Spear Reit Limited (SEA) Earnings Call Transcript & Summary

Apologies about that. At least you know that this presentation is very much live. We had a couple of technical gremlins that creeped in there. But just to pick up again on the environmental update. Over the last 18 months, South Africa has been firmly caught in the grip of the COVID-19 pandemic fluctuating between various alert levels, restrictions and infection waves. As a team and as a business, we knew that FY '22 will be a challenging year and will require our hands-on and active asset management level to be taken up a notch to ensure forecast-aligned renewals and tenant retention targets were achieved. The operating environment over the last 6 months has been frustratingly unpredictable with the onset of the third wave and stricter lockdown measures taking effect. International travel into South Africa remains at historically low levels, given the quarantine requirements placed on tourism, when tourists require -- when requiring to return to their countries of origin as well as South Africa remaining on the red list. The clumsy vaccination rollout has impacted not only the tourism services and hospitality sector but also the speed at which a meaningful return-to-work program can be initiated and gain meaningful momentum for corporate South Africa. The real estate sector, amongst many other sectors, remains negatively impacted by the events of the last 18 months and also, in particular, the unrest and looting that took place mid-July in Gauteng and KZN. We are incredibly grateful to have been unaffected by the unrest but deeply saddened by the impact these events have had in our country, our industry colleagues and their tenants. We'd like to wish them all well and trust for a speedy restoration and recovery. Notably, the half year has seen a decline in tenant support measures provided by Spear to our tenants despite the onset of the third wave and its relative restrictions. The lack of demand for office space has been worse than expected for the period, resulting in certain income assumptions having to be adjusted and recalibrated, but this mostly relates to the speed at which we plan to let up vacant space. But we are now starting to see meaningful and active office inquiries coming to the fore. The industrial and convenience retail portfolio has been resilient during the period and has contributed meaningfully to the half year. The conversion of the 15 on Orange fixed income lease has been completed as well as the refurbishment and will have an ongoing restorative effect on earnings for the year going forward. The vaccination rollout is now firmly underway with -- in excess of 12 million South Africans having been vaccinated, and we hope that this will just further drive down the rising third wave -- infection wave and push it towards a decline. The need for South Africa to move to an amber country classification is vital, as international inbound travel, tour groups, conferencing, meetings and incentive travel will be able to restart. In the interim, we've been proactive. We haven't rested on our laurels. We've put together local market packages that are being actively sold and promoted to generate revenue. Spear's regional focus allows us to do intensive asset management on our portfolio and to meaningfully engage in the areas of the portfolio that keep us awake at night. I'm extremely proud of how Spear has maintained not only a 94% occupancy rate during the half year, but also has achieved a 94% conversion rate and the letting activity from leases that were -- are expiring or needed to be renewed as at 27 of August 2021. So moving on to our mission statement and strategy. Spear remains an authentic dividend-paying income fund 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 to consistently grow our distribution per share ahead of inflation and to operate within the top quartile of our peer group. Spear's strong real estate fundamentals, high-quality assets in sought-after locations, strong tenant covenants and immersive asset management approach delivers consistently on our mission statement and strategic objectives. The strategic highlights I want to share with you today are as follows. We have continuously and successfully navigated the COVID-19 operating environment. As a business, we've optimized liquidity management over the period. We've maintained income statement consistency and strong rental collections year-to-date. There's been a commencement of notable industrial logistics leases across the portfolio, with companies such as Grindrod, Nampak and Mambos Plastics, equating to 57,500 square meters, which we're looking at total portfolio mix of about 12.2% of total portfolio GLA. Our occupancy rate, as mentioned, have been solid at 94%. Our debtors book is under control and showing limited creep, as older debt is serviced together with current rentals. Our earmarked disposal of assets is in progress, as disclosed on SENS, with circa ZAR 160 million of disposals currently underway, which should have a 1% LTV reduction impact on transfer. We've also successfully implemented our PV solar strategy, which has resulted in portfolio accretion as roof lease income has commenced as well as a decline in overhead costs, given the fact that we get between a 30% to 40% penetration rate on our solar PV systems whilst recovering 100% of consumption on site. Having a look at the strategic focus into the medium and long term, you will see as a strategy the continuing narrowing of asset ownership to commercial, convenience retail and high-quality industrial assets, with a clear focus on fixed income as opposed to variable income investments. We will maintain a distribution payout ratio of between 80% and 95%. We'll prudently recycle capital through earmarked disposals and maintain a sound capital allocation tree. We will reduce and maintain our gearing ratio in line with our strategy of between 38% to 43% loan-to-value. We will maintain a conservative debt hedge profile of between 63% and 75% hedged at any given time for up to 36 months as and when the opportunity presents itself. We'll maintain high portfolio occupancy percentages, and we'll be looking to unlock additional renewable opportunities and water augmentation measures in line with our ESG strategy across the portfolio and growth assets. Looking beyond COVID-19, Spear is in a far better place today versus this time last year. By this, I mean, last year, Spear and most of the world were in a fog of uncertainty about this pandemic, how it will play out, when the vaccines would arrive, where efficacy rates would be, when economic activity would kick back in, et cetera, et cetera. With the benefit of hindsight, we're able to plan better, make challenging assumptions about the future and maintain tried-and-tested wartime environment strategies in the half year. Our half year 2022 operating scenario has been as follows. As trading conditions remain challenging, I wish to highlight 4 key areas of intensive asset management focus during the half year and beyond. Commercial. Demand for office space remains subdued. We have to think outside of the box to position our office offering as attractive as possible with flexible lease terms, dynamic rates and attractive installation offerings. The hospitality portfolio. With international travel being muted, long stays, local market accommodation and conference packages are actively marketed to generate revenue. Management remains committed to its hospitality exit, and inroads are being made to have no variable income exposure by the end of FY '22. Vacancy creep. COVID-19 and work from home has had a material impact on the office market, with vacancy creep setting in across the sector. Spear has not been immune to this vacancy creep. Our leasing team has aggressive marketing strategies in place as return-to-work plans start to take shape and the vaccine rollout starts to expand. We can note even today, certain green shoots that are emerging in this regard. Negative rental reversions. Defending income at lease expiry is becoming tougher and tougher. I'm satisfied with the letting activity stats that I will share further on in the presentation. Spear has performed better than most of its peers during the period with single-digit negative rental reversions. Now despite the challenges that the above 4 points present, I'm still comfortable and confident that our guidance provided to the market is sound and achievable. Furthermore, rental collections have been mostly in line with management's forecast. Balance sheet and income statement has remained robust in meeting all covenants. Our tenant cash flow, as mentioned -- assistance, as mentioned earlier, has reduced significantly. Liquidity availability has remained sufficient, which has allowed us to cover all operating expenses and interest over the period. There's no going-concern risks, and we still have ZAR 150 million plus in cash availability and increasing. Our funders being Nedbank CIB and Standard Bank Real Estate Finance remain aligned and supportive of our strategies. Spear remains sufficiently capitalized to meet all its short- and long-term commitments. Solvency and liquidity measurements have been passed successfully. Spear's renewal and relet program has been consistent. And notably, Spear is on track to achieve a 6% to 8% distribution per share growth guidance for HY 2022. Moving on to our salient details. So when you look at the portfolio snapshot, Spear owns 32 high-quality Western Cape assets, with a portfolio value of ZAR 4.5 billion. Asset value growth compared to FY '21 has been 1.09%. Our average property value is ZAR 139 million per property. Our average property value per square meter is ZAR 9,491 a square meter. Our average in-force escalation is 6.45%. Our portfolio GLA as at August 2021 is 470,881 square meters, which, on a GLA basis, comprise 55% industrial, 28% commercial, 10% retail and 6% hospitality. Portfolio occupancy rate during the period is 93.47%. I believe this is due to Spear's tenant-centric approach, coupled with our early engagement strategy and in line with our historically high occupancy percentages. Our weighted average lease expiry profile is 28 months. Now management makes a concerted effort to push out the WALE as far as possible. However, under the current trading environment, tenants have a reluctance to commit for the long term as the operating environment remains uncertain, and this is mostly evident in the office portfolio. We are, however, also seeing longer-term commitments ranging from 5 to 10 years across sectors. Our focus remains on rent and tenant preservation in the short, medium and long term. Thus, flexibility must be given in certain instances. Management's internal target of a weighted average lease expiry is 36 to 45 months. Our average portfolio rental per square meter is ZAR 95.81 per square meter on a gross basis. Our year-to-date collections to billed is 95.06%, and we've maintained an intensive focused approach to collections in the half year. Our year-to-date collections to budget set in January 2021 is 94.15%. The main variance between the 2 is basically that given the occupancy rates from people working from home is the utility charges have been lower than what we forecasted, but that would have a benefit on both the income and the expense side. Having a look at our financial metrics, as mentioned, we're on track to achieve our distribution per share guidance of 6% to 8% growth for the half year compared to half year 2021. Spear will maintain the 80% to 95% payout ratio in line with our cash retention strategy and optimized taxation outcomes. Spear's SA REIT cost-to-income ratio for the interim period has been 43.01%, which is higher than normal due to it being reported on a gross basis per the SA REIT BPR. Furthermore, as a result of limited hospitality income for the half year, ongoing increased cost to adapt to the COVID-19 operating environment, which included limited tenant relief due to the third wave, bad debt provisions being increased, write-offs and various health and safety costs. Spear's SA REIT administration cost-to-income ratio was 7.21%. Maintaining a low overhead cost structure is key, and the focus is to reduce this to between 6% and 6.5%. Our tangible net asset value has increased to ZAR 11.86, which is a 3.13% increase, up from ZAR 11.50 in the prior year. The increase was a result of recognizing treasury shares as a balance sheet asset, which we had not done in FY '21. Loan-to-value is 46.26%, post any fair value adjustments having been made. Our fixed debt ratio is 56.68%. This is below our desired levels, and post interims, the FDR will increase to 60%. Our house view is that interest rates are currently benign, and we are taking advantage of the low interest rate environment. Our CFO constantly monitors the FRAs and other metrics to ensure that he strikes and hedges out our portfolio debt over the next 6 to 9 months. Our average debt expiry is 28 months with no refinancing risk, with more than ZAR 280 million of debt renewed and extended during the period. Our average cost of debt is 7.08%. Our average cost of variable debt is 5.64%, makes up 45.32% of total group debt. And our average cost of debt -- fixed debt is 8.46%. Moving on to our collections. Our year-to-date collections have been largely in line with our forecast. Encouragingly, as I mentioned earlier, we're also seeing all the debt being serviced with current rental obligations. All our billings reflect after all credits and deferments have been passed. Income budgets were set in January 2021 using some of our best assumptions for the year ahead. Some of those assumptions have proven true, and some have had to be adjusted in light of the third wave. For instance, gyms, some restaurants and certain parts of the portfolio needed further relief. Tenant arrears for the interim period amounted to ZAR 13.4 million and decreasing consistently. There was a slowing down of collections at the onset of the third wave and the associated lockdowns in July, but I'm pleased to report that, by and large, the payment momentum is back to acceptable levels. Having a look at this -- at the slide for FY '21 in terms of our revenue, so the budget was, for the half year, ZAR 274.1 million of budgeted rentals. We billed ZAR 271.5 million. We collected ZAR 258.1 million, which is collections to billed of 95.06% and a collections to budget of 94.15%. Just to break it down per sector, we collected 96% of our retail rentals, 95% of our commercial rentals, 94% of our industrial rentals and 97% of our hospitality rentals. The 3% in hospitality that was not collected relates to relief measures provided to non-hotel tenants that are situated on the hotel property. Moving on to our letting activity. The table below reflects the letting activity for the period. Expiries and vacated during the period was 84,797. If you exclude the hospitality, it was 68,618. Looking at the reversion schedule, we achieved a positive reversion of 24.52%. The anomaly here is the new lease with -- on 15 on Orange that has commenced. Once taking that out, we would have on a commercial, retail and industrial basis a negative rental reversion of 5.79%, which, compared to some of our peers, we are very pleased that this was managed under the double-digit amounts. Looking at Spear's expiry profile, as mentioned, it is defensive at 28 months. Our early tenant engagement contributed and mitigated deep negative tenant reversions, specifically in the commercial portfolio. The consensus view is that our portfolio rentals are largely either on market or below, and our assets remain in very attractive locations. The industrial reversion, which was in our forecast, was due to a shorter-term industrial lease of tenant vacating and us replacing them with a new long-term lease of 11,000 square meters. And our retail letting activity was largely in line with our forecast and remains resilient. So having a look at our balance sheet and funding updates, our covenants. Our proactive management approach with our funders, as previously stated, has given Spear enhanced optionality, headroom and flexibility to operate through the post-pandemic period without any potential covenant risks or distractions. Management, as mentioned in previous presentations, has reached agreement with our funders to relax Spear's strictest bank covenants for the FY '21 and FY '22 measurement period. LTV -- strictest LTV currently is at 55% versus Spear's current LTV of 46.26%. Our ICR is 1.75x in terms of the covenant, with a current ICR of 2.15x and improving, noting that once the full effect of the 15 on Orange lease come into the income statement that ICR will improve even further. We are very proud that we maintain this excellent relationship with our funders, and both parties are aligned with our operating strategy going forward. As mentioned, we have zero going concern risks. We have sufficient liquidity available to us in terms of our cash holdings. And the only reason why that cash holding has reduced from reporting period to reporting period was that we had fully cash funded the 2,000 square meter extension for Nampak on the 14,500 square meter facility. We furthermore refinanced ZAR 280 million of debt during the half year. Our CFO, Christiaan Barnard, must be commended. He's made meaningful inroads during the interim period to reduce Spear's average cost of debt. We have -- we are 6 months into a new financial year. And as you can see from the slides on your right-hand side that the overall profile has continued to improve together with Spear's credit rating with our various funders. So moving on to our sectoral performance. Spear's portfolio has been resilient for the most part, as displayed in the level of collections set out earlier. Dissecting the sectoral performance for the half year provides deeper context to the trading environment and where management must prioritize asset management initiatives for the balance of the year. We'll start with our retail portfolio. Spear's retail portfolio is made up of 48,695 square meters of GLA. This equates to 10% of total portfolio GLA, and even more defensively, 41% of our convenience retail GLAs let to national tenants. All of our retail assets are classified as convenience retail. This is a subsector which, in our opinion, has been the most resilient. None of our retail assets are reliant on any local or international tourist markets. Our retail portfolio occupancies have been at 93.37%. Our collections have been at 95.79% versus revenue billed for the period. Spear's provided credits and deferments to retail tenants to the following values: ZAR 950,000 in credits and ZAR 485,000 in deferments. The third wave lockdown had a lesser impact on our retail tenants than we anticipated. Our letting activity continues to be in line with our expectation, with the bulk of renewals being concluded per management's budget for the period. There's been no significant retail tenant failures occurring during the interim period. And there's been very encouraging tenant feedback received on trading conditions. We still hold by the opinion that open air centers would trade better than close centers. And notably, our retail assets are all easy-to-access convenience retail assets. What are the risks? One of the lower-levels risk is on rentals. 100% of our tenants are trading and paying their rentals. However, the pressure is still on the gym tenants and some food-related retailers are taking longer to recover, which will require longer-term lease restructures as a result of the third wave impact. And probably the highest risk is further infection waves, coupled with additional lockdowns and any possible unrest. Having a look at our commercial portfolio, 133,879 square meters of GLA making up 28% of our portfolio. All of Spear's commercial assets are located in highly attractive and established office nodes in Cape Town. A lack of pre-pandemic tenant demand continues to impact the sector. Office portfolio occupancy is at 85.57%. Vacancy creep is due to nonrenewals, as a lot of tenants are taking a wait-and-see approach, liquidations and business closures. Collections have been at 96.36% versus revenue billed for the period. Spear has provided credits and deferments to office tenants to the following values: ZAR 123,000 in credits and ZAR 32,000 in deferments. Spear's portfolio is attractively positioned to offer expansion and/or contraction space to third-party tenants due to its attractive lease terms and generally below market rentals. Expansion and contraction has been evident in the commercial portfolio as tenants adapt to social distancing and hybrid work regimes. As we move through the third wave and vaccine rollout momentum, a noticeable uptick in tenant inquiries for office space has been received. Currently, we have in excess of 3,500 square meters of new office deals under negotiation, ranging from Cape Town CBD, Century City and Tyger Valley. Lease renewal negotiations have been extremely challenging as the return-to-work trajectory for business owners and our tenants remains uncertain. What are the risks? Asking rentals have softened as vacancies have risen higher than normal. Increased vacancy equals increased competition for tenants, as every landlord wants to snap up the tenant first. The cost of installing tenants has also increased. And a prolonged return-to-work momentum has been evident as a result of a slower vaccine rollout than expected. Having a look at our industrial portfolio, which truly has been a moat around our business during these tough trading times, comprises of 260,229 square meters of GLA making up 55% of our total portfolio. Spear's industrial portfolio has truly been resilient over the period with several new lets and relets taking place in a very challenging market. Industrial portfolio occupancy has been at 96.85%. Collections have been at 94.38% versus revenue billed for the period. Spear has provided no credits nor deferments to industrial tenants during the interim period. Strong demand for industrial rental properties persists in the Western Cape. Long-term leases, as I mentioned earlier, have been concluded over 11,000 square meters effective 1 August for Mambos Plastics, a national retailer. A 10-year lease was concluded over 32,000 square meters for Grindrod Logistics, Nova Marine, which commenced in April 2021. The warehouse expansion for Nampak as part of the new 10-year lease extension on 14,500 square meters has been concluded, of which the additional 2,000 square meters commenced in July 2021. This totaling, as mentioned earlier, 57,500 square meters, comprising of 22% of industrial GLA and 14% of total portfolio GLA. What are the risks? It's the reintroduction of load shedding, which will have a negative impact on our manufacturing tenants; labor relations, unrest and trade union disputes; increased capital requirements to maintain quality of industrial assets in any major market or tenant failure. Moving on to the hospitality portfolio, comprising of 27,606 square meters of GLA, 6% of the total portfolio. The double -- we'll start with the DoubleTree by Hilton. The third wave impact has been severe. Pre third wave, we saw a definite pickup in rooms and conferencing business as more and more people were comfortable with meeting and traveling within South Africa. The third wave has been a lot more stubborn in its decline than the first and the second waves. And management's focus has been: firstly, on the disposal of the hotel; and secondly, on what alternative uses are there to management's disposal, either in the form of a residential conversion, co-living apartments or medical facilities. There's been no meaningful international tourism to be expected for the FY '22 year as South Africa remains on the red list. Hence, my appeal to government and to the tourism department to lobby to move us on to the amber list. This will effectively kickstart some sort of recovery. We have initiated aggressive long-stay campaigns to drive revenue to our DoubleTree Hotel. We haven't forecasted, as mentioned, any interim income on the DoubleTree for the half year. Moving on to 15 on Orange. As announced on SENS on the 18th of March 2021, management concluded a triple net fixed income lease over the property. The fixed income leases significantly reduced Spear's exposure to variable income assets. The Capital Hotel and Apartment Group completed an ZAR 18 million refurbishment of all the rooms. The capital expenditure was self-funded by the Capital Group. And there currently is a 24-month fixed call option in place for the Capital Group to acquire the property from Spear within that 24-month period. Just delving into the business case for -- on an earnings basis for 15 on Orange. In FY '21, the property contributed ZAR 1.8 million in rental income, which was on a property level ZAR 0.0087 of -- to our distribution. In FY '22, which notably will only be a contribution of 6.5 months, the property will contribute ZAR 10.4 million of income, which is ZAR 0.0506 distributable income per share on property level and a contribution of ZAR 0.0419 distribution per share on a group level. In FY '23, that will increase as a result of it being in the income statement for a full 12 months to ZAR 19.2 million, which on a property level will contribute ZAR 0.0933 to the earnings and on a group level will contribute ZAR 0.0467. Now the lease has commenced on the 15th of August. That's me saying 6.5 months of income for FY '22 and is at a starting rental of ZAR 1.6 million net rental per month fixed. What are the risks? That the business market recovers a lot slower. We have seen companies are now in the onset of the third wave and the stubbornness of the third wave, more and more reluctant to travel and have moved back into more of an online positioning. The SA borders remained closed for international travel for longer, as SA stuck on the red list making inbound travel very difficult as countries of origin require quarantine -- have very strict quarantine requirements. And the meetings, incentive, conferencing and exhibition markets are reluctant to meet in larger groups. So having a look at the general business update, general trading conditions do remain tough with early signs of increased demand for Spear's rental properties, as I mentioned, towards the end of August. Our industrial and retail sectors are showing the most resilience. Our office sector vacancy creep has set in with a slowdown in rental demand. However, I wish to assure you that our leasing and asset management team have this as a top, top priority, given the fact that every bit of vacancy is business profit that we give up. The 15 on Orange lease commenced on the 15th of August with Capital Hotel and Apartment Group, the benefits of which I've already discussed above. Our collections remain in line with management's forecast. Our balance sheet remains actively managed and robust. Our debtors book is well managed and on target with good recovery momentum on receivables. Our asset disposal and LTV reduction program is ongoing in line with our stated strategy. And our renewals program is in line with management's forecast. So looking ahead, amidst a very tough trading environment, the overall portfolio remains of high quality, well located, sectorally defensive and underpinned by strong lease covenants. We have fielded increased commercial and industrial inquiries from non-Western Cape businesses since the civil unrest in July and anticipate the economic benefit to flow to Spear and the Western Cape in time as a result. Our hands-on asset management and focus will continue to result in meaningful letting activity across the portfolio. There's been a slow but notable economic activity resulting in increased inquiries for our rental properties. Increased momentum in the vaccine rollout with a high efficacy rate will create tailwinds for economic recovery. And there's a high probability that the current collection percentage levels will be maintained and improved as we go on through the year. Spear remains well capitalized with sufficient liquidity and cash availability. There will be an acceleration of Spear's ESG strategy through PV solar and socioeconomic impact investments. Our leasing and asset management team notes increased market activity across sectors, which is very encouraging. And there will be obviously an active engagement and ongoing success focus with our FY '22 renewal and relet strategies. We believe that our regional focus and proximity to our assets remains an advantage. Our LTV range at period end will range between 45.5% and 46.5% and declining as disposals are finalized and LTV reduction strategy gains momentum. And in conclusion, our FY '22 guidance is on track. This brings us to the end of this pre-close presentation. I wish to thank you for your attendance. Apologies for the earlier technical glitch, and we'll be back shortly with you, as myself and our CFO, Christiaan Barnard, join you for a Q&A session. [Break]

Welcome back to our half year '22 pre-close presentation. We're moving on now to the question-and-answer session. I'm pleased to be joined here by our CFO, Christiaan Barnard, who is extremely excited by the fact that Cristiano Ronaldo will be moving back to Manchester United, are you not, Christiaan?

Extremely.

Kim, do you have any questions for us?

I do. I have a question from [ High Mast Investments ] for you, Quintin. It's a strategy question. You were quoted in the media this week about your long-term vision for Spear. What do you see the portfolio composition looking like on your journey to ZAR 15 billion?

Thanks, Kim. Yes, maybe just as a start, we are less obsessed with the size in the journey and more obsessed with the quality of assets that we own. But in that, we've always historically had a strong bias towards industrial assets. So we would look to maintain that momentum going forward as we execute against the exit of our hospitality assets. And in that journey towards ZAR 15 billion, the portfolio composition would most likely look like a 45% on a GLA basis allocation to industrial; 25% to convenience retail, which is a subsector that we like very much and believe that it's got a lot of long-term trajectory on it; 25% exposure to commercial offices with long-dated leases; and about 5% exposure to mixed-use assets, which will most likely come through an organic development approach we take on undeveloped bulk within the portfolio.

They also have a question for Christiaan. Well done on the improved cost of debt for the portfolio. Have your funders increased lending margins under the current refinance cycles?

Thank you, Kim. The margin has been relatively stable. What we have done is just take advantage of the environment with low interest rates. So we've refinanced current fixed positions in our portfolio on lower all-in margins with longer-term debt, therefore, bringing down the average all-in cost of debt. But relatively, demands are stable. The banks are happy, and we're getting improved fixed-term debt on longer-term terms.

Thank you. There's another question for you, Christiaan, from Milka Investments. Can you comment on the payout ratio strategy and how you will arrive at the most optimal ratios?

That's a good question. What we do is we review the collections to billed, as Quintin disclosed, currently at 95.06%. And then we determine in terms of what would the tax leakage be on any retained income. Then the tax leases, we'll try and set off against any excess tax losses we have in the group as well as any tax credit, for example, for all the solar projects we've done, because you can deduct those solar projects of any of the tax payable. So we find the exact point where we can pay a full cash dividend to our shareholders, including pay any tax due to [indiscernible] without having to dip into cash reserves and reduce the further cash availability of the group.

Thank you. I've got 2 questions from White Road Investments for Quintin. Spear REIT's LTV has an approximate margin of safety of 10% relative to its LTV covenant of 55%. What strategic plans are afoot to reduce the LTV to below 40% in the next 18 months?

Thanks, Kim. So I think we've been very clear that we wish to exit our hospitality investments. The main drivers behind our LTV reduction road map would be the disposal of the 15 on Orange Hotel, the disposal of the DoubleTree by Hilton. In addition to what's been announced on SENS is the disposal of 2 properties to the value of ZAR 160 million. Collectively, they would most likely have about a 300 to 350 basis point reduction impact on our group LTV. Then just to talk to the margin of safety. We don't -- we pretty much feel that the ratio where we are right now at about 46% is really the top end of the LTV scale that we would like to operate in. Being able to operate within a band of between 38% and 43% definitely gives us optionality. Unfortunately, we don't live in countries like Europe and the United States, where we have -- where they have extremely low interest rates. And we have to always ensure that we never exceed beyond a certain LTV level. And Lord willing, there's never a case where we have to embark on a north of 50% LTV. So quite happy to stay well below that 50% level.

Thank you. And the second question, once the LTV has been reduced to sub-40%, does management feel that there would be sufficient runway for concluding yield-enhancing deals given that the LTV would be notably below that of the SAPOA average?