Retail-focused Liberty Two Degrees (L2D) has announced that its entire retail portfolio has received Green Star ratings by the Green Building Council of South Africa, which is a first for the industry with Sandton City receiving a world-leading 6-star Green rating.
Individually, the rest of the assets were rated as follows; Eastgate Complex, Nelson Mandela Square, Promenade Shopping Centre and Midlands Mall received 5-star ratings and Botshabelo Mall achieved a 4-star rating.
The announcement was made during the company’s recent briefing of its full year financial results for the year ended on the 31st of December 2020.
“As the country emerges from the national lockdown, the real estate industry remains under pressure with key indicators pointing to a lengthy road back to full economic recovery” comments Amelia Beattie, Chief Executive of L2D.
“After a year unlike any we have faced before, we remain confident in the long-term prospects of L2D and the value of our iconic assets. As of the 31st of December 2020, L2D remains well capitalised, has sufficient liquidity and borrowing headroom with a Loan-to-Value (LTV) ratio of 20.5% (31st December 2019: 16.1%). Despite the material impact of the lockdown on revenue, we remained committed to the basics in managing our portfolio and supporting our tenants to ensure a sustainable recovery.”
“The board has approved a full year distribution of 32.33 cents per share. Our commitment to maintain the quality of our assets predates the pandemic, and we have long maintained that quality is a key driver in fostering customer loyalty. We have complemented our experiential offerings with an appropriate and diverse tenant mix that addresses customer needs and captures recovering customer spend.”
The footfall levels in L2D’s portfolio were negatively impacted by the restricted trading environments, recording an overall 30% drop compared to the prior period. As restrictions were gradually lifted, an improvement in the fourth quarter was seen where footfall nearly doubled compared to the prior two quarters.
In addition to providing operational support to its tenants, the company’s co-owned portfolio provided rental relief to the value of R336 million for the year ended of which L2D’s effective share is R112 million. Tenant arrears have increased to R96.4 million as at the 31st of December 2020 (R30.8 million at 31st of December 2019). Consequentially, L2D’s provisioning for credit losses have seen a similar level of increase.
“The intentional approach of partnering with our tenants during this difficult period has assisted our collective sustainability. Following a difficult first half, this strategy enabled distributions to be paid because of a progressive improvement in rental collections in the second half of the year, with lower than initially anticipated tenant failures and avoiding the associated impact of vacancies”, says José Snyders, Financial Director at L2D.
L2D’s retail occupancies remain hight at 95.3%, contributing to early signs of recovery in tenant turnover levels. Post year-end, with new letting to date, the occupancy level increases to 96.8%. Portfolio turnover is 9.5% down in the fourth quarter of 2020 in comparison to those recorded prior to Covid-19 in the same period of 2019.
Sandton City’s turnover for the month of December 2020 was marginally down 1.5% compared to the corresponding period in 2019 due to the high demand for luxury brands at the centre’s Diamond Walk, further highlighting the relevance of quality super regional centres.
“We decided at the onset of the pandemic to maintain low gearing levels and ensure adequate access to liquidity in anticipation of the pressure on property valuations and strain on the working capital in our tenants’ businesses. Our risk management remains strong and we believe that we have the necessary management actions in place to continue to mitigate and manage our risks sufficiently” says Snyders.
At the 31st of December 2020, L2D’s 100% South African property portfolio was valued at R8.5 billion (2019: R10.1 billion) and the net asset value per share has decreased from R9.65 at December 2019 to R7.71 as at December 2020.
Valuations were negatively impacted by inter alia; discounts given on current year rentals and the rebasing of certain leases as well as the revised growth assumptions for the forecasted period. The valuations assume higher vacancies for the forecasted period and the likelihood of negative reversions for lease renewals in addition to the expectation that letting currently vacant space will take longer than usual.
Independent valuations were performed for all assets and the portfolio was written down by R1.7 billion in 2020. Ster-Kinekor Theatres Proprietary Limited was placed in voluntary business rescue with effect from the 27th of January 2021. It is still early in the business rescue process but at this stage, with the information currently at hand L2D does not anticipate that this would have a material impact on the property valuations as at 31 December 2020.
“Our reported revenue and net property income (NPI) decreased by 12.1% and 45.6% respectively in comparison to the prior year. This is due to; the rental relief provided to tenants, the impact of the suspension of trading at the hotels and the convention centre, less parking revenue and the additional provisioning for increased tenant arrears and the non-recovery of certain debtor balances most notably related to Edcon” says Snyders. Profit from operations decreased by 48.8% and operating costs have increased by R2.6 million compared to the prior year.
“Navigating the current crisis, we know that long-term investments that protect value must be maintained. Our commitment to ESG underpins and enables our financial and operational performance and ensures our portfolio remains relevant. Achieving our sustainability objectives reduces our exposure to commercial risk and asset obsolescence by ensuring that our assets are future ready. We believe that our dedication and commitment to the net zero journey is an opportunity to further create value in the long-term” says Beattie.
Over the last year L2D has focused on the operational continuity of its business and continues to work with tenants to; minimise the consequences, adapt to the changes and create sustainable outcomes for its business operations.
“Looking ahead, we aim to fulfil our vision to be the leading South African precinct focused, retail centred REIT and will continue to create experiential spaces to benefit generations. We remain focused on; future proofing our assets through unrivalled experiential offerings, supporting our passionate people to drive execution, while delivering sustainable growth overtime through improved financial performance, digital transformation initiatives and execution of the asset masterplans” Beattie concludes.