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Liberty Two Degrees Limited
Incorporated in the Republic of South Africa
(Registration number 2018/388906/06)
Share code: L2D ISIN: ZAE000260576
("L2D" or "the company" or "the Group")
SUMMARISED GROUP RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2023 AND CASH DISTRIBUTION
L2D DELIVERS MARKET LEADING TRADING PERFORMANCE AND GOOD
DISTRIBUTION GROWTH FROM ITS QUALITY PORTFOLIO
Salient features
- 100% distribution pay-out of 18.77 cents per share (7.4% growth on HY22)
- Retail turnover up 6.8% on HY22
- Portfolio footcount up 9.1% on HY22
- Retail occupancy of 97.1%
- Retail reversion improved to -0.3% (FY22: -9.7%)
- Continued recovery in hotel occupancies
- Net asset value per share increased by 0.8% to R7.59
Financial results for the six months ended 30 June 2023
Unaudited Unaudited
R'000 30 June 2023 30 June 2022 % Change
Revenue 511 694 455 574 12.3%
Net property income 295,892 261 030 13.4%
Profit from operations 260,927 227 332 14.8%
Net interest expense (91,059) (76 696) 18.7%
Profit before fair value adjustments 169,868 150 636 12.8%
Profit before tax 215,970 100 852 114.2%
Headline earnings 171,137 146,984 16.4%
Basic and diluted earnings per share (cents) 25.06 11.14 125.0%
Headline earnings per share (cents) 19.74 16.84 17.2%
Distribution per share (cents) 18.77 17.48 7.4%
Net asset value per share (Rand)(1) 7.59 7.53 0.8%
(1) Calculated based on total equity divided by the number of shares in issue (908 443 334) excluding treasury shares
of 42 755 988 in 2022 and 39 552 859 in 2022.
Overview
L2D has generated a good operating performance for the first half of the 2023 financial year. The portfolio's
operational and financial metrics have continued to improve notwithstanding the backdrop of a muted domestic
economic and operating environment.
L2D's portfolio turnover and footcount are now well ahead of 2019 (pre-Covid) levels. The portfolio generated
a 6.8% increase in turnover compared to HY22 and recorded a 9.1% growth in footcount compared to the
same period. Higher demand for space has resulted in an improved portfolio occupancy rate of 93.6% due to
stable and favourable retail occupancies and a higher office occupancy rate. Reversions on retail renewals
have performed significantly better for the first half of the 2023 financial year tracking at -0.3% compared to
-9.7% for the full year 2022.
Net property income, excluding the impact of lease straight lining, grew by 8.2% over the comparative period
supported by the core retail portfolio and a recovery in the hospitality assets. Double digit increases in
administered municipal and utility costs, and increased periods of loadshedding remain a concern. We
continue to focus on cost optimisation across the portfolio and the strategic deployment of capital on
sustainability projects.
Underpinned by a strong balance sheet with an LTV of 24.58%, we are pleased to report a 100% distribution
pay-out for the 2023 interim period of 18.77 cents per share which is an increase of 7.4% over the comparable
prior period.
Further to the above, shareholders' attention is drawn to the firm intention announcement published on SENS
on 27 July 2023 in which it was announced that Liberty Group Limited would seek to acquire all the shares of
Liberty Two Degrees held by minority shareholders through a scheme of arrangement.
Retail trading performance
The retail portfolio has delivered market leading trading performance over the period. The portfolio continues
to show improved annual trading density, recording the highest densities to date in May 2023 at R51,664/m2,
or 13.0% growth compared to May 2022. In comparison, the Clur International Q1 2023 all centres benchmark
was R39,355/m2 with an annual growth of 10.1%. The portfolio's super regional centres carry 65.6% of the
total portfolio turnover. Sandton (R78,800/m2) and Eastgate (R39,274/m2) carry a combined annual trading
density of R59,891/m2, ahead of the Q1 Clur super regional benchmark of R46,516/m2.
All Centres within the L2D portfolio continue to trade ahead of prior year trading densities except for Midlands
Mall and Lifestyle Centre which generated additional turnover in the comparative period due to the closure of
neighbouring centres affected by the KZN riots. Midlands Mall is however, still trading ahead of pre-Covid
densities. The moderation in turnover growth vs trading density growth in the first half of 2023 is largely due
to the higher base in the comparative period post the removal of Covid restrictions as well as the temporary
closure of a number of high turnover generating stores for refurbishments during the period.
Turnover Annualised Trading Density
Growth H1 2023 vs H1 2022 May 2023 vs May 2022
Sandton City 10.2% 19.6%
Eastgate 7.2% 11.9%
Nelson Mandela Square 16.9% 19.6%
Midlands Mall -9.7% -3.7%
Midlands Lifestyle Centre -16.3% -4.7%
Promenade 8.4% 9.3%
Botshabelo Mall 6.6% 3.9%
Total portfolio (excl. MA) 6.6% 12.5%
Melrose Arch (MA) 10.9% 26.7%
Portfolio full 6.8% 13.0%
Occupancy and leasing performance
The L2D portfolio occupancy level improved to 93.6% in June 2023 (December 2022: 93.5%). The retail
occupancy is 97.1% (December 2022: 97.9%) due to Ster Kinekor vacating at Promenade. Opportunities to
relet this space are being reviewed. While L2D's office portfolio represents only 26.2% of the total portfolio's
GLA and therefore carries less weighting on the overall vacancy, we remain focused on office leasing and the
office occupancy has improved to 82.1% at June 2023 (December 2022 80.0%).
GLA
composition to
portfolio June 2023 Dec 2022 June 2022
Retail 60.1% 97.1% 97.9% 97.2%
Office 26.2% 82.1% 80.0% 83.3%(2)
Specialised 13.7% 100.0% 100.0% 100.0%
Portfolio 100.0% 93.6% 93.5% 92.9%
(2) June 2022 included the Standard Bank office which was subsequently disposed of in September 2022
Demand for retail space in the L2D portfolio remains strong driven by the high-quality nature of the portfolio.
197 leases were concluded (renewals and new deals) in the first half of 2023, equating to 67,763m2, composed
of 31,983m2 retail and 35,779m2 office space.
The portfolio has improved the reversion trend in the first half of the 2023 financial year. Rental reversions
across the portfolio were -5.3%, with retail renewals -0.3% and offices -20.4% which is a significant
improvement to the negative reversions in 2022 (portfolio -10.4%, retail -9.7%, office: -25.5%).
Financial performance
NPI Sector
HY 2023 Contribution % Change in NPI composition HY
to NPI (R'm) HY 2023 vs HY 2022 2023
Retail R231.8m 3.3% 78.5%
Offices R25.6m 66.8% 8.7%
Hospitality R16.2m 33.4% 5.5%
Other R21.6m 3.8% 7.3%
Total NPI(3) R295.2m 8.2% 100.0%
(3) Total NPI excluding the adjustment for straight-lining of operating lease income.
Net property income, excluding lease straight-lining increased by 8.2% to R295.2 million compared to the prior
comparative period, mainly attributable to increased turnover rental, a strong recovery in the hospitality assets
and higher expected rates recoveries at Sandton City, Nelson Mandela Square and Eastgate.
Cost containment has been managed well, with property operating costs reflecting a 5% increase (excluding
the hotels and the convention centre) and head office operating costs increasing by only 2% compared to the
previous year. The ongoing electricity crisis has resulted in increased diesel costs, partially alleviated by
improved diesel recoveries since the beginning of this year. Capital expenditure has been focused on
sustainability projects across the portfolio to reduce the reliance on Eskom and diesel consuming generating
capacity.
Net interest expense increased by 18.7%, due to higher interest rates post the refinancing and with higher
hedge ratios. The increase in profit before tax includes the positive fair value adjustments of R34.4 million in
respect of the property valuation in June 2023.
Balance sheet and portfolio valuation
We continue to maintain a strong balance sheet. The loan to value (LTV) is 24.58% (June 2022: 24.64%) with
a healthy interest cover ratio at 2.89 times (June 2022: 3.18 times), both comfortably within banking covenant
requirements. We are engaged in discussions on the refinancing of R500 million of term debt expiring in the
second half of the year. Interest rate exposure is 80.3% hedged. As at 30 June 2023, the average cost of debt
is 9.2% with access to total unutilised credit facilities of R308 million.
L2D's property portfolio was valued at R8.3 billion as at June 2023, a 1.2% increase on the June 2022 valuation
and a 0.9% increase on the December 2022 valuation. Values are based on independent third-party property
valuations as at 30 June 2023 which is in line with L2D's policy to have external independent valuations
performed on the full portfolio bi-annually.
Prospects
South Africa's macro-economic environment continues to be challenged in 2023. Consumers' disposable
income continues to be faced with a number of headwinds while ongoing loadshedding dampens economic
growth. Notwithstanding this challenging operating environment, leading indicators are positive. This, coupled
with the L2D portfolio's improving trading densities, provides support to our efforts of delivering on the
operational strategy of our iconic portfolio for the rest of the year.
Declaration of cash distribution
The Board has approved, and notice is hereby given, of a distribution of 18.77 cents per share for the six
months ended 30 June 2023 (the distribution).
The distribution is payable to L2D shareholders in accordance with the timetable set out below:
2023
Declaration (SENS) Monday, 31 July
Last date to trade cum dividend Tuesday, 22 August
Shares trade ex-dividend Wednesday, 23 August
Record date Friday, 25 August
Payment date Monday, 28 August
L2D uses distribution per share as a relevant measure of financial performance. Share certificates may not be
dematerialised or rematerialised between Wednesday, 23 August 2023 and Friday, 25 August 2023, both days
inclusive. Payment of the distribution will be made to shareholders on Monday, 28 August 2023. In respect of
dematerialised shares, the distribution will be transferred to the Central Securities Depository Participant
(CSDP) accounts/broker accounts on Monday, 28 August 2023. Certificated shareholders' dividend payments
will be posted on or about Monday, 28 August 2023.
Shares in issue at the date of declaration of this distribution: 908 443 334, inclusive of 42 755 988
treasury shares.
L2D's income tax reference number: 9178869237.
In accordance with L2D's status as a REIT, shareholders are advised that the distribution meets the
requirements of a "qualifying distribution" for the purposes of section 25BB of the Income Tax Act, No. 58 of
1962 (Income Tax Act).
The distribution on the shares will be deemed to be a dividend, for South African tax purposes, in terms of
section 25BB of the Income Tax Act. The distribution received by or accrued to South African tax residents
must be included in the gross income of such shareholders and will not be exempt from income tax (in terms
of the exclusion to the general dividend exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the
Income Tax Act) because it is a distribution distributed by a REIT. This distribution is, however, exempt from
dividend withholding tax in the hands of South African tax resident shareholders, provided that the South
African resident shareholders provide the following forms to their CSDP or broker, as the case may be, in
respect of uncertificated shares, or the company, in respect of certificated shares:
- a declaration that the distribution is exempt from dividends tax; and
- a written undertaking to inform the CSDP, broker or the company, as the case may be, should the
circumstances affecting the exemption change or the beneficial owner ceases to be the beneficial
owner, both in the form prescribed by the Commissioner for the South African Revenue Service.
Shareholders are advised to contact their CSDP, broker or the company, as the case may be, to
arrange for the abovementioned documents to be submitted prior to payment of the distribution, if
such documents have not already been submitted.
Distributions received by non-resident shareholders will not be taxable as income and instead will be treated
as an ordinary dividend which is exempt from income tax in terms of the general dividend exemption in section
10(1)(k)(i) of the Income Tax Act.
Assuming dividend withholding tax will be withheld at a rate of 20%, unless the rate is reduced in terms of any
applicable agreement for the avoidance of double taxation (DTA) between South Africa and the country of
residence of the shareholder, the net dividend amount due to non-resident shareholders is 15.01600 cents
per share. A reduced dividend withholding rate in terms of the applicable DTA may only be relied on if the non-
resident shareholder has provided the following forms to their CSDP or broker, as the case may be, in respect
of uncertificated shares, or the company, in respect of certificated shares:
- a declaration that the distribution is subject to a reduced rate as a result of the application of a DTA; and
- a written undertaking to inform their CSDP, broker or the company, as the case may be, should the
circumstances affecting the reduced rate change or the beneficial owner ceases to be the beneficial
owner, both in the form prescribed by the Commissioner for the South African Revenue Service. Non-
resident shareholders are advised to contact their CSDP, broker or the company, as the case may
be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution
if such documents have not already been submitted, if applicable.
Any forecast or forward-looking statements have not been reviewed or audited by L2D's external auditors.
On behalf of the Board
Nick Criticos Amelia Beattie Barbara Makhubedu
Chairman Chief Executive Chief Financial Officer
31 July 2023
The full long-form announcement is available at:
https://senspdf.jse.co.za/documents/2023/jse/isse/l2de/interims23.pdf
The contents of this short-form announcement are the responsibility of the Board. This short-form
announcement is only a summary of the information in the full announcement and does not contain full or
complete details. Any investment decisions made by investors and/or shareholders should be based on the
full announcement as a whole. Shareholders are encouraged to review the full announcement, which has been
released on SENS, and is available on L2D's website: https://www.liberty2degrees.co.za/investors/sens/. It is
also available, at no cost, on request at: investors@liberty2degrees.co.za or from the Sponsor at:
sponsorteam@merchantec.com during normal business hours.
Sponsor
Merchantec Capital
