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Pre-close investor update and trading statement
LIBERTY TWO DEGREES LIMITED
(Registration number: 2018/388906/06)
JSE share code: L2D
ISIN: ZAE000260576
(“L2D” or “the Company”)
Pre-close investor update and trading statement
Liberty Two Degrees (L2D) presents this pre-close investor update and trading statement ahead of the year-
end closed period which commences on 1 December 2020.
The new ABC of rebuilding for growth
As we close out 2020 and move into 2021, it is important that we have Agility in how swiftly we adapt to new
ways of thinking and working, ensure that the teams go Back to Basics in building strong property
fundamentals so that our quality assets deliver good results and continue to invest in the Communities in
which we operate through our precinct focus and “Spaces” building blocks to lead us into the future.
Agility
The impact of the Covid-19 pandemic on our customers, tenants, people and performance has necessitated
an agile response and resulted in new ways of working and thinking which are focused on our strategic value
drivers being the customer experience, tenant experience, people experience, capital and risk management
strategy, financial outcomes and the good that we do.
Back to basics
While the current conditions present a number of threats to the portfolio, a significant portion of the portfolio
remains underpinned by basic property fundamentals – let the space to good quality tenants, collect the rental
(and create sustainability through rental relief packages), keep the environment safe and secure, maintain the
properties to retain the quality fabric, pay property expenses and drive efficiencies to reduce costs and focus
on sustainability initiatives.
Operationally there has been an enhanced focus on cost control as well as on safety and security and all of
our malls achieved a Covid-19 global compliance certification issued by Safe Shopping Centres.
In addition, we continue to look for new ways in our experiential offerings, but the core business remains the
key indicator of recovery through tracking foot count, vacancies, collections, turnover growth and occupational
health and safety. There has been an improvement in all of these indicators, apart from the portfolio vacancies,
since the last operational update issued on 28 September 2020. Some good leasing activity during the period
has, however, improved the portfolio vacancy rate when the pre-lets are taken into account.
As previously reported we have objected to the Sandton City municipal valuation and await notification of the
date for the hearing of the valuation appeal by the Valuation Appeal Board.
In this report, the latest monthly turnover data is provided for September 2020 and vacancy rates at 31 October
2020 are disclosed. In addition, we provide an update on rent collections and rent negotiations as well as
commentary on the latest leasing initiatives.
Foot count
For the month of October 2020, the portfolio foot count recovered to 81% of 2019 comparative levels, with the
top performers being Midlands Mall (98%) and Eastgate (96%). The total portfolio weekend foot count for the
month of October 2020 (excluding Botshabelo Mall) was 93% of the comparative weekend foot count for the
month of October 2019. The weekend foot count for October 2020 compared to October 2019 was 87% at
Sandton City, 103% at Midlands Mall and 108% at Eastgate.
Heritage Day celebrations held across the portfolio along with the relaunch of the Piazza at Eastgate and live
entertainment on the square at Nelson Mandela Square (NMS) were some of the creative initiatives that helped
drive footcount to the malls by offering unique experiences for our customers. Further support for the
restaurants at NMS includes free parking for patrons for up to three hours (until the end of November 2020) in
an effort to boost their recovery.
Retail operational trading update as at 30 September 2020
We are pleased to note the continuing positive trend in monthly turnover with September 2020 turnover for the
portfolio at 83% of the comparative September 2019 turnover (please refer to the update document available
on our website for a graph with asset level monthly turnover information). The twelve month rolling portfolio
turnover at 30 September 2020 was 81% of the comparative twelve month rolling portfolio turnover in 2019.
The portfolio has seen a steady improvement in turnover as the lockdown levels have been eased, allowing
retailers to resume trading and drawing customers back to our retail offerings.
The top three performing categories in the third quarter, from a turnover growth perspective, were luxury
brands, grocery/supermarket and technology. Luxury brands play a significant role in the portfolio contributing
8.1% towards total turnover but only account for 0.9% of portfolio GLA. The category was negatively impacted
in the second quarter due to the inability to trade under lockdown level 5 but experienced a significant recovery
in the third quarter driven by pent up domestic demand.
Hospitality
The Sandton Sun hotel is currently the only hotel in the portfolio that is operational and has been showing
steady growth in occupancy rates. Its occupancy rate was 30.9% in September up from 20.9% in August. The
Sandton Intercontinental Towers, Garden Court and the Convention Centre have been closed for operations
since March 2020 to minimize the cost impact and their leases remain suspended with no rental payable until
the hotels reach viable levels of operation. The co-owners (L2D, Liberty and Pareto) will mutually agree on the
reinstatement date for the leases and remain liable for the fixed costs of the hotels and the Convention Centre
during the lockdown.
The Sandton Convention Centre’s lease with Tsogo Sun Hotels has been converted to a management
agreement on a management fee basis and a new lease will be negotiated when market conditions are stable
enough to enter into a long-term agreement. The Convention Centre will be open for the month of November
2020 for Presidential conferences and will be closed thereafter until restrictions limiting the size of the
conferences are lifted.
Vacancy update
% Portfolio Retail Office Specialised
August 2020
Overall vacancy 6.1 3.8 12.2 0.0
rate
Pre-let vacancy 5.7 3.6 11.4 0.0
rate
October 2020
Overall vacancy 7.6 4.7 15.1 0.0
rate
Pre-let vacancy 6.0 3.7 12.2 0.0
rate
There has been a further increase in vacancies across the portfolio from 6.1% in August 2020 to 7.6% in
October 2020. The retail vacancy rate has increased to 4.7% in October 2020 (3.8% in August 2020). Eastgate
has remained stable, but remains the largest contributor to the retail vacancies mainly due to the premises
previously occupied by House & Home and Mr Price Home that are currently vacant. The leasing team
continues to make headway through leasing activities and in October secured a further 900m2 of space, which
will reduce the Eastgate vacancy from 7.0% to 6.3% in the fourth quarter. Forever 21 at NMS officially closed
in September 2020. The leasing team has responded with agility and has already secured new tenants for
80% of the space. Taking all pre-let deals into account, the retail vacancy rate reduces to 3.7%. This remains
below the SAPOA Q2 2020 retail vacancy rate of 5.6%
The office vacancy was 15.1% as at 31 October 2020 (12.2% in August 2020). Taking pre-lets into account,
the office vacancy reduces to 12.2%. The most impacted assets include Melrose Arch (due to the takeback of
a large portion of the STANLIB building) and NMS offices. The effects of Covid-19 continue to drive the
downsizing of office space. L2D will move to the NMS offices in the first quarter of 2021 which will further
reduce the vacancy and bolster confidence in the space available for letting – the new L2D office will be an
example of how to integrate new ways of working in a precinct environment.
Collections and rental relief update
We are pleased to report that rental collections based on the full amounts due and before any rental relief has
increased to 84% at 31 October 2020 (last reported at 74% at August 2020). The improvement is a result of
the successful conclusion of additional rental relief negotiations and the fact that almost all tenants are now
trading. We expect the total arrears position to improve as we close out the final rental relief negotiations by
the end of the year.
Rental relief negotiations from a tenant count perspective, and for the Q2 period, are 77% complete. Ongoing
negotiations are currently taking place with the balance to ensure sustainable businesses going forward.
Liquidity
L2D remains well capitalised with a slightly improved Group LTV of 20% (21.7% at 30 June 2020) following
the repayment of part of a redraw facility. The total available RCF facilities of R400 million remain unutilised.
Community focused strategies
In executing our Smart Spaces building block, we envisage a significant increase in the technology deployed
within our business and, by extension, its influence in how we run our business and how we implement our
digital strategy. Patrick Masithela was appointed as our Chief Information Officer earlier in the year and has
made good progress in driving the Smart Spaces initiatives.
Good Spaces remains focused on delivering on our Net Zero 2030 aspirations. While there has been excellent
progress in many of the areas, Covid-19 has had a negative impact on our ability to be Net Zero waste ready
by the end of 2020, and we will delay this until we are fully prepared in 2021. L2D continues to push the
boundaries of business as usual and became a supporting member of the SA Plastics Pact and the first
participating landlord to work towards a common vision for a circular economy for plastics. This includes
tackling plastics waste and pollution at its source, with improved economic, environmental and societal
outcomes overall. Eastgate shopping centre recently completed the Piazza upgrade, which included solar
trees, and the solar farm which will be commissioned shortly. The solar farm is expected to generate 1,851,659
kWh of electricity in the first year of operation. The generation capacity will be used to power the lifts, air
conditioning units and escalators.
To create deeper focus on the experiential offerings in our business, we have combined On Demand, Inclusive
and Immersive Spaces under one umbrella called Interactive Spaces. Interactive Spaces is an opportunity for
an interchange of ideas and experiences. The emphasis is on interaction, a fast pace, excitement, experience
and stimulus. This will incorporate the work that was previously done in the individual building blocks and
ensure integration from a customer experience perspective.
The malls in the L2D portfolio were recently awarded a total of thirty-two footprint marketing awards by the
South African Council of Shopping Centres (SACSC). Five gold awards (out of a total of fifteen) went to
Sandton City and a further eight silver awards and nineteen bronze awards were achieved across the portfolio.
Sportscene in Sandton won the top spectrum award for best store design and this is testament to how we drive
our tenants to deliver a compelling customer experience.
Trading statement
We draw attention to the withdrawal of the 2020 financial year distribution guidance as advised in the update
released on the JSE Stock Exchange News Service on 30 March 2020 as well as the trading statement
released on 9 July 2020.
As previously reported, the Covid-19 pandemic and the secondary effects of the pandemic on the economy is
having a severe impact on L2D’s 2020 financial results and, as noted in our previous trading statement,
distributable earnings for the year ending 31 December 2020 will be negatively impacted.
L2D uses distribution per share (DPS) as the relevant measure of financial results in accordance with
paragraph 3.4(b)(vii) of the JSE Listings Requirements.
In terms of paragraph 3.4(b) of the Listings Requirements of the JSE, shareholders are advised that based on
the expected decrease in distributable earnings L2D has reasonable certainty that the DPS for the year ending
31 December 2020 will be lower by more than 15% when compared to the full year DPS of 60.43 cents for the
year ended 31 December 2019. The full year DPS for the year ending 31 December 2020 is likely to be
between 55% to 65% lower and to be between 27.19 cents and 21.15 cents.
The Board will consider the payment of a final distribution for the 2020 financial year once the full year results
are finalised. The regulatory requirements will be included in the factors considered.
Conclusion
We have made good progress in negotiating the rental relief packages and are seeing a monthly improvement
in both foot count and turnover. We remain focused in our ongoing response to Covid-19 and the strategy that
we are implementing in order to rebuild the business for growth.
The Company enters a closed period as at 1 December 2020. It is planned that L2D’s results for the financial
year ending 31 December 2020 will be released on SENS on Monday, 22 February 2021. A presentation of
the results is scheduled to take place on the same day.
The financial information contained in this trading statement has not been reviewed or reported on by L2D’s
auditors.
This Pre-close investor update and trading statement is also available at:
https://www.liberty2degrees.co.za/investors/results-centre/
Johannesburg
27 November 2020
Corporate information
Liberty Two Degrees Limited
Date of registration: 10 July 2018
JSE share code: L2D
ISIN: ZAE000260576
(Approved as a REIT by the JSE)
(Liberty Two Degrees or L2D)
Registered Office
17 Melrose Boulevard
Melrose Arch
Johannesburg, 2196
Gauteng
(PO Box 202, Melrose Arch, Johannesburg, 2076)
Investor Relations
Gareth Rees
Email address: investors@liberty2degrees.co.za
Company Secretary
Ben Swanepoel
Contact information
Telephone: +27 11 448 5500
Email: info@liberty2degrees.co.za
www.liberty2degrees.co.za
Auditors
PricewaterhouseCoopers Inc.
Waterfall City
4 Lisbon Lane
Jukskei View
Midrand
2090
(Private Bag X36, Sunnighill, 2157)
Sponsor
The Standard Bank of South Africa Ltd
(Registration number: 1962/000738/06)
30 Baker Street, Rosebank, 2196
PO Box 61344, Marshalltown, 2107
Tel: +27 11 721 6125
Date: 27-11-2020 09:13:00
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