JSE-listed real estate investment trust (Reit) Liberty Two Degrees (L2D) has declared a distribution of 32.33c apiece for the year ended December 31, 2020.
This compares with the distribution of 60.43c apiece declared for the 2019 financial year.
L2D CEO Amelia Beattie comments that, as the country emerges from the national lockdown, the real estate industry remains under pressure, with key indicators pointing to a long road back to full economic recovery.
However, the company remains confident in the long-term prospects of its iconic assets.
As at the end of the year under review, L2D remains well capitalised and has sufficient liquidity, with a loan-to-value (LTV) ratio of 20.5%, compared with an LTV of 16.1% in the prior year.
“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 FD José Snyders.
L2D’s revenue decreased by 12.1% to R878-million, compared with R999-million in 2019, while net property income decreased by 45.6% to R377-million in the year under review, compared with net property income of R693-million reported in 2019.
This is owing to the rental relief provided to tenants, the impact of the suspension of trading at the hotels and the Sandton 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, explains Snyders.
Profit from operations decreased by 48.8% year-on-year to R342-million and operating costs have increased by R2.6-million compared to the prior year.
Beattie explains that footfall levels in the year under review were negatively impacted on by the restricted trading environment, recording an overall drop of 30% in the year.
She points out that there was significant footfall improvement in the fourth quarter, amounting to a 21.4% decrease on the fourth quarter of 2019's footfall levels, compared with a 60.8% decrease recorded in the second quarter.
To retain high occupancies, as well as collective sustainability, L2D opted to provide rental relief to the value of R336-million in the year under review.
Given the economic climate, tenant arrears increased to R96.4-million at the end of 2020, compared with arrears of R30.8-million at the end of 2019. Consequently, L2D’s provisioning for credit losses has 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 as a result 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,” notes Snyders.
The company’s retail occupancies remain high at 95.3%, having increased to 96.8% post the reporting period.
The Reit’s portfolio is valued at R8.5-billion, compared with a value of R10.1-billion in 2019, owing to decreased net asset value per share to R7.71 in the year under review, against net asset value per share of R9.65 apiece reported in the prior year.
Beattie says valuations were negatively impacted by discounts given on rentals and the rebasing of certain leases, as well as the revised growth assumptions. The valuations assume higher vacancies for a 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 subsequently written down by R1.7-billion in 2020.
Beattie highlights that, in navigating the current crisis, L2D knows that long-term investments that protect value must be maintained.
“Our commitment to environmental, social and governance aspects 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.”
In the year under review, L2D received green star ratings on all the assets in its retail portfolio, while Sandton City, in particular, achieved a world-leading six-star Green rating.
L2D remains committed to achieving sustainability targets around net zero waste by the end of 2021, net zero water by 2025 and net zero energy by 2030.
“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 and supporting our passionate people to drive execution, while delivering sustainable growth over time through improved financial performance, digital transformation initiatives and execution of the asset masterplans,” Beattie concludes.