Liberty Two Degrees has stood the test of time

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Liberty Two Degrees (L2D) CEO Amelia Beattie says Sandton City was the standout performer in the year ended December 2019. Liberty Two Degrees (L2D) CEO Amelia Beattie says Sandton City was the standout performer in the year ended December 2019.

The year 2020 is not expected to bring a miraculous recovery, however, Liberty Two Degrees (L2D) has taken steps to regain its status as one of the reliable dividend-paying real estate investment trust (REIT).

Retail-focused landlords have been grappling with weak consumer demand amid SA’s economic stagnation. They have also had to contend with national retailer Edcon’s struggles to turn itself around. The owner of Edgars stores was recently recapitalised with the help of landlords and has been cutting space. The rescue exercise enabled it to save 140,000 jobs.

On the sidelines of the group's results presented last week, CEO Amelia Beattie says Sandton City was the standout performer in the year ended December 2019, even as the economy barely grew and consumers remained under pressure.

L2D, formed by financial services group Liberty to hold about a third of its property portfolio, said trading densities at Sandton City had increased 9% despite facing tough competition from its nearest super-regional peers, Mall of Africa and Fourways Mall.

Sandton City's trading density growth, boosted the total trading density of its retail portfolio to 3.6%.

Although Profit before tax decreased by 17% to R534.7m, partially because of interest expenses on debt raised in 2018, the company’s full-year distribution went up slightly to 60.43c from 60c previously, in line with its guidance.

“Our operational results are testimony to our portfolio as well as the solid fundamentals supporting our asset base in a challenging environment,” Beattie said.

As at December 31, 2019, L2D's South African property portfolio was valued at R10.27 billion compared with R10.15 billion the year before. The portfolio includes the acquisition of a R24 million additional stake in Botshabelo Mall.

Overall, the office space vacancy increased marginally to 10.2% from 9.8% at June 2019. The portfolio office letting remains strained in the absence of economic growth.

Retail vacancies remained low at 2.3% and below the South African Property Owners' Association (Sapoa) sector average of 4.2%.

L2D’s loan-to-value (LTV) remains conservative at 16%, with 75% of interest rate exposure being hedged as at the end of the period. The business achieved an interest cover ratio at 4.68 times for the period.

Beattie said the company’s targeted long-term LTV level of 35% left headroom for potential acquisitive growth, while mitigating risk in a strained economic cycle.

“Costs were well managed across the portfolio during the period; however, municipal and utility costs increased substantially ahead of inflation and remain a challenge,” L2D FD José Snyders said.

L2D continues to take the lead in transforming the retail industry in an environmentally sustainable manner. On 1 January 2020, L2D implemented a ‘no plastic shopping bags’ policy across its malls. This is in line with its Good Spaces commitment to ensure minimal impact on the environment and to achieve the company’s NetZero target by 2030.

The Aquaponics Farm District at Eastgate Shopping Centre was also launched and uses smart new technologies to provide sustainable solutions to food production and security to patrons of the centre, as well as the broader Johannesburg region.

Besides owning stakes in Sandton City, Nelson Mandela Square, Melrose Arch and Eastgate Shopping Centre in Joburg, L2D’s other retail properties which are largely owned with Liberty Group, include Liberty Midlands Mall in Pietermaritzburg and Liberty Promenade in Mitchells Plain in Cape Town.

The company also owns stakes in several office properties and landmark hotels in SA.


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