Liberty Two Degrees (L2D) has published its annual results for FY2022, announcing a 100% payout of the full-year distributable earnings of 36.47 cents per share (FY2021: 34.10 cents per share) which represents a 6.95% growth compared to 2021’s payout.
Despite the unsuccessful outcome of the Sandton City rates appeal, which resulted in a reduced distribution by circa 2 cents per share, L2D’s performance was buoyed by improved consumer confidence, an uptick in travel and tourism and an improvement in general sentiment despite the difficult and uncertain economic environment.
“Despite consumer inflation slowing for the third consecutive month in January, reaching its lowest level since May 2022, we continue to see a significant shift in consumer behaviour driving activity back into our physical shopping environments. Looking at the good performance achieved in our key financial and operational metrics in the period, it is clear that customers are coming back to our environments and in so doing supporting our outlook for 2023. We are however not underestimating the current economic realities of increasing costs which are fuelled by economic pressures related to the power crises, above inflationary municipal charges, and the pressure on reversions. We remain focused and invested in the right things for our business and its longevity,” comments L2D Chief Executive, Amelia Beattie.
The REIT reported significant foot count growth for the period with its retail portfolio generating R21.3 billion in turnover. Sandton City and Eastgate Shopping Centre contributed a combined 64.7% to the total turnover – 21.9% ahead of 2021 and 18.3% ahead of 2019.
“Luxury remains one of our best performing categories within the portfolio and still plays a large part in differentiating our assets and more specifically Sandton City from competitors. Luxury brands play a key role in supporting our performance. We see that excluding the extraordinary impact of the luxury category, the portfolio is still up by 21.1% year-on-year and 13.1% versus 2019,” added Beattie.
The portfolio saw foot count growth of 24.9% on 2021 and 9.9% on 2019. During the period, L2D won a total of 29 awards at the 2022 Footprint Marketing Awards for excellence in shopping centre marketing, innovation, and creativity as well as financial success.
Its portfolio occupancy level improved to 93.5% in December 2022 with demand for both retail and office space increasing. The higher demand for retail space resulted in improved retail occupancy rates of 97.9% (June 2022: 97.2%, December 2021: 96.8%). 344 leases (renewals and new deals) were concluded over the full year of 2022, equating to 84 443m2. L2D’s office portfolio represents only 26.2% of total portfolio GLA and therefore carries less weighting on the overall vacancy.
The decline in the office occupancy to 80% at December 2022 (versus June 2022 83.3%), was due to the sale of the fully let Standard Bank building. The occupancy level in the office portfolio, on a like-for-like basis, has improved since June 2022 due to increased leasing in Sandton Office Tower, Atrium on 5th and Nelson Mandela Square offices. L2D remains focused on office leasing with various strategic measures in place.
The portfolio has made positive strides improving the reversion trend over the 2022 financial year. Rental reversions across the portfolio were -10.4%, with retail renewals -9.7% and offices -25.5% which is a significant improvement to the negative reversions achieved in December 2021: portfolio -25.9%, retail -26.0%, office -24.8%.
“In the period, Net Property Income, excluding lease straight-lining increased by 7.27% to R568.6 million. This is supported by healthy lease income escalations and improved activity in the retail portfolio and the hospitality assets. Included herein, utility costs increased due to higher consumption which was compounded by the increased cost associated with load shedding. Municipal rates and above inflationary increases in tariffs for utility costs had a negative impact on the portfolio cost base. These costs and the consequential impact thereof on the cost of occupation for tenants is growing at an unsustainable rate,” commented L2D’s financial overview Financial Director, José Snyders.
He added that L2D remains conservative in its capital management: “This is done to protect value during the current uncertainty and create a platform to deliver sustainable operations and position the portfolio for growth over the medium term. A sizeable amount of our capacity is now earmarked for investment in renewable energy and initiatives that create further efficiency in the portfolio – the yields on these initiatives are accretive to the portfolio as we aim to implement them over the next two years. With a loan-to-value (LTV) of 24.42% at 31 December 2022 (31 December 2021: 23.87%) and a healthy interest cover ratio at 2.95 times, we have sufficient liquidity to meet our operational needs and remain well within our banking covenants.”
L2D’s property portfolio was valued at R8.2billion as at 31 December 2022, a marginal 0.33% increase on the June 2022 valuation and a 0.39% decrease on the December 2021 valuation (on a like-for-like basis).
