JSE-listed real estate investment trust Liberty Two Degrees (L2D) in its results for the six months ended June reports that despite recording only 55% of the average footcount that was recorded in the six months ended June 30, 2019, July has started to see recovery to just over 60%.

CEO Amelia Beattie says the footcounts in the company’s malls trended positively upward in January and February, but recorded a sharp decline once the first case of the virus was reported in March in South Africa.

Eighty-five per cent of the company gross leasable area (GLA), in the retail segment, had resumed trading as at mid-July, with only gyms and certain restaurants remaining closed.

The closure of hotels in the Sandton City precinct, in line with lockdown restrictions, has, however, impacted negatively on L2D’s earnings.

Retail comprises 54% of the company’s GLA, which contributes to almost 80% of net profit income.

The company’s retail vacancy stands at 3.5%, partly owing to non-renewals during lockdown, while the retail vacancy rate in December was 2.5%.

L2D’s office vacancy rate stands at 10.1%, but Beattie says this segment was already under strain before Covid-19, owing to an oversupply of office space.

Beattie says the restaurants and hospitality-type properties are experiencing the most pressure and difficulty to return to profitability. This is also the case for alcohol traders as a result of the reimposed ban on alcohol sales in South Africa.

The company has provided ongoing support and relief for tenants.

Beattie agrees with the sentiment in the property industry that it has experienced an "unprecedented brutal" operating environment in the first half of the 2020 calendar year.

The company maintains its withdrawal of a dividend for the interim period under review, as communicated in a trading statement a few weeks prior, but will consider a final distribution for the full financial year.

As at June 30, L2D’s property portfolio was valued at R8.7-billion, compared with a portfolio value of R10.2-billion stated in the prior comparable six months, owing to net asset value per share having decreased by 19.5% year-on-year.

Beattie explains that the company’s independent property valuers have decreased the portfolio value by 14.8% in the six months under review, owing to the impact of Covid-19 – including a decrease in rental collections, negative reversions, an increase in vacancies and lower growth assumptions.

L2D’s net property income decreased by 40.4% year-on-year to R201-million, compared with a net property income of R338-million in the prior comparable six months.

The company reports headline earnings for the six months under review at R103-million, compared with headline earnings of R258-million reported in the prior comparable six months.

Headline earnings a share declined by almost 60% year-on-year to 11.45c apiece, compared with 28.48c apiece in the prior comparable period.

In terms of the company’s exposure to Edgars, which had always been among the anchor tenants in malls prior to the announcement of its business rescue plan and subsequent disposal process, Beattie says the L2D board has elected to write down the fair value of the investment in Edcon to zero as at June 30.

If all goes well with Competition Commission approval and lease negotiations, Edgars will be sold to Retailability, which is a South African group of retail brands, and Jet to fashion retailer The Foschini Group (TFG).

The portfolio exposure to Retailability will then increase to 3.1% and TFG to 3.5% of the company’s retail GLA.

“When faced with a global pandemic, what matters most is how we emerge from it. Old ways of working and doing business are no longer possible. Our team was required to build holistic solutions for L2D’s people, tenants in malls and the company’s service providers.

“Acting with humanity was and remains the only way that we can manage through this time. L2D recognises the uncertainty created by Covid-19, but our teams also continue to manage with resilience and adapt to changing market conditions – having moved from crisis management to rebuilding for growth.”

L2D’s focus for the remainder of this year will be to rebuild the business for growth. In accelerating the work that has already been done in merging online retail with physical environments while using technology to improve operations, L2D has made a strategic appointment in the period to strengthen the leadership team and deepen the talent pool.

Patrick Masithela joins L2D as chief information officer effective August 1 and has been appointed to the L2D management committee. He will be responsible for providing strategic and operational leadership to the information technology and digital transformation initiatives.

These will primarily focus on how L2D continues to transform its retail environments to remain at the forefront of the changing retail landscape.

The company also wants to have a net zero waste readiness by the end of the year.