Liberty Two Degrees (L2D), the South African precinct-focused, retail-centred real estate investment trust (Reit), saw more improvement in its properties in the six months to June 30 from the low of the Covid pandemic, with footfall in its portfolio of some of the most iconic South African retail properties up by 9.1% over the period.
“The portfolio’s operational and financial metrics have continued to improve, notwithstanding a muted domestic economic and operating environment. L2D generated a good operating performance in the first half,” L2D’s CEO, Amelia Beattie, said yesterday.
L2D’s assets include Melrose Arch and the Sandton City and Eastgate complexes in Johannesburg, and Liberty Mall in Pietermaritzburg.
The group, whose shareholders are mulling an offer by L2D’s parent, Liberty Group, to buy out the minority shareholders and delist, reported a 100% distribution payout of 18.77 cents per share for the 2023 interim period, 7.4% above the same period last year.
The offer from Liberty Group is to acquire the shares at R5.55, which is at a premium of 46.4% to the volume-weighted average price at which L2D had been trading over the 30 days prior to announcement.
However, the share price has appreciated materially since the offer was made, and yesterday the price was 1.62% higher than a day before, at R5.64, curiously above the offer price.
Beattie said the retail portfolio continued to show improved annual trading density, recording the highest densities to date in May 2023 at R51.664 per square metre, or 13% growth compared to May 2022 – against a comparison benchmark of 10.1%.
Turnover increased 6.8% compared to the half-year in 2022. “All centres within the L2D portfolio continue to trade ahead of prior year trading densities except for Midlands Mall and Lifestyle Centre, which generated additional turnover in the comparative period, due to the closure of neighbouring centres affected by the KZN riots that have now opened,” said Beattie.
She said demand for retail space in the portfolio remained strong. Portfolio occupancy improved to 93.6% supported by favourable retail occupancies and a higher office occupancy rate.
Retail occupancy was slightly lower at 97.1%, from 97.5% in December 2022 due to Ster Kinekor vacating Promenade – opportunities to re-let this space were being reviewed.
“We remain focused on office leasing with the office occupancy improving to 82.1% at June 2023 compared to 80% in December 2022,” she said.
“Net property income, excluding the impact of lease straight lining, grew by 8.2% supported by the core retail portfolio and a recovery in the hospitality assets,” said L2D chief financial officer Barbara Makhubedu.
She said like most businesses in the sector, increased utility costs and load shedding remained a concern.
“Cost containment has been managed well, with property operating costs only reflecting a 5% increase and head office operating costs increasing by only 2% compared to the previous year,” she said.
L2D’s property portfolio was valued at R8.3 billion as at June 2023, a 1.2% increase on the June 2022 valuation and a 0.9% increase on the December 2022 valuation.
“There is no doubt South Africa’s macro-economic environment is, and continues to be, challenging and yet … our balance sheet remains strong with an LTV (loan-to-value ratio) of 24.58%. L2D’s strategy will remain focused on ensuring long-term sustainable growth and the transaction with Liberty is an important step in the value creation journey,” Beattie said in a statement.
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