Libery Two Degrees (L2D), the JSE-listed real estate investment trust (Reit), which owns portions of Sandton City, Melrose Arch and Eastgate Shopping Centre, has managed to pull of distribution growth of 6.95% for the year to end-December 2022, showing that its top-end retail assets still perform among an economy throttled by loadshedding and unemployment.
CEO Amelia Beattie said in an interview with Property Flash that shoppers had returned in droves as the country appeared to have come through the Covid-19 pandemic and buying habits had normalised.
“Our malls are destination shopping centres which have built up a strong reputation over decades. They are trusted brands which consistently provide high quality experiences. They appeal to people of all ages, be it professionals who shop during the week at Sandton City or families who go out to eat and for entertainment over the weekend,” Beattie said.
Turnover across the fund’s retail portfolio was 21.9% higher than the comparative period and 18.3% higher than in 2019. L2D reported that trading gained momentum as the year progressed, with turnover in the fourth quarter up 21% on the fourth quarter of 2019. The portfolio saw an exceptional December trading period, with Sandton City generating R1.25bn in turnover.
“We can see that South Africans and tourists love visiting our retail centres. Their loyalty has been rewarded by impressive shopping, dining and entertainment experiences. I feel this is a key quality of L2D. We have exposure to malls which customers love and visit regularly, regardless of loadshedding and SA’s economic challenges,” said Beattie.
L2D announced a 100% pay-out of its full-year of distributable earnings of 36.47c per share, compared with 34.1c per share in the 2021 financial year. The L2D board was satisfied with the company’s capital management efforts and that the core business remained sustainable, the group said in a statement.
This was despite the unsuccessful outcome of L2D’s Sandton City rates appeal, which resulted in a reduced distribution by circa 2 cents per share. L2D’s performance in the period was buoyed by improved consumer confidence, an uptick in travel and tourism and an improvement general sentiment despite a 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,” said Beattie.
“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,” she said.
The portfolio generated R21.3bn in turnover for the year, with Sandton City and Eastgate Shopping Centre contributing a combined 64.7% to the total turnover. This is 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% vs. 2019,” said Beattie.
The portfolio saw footcount growth of 24.9% on 2021 and 9.9% on 2019.
The portfolio occupancy level improved to 93.5% in December 2022 with demand for both retail and office space improving. The higher demand for retail space resulted in improved retail occupancy rates of 97.9% compared with 97.2% at the end of June 2022: 97.2%, and 96.8% at the end of December 2021.
L2D’s office portfolio represents only 26.2% of total portfolio’s gross lettable area, and therefore carries less weighting on the overall vacancy.
The decline in the office occupancy to 80% at December 2022 compared with 83.3% at the end of June 2022, was because of the sale of a fully let building rented by Standard Bank. The occupancy level in the office portfolio, on a like-for-like basis, improved since the end June of 2022 because of increased leasing in Sandton Office Tower, Atrium on 5th and Nelson Mandela Square offices.
Financial Director, José Snyders said that in the period, net property income, excluding lease straight-lining increased by 7.27% to R568.6m.
“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,” Snyders said.
L2D’s property portfolio was valued at R8.2bn as at December 31 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.
Beattie said L2D had given distribution growth guidance of between 0% and 8% for the full year to end-December 2023.