Spear Reit Limited (SEA) Earnings Call Transcript & Summary

Good morning, everyone. For those that do not know me, my name is Quintin Rossi. I have the distinct privilege of leading the team here at Spear REIT Limited in Cape Town. A warm welcome to the fourth Spear REIT Limited results presentation. Today, we'll be looking at the financial results for the 2020 financial year. We appreciate you taking the time to log on today. It goes without saying that we are all navigating through unchartered territory with many uncertainties that have manifested themselves in 2020. The year-to-date has turned out significantly different to what I would have hoped for or have imagined for anyone. But I truly hope that we can move out of this current environment very soon. Notwithstanding our current realities, it is important that we give due consideration and recognition to Spear's 2020 financial and operational results. On behalf of the executive team, I would like to say a word of thanks and acknowledgment to the Board of Directors of Spear REIT Limited for their ongoing guidance and support. During the presentation, questions may come up, and we ask that you please e-mail them to [email protected], and we will deal with them straight after the presentation. This is what I'm going to be talking about over the next hour, just an introduction and environmental overview followed by the following slides that you can see in the table of content. Just talking about the environment that we find ourselves in, the Western Cape in particular. Spear remains the only regionally focused listed REIT on the JSE. We obtained our diversification through asset type and our specialization through regional investment. We believe that, as has been seen in the past, that this has continued to provide great dividends for Spear and its shareholders, and we maintain that focus within the Western Cape. The Western Cape continues to be the investment case for South Africa. Finance, business services and real estate combined contributed 28% to the last measured GDP of the Western Cape. The financial services, insurance and real estate sectors are key components of the South African economy. Many of South Africa's biggest and most successful companies have their headquarters in Cape Town. Asset management, technology and venture capital funds have been growing steadily within the province and the continued investment with the likes of Amazon Web Services and many other technology firms growing their footprints within the Western Cape. As we have all seen on the ground and in the media, current trading environment in South Africa is well below optimal levels. Pre and post the lockdown, South Africa could simply just not afford this current pandemic. It's imperative for South Africa to move through its risk-adjusted strategy out of a Level 4 lockdown towards a Level 3 or Level 2 lockdown so that more economic activity can recommence. The impact of COVID-19 and the ensuing lockdown will have a materially negative effect on our economy for many years to come. The South African Reserve Bank has taken drastic steps in softening the blow on South Africans by cutting the prime interest rate in excess of 225 basis points thus far. The South African Reserve Bank has furthermore provided liquidity support to the banks within South Africa. By all accounts, the South African economy is now set to contract by negative 6% to negative 10% in 2020. This is a vastly different picture that was painted by the South African Reserve Bank in the earlier parts of the year, tracking towards a negative 0.2%. Sizable infrastructure projects must be implemented in both the private and public sector. Meaningful, structural reforms must be initiated by government with a clear plan on how to reduce our debt-to-GDP ratios. These reforms will track capital inflow into the economy. As a nation, we need strong leadership and political will to make South Africa grow and to reattain our investment-grade status. Talking about our mission statement. The good book says that without vision, we will perish. And since inception, our vision and mission statement is one of the cornerstones of our business and remains unchanged regardless of the current trading environment. Our mission statement is to be the leading Western Cape-focused REIT, and to consistently grow our distribution per share ahead of inflation annually and to operate within the top quartile of our peer group. When looking at our historical results and the results of 2020, all of these have been achieved. Having a look at our strategy for the business. As fluid as the current situation has manifested itself to be, as a management team, we have, ourselves, had to modify and plan to set out our immediate and short-term strategy for the business, which is to adapt to a COVID-19 operating environment, to preserve capital and manage our liquidity as best possible, to aggressively let any vacant space within a short space of time with quick turnaround times, to ensure that we maintain a high level of tenant retention through active asset management, to actively reduce and aggressively reduce our controllable expenses where we have now, group-wide, taken a pay reduction across the board from nonexecutives to general staff; as well as the disposal of noncore assets. The disposal of noncore assets, we have identified 4 assets, of which 1 is set to transfer as a post year-end event. We maintain our aspirations of becoming a meaningful, mid-size REIT with assets under ownership of roughly ZAR 15 billion within the Western Cape. We have no aspirations or intentions to becoming the biggest property-owning company in South Africa, but we have every intention of becoming the landlord of choice within the Western Cape. As a complement to our short-term strategy, our medium-term -- medium- to long-term strategy remains largely unchanged, which is to narrow our asset ownership to commercial, convenience retail and industrial assets; to grow distribution per share ahead of inflation in line with our mission statement; to prudently recycle capital, as many shareholders have seen in the past, we don't approach the market for equity without strongly looking at how we can recycle the existing capital within the business; to reduce our gearing ratios in line with our company strategy; to conservatively -- to have a conservative, debt-hedged portfolio; and to maintain high portfolio occupancy levels. In the new world we find ourselves in, an unchanged core function within our business will be to maintain our very focused approach to asset and property management. This has given Spear the ability to maintain its high occupancy rates throughout very tough trading environments. Spear has always prided itself in its hands-on approach to every aspect of its business, which remains fully internalized. One of Spear's major strengths operating in this current environment has been that every role player within this business has had to only focus on Cape Town. We have not been sidetracked by assets beyond our immediate reach. We understand our backyard well, and we understand the market. Our regional focus has allowed us -- allowed for quick responses, timeliest turnaround times on lease restructures and key decision-makers, both on the landlord and tenant side, to be able to talk via Zoom to initiate any much-needed cash flow relief. Looking at the impact of COVID. In terms of SA Inc., by now, we are all too familiar with the advent of COVID-19 on the South African nation. On the 11th of March, the World Health Organization declared COVID-19 a global pandemic. On the 26th of March, the South African government initiated a hard lockdown for a period of 21 days, which was further extended to the end of April. On the 27th of March, Moody's downgraded South Africa to sub-investment grade. And during the lockdown, only essential services were allowed to operate, placing a massive hold on economic activity in South Africa. On the 1st of May 2020, Level 4 relief -- or Level 4 lockdown measures were put in place with low levels of economic activity being allowed to resume. Over the past 6 to 7 weeks, we, as a management team, have doubled down on speedy and efficient lease structures -- restructures where and when possible. Our response team headed up by our nominated COVID-19 Officer, COO Cliff Toerien, a triage approach was adopted to ensure that those in need of immediate life support were granted the necessary deferments and cash flow relief. I am firmly of the opinion that our proactive, in-the-trenches and nonbureaucratic approach has resulted in our ability to report the following year-to-date rental recovery profiles. During the month of March, we recovered 98% of our rentals that we invoiced; during April, 92%; and month-to-date for May, 64%. This is, by all accounts, an incredible result given the current circumstances. And for the avoidance of doubt, zero hospitality income has been included in these numbers. Our debtors team have worked tirelessly in the efforts to maintain this current momentum, and we will ensure that this follows through 2021. Under the conservative eye of our CFO, Mr. Christiaan Barnard, numerous stress test scenarios have been simulated to ensure that Spear is ready and able to successfully navigate any further deterioration of the trading environment we currently find ourselves in. We have constructed, what we call, the FY 2021 operating scenarios. Scenario 1 is the low road, where we recover 60% of our rentals we invoiced, and that would result in Spear breaking even on its operating expenses and bond interest. The middle-road scenario, Spear recovers 61% to 71% of total rental invoiced, which means that Spear will move towards profitability and the accumulation of cash reserves. The high-road scenario would track from 71% upwards of total billings collected, which will make Spear -- put Spear into a profitable and cash-generative position moving towards stabilized income growth. In both the collection section and the scenarios given, zero income has been forecasted for our hospitality portfolio for the full year of 2021. Given the levels of uncertainty and the inability to assess the full impact of the lockdowns, management remains confident that our mid- to high-road scenarios, all things being equal, without any significant tenant failures, should be achieved for the lion's share of the year. Further talking to the impact of COVID-19. Numerous stress tests have been conducted and continue to be conducted on our balance sheet and income statement to ensure that there is no going concern risks to the business. Management and the Board have satisfied themselves that Spear has sufficient liquidity headroom to absorb rental declines for a period of time and to still cover operating expenses and interest. As presented to our Board, we have in excess of ZAR 200 million worth of cash availability to fend off the storm. Management have always enjoyed excellent relationships with our funders. As we expected, their approach during this crisis was and is supportive, pragmatic and aligned with Spear's strategies. A word of thanks to both Nedbank CIB, Ms. Anel Bosman, Mr. Grant Main and Mr. Richard Edwards, and Standard Bank Real Estate Finance, Mr. Wiann van der Merwe, Mrs. Joan Solms and Mrs. Karin Joubert for your incredible service and engagement to date. Spear furthermore supports the South African REIT Association's engagement, with various regulatory bodies being the JSE, the National Treasury and the South African Revenue Service to propose certain amendments to the REIT-listing requirements and tax implications thereof. In summary, Spear remains sufficiently capitalized to meet all its short- and long-term commitments. After being locked down since the end of March, I must be honest and say that the FY 2020 year does feel like many, many moons ago. However, as mentioned earlier, and as a company, we are extremely proud of the results that we've achieved during this year under review. Therefore, I'm honored to share with you, on behalf of our entire company, the performance for the FY '20 year. We'll look at the highlights. In terms of the portfolio snapshot, Spear owns 32 high-quality Western Cape assets with a value of ZAR 4.18 billion. Asset value has grown in the last year by 9.78%, which is roughly ZAR 373 million. Our average property valuation has increased to ZAR 130 million, up from ZAR 127 million in the prior year. Our average property valuation is ZAR 9,513 per square meter, which, I must add, is well below replacement. And on a diversified basis, looking at the portfolio and the assets that we own, management is of the opinion that replacement cost is far closer towards ZAR 23,000 a square meter. And then again, this talks to the value proposition that our net operating income in terms of valuations are not overly market -- over market and, therefore, present incredible deep value for any investor. Spear's in-force escalations for the reporting period was 7,63%. escalation rates in recent years have been on the decline, both as a result of declining interest rates and inflation rates having reduced. Losing a tenant over an escalation rate is not our game, and thus, we would do what we can to get the best lease escalation possible but we will not lose a deal over it. Our GLA under ownership has increased to 436,436 square meters, up 8.39% from the prior year. Our occupancy rate has maintained -- or tenant retention rate, may I add, has maintained at excellent levels of just over 97%, which, by all accounts, is way below any national average. And since inception, a high occupancy rate has been a hallmark of Spear. Our weighted average lease expiry profile is 29 months. Our focus is always to push out the weighted average lease expiry profile for the fund. However, in these uncertain times, Spear will choose to rather be receptive of cash flows as opposed to overly prescriptive on lease terms. We have also noted a trend towards shorter-dated lease periods, given tenants' and landlords' flexibility. However, the benefit does end up lying probably more with the tenant. Our strategy as a business is to try and push out that weighted average lease expiry to closer to 45-and-above months. Average portfolio rate per square meter is ZAR 91.60 per square meter. The value proposition is in the rental rates. We're looking at the diversified portfolio, generally, all our rentals are just below market or on-market, which generally results in positive rental reversions for the business. Spear's market cap at the end of the financial year was ZAR 1.83 billion. We have raised equity of ZAR 164 million through the placement of Spear shares at ZAR 9.80 in the month of June, July 2019. Spear shares in issue have increased to 206 million shares. Having a look at our financial performance. I'm extremely pleased to announce our full year distribution per share of ZAR 0.9166; our final distribution per share for the year of ZAR 0.4702 per share, which symbolizes a growth of 6.06% on our prior year's performance. This is very much in line with the guidance provided to the market in May 2019 that our forecast was that Spear would achieve between 6% to 8% growth in its distribution per share for the 2020 financial year. In line with the South African REIT best practice guidelines, we disclosed our net cost to income, which was 20.19%, higher than our internal target of below 20%. However, this is also due to punitive water charges, rates and taxes revaluations, et cetera, et cetera, coming through on the portfolio effectively unavoidable from the asset management team. We're looking at our tangible net asset value of ZAR 12.17, which symbolizes a growth of 0.41% increase in our tangible asset value. This is pre distribution. When taking out the distribution to be paid in June, our tangible net asset value drops to ZAR 11.70, which is a 0.26% growth in our TNAV for the period. Looking at our loan-to-value of 39.63% at year-end, in line with the group's strategy to operate within a band of 34% and 43% LTV. Our fixed debt ratio within the band given by our Board at 63.3%, the band which within -- within which we operate would be between 60 -- to have between 60% and 70% of our debt portfolio hedged at any given time. We currently find ourselves in an interest rate-declining environment, and therefore, we do get the benefit of having in excess of 30% of our debt floating. Looking at our average debt expiry is 23 months. We do not foresee any refinancing risk on the underlying portfolio. Our average cost of debt is 8.75%, with our average cost of fixed debt at 8.99%. Just to note that our average cost of debt, which you'll see later on in the presentation, has reduced by 28 basis points from the prior year. So having a look at our TNAV bridge. So at the start of the year, you'll see we started the year with a TNAV per share of ZAR 12.12. There was some profit buildup of ZAR 0.99, excluding the fair value adjustments. Fair value adjustments came through on the portfolio of ZAR 0.05. We paid out a distribution for the final FY '19 year as well as the interim distribution for 2020, which saw a reduction of ZAR 0.88. We issued shares, which saw a reduction of ZAR 0.22. We acquired a subsidiary of -- which had a positive impact on our NAV of ZAR 0.08; some IFRS CSP adjustments of ZAR 0.03, giving us our TNAV per share at February 2020 of ZAR 12.17. Once we net out the distribution of ZAR 0.47 for the final FY '20 year, we come to the ZAR 11.70. Spear's growth story. From its 2016 listing to February 2020 has generated market-beating returns for investors that remain invested and have reinvested dividends from the start. This slide illustrates a snapshot of that story. If you had invested ZAR 1,000 in Spear shares at the listing at a price of ZAR 9 per share and reinvested all of your dividends over the period, you would have achieved a total return of 20% on your Spear investment. Spear has outperformed the Sappi by 43% over the same period. On an annualized basis, you would have returned 7.54%, where the Sappi would have returned you negative 7.76%. The current status quo of the real estate sector, unfortunately, does not paint a pretty picture as the listed sector has come under severe pressure, both in South Africa and globally. Just having a look at our financial performance. From an income state perspective, we have a very clean and easy-to-understand income statement. We're effectively a very simplistic business. We rent our property. We get rental. We have expenses. We pay those expenses. And then all things being equal, we are left with a profit. We have no intention of investing outside of the Western Cape. The furthest offshore we'll go is Robben Island, and that tells you that our strategy remains firmly within the Western Cape. Our group revenue for the reporting period was ZAR 527 million, which includes smoothing, versus the ZAR 434 million in the prior year. This is a like-for-like growth of 5.41%. What one must, please, bear in mind is that in 2019, the Northgate Park property was only transferred into the portfolio 3 days prior to year-end and therefore, it won't be necessarily a comparable on a revenue basis. Looking at our total group expenditure, including head office costs, ZAR 185.7 million. Head office costs made up ZAR 28.8 million, its total cost-to-income ratio of 5.1%, which is down from 5.92% in the prior year. As a business, we have found certain synergies that we can scale without incurring additional costs, and we will keep on focusing on moving towards a 5% or below head office cost-to-income ratio. Our net finance cost came in at ZAR 122 million, with a total income for the period of ZAR 212 million, which does include a small, noncontrolling interest portion, giving us a -- Spear equity owner of parent being ZAR 207 million. Our main measurement metric we utilize is our distribution per share, and this is the ZAR 0.9166. In terms of our interest cover ratio, it's 2.59x, which is well above the bank covenants set of between 1.5x and 1.7x. Effectively, the ICR is earnings before interest and tax over your interest bond. Having a look on the left-hand side of the slide, you will see that our like-for-like income growth on a gross basis was inflation-beating at 5.41%. And again, our like-for-like growth on a net property income growth was 4.55%. Having a look at our distribution reconciliation. We have, as one of the early adopters of the SA REIT best practice guidelines, provided you with a SA REIT FFO-compliant distribution recon. Statement of comprehensive income, ZAR 207 million. We do see some noncash deductions or fair value adjustments and straight lining of leases coming through, one being ZAR 9 million and the other ZAR 23.4 million. There are add-backs that take place for antecedent earnings adjustments being ZAR 3.8 million, giving us SA REIT funds from operation of ZAR 179 million. There are some IFRS 2 expenses that are added back being the share -- the CSP share plan of ZAR 6.9 million, giving us a company funds from operation of ZAR 186 million. Once you've had a look at the breakdown in terms of the number of shares, you will see that in our first year -- first half of the year dividend, we paid out on 205 million shares. And on the second year -- part of the year, we are paying out on just on 200 million shares, which, in line with the SA REIT guidance, we are disclosing it net of treasury shares held by Spear. This all tallies down to a distribution of ZAR 0.9166 for the year. So having a look at our balance sheet. Also, again, very straightforward, easy to understand. Total assets, ZAR 4.3 billion; current assets of ZAR 48 million, which are made up of tenant debtors, cash on hand plus trades and receivables. In terms of liabilities, you will see just over ZAR 1.7 billion worth of liabilities, which are, for the most part, noncurrent financial liabilities on our property bonds, which has a longer than 12-month expiry date attributed to them. In terms of the current liabilities, we have ZAR 236 million of current liabilities of which roughly ZAR 166 million is made up of 2 property bonds, one being the DoubleTree by Hilton, which is a strategically held short-term facility; and the other, which is a property that's due to be refinanced within the next 6 to 8 months. We don't see any refinancing risk on the latter mentioned, given the fact that the tenant's lease, being a blue-chip tenant, far exceeds the lease period, far exceeds the refinancing period. All in all, a very healthy and strong balance sheet. I've spoken about our shares in issue. I've spoken about our gearing ratios. I've spoken about our NAV and our TNAV. But just to reiterate again, on an annualized compared basis, you will see that TNAV increased from ZAR 11.67 to ZAR 11.70 over the period. Having a look at the breakdown of our funding maturities. Current group debt, as I mentioned, ZAR 1.7 billion; group LTV, 39.63%. Average cost of funding has reduced by 26 basis points to 8.75%. Having a look at our cost of our variable debt, 8.41% with an 18-month expiry profile, and our cost of our fixed debt at 8.99% with a 24-month expiry profile. As a general comment, having a look at the bottom section of the slide, we don't see any refinancing risk across the current portfolio and feel that the current expiry spread is both, in period and in value, acceptable to management. The group gearing does set out and show a very positive picture that since inception and since first reporting that our group in-force cost of debt has continued to decline, which again talks to the quality of the assets that we have acquired, the quality of the tenants and the quality of the relationships that we've established with our funders and the credibility in the market as we've grown as a business. So having a look at the portfolio overview. Our top 5 properties make up ZAR 1.97 billion of our total value. That equates to 175,000 square meters of space, which, on a percentile basis, equates to just under 50% of the portfolio. This really does talk to our less-is-more approach of owning fewer assets but assets of higher value. It's a great display of diversification, having a look at our cross-sector investment with multiple blue-chip tenants on long-term leases in occupation across almost all of these properties. Looking at evaluation per square meter. All of these properties are valued at well below replacement cost, displaying deep value in rentals that are not over market. And it goes without saying that all of these properties enjoy a very high occupancy rate. Having a look at our sectoral split by GLA, revenue and value. On a GLA basis, you'll note that about 56% of our portfolio is industrial. This sector has consistently been a strong performer for Spear, and management remains of the view that a higher weighting to the right type of industrial asset is a good strategy. Retail remains underweight in the portfolio as we look at the appropriate time post COVID to increase our investments in convenience retail into the Spear portfolio. Due to a VAT ruling from SARS on the development of residential for rental, we have delayed our Phase 1 residential development at Sable Square and for further notice. In terms of our revenue, 97% of our income is contractual over the period. In terms of our hospitality income, about 10% revenue contribution, of which 25% is fixed income made up of commercial, retail and storage space and the balance made up of variable hotel income. Having a look at our letting activity. This is a slide that the team and I are extremely proud of. Spear began the period with an opening vacancy of 7,992 square meters. Management has successfully renewed and relet 121,000 square meters at a positive rental reversion of 1.95%. This is truly praiseworthy in the current operating environment. I believe that our hands-on and active asset management approach is testament to how we can achieve, in this market, positive rental reversions. So having a look at our tenant and vacancy profile. We have a portfolio vacancy at the reporting period of 12,000 square meters, which is just under 3% of our GLA. Our retail vacancies are situated in some of our mixed-use properties, with a number of these spaces being first-floor areas, which have seen slightly slower take-up of those vacancies. In terms of the offices, we have got -- in some of our properties, we have got structural vacancies that we've created as a part of a redevelopment or as part of a rightsizing for our tenants. In terms of our industrial portfolio, we have seen, with the demise of certain large construction companies and continued low levels of government spending, that our 100- to 800-square-meter industrial tenants have started to struggle, and one can see some vacancies coming through on the industrial portfolio. However, as these vacancies come up, they tend to be let in quick succession. So we do believe that none of these will become stubborn vacancies across the portfolio in time to come. Having a look at our tenant profile. Spear has 454 tenants, over 436,000 square meters, of which just on 60% of these are large national and international tenants; 26% national and smaller listed tenants; 12% being other, being owner occupiers or owner-run businesses or owner-managed businesses and entrepreneurs with a -- and we are reporting on a just under 3% vacancy factor. Having a look at our lease expiry by GLA. On average, 19% of the portfolio comes up for renewal and relet annually. And based upon our historical performance and taking the current trading environment into account, we do believe that more than ever right now, we're going to have to maintain our active management on a portfolio approach, and we are going to have to go out there and find tenants to fill the vacancies within our portfolio. We do, however, believe that our early engagement strategy with our tenants would result in a continuation of a high tenant retention rate. So having a look at our risk management across our portfolio and just an update on our sustainability initiatives. Spear had initiated a 16-property rollout of PV solar, of which 6 are currently completed, being Viking Park 1 and 2, 78 on Edward, No. 2 Estuaries, Sabal Square and Mega Park. These PV solar installations would generate roughly 4 million-kilowatt hours of solar energy, which will be generated across a 12-month period on these properties. This is a saving of around ZAR 4 million a year on current tariffs. We have focused on achieving a 25% minimum penetration rate. This gives us a total generation capacity of 2,600 kilowatt peak out of the 5,400-kilowatt peak that we've identified. In addition to this, 5 new sites will begin construction within 4 to 6 weeks of lockdown being lifted, adding another 1,300-kilowatt peak of solar to the portfolio and a further 2 million-kilowatt hours of generation. These properties are the Liberty Life Building, the MWEB Head Office, Manhattan Plaza, Northgate Park and Radnor Road. Radnor Road is our ever -- our first donate-your-roof initiative, where the income generated off of the solar energy generated and sold back into the tenant will actually fund the bursary for previously disadvantaged female studying property studies at the University of Cape Town. We, as a business, believe that brilliance is handed out equally, but opportunity isn't. And this is, as a company, Spear's way of ensuring that we can create opportunities for those that were not given equal opportunities in the past and, for females in particular, to make an impact into the real estate industry going forward. Just having a look at the portfolio development and redevelopment projects currently underway. Number one, Waterhouse. This property was acquired at roughly ZAR 10,000 a square meter. An amount of roughly ZAR 90 million was allocated towards the full refurbishment of this property. This property was gutted to the shell, and all that was literally left was the concrete floors. We initiated a process of redesigning and redeveloping the property. And I speak on behalf of the entire project team and management team that we are beyond thrilled with what has come out of this project and the traction that it has got in the market in terms of prelets. The property has a GLA of 11,200 square meters and is -- has a targeted stabilized yield of 9%. To date, we have prelet in excess of 8,000 square meters of GLA, and we are confident that given the value proposition that it offers in terms of its asking rentals, the type of floor space, the interiors and the parking ratios, we would be able to prelet the remaining space quite quickly after lockdown. A very ambitious project of ours in Paarden Island and, by and large, will be the largest development that Spear would initiate in its short history will be the development of Marine Place. This is a site assembly that we have conducted over a number of years of properties that are all contiguous with each other. We have received approval from the city of Cape Town for the development of a 52,000-square-meter mixed-use development with uninterrupted views of Table Mountain, Robben Island and the ocean. We do also recognize that the current trading environment may not be conducive to putting spades in the sand. And for the time being, we will continue wrapping up all the necessary regulatory and local authority requirements for this development and assess our options as we move forward. I would like to state that every single one of the properties that will form part of this development are currently tenanted and are yielding a sufficient yield from an income perspective so 0 income drag has been created in the business as a result of this development opportunity. Some subsequent events. As you would have seen on SENS, Spear has acquired the Liberty Life Building in Century City. This building is in line with our strategy to own assets in excess of ZAR 100 million per property located in premium-grade nodes, occupied by premium-grade tenants with long-dated lease expiry profiles. This building boasts a Green Star rating in addition to its own independent water filtration and generation system. The building is occupied by Liberty Life, STANLIB, Digital Outsourcing as well as Liberty Health. The property was acquired for ZAR 370 million at an acquisition yield of 9.3%, with a weighted average lease expiry profile of 4.3 years. Given the hard lockdown of 26th March, the transfer of the property has been slightly delayed, and we anticipate the property to transfer within the next week or 2. It's incredibly difficult to provide line of sight as to where we are going, given the fact that there is actually no playbook to what the outlook could be or what the prospects could be in the year ahead. So we have, to the best of our abilities, summarized what we believe to be the outlook. From a Spear perspective, the portfolio remains of a high quality, defensive in nature and underpinned by strong lease covenants. As a business, we will maintain, to the best of our ability, high occupancy rates through our hands-on, nonbureaucratic approach. We will implement the required health and safety measures, both for our staff and for our tenants across the portfolio. There are numerous unknowns in the year ahead as the impact of COVID-19 across humanity, commerce and the financial markets continues to set in. Rental recovery collections continue and are aligned with management scenario plans. The mid-road scenario is the current status quo on an annualized -- on a forecasted annualized basis. A moratorium has been placed on acquisitions to preserve capital and to maintain a strong balance sheet. Spear, as a business, remains well capitalized with sufficient liquidity headroom facilities of around ZAR 200 million available post the payment of our FY '20 dividend. The leasing and asset management team will, as always, remain close to the market and to our tenants. Tenant failures in the year ahead may occur, requiring more intense asset management. Aggressive filling our vacant space with the right type of tenants in this current market will be required. We, as a business, given the diversified nature of our portfolio, will have a solution for most tenants needing space. And I firmly believe, as a business, that our hands-on and regional focus is a competitive advantage. So looking at our prospects. It's very difficult to predict the progression and duration of the COVID-19 globally, the residual risks when the lockdowns are lifted and, by extension, the economic outcomes of the virus on the real estate sector and on Spear. Spear will, therefore, not be issuing any 2021 distribution guidance, and we'd rather provide the market a more engaged update closer to November 2020. We further believe that a deep recession is likely, which will result in additional pressure on South African citizens and businesses alike. We do see that there will, in the fullness of time, be an upward trending of vacancies across the real estate sector in South Africa, together with softening market rentals. Our various scenarios have not forecast any rental income to be generated on our hospitality portfolio for the 2021 financial year. Based upon which lockdown level South Africa finds itself in operating under, the prospects of income generation will be factored into our various scenario plans only going forward once we know that we can actually operate the hotels. We've done intense cash flow analysis to stress test our cash flows for the 12 months post year-end. This includes a range of scenarios of tenant collections, creditor requirements. Management is, therefore, positive that the company has sufficient cash resources available for the foreseeable future to meet all our obligations. We will, as I mentioned, provide the market with regular updates on the performance of the portfolio in addition to our collection performance. I want to take this opportunity to thank you all for logging on today. And in a few minutes' time, we'll be ready to answer any of your questions. Thank you. God bless.