Spear Reit Limited (SEA) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for taking the time to join us this morning for Spear's FY '21 pre-close presentation. During today's presentation, I'll be providing shareholders with additional insight as to how Spear has navigated the COVID-19 pandemic and its residual effects. First off, I would like to extend my sincere gratitude and appreciation to all our Spear staff and multi room staff for their commitment and dedication, traversing with us through very deep and dark values through this year as well as achieving some incredible results. At the outset of the trading year, South Africa was already under severe economic pressure. The onset of the pandemic took that up a level. April -- from April, the operating environment became unpredictable, full of unknowns as the government-imposed lockdown set in. Whilst many measures were adopted within South Africa to flatten the curve. South Africa's economy, could ill afford the level of lockdown, it was to follow. The second wave of infections was hampered -- the second wave of infections hampered the short-term economic recovery that we started to see towards the end of 2020. However, once again, we had to adapt to the operating environment and forge ahead. The real estate sector, amongst many other sectors remain under deep pressure by the events of the last 11 months. FY '21 has been a year that saw significant levels of tenant support needs to be provided by landlords. The months of April to September 2020 were by far the toughest on the economy and the South African people. Our management team throughout FY '21, show the incredible asset and property management abilities as new strategies and new ways of thinking had to be implemented to navigate through these tumultuous times. As a business, we reaffirm our support to the South African government, the provincial government of the Western Cape, our tenants and their respective businesses. Focus and consistency has been some of the hallmarks of our business as Spear has maintained income statement and occupancy consistency during FY '21. The presentation today is a culmination of strong real estate fundamentals, high-quality assets in sort after locations, strong tenant covenants and a team that refuses to allow our relative size nor the circumstances we face to get in the way of our mission statement aligned destiny. A word of thanks to our Chairman, Mr. Abu, and our Board of Directors for their ongoing support and guidance. If you have any questions during the course of this presentation, please feel free to e-mail them to info@spearcrop.co.za, and we will answer them directly after the presentation. Just what I'm going to be covering today in the presentation. Turning a look at the environmental update. Tough trading conditions persist within the Western Cape, South Africa and the glove. A gradual uptick of economic activity is evident across the subsectors that Spear has invested into, with economic activity returning, so has disposable income in certain regards with increased consumer activity across Spear's convenience retail assets and other mixed-use assets. However, on the office front, a cautious approach has been adopted by numerous office users with a slower-than-expected return to work program. The reasons for this, we believe, is a result of the second wave that peaked towards the end of 2020 and the beginning of 2021. The disjointed academic year for government schools, in addition to an overall concern for the general health and safety of staff in the absence of an effective COVID-19 vaccine. Now that the vaccination rollout has begun. We have noted some larger employers are driving the 1st of March onwards as the start of their focused return to work programs. The tourism, hospitality and services sector remains most negatively impacted with the lack of international tourists, various forms of prohibition and curfews, limiting their ability within the sectors to commence their road to recovery. The vaccine rollout has brought optimism to many within the related sectors as a strong recovery will be on the horizon once efficacy levels are at heightened levels. A successful vaccine rollout will have a cascading recovery effect as tour groups, conferencing, meeting and incentive travel, we'll be in a position to restart. Regardless of current circumstances, the management team and the respective hospitality management teams have designed and developed attractive localized hospitality and conferencing packages as it means to generate revenue. FY '21 has been a tough year across the board. However, Spear's portfolio has withstood the pressures brought on by the pandemic. The portfolio has remained resilient, underscoring the deep value proposition that the Spear portfolio offers shareholders and investors. Spear's regional focus has allowed us to focus all of our energy and attention on the speedy finalization of various forms of relief to impact the tenants. Tenants most impacted outside of the hospitality portfolio with those in the travel, tourism, restaurant and entertainment sectors. Vacancy creep has set in, within certain parts of the office portfolio. However, it is our opinion that this is a shorter-term challenge. Active letting and asset management is well underway to place tenants in these vacated units as soon as possible. Spear has always maintained a very robust occupancy level. I'm pleased to report that for the FY '21 period, we are at a 93,93% occupancy rate. So having a look at our mission statement, Spear remains an authentic dividend-paying income front, focused on consistently operating with a strong balance sheet and delivering on our mission statement, which is to be the leading Western Cape focused REIT and to consistently grow our distribution per share ahead of inflation within the top quartile of our peer group. Our mission statement remains our mission statement regardless of any trading environment. We believe that this mission statement is our North Star and something that we will always aspire towards. Looking at what strategic objectives have been achieved during the FY '21 year. As set out to the market in May 2020, three scenario plans were presented: The low road, the Mid road and the high road scenario. The low road was Spear when collection 60% of its rent and breaking even. The high road scenario would be still collecting in excess of 80% of its rent, accruing dividends and will be profitable. Spear has for the FY '21 year achieved the high road scenario plan throughout the year. We have successfully adapted to the COVID-19 operating environment. Capital has been preserved, and liquidity has been managed efficiently. Income statement consistency has been maintained within the high road scenario. We've maintained balance sheet strength with 0 going concern risks or any covenant breach risks. We've had strong letting activity in the FY '21 year. We've maintained, as mentioned earlier, a very high tenant retention rate at 93.93%. Our debtor's book is under control with consistent reductions of the age analysis. We've reduced our controllable expenditure in addition to group-wide payroll and fee reductions implemented across the board. And our active asset disposal program is in progress. Looking beyond the short-term towards the medium and long term. Spear will remain a reasonably focused REIT that it annually endeavors to reward its shareholders with a mission statement aligned return on its investment, together with distribution growth. We'll continuously narrow our asset ownership, in line with our strategy of owning high quality commercial, convenience retail and industrial assets with a clear focus on fixed income as opposed to variable income investments. We will maintain our distribution payout ratio between 75% and 90%. We will continue to weave renewable energy solutions into the fabric of our business and investment approach. We will be an impact investor creating change from both an economic and socioeconomic perspective. We will reduce our gearing in line with our strategy to between 38% and 43% over the next 18 to 24 months in addition to prudently recycling our capital. We will maintain a conservative debt hedged portfolio, and we will remain compliant with the South African REIT legislation. So having a look at the impact of COVID-19 on Spear. Given Spear's focus and consistency as a landlord, the devastating effects of the pandemic have been to a degree lessened by the effort and dedication of the entire team. Our regional approach has allowed us to remain focused on solving challenges effectively and speedily. Just a summary of our operating scenario for FY '21. We've collected 85% of total rental budgeted for. And that -- just a reminder, that was budgeted in December 2019, assumed no pandemic and assumed normalized income from the hospitality portfolio. Spear through the year has remained profitable, accruing dividends and operating in the high rate scenario. Our balance sheet and income statement has remained consistent and meeting all covenants. Our liquidity availability has remained consistent to absorb various forms of rental credits, deferrals, in addition to covering our operating costs and interest. We have available to us ZAR 170 million of cash. And furthermore, hats off to our finance team. We have settled in excess of ZAR 86 million worth of gross debt during the period. Our funders, standard Bank and Nedbank remain aligned and supportive of Spear strategies. Our solvency and liquidity measurements have been achieved successfully. Spear's FY '21 renewal and Relet program has been consistent, and most importantly, we have maintained our high road operating environment for the year. So moving on to the details of the portfolio. Spear owns 32 high-quality assets situated solely in the Western Cape with a portfolio value of ZAR 4.49 billion. Asset value growth compared to FY '20 was in the region of 7.38%, with our average property value, which has increased to ZAR 139 million per property, which is in line with our strategy of owning properties with over ZAR 100 million and above. We choose to own fewer properties but properties of higher value, which allows us to intently focus on asset management and locking additional value on each of those properties. Average property valuation, ZAR 9,829 a square meter, which compared to our peers, is very, very fairly valued and values were well below replacement cost. Our average in force escalation, 6.96%. Escalation rates have come under pressure. And particularly this year, where we had a 300 basis point reduction in interest rates, a drop in inflation. And tenants, unfortunately, are also under pressure, and we would rather negotiate a slightly more lenient escalation rate then incur the cost of actually losing a tenant because that is way more expensive. From a portfolio GLA perspective, at February 2021, the portfolio was 453,020 square meters, comprising of approximately 51% industrial, 30-odd percent commercial, 10% retail and 7% hospitality. Our portfolio tenant retention rate has been excellent at 93.93%. This is particularly due to Spear's tenant-centric approach, coupled with our early engagement strategy, which we'll talk about further in the letting activity slide. Our weighted average lease expiry at 28 months, management makes a concerted effort to push the well out as far as possible. However, under the current trading environment, tenants have a reluctance to commit for the long-term as the operating environment does remain uncertain. We, as a business, offer various levels of lease tenure flexibility. However, in addition to the shorter tenor leases, we are also seeing tenants committing for the longer-term in the region of 7 to 10 years. Our focus remains on rent and tenant preservation in the short, medium and long term. Cost flexibility has to be given in certain instances. Having a look at our average portfolio rental rate per square meter, ZAR 94.54. Our year-to-date collections, a very proud 96.51% as we've maintained our focused approach to collections and problem-solving during the year. Our year-to-date collections to budget, as mentioned earlier, was just on 85%. So in a look at the financial metrics. We declared an interim distribution of $0.3935 based upon a revised payout ratio of 80% at our half year. Steel will maintain, as earlier mentioned, a 75% to 90% payout ratio, in line with our cash retention strategy. We would most likely average out at around 80% average as we balance both the cash retention component and the tax component of the business. Spear's REIT cost-to-income ratio for the interim period has been 40.06%. This is higher than normal. However, this is due to reporting on a gross basis per the [indiscernible], in addition to limited to no hospitality income for the year, short-term increases in cost to adapt to the COVID-19 operating environment, which included various forms of cash flow relief, deferments, credits, bad debt provisions and write-offs. Spear's REIT administration cost-to-income ratio has been on a consistent decline after aggressive cost-cutting and payroll sacrifices were made during the year to strengthen the cash position of the business and push the business towards the high road operating scenario. Our TNAV in the region of ZAR 11.48 per share. It has declined by around 5.67% as a result of the half year dividend reinvestment program issuance as well as property devaluations, which were in the region of approximately ZAR 81 million. The TNAV net of distribution will be roughly ZAR 11.18 per share. Looking at the LTV. The forecasted portfolio LTV at year-end will be approximately 46% post any fair value adjustments having been made. We do not anticipate any further significant asset devaluations coming through for FY '21, other than those made in half year '21. Further details we provided during the May final results presentation. Our fixed debt ratio is at 69.51%. This is on the upper internal range with an internal limit of approximately 75% of debt hedged at any given time, all dependent on which cycle we are in within interest rates. Our average debt expiry in the portfolio is 22 months with no refinancing risk with in excess of ZAR 1.3 billion renewed and extended during the year of FY '21. Our expiry profile will, however, extend out to approximately 25 to 26 months post current refinancing negotiations, which are being finalized as we speak. Spear's average cost of debt, 7.59%. Our average cost of variable debt, 5.72%, which makes up approximately 30.49% of our group debt portfolio, which is in the region of ZAR 600 million. Our average cost of fixed debt, 8.72%. And notably, we have approximately ZAR 250 million of that fixed debt that will be moving towards the variable portfolio within FY '22, creating interest rate savings or interest cost saving tailwinds for Spear. And most importantly, FY '21 distribution will be declared. Having a look at our collections, Spears proactive -- nonbureaucratic response has resulted in our ability to report the following year-to-date rental collection figures and percentages. The chart has been split into a half year and full year. On a full year basis, 96.5% of gross rentals gold have been collected, post deferments and credit. One can see from the slide that June 2020, January and February 2021 stand out is the toughest collection months, noting though that we have not yet closed out the full month of February, and we do still have some significant electricity charges in addition to contractual charges that are to be settled before the month end. The billings in this slide reflect revenue after all credit and deferments, but inclusive of recoveries. Our original budget, which is in the slide on the first star reflects the pre COVID operating revenue, including hotels and recoveries. Tenant arrears for the interim period amounted to ZAR 4.3 million, decreasing from ZAR 13.5 million reported at interims. At last measurement date being the 24th of Feb 2020 -- 2021, apologies, arrears for the full year ending 28th of 2021, was at ZAR 17.5 million. We do anticipate a similar trend as what we saw at our interims versus the interims pre-close that the arrears will notably reduce as we are seeing the age analysis improve on a daily basis. Having a look at our exclusions, credits and deferrals, a direct result of the COVID-19 pandemic management has restructured, renegotiated or provided relief to approximately 198 of our 407 tenants. A slowdown was noted in tenant relief requests as the majority of our tenants who were permitted back at work and as economic activity started to recommence. The second wave of infections did, in isolated cases, result in relief requests, which were considered on a triage basis, for instance, the gyms and certain restaurants, we had to partner and come alongside them to help them navigate through this return to level 3 lockdown. Whenever I look at the slide, we've been quite specific in our disclosures on the classifications, hospitality, 28.9 million uncollected. We provided credits in the summer 15.2 million, deferrals, ZAR 6.9 million; vacancies, ZAR 11 million, stop billing at ZAR 3.2 million and solar payments that we've received for roof rentals at ZAR 4.49 million. Having a look at the breakdown between credits and deferrals, you will note that we've segmented them for you by retail, commercial, hospitality and industrial. In the retail sector, credits are provided in the amount of ZAR 7 million; commercial, ZAR 6.2 million; hospitality, ZAR 62,000; industrial, ZAR 1.9 million. Deferrals on the retailer was ZAR 529,000; commercial, ZAR 3.9 million; hospitality, ZAR 63,000; and industrial, ZAR 2.4 million. Have look at our letting activity. So the tail below reflects the letting activity for the period. Spear's asset management and property management teams, hands on approach, has resulted in a strong tenant retention activity for the FY '21 year. In addition to limited negative rental reversion on a portfolio level of 1.21%. On average, we have approximately 130,000 square meters that comes up for renewal and relet on an annual basis. However, FY '21 being a year like very few before it resulted in numerous leases being renegotiated, extended and renewed off the back of deferments and credits. Therefore, you will note that expiries and vacated GLA was at 194,000 square meters, together with the fourth column with renewals and new lets at 177,000 square meters. Having a look at our balance sheet and funding updates. Covenants. A proactive approach was adopted with our funders to ensure that Spear has enhanced optionality, headroom and flexibility to operate through the pandemic period without any potential covenant risks or importantly distractions. Management had reached agreement with our funders to relax Spear's strictest bank covenants for FY '21 and FY '22 measurement period as follows: our historical LTV, 50%; our new LTV, 55% versus our current LTV of 46%. Our old ICR, 2x, our new ICR, 1.75x with the current ICR of 2.08. Notably, we believe that our ICR will be on an upward trend, given the fact that as conferencing meeting activity starts to improve within the hospitality portfolio, the efficacy of the vaccine rollout with people being able to travel, income will start to be generated from those hospitality assets in the short to medium term. The above relaxation reinforces the alignment of our funders to our operating strategy, and again, gives comfort to all that there is 0 going concern risk in addition to Spear's ability to pass all solvency and liquidity tests. We will expand on our LTV sensitivity and road map further in our final results presentation in and around May, late May this year. But again, to just reiterate, our targeted LTV is tolerated at 38% to 43%, which we believe will be achieved within the next 18 to 24 months. Just going a bit deeper into our sectoral performance on a year-to-date basis. Sector wide, the impact of COVID-19 has been felt in varying degrees. The resilience of the Spear portfolio has been displayed in the level of collection set out earlier in the presentation, along with the below sectoral performance update. We'll start with the retail portfolio, 42,229 square meters, of which approximately 38% of that portfolio is occupied by national tenants. All our retail assets are classified as convenience retail. This subsector has been incredibly resilient and has shown a very strong recovery. Our retail portfolio occupancy is at 91.59%. Our collections have been at 93.43% versus revenue build for the period. Spear SPAR has provided credits and deferments to retail tenants to the value of ZAR 7 million of credits and ZAR 500 thousand of deferments. During all levels of lockdown, our retail tenants have performed in line with expectations, with all anchor tenants being able to operate under level 5 lockdown. Letting activity has been in line with expectations, with the bulk of renewals being concluded per management's forecast. No significant retail tenant failures occurred during the year. However, Spear has elected to not raise rental on certain of the. However, I'm pleased to report that those rentals have recommenced, but there was certain support that need to be provided when we went back into level 3 lockdown. We're also pleased to report very encouraging tenant feedback being received on trading conditions at some level of disposable income returns. We do also believe, given the fact that Spear's retail, convenience retail assets are all open-air shopping centers that they should, by virtue of that not being mechanically ventilated, trade better over the next 12 months as the residual effects of the pandemic work through the system. One of our views on risk, we believe that the convenience retail portfolio is at a lower level of income risk as close to 100% of tenants are trading and paying 100% of their rent. But gyms, as I mentioned, are taking longer to recover to pre COVID levels, requiring longer-term restructures in the second wave. And in pressure, as we know, on the consumer, consumer spending as South Africa trades through a recession, which will potentially impact the convenience retail sector and tenants' abilities to pay their rent. Moving on to our commercial portfolio. 140,023 square meters of incredible assets. All of Spear's commercial assets are located in very high -- very attractive locations. And just to talk for a second on working from home. Again, I would reiterate that it's not a one size fits all solution. Therefore, office space in good areas will remain relevant, but landlords will have to think about the overall experience of coming into the office, how the office environment will be or ecosystem will be managed and how to make it more attractive from a health and safety perspective as well as from a flexibility perspective. You may find that tenants will choose to operate from an office for 3 or 4 days a week and then test a hybrid work remote structure the other days. We are, again, as I mentioned earlier, encouraged by news of numerous companies implementing a return to work program from the beginning of March 2020. The office portfolio occupancy is at 87.48%. As I mentioned earlier, vacancy creep has set in as a result of tenants electing not to renew their leases, some liquidations and some business closures. Collections at -- in terms of revenue build has been at 97.49% for the period. Spear had provided credits and deferments to the value of $6.2 million in credits and ZAR 4 million in terms of deferments. Spear's portfolio remains attractively positioned to offer tenants both expansion and/or contraction space. In certain parts of the portfolio, tenants have needed to increase their premises size to comply with COVID-19 social distancing requirements. The impact of load shedding has also caused tenants to rethink their decision to work from home. All of Spear's office locations are equipped with business continuity solutions in the form of backup power generators. In other parts of the portfolio, headwinds have emerged within the office sector with tenants not electing to renew their leases, as I mentioned earlier, as they test the hybrid rework from the hybrid work from home strategy. What are the risks? Asking rentals will soften as vacancy creep increases. Increased vacancies would result in increased competition for tenants that are in the market to relocate. Generally, the potential is higher for negative rental reversions across the office sector, irrespective if some of the rentals are ready at market or slightly below market. And the cost of installing tenants will increase as a result of the increased competition. Moving on to our industrial portfolio. 226,992 square meters of GLA. Spear's industrial portfolio has been resilient over the year with a number of new lets and redebt taking place in very challenging market environment. The industrial portfolio occupancy has been -- is at 97%. This is post the finalization of the redevelopment at Beacon way for Logistics. Collections are at 96.71% versus revenue for the period. Spear provided credits and deferments to industrial tenants to the amount of ZAR 1.9 million in credits and ZAR 2.5 million in deferments. The second half of the year saw credits and deferments reduced due to tenants' ability to reopen and operate under Level 4 onwards. The vast majority of Spear's industrial tenants have maintained a very strong payment profiles. And given the location and the quality of Spear's industrial portfolio, there has been strong demand for our rental properties. Again, just talking about the risks. Load shedding may have a negative impact on manufacturing tenants, labor relations and trade unions, and risks, increased capital requirements to maintain the quality of industrial assets and major market or tenant failure. So moving on to our hospitality portfolio, 27,606 square meters. The most challenging part of our business, but part of our business nonetheless, which we will give as much energy and effort to as any other part of our business. This sector has by far been hit the hardest by the impact of COVID-19. Management had eliminated hospitality income from our FY '21 forecast. The FY '20 hospitality portfolio comprised approximately 7% of group revenue. Having a look at property specific, the Doubletree by Hilton in Cape Town. The industry showed slow recovery from September to mid-December when the second wave was officially confirmed and strictly lockdown measures were imposed. A ZAR 6.2 million turnover was generated in the 6 months at 13.2% occupancy and ZAR 820 average daily rate. We furthermore generated ZAR 2.5 million during the level 4 lockdown offering repatriation services. And given the fact that this property is owned and managed by Spear, these -- this revenues was generated was effectively utilized to cover costs. Therefore, when you look at our credit and deferment slide, you will note in the notes that ZAR 1.7 million of rental income were generated from hospitality portfolio, and that was generated from 15 in orange. Aggressive cost-cutting was implemented and nonessential services have been done away with. The cost-cutting measures have been cemented into our post COVID recovery plan. The recovery forecast based upon the initiation of the vaccine rollout and the client in active COVID-19 cases look as follows: March, 17% occupancy. However, that excludes conferencing, meeting and food and beverage, which we have seen an increased demand with some smaller bookings for conferences and meetings coming through in March, which again underscores our opinion why we believe the office sector return to work program is underway as companies are making bookings with us at the various hotels to offer training and reconstituting business operations meetings before they return to work. April, we're looking at about 19%, May 22%; and June, 31%. We're forecasting to sell approximately 5,000 room nights from March to June at an ADR between ZAR 790 and ZAR 850. A potential hospitality tailwind towards the year-end would be the lines to it, but that still remains to be seen if it's going to be going ahead in South Africa. Having a look at 15 on --, 15 range is under lease to Marriott. It reopened on the eighth of September 2020. We generated ZAR 1.7 million in rental income for the -- from -- on a year-to-date basis. Spear has 0 exposure to 15 range hotels property-related expenditure. Spear's rental on all hotel revenue generated on the property, and Marriott remains responsible for all sales and marketing of the hotel with numerous accommodation and conference inquiries being received for the periods from March onwards. What are the risks? Business travel market recovers slower than expected. ESS orders remained closed for international travel. And when I say close to international travel, it's more about people having to travel, even though the vaccination rollout has occurred or is occurring, people may have to isolate for a period of time and may not be able to travel for an extended period of time if they have to go back into some sort of isolation prior to returning back to their work. The meeting incentive conferencing market may become reluctant to meet in larger groups. Geopolitical risks may increase in addition to safety and security concerns, in addition to the prolonged finalization of the COVID-19 vaccination and global rollout. Since a general business update regarding most all sectors. The general trading conditions remain very tough, with increased, but we have seen increased demand for Spear's rental properties. The industrial and retail sectors are showing the most resilience. The office sector, vacancy in with a slowdown in some in rental in some areas. There are positive signs emerging in the hospitality portfolio as rooms, conference space and meeting space bookings pick up. As noted on since, the 15 range disposal negotiations were terminated with the prospective purchaser. However, work streams are in place to follow through on our planned hospitality exit. Collections remain firmly in line with management's high road scenario. Our balance sheet remains robust. Our debtors book is on target with a good recovery momentum of receivables. Our asset disposal and LTV reduction program is ongoing and in line with our stated strategy, and our renewal program is in line with management's forecast. So having a look at our outlook. Spear's portfolio remains of a high-quality, well located, sectorially defensive and underpinned by strong lease covenants. Our hands on asset management and focus has resulted in the high scenario being achieved for FY '21 and for the foreseeable future. There's been a slow but notable economic activity, which has resulted in increased inquiries for our rental properties. The vaccine rollout with a high efficacy rate will create tailwinds for the economic recovery. We plan to maintain the high road scenario through FY '21 and beyond. Our disposals program will be maintained through FY '22 until the strategic LTV objectives have been achieved. Spear remains well capitalized with sufficient liquidity and headroom facilities. Our leasing and asset management team report increased market activity. Our active engagement and early-stage success with FY '22 renewals is very welcome. Our regional focus and proximity to our assets remains an advantage. As mentioned, the LTV range for year-end will be in the region of 45% to 46.5% and declining as disposals are finalized and the LTV reduction strategy gains momentum. There will be no major valuations -- no major valuation declines expected for the year ending 2021. And just in closing, so Africans are known for their grit and resilience. This is needed now more than ever. That brings us to the end of this pre-close presentation. Christiaan Barnard, our CFO, and I will follow-on shortly with a question-and-answer session, and I thank you for your attendance today. Welcome back to the Spear pre-close presentation Q&A session for FY '21. With me is my steemed colleague, our CFO, Christian Barnard, and we are going to just be answering some of the questions that have come through post or during the presentation. I'm going to just ask Kim to just start with the questions.

Thanks, Brenton. The first question is from investments. You stated that Spear's intention is to exit hospitality. Can you comment on the level of interest from buyers in the market in terms of your hospitality assets?

Thank you. Correct. So we did state that Spear intends to exit its hospitality investments in an orderly manner, and we have been encouraged by the level of specialist hospitality investors that have engaged with us. We did note that the termination of negotiations on the 15 orange disposal. But I'm pleased to report that we have various work streams, as I mentioned in the presentation, underway to restore earnings and to impact our LTV reduction strategy through the disposal of our hospitality assets. We've also received notable interest from investors looking to invest into the mixed-use assets within which the Hilton property is located at the Upper East side.

The following question is for Christian. From Primrose investments. In your renewal negotiations of ZAR 1.3 billion of debt, have your funders been aggressive or stable with regards to their margins?

Thank you, Kim, and good morning, everyone. In all the negotiations, we've mostly found them to be very stable, and we've mostly actually received a reduction in our margins, obviously, will be mean a positive tailwinds for spring the upcoming financial year, meaning we will save on interest to bringing more profitability to shareholders.

Thank you. Another financial question for you, Christian, given the fact that solvency and liquidity has become a talking point in the industry, do you believe that Spear will meet these requirements?

That is a great question. Solvency liquidity is something we monitor on a daily basis, while at the cash availability was myself and sits with our Executive committee on a weekly basis, and we review these requirements. And we believe, since we are collecting debt within our high ROE scenario, we are able to meet all obligations to become due, and we will be able to declare a dividend come our final results presentation.

Quintin. Is it your considered view that there will be a return to office demand from Greenstar Holdings?

Yes. I don't think I'm an outlier in my thinking. But when we look at larger office users, there has been somewhat of a knee-jerk reaction. And yes, there was a human and health care response required to respond to the impact of the pandemic. But again, nobody wants to spend their career in a spare room. Nobody wants to be -- go through their career virtually. And we believe that skills development, knowledge sharing and the ability to either close deals, pitch deals and operate in an environment that requires engagement has to happen in an office environment. How that would look like in the future, may not exactly be what we've been used to, but I do believe that the demand for office space will still be there, noting that there's a digital -- a telecommunications company that has just signed a 6,000 square meter lease with another landlord in the Capetown CBD periphery. And that for me is a really a very encouraging sign that people will be coming back to their offices.

A another question regarding offices from Abax, which of the office properties or the larger office properties are you concerned about?