Retail centred REIT, Liberty Two Degrees (L2D), has published its interim results for the six months to June 2022, reporting a full interim distribution pay-out and an increase of 11% over the prior year’s interim distribution.
“Our operational metrics have shown a steady recovery in the first half of 2022 with a 16.1% improvement in turnover growth compared to 2019. Q1 achieved 13.6% in turnover on Q1 2019 and is tracking 25.4% ahead of Stats SA’s industry benchmark of 1.9% year-on-year for Q1 2021. Trading gained momentum as the year progressed, with turnover in Q2 up 18.4% on Q2 2019″, commented Amelia Beattie, Chief Executive of Liberty Two Degrees.
“Our customer experience initiatives continue to pay off as the portfolio records the highest foot count in the first six months of 2022 compared to the prior three comparative years. The L2D portfolio consistently experiences double digit growth in foot count, having not dropped below 10% this year. This encouraging start to the year contributed to better occupancy rates and good leasing activity in the period, indicating the strong demand for L2D retail space where 179 leases (renewals and new deals) were concluded in the first half of 2022, equating to 46,992m². On the back of this solid performance, we are pleased to report that the L2D Board has declared a full interim distribution pay-out of 17.48 cents per share for the first six months, a double digit increase of 11% over the prior year interim distribution reinforced by a strong balance sheet“, said Beattie.
The continued increases in municipal and utility costs, coupled with increased periods of load shedding and a weak consumer environment facing an increased inflationary burden, remains a catalyst for downside pressure on the portfolio’s performance. The portfolio occupancy level declined marginally to 92.9% in June 2022 (December 2021: 93.7%) with continued pressure in the office sector. L2D’s office exposure remains low, making up 3.1% of the overall vacancy and improved retail occupancy.
“Though not yet positive, we are seeing an improvement in the downward trend that has plagued rental renewals over the last few periods. Rental reversions across the portfolio were negative 16.3%, with retail renewals reverting at -15.6% and offices at -26.1% (June 2021: retail -26.6%, office -21.0%). It is worth noting that that there is a time lag between turnover improvement and improvement in lease renewals which are also dependent on the timing of expiry of the in-force leases“, added Beattie.
Reporting on L2D’s financial performance, Financial Director, José Snyders said that L2D continues to enable future growth through prudent financial management, recording an increase in net property income by 10% to R272 million, supported by lease income escalations and improved activity in the retail portfolio and hospitality assets. Included herein, net utility costs increased due to higher consumption coupled with marginally lower recoveries in certain cost categories which were exacerbated by the increased cost associated with load shedding, municipal tariff hikes and provisions raised in respect of ongoing objections to municipal rates valuations.
Snyders added that the REIT is encouraged by the recovery in the hospitality sector, which has seen increased occupancies at both the Sandton Sun and Garden Court hotels, with net revenue up R14 million from the prior year. Operating costs are higher than the comparative period in 2021 at R7.1 million, but Snyders says that efforts to reduce costs are ongoing.
L2D’s average cost of debt remains relatively low at 7.75%. L2D’s property portfolio was valued at R8.4 billion in the period, which is a marginal decrease of less than 1% from the December 2021 valuation.
“While the South African economy remains under pressure with a low growth forecast for the remainder of 2022, we remain realistic about the uncertainties which prevail and focused on building on the momentum gained in the first half of 2022. Our commitment to creating value underpins our financial and operational performance and management’s ability to drive financial and operational excellence. We aim to build on the momentum gained in turnover and foot count recovery, drive leasing performance and lower reversions, which containing costs to strategically position the company for further growth“, Beattie concluded.