EPP is trying to engineer, given that there's a strong focus now on value in that market. If you look typically at the high-end fashion, for example, that's where there's a lot of pressure, and that's where you are seeing the rentals reverting, which were done a number of years ago in very different economic environments. Those are what is driving those negative reversions at this point in time, and as we said, they are starting to reduce. In terms of, there's two more questions. One from Louis Kruger from 36ONE Asset Management.
He says you've spoken to headline LTV target ranges. Do you have a see-through? Louis, the answer is yes. If you have a look on the LTV slide, we do provide you there with our see-through LTV. Ntobeko, what is that LTV, please?
The group see-through is currently sitting at 47.4%.
Okay. There we go. Thank you. Okay, Zintle is having a busy afternoon. She says, please talk us through the rationale behind increasing interest-bearing borrowings. I'm assuming that also factors into higher financing costs affect the change in guidance. Mr. Nyawo, do you wanna talk to that?
Yes. Thank you. We largely. I think, Zintle, what really largely you see as an increase in our interest borrowings is the offshore component because of the weaker rand. That's really not where we haven't gone out and increased our borrowings per se. It was largely driven by the weaker rand. That's what you're seeing there.
Okay. Francois du Toit from Anchor asks, at what interest rate was the Echo, Kilser, and mBank debt facilities refinanced? Ntobeko, has that been-
Yes, Andrew. It has a 2.5% margin.
Okay. Thanks. Also, bear in mind that the base rate, Francois, if you're fixing today, is roughly 3%. All in 5.5% would be the interest rate, if you're assuming 100% fixed. Okay? All right. I think that's all the questions for today. Once again, thank you so much for your time and attendance. Remember, you're most welcome to reach out to us via investor relations should you have any questions that you haven't asked or any parts of the presentation that are unclear. If we are seeing you in the one-to-ones, we look forward to that, as always. We are here to answer any questions anyone has outside of that as well. Thank you very much and enjoy the rest of your week. Thank you.