Liberty Two Degrees delivers despite difficult trading environment

Liberty Two Degrees has announced its results for the period ending December 31st2018.

The group’s financials are presented on the basis of the new corporate REIT structure and the Board of Liberty Two Degrees approved a final distribution of 12.69 cents per share in relation to 2018, bringing the total distribution declared to 60.00 cents per share in line with the previously reported guidance.

The portfolio was able to deliver a strong performance despite the current difficult trading environment. The company’s portfolio was valued at R10.15 billion at the 31st of December 2018, increasing from R8.71 billion at the 31st of December 2017. This follows the acquisition of R1.2 billion worth of assets from the Liberty Property Portfolio as part of the restructuring transaction. Liberty Two Degrees now owns a 33.3% undivided share in the Liberty Property Portfolio.

“2018 was a significant year for L2D, we created an environment that enabled us to deliver strong performance in a difficult economic period. We are pleased to have delivered on our commitments to shareholders in the period. This entails meeting our distribution guidance whilst concurrently implementing the corporate conversion that aligns our structure to the broader market. We have also refreshed our strategy, with a focus on implementing strategic pillars that are aligned to five building blocks to deliver sustainable growth across our portfolio. We strive to prepare our assets for a rapidly changing retail environment” commented Amelia Beattie, Chief Executive of Liberty Two Degrees.

The group’s portfolio is trading well, and it has recorded a positive year-on-year trading density growth of 2.9% in 2018, compared to -3.6% at the 31st of December 2017. This strong performance was underpinned by an improvement in annual trading densities of 3.9% and 2.9% at Sandton City and Eastgate Shopping Centre respectively.

The demand for retail space within the portfolio, together with Liberty Two Degrees’ active asset management initiatives and leasing activities (under the guidance of COO Jonathan Sinden) continues to enable the reduction of the overall portfolio vacancy rate which is recorded at 3.4% at the 31st of December 2018 compared to 6.4% at 31st of December 2017. The retail portfolio remains close to being fully let, with Liberty Two Degrees placing a continued focus on ensuring a balanced tenant mix which aligns to the experiential offering the group aims to provide to its customers. Retail vacancies were 1.2% at the 31st of December 2018.

The office sector remains under pressure largely due to dampened demand and a subdued economic growth as well as the competitive environment and the oversupply in the Sandton business district. The office vacancy in the period decreased to 8.0% from 10.3% at the 31st of December 2017 (9.7% at the 30th of June 2018). Although this remains well below SAPOA’s 11.1% benchmark, management continues to proactively target lower vacancy levels through committed office leasing initiatives.

Leases covering 49 472 square meters (31st of December 2017: 67 631 square meters) were renewed during the year at an overall reversion rate of 2.3%. Rental renewals within the retail sector contributed to a positive reversion rate of 4.85%. A further 57 557 square meters in new tenant deals were concluded across the portfolio.

Within this period, the space vacated by Stuttafords was fully let by Sandton City and Eastgate Shopping Centre, which introduced exciting new stores that the centres could not previously accommodate.

The successful conversion to a corporate REIT in November 2018 saw the cancellation of the Liberty PUT option, the internalisastion of the management company and the introduction of a conservative level of debt to the capital structure, lowering the weighted average cost of capital.

José Snyders, Financial Director at L2D said:

“The Group’s conservative level of gearing offers some comfort in a difficult and uncertain environment, whilst retaining capacity to consider opportunities that may support our growth objectives. We remain focused on firstly extracting organic growth from the existing portfolio and then supplementing this with appropriate additions that enhance sustainable earnings growth whilst not diluting the income quality of the existing portfolio.”

Liberty Two Degrees was active in development activities in the year, with R148.4 million deployed into various initiatives notably the expansion of Midlands Mall to create the Lifestyle Centre, the Food Court upgrade at Sandton City which was renamed to the Food District as well as the Fun District which created an experiential platform for the family.

Our strategy is focused on creating experiential spaces. The portfolio of quality assets is managed by an experienced team with expertise that position us well for delivering on our objectives. Looking ahead, we aim to continue to drive initiatives that enhance and extract value which we believe will drive distribution growth and shareholder value.” Beattie concluded.

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