Liberty Two Degrees pays out 100% of annual earnings as retail assets recover

Liberty Two Degrees’s portfolio experienced an exceptional December trading period, with Sandton City in particular generating R1.25 billion in turnover. Picture: Karen Sandison/African News Agency (ANA)

Liberty Two Degrees’s portfolio experienced an exceptional December trading period, with Sandton City in particular generating R1.25 billion in turnover. Picture: Karen Sandison/African News Agency (ANA)

Published Feb 28, 2023

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11/12/18. Johannesburg. The neighbourhood of Sandhurst suburb. Sandton City entrance on Rivonia Road.Picture: Karen Sandison/African News Agency (ANA)

Liberty Two Degrees (L2D), which owns Melrose Arch, Nelson Mandela Square and Sandton City among its retail and office assets, continued to recover and is paying out a 100% full year distribution of 36.47 cents per share, 6.95% above 2021.

The lifting of Covid-19 restrictions last year buoyed consumer confidence, travel and tourism and general sentiment in the year to December 31, 2022, and L2D’s operational metrics showed good growth, with portfolio turnover and foot count exceeding 2019 (pre-Covid) levels, the group said yesterday.

The share price gained 2.33% to R4.40 yesterday afternoon.

The portfolio generated a turnover 21.9% increase and there was 24% growth in foot count. Higher demand for retail space resulted in improved retail occupancy and positive leasing outcomes, CEO Amelia Beattie and chairman Nick Criticos said in the annual results report.

The office recovery was muted, but the office portfolio occupancy rate improved on a like-for-like basis. Portfolio reversions improved to -10.4% from -25.9% in the prior period.

Net property income grew 7.3% supported by the core retail portfolio and a recovery in hospitality assets, they said.

Continuing double digit increases in administered municipal and utility costs, coupled with increased periods of load shedding remained a concern.

Post year end, the Sandton City rates appeal had been unsuccessful and a provision for the arrear rates had been made, resulting in an impact of about 2 cents a share on the distribution per share for the 2022 financial year.

Turnover across L2D’s retail portfolio was 21.9% higher than the comparative period and 18.3% higher than 2019. The portfolio experienced an exceptional December trading period, with Sandton City in particular generating R1.25 billion in turnover.

The portfolio occupancy improved to 93.5% in December 2022 with demand for both retail and office space increasing. Retail occupancy improved to 97.9% from 97.2% in June 2022 and 96.8% in December 2021.

L2D’s office portfolio represents 26.2% of total portfolio gross lettable area. The decline in the office occupancy to 80% at December 2022 versus 83.3% to June 2022, was due to the sale of the fully let Standard Bank building, the group said.

Occupancy in the office portfolio, on a like-for-like basis had, however, improved since June 2022 due to increased leasing in Sandton Office Tower, Atrium on 5th and Nelson Mandela Square offices.

Leasing initiatives over three years had resulted in office rentals being reset downwards to more sustainable levels.

Group net property income, excluding lease straight lining, increased by 7.3% to R568.6m compared to the prior year, supported by lease income escalations and improved activity in the retail portfolio and hospitality assets.

Increased utility costs was partly negated by improved recoveries. The hospitality sector continued to show signs of recovery with increased occupancies at the Sandton Sun, Sandton Towers and Garden Court hotels. Net revenue from these assets was up R30.7m from the prior year.

Sandton Convention saw 195 events through the year, well up from 63 events in 2021, but still some way from the pre-Covid 313 events recorded during 2019.

Head office operating costs were 7.9% higher than the 2021 year primarily due to inflation adjustments to the cost base, early retirements and depreciation upon completion of the office fit-out, with the benefit of a reversal of share-based incentive payments for shares due to vest in 2023, but forfeited as performance conditions would not be met.

The balance sheet remained strong with the loan to value (LTV) at 24.42%, and interest cover ratio at 2.95 times, both well within banking covenant requirements.

L2D’s property portfolio was valued at R8.2 billion as at December 31, a marginal 0.33% increase on the June 2022 valuation and a 0.39% decrease on the December 2021 valuation.

The group said it had the benefit of world class retail assets that had shown resilience, and which remain in high demand among tenants and shoppers, despite the many headwinds facing the country.

“Our strategy includes... cost containment, extracting value from efficiencies and considered capital allocation, including investment in renewable energy, modernising heating, ventilation and air conditioning systems... to defray increases in utility costs."

Improving on the muted office performance and recovery in the hospitality sector would also continue to be a focus.

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