Spear Reit Limited (SEA) Earnings Call Transcript & Summary

Good morning, and thank you for joining Spear's FY '22 pre-close presentation. Before I start this morning's presentation, I would like to extend our thoughts and prayers to the citizens of the Ukraine, and we trust that the situation on the ground will improve substantially over the course of the next couple of days. During today's presentation, I'll provide an update on the strategic asset management achievements, portfolio health and sectoral performance and how the year has manifested in the context of the business and the trading environment. The efforts of our asset and property management teams over the year has delivered favorably. The relative shift in the trading environment has contributed to the positive momentum Spear is experiencing in the second half of FY '22. We remain optimistic that FY '22 and the FY '23 year ahead will continue to have restorative effects on the Spear portfolio. If you have any questions during the course of the presentation, please feel free to e-mail them through to [email protected], and we'll be sure to answer them straight after the presentation. I would like to extend my sincere gratitude and appreciation to our Spear and Multi Rooms' teams for their dedication and commitment to spear concluding the FY '22 year as a stronger and more resilient company, so I'll be covering in the presentation over the course of the morning. So moving on to our environmental update. Over the last 12 months, South Africa has continued to operate under the Disaster Management Act, providing for a very fluid operating environment, depending on which infection wave we find ourselves in. The onset of the third and the fourth wave presented challenges to already struggling economy. Post the Omicron variant overreaction and isolation, I believe that the world is moving closer to an endemic scenario and the adoption of COVID-19 as more of a flu-like infection. The latter adaptation will continue to accelerate us into a normalized environment as globally, governments start to roll back on COVID-19 restrictions. The world is ready to get back to living and part of that is to get back to business. The evidence of this is visible all around us as international travel, tourism, return to office and retail performance reports are strong indicators that revenues are increasing and volumes are picking up across the board. 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 grow distribution per share ahead of inflation on an annualized basis 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 our strategic objectives. One of the objectives and the main objective for FY '22, whilst we remain consistent in our business operations and to ensure that our rental enterprise was in its best possible shape. How have we done and what are the achievements been that I can highlight to you this morning? We believe that we've successfully navigated and have commenced the exit of the COVID-19 operating environment. For the half year, we achieved a 12.65% growth in our distribution per share, which given the fact that we had such strong cash collections, the Board increased the payout ratio from 80% to 85%. As a business, we've maintained income statement consistency and thus, rental collections have been exceptionally strong on a year-to-date basis. Spear's gearing ratio achieved was in line with our strategy, which we set out to be between 38% and 43% loan-to-value. We have maintained a solid occupancy rate of just on 94% on a year-to-date basis as a result of our hands-on asset management and our early tenant engagement strategies. There's been limited creep in the debtors book as all the debt is being serviced together with current rentals. Spear's asset disposal strategy has been successfully executed with the disposal of the DoubleTree by Hilton Hotel at the Upper East side as well as #6 Talana Road, which was sold at a net premium of 6% to our book value after deducting all transactional costs. Spear has successfully exited variable income exposure within the portfolio ahead of our initial forecast which was forecasted to be in the -- by the half year 2023. We have successfully implemented our PV solar strategy, which has resulted in portfolio accretion and as roof lease income has commenced, overhead costs have reduced, while still recovering 100% of our consumption charges. Looking at the medium to long term, there will be a continuous narrowing of asset ownership to commercial, convenience retail, high-quality industrial. However, there will be a strong bias towards modern logistics, in multi-let industrial warehousing and convenience retail. As a business, we will maintain a distribution payout ratio of between 85% and 90%. We will prudently recycle capital through earmarked disposals and we'll have a sound capital allocation tree. As a business, we will maintain a conservative debt hedge profile of between 63% to 75% of our debt hedged at any given time for a period of up to 36 months. We will maintain a high percentage of portfolio occupancy and also unlock additional renewable opportunities and water augmentation measures in line with our ESG strategy across the current portfolio as well as growth assets. Having a look at our operational update. FY '22 has been a challenging year where nothing could be taken for granted. Spear's hands-on and active asset management has yielded the results that management intended as cash collections continue to improve, strategic disposals were concluded, renewals and tenant retention targets were achieved, and the balance sheet was bolstered to position Spear for growth in the year ahead. Spear's operating performance over the last 6 months has consistently improved compared to HY '22 despite the onset of the third and the fourth wave. The conversion of 15 on Orange to a fixed income triple net lease has had a restorative effect on earnings from the middle of August 2021 for FY '22 and beyond. The conclusion of the disposal of the DoubleTree by Hilton has removed variable income, as mentioned earlier, from our income statement. South Africa's vaccination rollout has ramped up considerably after the clumsy start giving government confidence to make material adjustments to alert levels and gathering sizes. The positive impacts of these changes were definitely felt in our hospitality portfolio. This morning, we call on government to abandon the DMA as soon as possible as this will materially accelerate the return-to-office momentum in South Africa. We have seen as a business, strong evidence of the return-to-office momentum across our portfolio with office letting taking place, surplus parking base taking -- being let up in the Capetown CBD as larger and larger numbers of businesses and business units cease working from home. FY '22 has seen a material decline in tenant support measures having to be provided by Spear despite the onset of the additional infection waves. For FY '22, there have been few unknowns that have manifested in the final 6 months of the year, which has given Spear operational and financial momentum. Notably, office demand has increased since October 2021, resulting in an overall increase in Spear's occupancy percentages as well as a 115 basis point decline of the office portfolio vacancies at January 2022. The industrial and convenience retail portfolio has been resilient during the period and have contributed meaningfully to FY '22. Spear's regional focus allows for intensive asset management of our portfolio and proactive management in the areas of the portfolio that keep us up at night. I'm extremely proud of how Spear has maintained an occupancy rate of just on 94% for the FY '22 year. Spear as a business is on a stable and strong footing to propel itself forward into FY '23. The FY '22 year was a year of risk mitigation and neutralization. This slide illustrates a tale of 2 halves of a year. At the onset of the FY '22 year and at the interims results presentation, I set out what were the areas that required intensive asset management. And those were categorized in this slide as high-risk levels and obviously moving to medium, low, reducing and neutralized. At the half year, we identified that our commercial portfolio, given the uncertainties that lay ahead with regard to different infection waves was at a high risk together with hospitality, given the variable nature of the income, vacancy creep, the negative -- the risk of deeper negative rental reversions and also our loan to value. Those items were identified as high-risk items. Rental collections, we identified as medium risk, given the fact that we've maintained a very high percentage of rental collections to what we had built even in the half year going into the second half of FY '22. And the risk level on cash availability was always a low-risk level, given the fact that at half year, we were operating with between ZAR 150 million and ZAR 180 million of cash availability within the portfolio. How have things improved in the -- on a year-to-date basis? Commercially, we have seen a decline in our vacancy rate in our commercial portfolio. Therefore, as a management team, we believe that, that risk is reducing. Hospitality, we've classified as a neutralized category, given the fact that we have disposed of the DoubleTree by Hilton, exposing the business to 0 variable income risk. Our vacancies have come down on a portfolio level, reducing from 7.21% at interims to about 6.4% on a year-to-date basis. Our negative rental reversions have been mitigated as we actually have seen an improvement in rental reversionary rates from Q3 to Q4 FY '22. Our rental collections, we believe, have been neutralized given the fact that we are moving back into a pre-COVID cash collection scenario. Our cash availability has improved. We are now sitting with a cash availability of ZAR 230 million in liquidity available to Spear. And our loan-to-value has been -- risk has -- categorization has been neutralized, and we are now operating within our strategy of between 38% and 43%. Currently, we will -- well, the forecast is to end the year with an LTV of between 38% and 39%. So all in all, Spear is well positioned for growth. The operating platform is stable, and it's ready to take on the FY '23 year. Just moving on to our salient details. Spear owns 32 high-quality, 100% Western Cape assets. Portfolio value on year-to-date Jan was at ZAR 4.56 billion. Asset value growth compared to the prior year was 1.45%. Our average property value is ZAR 141 million per property. Our average property valuation is at ZAR 9,006 per square meter. Spear's in-force escalation is at 6.35%. Our portfolio GLA as of January is just under 470,000 square meters. Our weighted average lease expiry is at 25 months. Now we make a concerted effort to push out that WALE as far as possible. But also, as I mentioned earlier, we were focused on consistency on this business, and our focus was on rent and tenant preservation in the short, medium and long term. Thus flexibility had to be given in certain circumstances where there were too many uncertainties for certain of our tenants, which we had agreed to push out rental tenures on a shorter-dated focus. However, we have an internal target of between 36- and 45-month WALE, which remains our focus. Our average portfolio rental is at ZAR 96.41 on a gross basis. Our year-to-date collections to January were at 96.14% and we have maintained, as I mentioned, a very strong and robust cash collection profile right through the financial year. We do forecast that our collections prior to year-end will be closer to 97%. The difference between the 2 is utility charges that we have on some of our larger industrial users that are large-scale power users, do have an agreement with us to settle their electricity charges at month end. However, their rental is settled to us at the beginning of the month. Having a look at the financial metrics. As a business, we are on track to achieve our DPS guidance of between 6% and 8% growth for FY '22. Spear will maintain a 85% to 90% payout ratio in line with our cash retention strategy and optimized taxation outcomes. As I mentioned, in half year '22, we saw the payout ratio increase from 80% to 85%, given the strong cash collections. And currently, the payout ratio again is under review given the strength and consistency of the cash flows within the business. Spear's SA REIT cost-to-income ratio for the period has been 43.38%. This is higher given the fact that we do report it now on a gross basis per the SA REIT BPR. It's also higher because for the first half of FY '22, we had zero to limited hospitality income. However, we have now -- as I mentioned earlier, there's been a restoration of that income with the fixed lease of 15 on Orange. We also had to take on additional costs to comply with COVID-19 operating environment, together with additional but limited tenant relief, bad debt provisions and write-offs over the period. Spear's SA REIT cost-to-income ratio was at 6.56%, which is a decline from the half year, which was at 6.86%, Maintaining a lower overhead cost structure is key and is the focus to reduce this between 6% to 6.5% going forward. Year-to-date January, the tangible net asset value of Spear was ZAR 11.92 per share, which has increased by 3.65% from ZAR 11.50 in the prior year. Our loan to value, post our successful capital raise in the beginning of February 2022, will be 38% to 39% and that's prior to any fair value adjustments being done on the portfolio. And we do not forecast or expect any major negative fair value adjustments coming through the balance sheet. Our fixed debt ratio is at 54.68%. As I mentioned earlier, in the medium- to long-term strategy is that we would like to see that increase to between 63% and 75%. I'm pleased to say that by year-end, that should be up to 65% of our debt hedged, and the strategy is to have that hedged out for up to 36 months. At this point in time, it's hedged out for up to about 32 months. Our average debt expiry is about 25 months with no refinancing risk on any parts of the portfolio. Our average cost of debt is 7.15%. Our average cost of fixed debt is 8.34%, with our average cost of variable debt at 5.88%. Having a look at our collections, year-to-date, they've been in line with our forecast. Encouragingly, as I mentioned earlier, we are seeing tenants wanting to settle deferments ahead of their finalization dates, settling all the debt together with servicing current rental obligations. And I think it's a critical thing to take note of that the operating environment, the general economic environment has started to improve, although it's coming off of a low base, with us seeing the contraction of that debtors book on a month-to-month basis. Billings reflect all credits and deferments, including recoveries. Our income budgets were set in January 2021, using some of our best assumptions for the year ahead. Some of them were proven true, and some of them had to be adjusted in the light of the ongoing Disaster Management Act and the infection waves. For instance, some of our gyms, restaurants and some of the hospitality operators had to be given some more latitude in order to allow business operations to start to normalize further and further. Tenant arrears on a year-to-date basis amounted to ZAR 21.4 million and decreasing consistently. As you can see in the slide, we have recovered 98% of our retail rental, 97% of our commercial rental, 96% of our industrial rentals and 95% of our hospitality rentals. Having a look at the letting activity. In FY '22, we had 127,313 square meters come up for expiry and vacate. We have successfully concluded on 118,833 square meters at an average positive reversion of 13.55%. There is an anomaly in that given the fact that we had entered into a new lease at 15 on Orange, which effectively restored income considerably on the asset. So if we had to strip that out and look at just the core portfolio of commercial, industrial and retail, we are looking at a negative 5.37% reversion. However, I would like to point out specifically that in the third quarter, the reversions we're looking at negative 5.85%, which on a full year basis, it's extremely positive and probably one of the best reversions, albeit negative within the sector. Having a look at the balance sheet and some funding updates. In terms of our covenants, so we, as a business, believe that a front-footed approach is always the way that we would look to run this business. And our proactive approach to even our balance sheet, we engage with our funders, which we requested certain relaxations of our covenants, not that there was ever any risk of a breach but it gave us enhanced optionality, headroom and flexibility to operate through this post-pandemic period without any potential covenant distractions. We reached agreement with our funders to relax our strictest covenants for the FY '21 and the FY '22 measurement period. Currently, Spear's covenants on LTV are at 55%, with a current LTV of 38% to 39%. Our ICR covenant was at 1.7x -- 1.75x, with a current ICR of 2.20x. We maintain excellent relationship with our funders, and we believe that they are all aligned with our operating strategy. Spear concluded a successful private placement in the beginning of February 2022, raising ZAR 254 million of new equity capital at ZAR 8.40 per share. The private placement resulted in Spear's issued shares increasing to 244 million shares and Spear's market cap settling north of ZAR 2 billion. The business has cash availability of ZAR 230 million with that balance increasing as our cash collections improve, ZAR 280 million worth of debt was refinanced during the period. Our CFO has done exceptional work over the last 5.5 years to consistently improve Spear's average cost of debt and to improve the latitude and flexibility we have within our debt portfolio. We have settled ZAR 270 million worth of debt with the disposal of the DoubleTree, and we have allocated certain amount of liquidity post our capital raise to the execution of our LTV roadmap strategy. Having a look on the right-hand side of the slide, you will see that Spear has a weighted average variable expiry rate of 26 months and a weighted average fixed expiry period of 32 months. Now I mentioned earlier in our mid- to long-term strategy that we would like to operate within a 63% and 75% debt hedge profile, fixed out for a period of around 36 months. And I believe that achieving a 65% debt hedge profile by year-end, together with a 32-month average expiry rate talks very clearly to how we as a management team are able to not only execute on the rental portfolio but also able to execute on the management of our debt portfolio. Spear's weighted average interest rate is at 7.15%. Our weighted average variable rate has increased from the prior year, given the increase in the variable interest rate to 5.88%. And our weighted average fixed rate has declined by 32 basis points on a -- compared on a year-to-year basis to 8.34%. Moving on to our sector performance. Spear's portfolio has shown resilience as displayed in the collections set out earlier and the strength of the balance sheet. Dissecting sectoral performance for the full year provides deeper context to the trading environment and where management must further prioritize asset management interventions on a forward-looking basis. Having a look at our retail portfolio, this makes up 10% of the total portfolio. Defensively, 41% of our convenience retail GLA has led to national tenants. All of our retail assets are classified as convenience retail. This subsector has remained the most resilient. None of Spear's assets are reliant on any local nor international tourist markets. The retail portfolio has maintained a robust occupancy rate of 93.58%. Our collections have been 98% versus revenue billed for the period. We have provided credits and deferments to retail tenants to the following values: ZAR 1.34 million of credits and ZAR 485,000 of deferments. The fourth infection wave did have a lesser impact on our retail tenants than what we anticipated. Letting activity has been in line with our expectation, with the bulk of the renewals being concluded per management's budgets for the period. There's been no significant retail tenant failures occurring during the period and none are anticipated going forward. We've also received very encouraging feedback from our tenants with regard to trading conditions. And the following are some of the observations that we've made over the year that we'd like to share with you. We believe that there's a lower level of income risk on the retail portfolio as close on 100% of our tenants are trading and paying rental. However, as I noted, gyms and some of the food retailers were requiring longer-term lease restructures and assistance just given the impact of their business, in particular, with gyms people are slightly more reluctant to come back to training in a gym. We have reported improved footfall and tenant turnovers in our retail portfolio. And even more encouragingly is that some of our retail tenants are upgrading and refurbishing their premises, which means that there's capital available to improve their stores, to improve the retail experience in addition to servicing their rental obligations to Spear. Having a look at the commercial portfolio. All of Spear's commercial assets are in highly attractive and established nodes within Capetown. Letting demand has improved notably since October 2021. The office portfolio occupancy is at 86.45%. There has been vacancy compression, as I mentioned, with 115 basis point improvement in the occupancy rate. Our collections have increased to 97% versus revenue billed for the period. We provided credits and deferments to office tenants of the following values, ZAR 311,000 of credits and ZAR 142,000 of deferments. I believe that our portfolio is attractively positioned to offer third-party tenants, both expansion and contraction space due to the attractive lease terms and are generally below market asking rentals. We have seen that the hybrid work regime is pointing towards more of a 4-day work week as we start to see a return-to-office momentum. And we have also seen that lease renewal negotiations have picked up momentum as we started to exit the COVID-19 operating environment. The observations we make under the commercial portfolio is that the return to office momentum is now a reality. Securing tenants will be costly over the period, given the increased competition as a result of general sector vacancies. The cost of installing tenants will increase given the fact that certain tenants want to spend less of their own capital in their premises even though they are able to pay the rent. And there's also been a general nodal improvement in office demand ranging from 100 square meters all the way to 2,000 square meters within the market that we operate. Unlike some of the other parts in the country, shadow vacancies within the Cape region have been extremely rare and have really impacted on the letting of space within our market. Having a look at the industrial portfolio. Spear's industrial portfolio has been resilient over the period, with several new lets and relets taking place. Industrial portfolio occupancy is at 96.67%. Our collections have been robust at 96% versus revenue billed for the period. Spear provided no credits, no deferments to industrial tenants during the FY '22. There continues to be strong demand for our industrial rental properties. Just having a look at some milestone achievements for us in the year in review. We entered into a long-term lease with Mambos Plastics, which is a national retailer on 11,000 square meters for the new distribution center. We entered into a new 10-year lease with Grindrod Logistics of 32,000 square meters for a modernized container terminal. We expanded the Nampak warehouse facility to 14,500 square meters off the back of a new 10-year lease. Notably, just those milestone transactions equate to 57,500 square meters of GLA, which is equivalent to 22% of our industrial GLA and 14% of our portfolio -- overall portfolio GLA. And those are all long-dated blue-chip tenants that have been embedded into the portfolio. Some industrial observations. Demand for small to large users remain strong. I see it as small to medium business as the Phoenix rising out of the ashes as we see more and more small to medium businesses, taking up space, looking to restart and contribute towards the economy. In fact, Cape Town is running out of developable industrial land in sought-after locations, which does also make it attractive for Spear to redevelop or look at unlocking some of the embedded portfolio bulk in the industrial portfolio. Vacancy contraction is evident as in certain areas, demand outstrip supply. Load shedding may have a negative impact on manufacturing tenants. However, in our instance, we've been proactive and we've entered into numerous load-shedding curtailment agreements on our industrial assets. Moving on to hospitality. As at January, the hospitality portfolio was at 27,000 square meters. I'm pleased to advise that the DoubleTree by Hilton disposal is effective as at the Feb 1, 2022. The improvement in our LTV would see 176 basis point reduction, and Spear exited variable income ahead of our forecast, which was forecasted as mentioned, to be half year 2023. Moving on to 15 on Orange. As announced on SENS on the March 18, 2021, management concluded a triple net fixed income lease over 15 on Orange. The fixed income lease significantly reduced Spear's exposure to variable income, which is now 0. The Capital Hotel and Apartments Group completed a ZAR 18 million refurbishment of all the rooms at their cost, and it was all self-funded from their working capital. Having a look at the earnings contribution. This is something that the market would be familiar with, as I presented it at the half year. But for FY '22, the earnings contribution towards -- from 15 on Orange will be ZAR 10.4 million, given the fact that it's a triple net lease. So that is our net income coming from the property. There would be a ZAR 0.0506 contribution on a property level to our distributable income per share. And then in terms of a group distributable income per share contribution will contribute ZAR 0.0419. Having a look at FY '23, there will be almost ZAR 20 million worth of contribution made from 15 on Orange towards the distributable income per share pot for the company and that would translate to ZAR 0.0933 on a property level and ZAR 0.0467 on a group level. Having a look at some of the observations. We have noted that the core markets are showing strong signs of recovery, the U.S., the U.K., Germany and Holland. There's been less and less reliance now on local market to generate revenue. The meetings, incentives, conferencing and exhibitions business has recovered a lot faster than what we anticipated and international flight schedules are back on. Having a look at the performance of the average daily rate, just taking into account the months of October to December in 2021, we can see a considerable improvement of average daily rates from compared to 2020 and it's starting to trend back towards average daily rates that we saw in 2021 -- sorry, excuse me, in 2019. Furthermore, during the month of December, around ZAR 800 million worth of tourism contribution was made to the tourism pot of the Cape Metro. On an annualized basis for 2021, ZAR 5.8 million worth of revenue, tourism-related revenue was generated within the Cape Metro. So let me look at the general business update and the portfolio update. So trading conditions have improved across the sectors that Spear is invested into. And this can be seen in our vacancy rate. This can be seen in our cash collections, and this can be seen just in the overall sentiment across the trading environment that we are exposed to. We will continue to implement our PV solar rollout and our water augmentation projects. Our industrial and retail sectors have continued to show the most resilience which jointly makes up 49% of our total portfolio revenue, 41% of our total portfolio value and 66% of our portfolio GLA, which this for me, is an incredibly defensive portfolio. Our office portfolio leasing momentum has contributed to the vacancy contraction during the second half of the year. The final hospitality asset is 100% fixed income triple net and yielding. Our rental collections have moved back towards pre-COVID pandemic levels, further bolstering our cash reserves. Our debtors book is on target with good recovery momentum on receivables. Our LTV reduction road map was achieved ahead of schedule. Our asset disposal strategy is on track with notable year-to-date successes and our portfolio renewals remain in line with management's forecast. Looking ahead, business operations have continued to strengthen as management's view of the post-pandemic road ahead is optimistic and offers great growth opportunities for Spear. Semigration to the Western Cape will directly and indirectly benefit Spear. Economic activity has improved across the Western Cape with positive data being released by ACSA, Wesgro and the retail sector, reinforcing management's optimism. Global and local data has shown that the severity of the recent COVID-19 variants is on the decline. This bodes well for the international travel, the services and the hospitality sector in the Western Cape and in South Africa. Vacancy contraction across the Western Cape has been evident and reported by numerous listed REITs with exposure in the region. We believe that the Western Cape will lead the post-pandemic real estate recovery given the stronger real estate fundamentals of the Western Cape and the increased reallocation rate of middle to high LSM groups to the Western Cape. Spear remains well capitalized with sufficient liquidity and cash availability of circa ZAR 230 million. Management will remain focused on our strategy to prudently recycle capital into longer-dated assets within the Western Cape, and those are industrial logistics, multi-let industrial warehousing, convenience retail and strategically positioned commercial assets. Our balance sheet remains robust and well positioned for growth. Spear's ESG strategy covers all aspects of E, S and G, further bolstering management's corporate approach of people, planet and profit. Our regional focus and proximity to our assets remains a competitive advantage. And in conclusion, our FY '22 guidance is on track per the detailed guidance set out to the market in May 2021. This brings us to the end of the presentation. I wish you thank you for logging on and listening. Christiaan Barnard, our CFO and myself, will be joining you back shortly for a question-and-answer session. Thank you very much.

Welcome back to the FY '22 pre-close presentation Q&A session. Thank you. We don't have too many questions today. So this should be a short and sweet Q&A session. Just want to welcome our CFO, Christiaan Barnard, to the Q&A session. And I have Kim Pfaff-Karg, our Chief Investment Officer, who will be fielding the questions to us this morning that you have sent through. So Kim, do you want to start with the first question, please?

Certainly, the question is from Jarred Houston at All Weather. Does the guidance on the NAV per share include the impact of the capital raise, Christiaan?

The number presented in this presentation does not as numbers are reflective as the end of January and the capital raise was only done in the first week of February. So we do expect a slight dilution to where that is, but it also doesn't include any positive impact of fair value adjustments that we would might have in the February period.

Thank you. There's another question from All Weather. It's from Chris Reddy. Regarding your comments on reviewing the payout ratio, is there potential to increase it upwards, for example, between 90% to 95%, Quintin?

Yes, I think that we are very comfortable in terms of what we've guided for between 85% and 90%. As a business, we've had a look at where capital should be retained back, what the optimized taxation structure would be. So from our perspective in the FY '22 year and most likely in FY '23 going forward, we would stick to that 85% to 90% payout ratio.

Thank you. The next question is from Paul Bosman from Granate Asset Management. Good morning. Thanks for the update and congratulations with continued good performance. Could you please explain the rationale behind placing new shares below NAV and then continuing to pay dividend at a higher ratio than the minimum required ratio?

Yes. I think -- thanks for the question, Paul, and also thanks for the ongoing support. I think, first of all, as I mentioned in the presentation, that consistency for us as a business is a very important factor. And our strategy is to be a consistent dividend-paying income fund. And when there is cash availability, we would rather do pay out the cash to our shareholders as a distribution. And then in terms of the capital raise at below NAV, over the last 24 months, the focus has been the restoration of earnings. Now the NAV at the number that is stated there is the fair value of the portfolio. However, as a Board and as a management team, we had a very robust discussion as to how we grow this business in a meaningful and accretive manner going forward. And we had access to certain market opportunities, some of which have been announced on SENS and some of which are still in process. And in order to give Spear greater optionality to take advantage of these opportunities that would further improve the overall quality of the portfolio, both from an income perspective and an asset value perspective, the decision was made to initiate the capital raise. Spear has done very well as a business to consistently deploy whatever capital it had available into yield-enhancing assets and we trust that our shareholders would trust us to be good stewards, not only as managers but also as people that are heavily invested in this business to continue to act in the best interest of this company.

Thank you. There's one more question from [ Mohammed ], a private investor. I like everything about the company, but I'm ambivalent about 1 aspect, namely, it's practice over the several past years of issuing shares to cover the costs of acquiring new properties. I don't like having my shareholding and thus, my dividend diluted in this way, especially since interest rates have been extremely low over the last decade. Please can you explain the rationale behind issuing shares rather than other forms of financing acquisitions?

Well, I think maybe do you want to take that?

Yes. I think maybe the first regulation that we have to take into effect is that as a REIT, calculation doesn't allow us to go more than 60% LTV. So if we could, and if we were allowed and it was preferenced into our shareholders, we would gear up above that level, but it's not acceptable. It's not required by law. And therefore, finding other forms of equity to fund is always best. And also, we've never done a capital raise or issue of shares which is dilutive to the company in terms of our earnings. I think, yes, it might be dilutive slightly to our NAV but in terms of our earnings going forward, it has never been dilutive, and we've proven that in the past 5 years have been listed and paying out constant dividends.

Thank you. There are no further questions.

Yes. Well, that brings us to the end of the Q&A session. As always, as a management team, we are available and we remain approachable. So if you do still have any other questions, please send them through to the e-mail address provided. Alternatively, please make contact with our Company Secretary, and we're happy to engage further on any and every front. Thank you very much for logging on and God bless you.

Thank you.