Wrap Text
Summarised results for the period ended 31 December 2016
Liberty Two Degrees
JSE share code: L2D ISIN: ZAE000230553
(Approved as a REIT by the JSE)
("Liberty Two Degrees")
a portfolio established under the Liberty Two Degrees Scheme, a Collective Investment Scheme in Property
established in terms of the Collective Investment Schemes Control Act, No 45 of 2002, as amended,
and managed by STANLIB REIT Fund Managers (RF) Proprietary Limited
("the Manager" or "STANLIB REIT Fund Managers")
(Registration number: 2007/029492/07)
Invest to inspire
Summarised results for the period ended 31 December 2016
Highlights
Premier retail real estate portfolio
Distribution of 4,85c per unit
NAV per unit increased by 1,3% to R9,64
R2,8bn cash available for acquisitions
Ungeared balance sheet
Final listing costs R27mn below PLS forecast
Statement of financial position
as at 31 December 2016
R'000 2016
ASSETS
Non-current assets 6 060 439
Investment properties 5 997 200
Investment properties under development 63 239
Current assets 2 868 431
Trade and other receivables 91 871
Financial investments 2 774 878
Cash and cash equivalents 1 682
Total assets 8 928 870
LIABILITIES
Current liabilities
Trade and other payables 168 449
Total liabilities 168 449
Participatory unitholders' capital and reserves
Capital 8 663 855
Retained surplus 44 063
Non-distributable reserve 52 503
Total unitholders' funds 8 760 421
Total unitholders' funds and liabilities 8 928 870
Supplementary information:
Number of units in issue ('000) 908 443
Net asset value per unit (R) 9,64
Statement of comprehensive income
for the period ended 31 December 2016
R'000 2016(1)
Property portfolio revenue 43 924
Rental and related income 46 665
Adjustment for straight-lining of operating lease income (2 741)
Property operating expenses (14 391)
Net rental and related income 29 533
Administration expenses (887)
Net property income 28 646
Asset management fee (2 202)
Profit from operations 26 444
Interest received 14 878
Profit before fair value adjustments 41 322
Net fair value adjustments 55 244
Fair value adjustments 52 503
Adjustment for straight-lining of operating lease income 2 741
Total earnings 96 566
Basic and diluted earnings per unit
Basic earnings per unit (cents) 11,21
Fully diluted earnings per unit (cents) 11,21
(1)L2D acquired its undivided shares in the Liberty Property Portfolio effective 1 December 2016 and
commenced its business operations with effect from that date. The statement of comprehensive Income
therefore reflects one month's operations.
Statement of changes in participatory unitholders' capital and reserves
for the period ended 31 December 2016
Non-
distributable Retained
R'000 Capital reserves earnings Total
Units issued in exchange for the undivided 6 000 000 6 000 000
share in property
Units issued for cash upon listing 2 780 212 2 780 212
Costs relating to common control transaction (116 357) (116 357)
and issue of new units
Total earnings for the period 96 566 96 566
Fair value adjustment on investment
properties transferred to non-distributable
reserve 52 503 (52 503)
Balance at 31 December 2016 8 663 855 52 503 44 063 8 760 421
Statement of cash flows
for the period ended 31 December 2016
R'000 2016
Cash flows from operating activities 120 809
Cash generated by operations 105 931
Interest received 14 878
Cash flows from investing activities (2 782 947)
Expenditure on investment properties (8 069)
Purchase of financial investments (2 774 878)
Cash flows from financing activities 2 663 820
Units issued for cash on listing 2 780 212
Transaction costs for issue of new units (116 392)
Net increase in cash and cash equivalents 1 682
Cash and cash equivalents at 31 December 2016 1 682
Headline earnings, distributable income and earnings per unit
R'000 2016
Reconciliation of total earnings to headline earnings and distributable income:
Total earnings (basic earnings) 96 566
Fair value adjustments to investment properties (55 244)
Headline earnings 41 322
Adjustment for straight-lining of operating lease income 2 741
Distributable income 44 063
Cents
Earnings per unit
Basic and diluted 11,21
Headline and diluted 4,80
Distributable income 4,85
'000
Number of units in issue 908 443
Weighted average number of units in issue 861 422
Segment information
Administration/
R'000 Retail Office Specialised other(1) Total
Total property GLA 522 652 318 620 7 060 848 332
L2D's share of total GLA(2) 102 732 29 925 1 553 134 210
Segment earnings
Administration/
R'000 Retail Office Specialised other(1) Total
Property portfolio revenue 33 525 9 765 507 127 43 924
Rental and related income 35 623 10 376 539 127 46 665
Adjustment for straight-lining of operating lease income (2 098) (611) (32) (2 741)
Property operating expenses (11 016) (3 209) (166) (14 391)
Net rental and related income 22 509 6 556 341 127 29 533
Administration expenses (887) (887)
Net property income 22 509 6 556 341 (760) 28 646
Asset management fee (2 202) (2 202)
Profit from operations 22 509 6 556 341 (2 962) 26 444
Interest received 14 878 14 878
Profit before fair value adjustments 22 509 6 556 341 11 916 41 322
Net fair value adjustments 42 287 12 318 639 55 244
Fair value adjustments 40 189 11 707 607 52 503
Adjustment for straight-lining of operating lease income 2 098 611 32 2 741
Total earnings 64 796 18 874 980 11 916 96 566
Segment assets and liabilities
Administration/
R'000 Retail Office Specialised other(1) Total
Investment property 4 639 006 1 351 305 70 128 6 060 439
Trade and other receivables 57 429 16 729 868 16 845 91 871
Financial investments 2 774 878 2 774 878
Cash and cash equivalents 1 682 1 682
Total assets 4 696 435 1 368 034 70 996 2 793 405 8 928 870
Total liabilities – Trade payables (47 274) (13 770) (715) (106 690) (168 449)
Net assets 4 649 161 1 354 264 70 281 2 686 715 8 760 421
(1) Administration and other includes administration expenses, asset management fees and investment income that cannot be allocated
specifically to the main operating segments. Administration assets and liabilities includes the current account with Liberty
Group Limited, cash and cash equivalents, VAT payable and accruals for listing costs, audit and printing fees and asset management fees.
(2) Segment earnings, asset and liabilities have been segmented per category GLA as a percentage of L2D's share of total GLA.
Introduction
This is the first set of financial statements prepared following the successful listing of Liberty Two Degrees (L2D) as a REIT on the
JSE on 6 December 2016. L2D is required by the Collective Investments Schemes Control Act, 2002 to be structured as a JSE-listed
portfolio within a trust with an external independent trustee and an external management company. RMB Trustee Services are the
appointed Trustee and STANLIB REIT Fund Managers (RF) Proprietary Limited (SRFM) is the appointed Manager to L2D.
L2D acquired its undivided shares in the Liberty Property Portfolio effective 1 December 2016 and commenced its business operation
with effect from that date.
The following commentary is therefore provided in relation to the one-month period ended 31 December 2016.
- The results presented are substantially in line with the forecast provided in the Pre-listing Statement (PLS).
- The net asset value increased by 12c per unit, totalling R9.64 at the period end.
- The distribution is declared at 4,85c per participatory unit for the period.
- The share price at 31 December 2016 compared favourably to the listing price of R10 and translates to a premium of approximately 8,9% to NAV.
Valuations
Schedule of properties as at 31 December 2016
Weighted L2D Total
Initial average Gross gross
purchase rental lettable lettable
Property name and % interest Physical address Main price(1) Valuation(1) per m2 area area
No in the undivided shares by L2D and province sector R'000 R'000 (R) (m2) (m2)
1 Sandton City Complex (16,5%) 5th Street, Alice Lane and Sandton Drive, Retail 2 158 335 2 168 402 454 32 720 198 304
Sandton, Johannesburg, Gauteng
Retail 24 272 147 104
Office 8 448 51 200
2 Eastgate Complex (22,0%)(2) 43 Bradford Road, Bedfordview, Johannesburg, Retail 1 904 510 1 926 515 436 29 874 135 790
Gauteng
3 Melrose Arch (5,5%)(1) 60 Atholl Oaklands Road & Melrose Blvd, Office 421 704 423 514 267 11 020 186 291
Melrose North, Johannesburg
Office 7 228 122 187
Retail 2 777 46 948
Specialised 1 015 17 156
4 Liberty Midlands Mall (22,0%) Sanctuary Road, Pietermaritzburg, KwaZulu- Retail 414 129 419 630 317 12 314 55 973
Natal
5 Nelson Mandela Square (22,0%) 5th Street, Sandton, Johannesburg, Gauteng Retail 387 283 393 885 341 8 535 38 795
Retail 4 433 20 148
Office 4 102 18 647
6 Liberty Promenade Shopping Corner of AZ Berman Drive, Mogenster Retail 304 326 306 966 157 16 148 73 400
Centre (22,0%) Road and 11th Avenue, Mitchells Plain,
Cape Town, Western Cape
7 Botshabelo Mall (15,4%) Portions 2 and 3 of Erf 1 Botshabelo-H, Free Retail 49 657 49 793 88 3 140 20 390
State
8 John Ross Eco Junction – varying Portion 16 and Portion 17, Erf 11451, Specialised 75 819 85 316 62 1 553 7 060
serviced stands (22,0%) Richards Bay, KwaZulu-Natal
9 Liberty Centre Head Office Montague Gardens, Century Boulevard, Office 78 975 78 979 203 4 221 19 188
(Cape Town) (22,0%) Century City, Cape Town, Western Cape
10 Liberty Centre Head Office 21 Aurora Drive and 2 Park Lane, Umhlanga Office 88 526 90 550 161 4 478 20 352
(Umhlanga Ridge) (22,0%) Ridge, KwaZulu-Natal
11 Standard Bank Centre (11,0%) 5 Simmonds Street, Johannesburg, Gauteng Office 116 736 116 889 90 10 207 92 789
Total 6 000 000 6 060 439 321 134 210 848 332
(1) Excludes the impact of straight-lining of operating lease income.
(2) Eastgate office tower currently under construction.
Developments
Approved Development Project
Property Cost (R'm) Project Start Date Completion Date Commentary
Eastgate Office Tower L2D R32,1 million January 2016 March 2017 Virgin Active took beneficial occupation at the end of January 2017
(Total cost: R146,0 million) and will commence operation during March 2017. The Office
Tower is scheduled for completion in April 2017, to date 84% has
been leased.
Melomed Phase I & II L2D R70,0 million August 2015 June 2017 The contractor is on track to meet the beneficial occupation date
(Total cost: R318,0 million) of June 2017.
Midlands Phase III L2D R99,2 million November 2016 March 2018 The earthworks commenced towards the end of the fourth
(Total cost: R451,0 million) quarter of 2016 and are currently on track. The leasing is
progressing well and it is anticipated that the space will be fully
leased by completion.
Net asset value
The net asset value (NAV) per share increased by 12c to R9,64 at 31 December 2016.
Borrowings
L2D currently has no term debt and at market accepted gearing levels for REITs would be able to raise a further c. R3 billion.
Prospects
The scale and presence, quality and location of the retail assets, continue to
position L2D as one of the premier real estate investment opportunities in
South Africa. The historic capital expenditure incurred to maintain the high
quality of the properties, provides a platform for good growth without incurring
significant amounts of new capital to refresh the environments.
In the short term, L2D will focus its growth strategy in South Africa. Growth
is expected from carefully identified quality acquisition targets, as well as the
current development pipeline in respect of Liberty Midlands Mall, the Eastgate
Complex and Melomed Hospital.
Looking at the year ahead, management is confident that the strategic
approach of investing in high-quality assets that remain resilient and defensive
during tough economic times, positions L2D for sustainable growth. L2D's
objective is to deliver on the forecast distribution in its PLS of 65c per unit for
the year ending 31 December 2017.
Given the nature of the business, L2D uses distribution per unit as its key
performance measure as it is considered a more relevant performance
measure than earnings or headline earnings per unit.
Distribution timetable and tax implications
The board of the manager has approved and notice is hereby given of a maiden
distribution of 4.85047 cents per unit for the period to 31 December 2016
("the distribution")
The distribution is payable to Liberty Two Degrees' unitholders in accordance
with the timetable set out below:
2017
Last date to trade cum dividend: Tuesday, 14 March
Units trade ex dividend: Wednesday, 15 March
Record date: Friday, 17 March
Payment date: Monday, 20 March
Unit certificates may not be dematerialised or rematerialised between
Wednesday, 15 March 2017 and Friday, 17 March 2017, both days inclusive.
Payment of the distribution will be made to unitholders on Monday,
20 March 2017. In respect of dematerialised units, the distribution will be
transferred to the CSDP accounts/broker accounts on Monday, 20 March 2017.
Certificated unitholders' distribution payments will be posted on or about
Monday, 20 March 2017.
Units in issue at the date of declaration of this distribution: 908 443 335
Liberty Two Degrees' income tax reference number: 9087144235
In accordance with Liberty Two Degrees' status as a REIT, unitholders 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 units will consequently 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 unitholders 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 distributed by a REIT. This distribution is, however, exempt from
dividends tax in the hands of South African tax resident unitholders, provided
that the South African tax resident unitholders provide the following forms
to their Central Securities Depository Participant ("CSDP") or broker, as the
case may be, in respect of uncertificated units, or the company, in respect of
certificated units:
a) a declaration that the distribution is exempt from dividends tax; and
b) 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 cease to be the beneficial owner,
both in the form prescribed by the Commissioner for the South African
Revenue Service.
Resident unitholders 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 unitholders 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. However, a distribution received by a non-resident will
be subject to dividends tax at 15%, 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 unitholder. Assuming dividends
tax will be withheld at a rate of 15%, the net dividend amount due to non-
resident unitholders is 4.12290 cents per unit. A reduced dividends tax rate in
terms of the applicable DTA may only be relied on if the non-resident unitholder
has provided the following forms to their CSDP or broker, as the case may be,
in respect of uncertificated units, or the company, in respect of certificated units:
a) a declaration that the distribution is subject to a reduced rate as a result of
the application of a DTA; and
b) 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 cease to be the beneficial owner,
both in the form prescribed by the Commissioner for the South African Revenue
Service. Non-resident unitholders 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.
Common control transaction
In terms of an exchange agreement the Liberty Group Limited (LGL) disposed
of 22% of its share in investment properties in exchange for units issued by
L2D. L2D acquired a 22% undivided share of the wholly-owned LGL properties
and a lesser undivided share of properties that were not wholly owned.
The transaction resulted in the same ultimate control before and after the
transaction and was classified as a common control transaction. Predecessor
accounting has been applied in accounting for the common control transaction.
BASIS OF PREPARATION
The summary financial statements contained in this summary report are
prepared in accordance with the JSE Listings Requirements for provisional
reports and the requirements of the Companies Act applicable to summary
financial statements.The JSE Listings Requirements require provisional reports to
be prepared in accordance with the framework concepts and the measurement
and recognition requirements of International Financial Reporting Standards
(IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by the Financial
Reporting Standards Council, and to also, as a minimum, contain the information
required by IAS 34 Interim Financial Reporting. The accounting policies applied
in the preparation of the financial statements from which the summary financial
statements are derived are in terms of IFRS and are consistent with those
applied in the Pre-listing Statement.
The summarised financial statements have been prepared under the supervision
of John Sturgeon CA(SA).
This summarised report is extracted from the audited information, but is not
itself audited. The financial statements are audited by PricewaterhouseCoopers
Inc., who expressed an unmodified opinion thereon. Participatory unitholders
are advised that in order to obtain a full understanding of the nature of the
auditor's engagement, they should obtain a copy of the auditor's report together
with the accompanying audited financial statements, both of which are available
for inspection at L2D's registered office. The directors of STANLIB REIT Fund
Managers (RF) Proprietary Limited take full responsibility for the preparation
of this report and that the selected financial information has been correctly
extracted from the underlying financial statements.
On behalf of the Board
MP Moyo A Beattie
Chairman Chief executive officer
16 February 2017
Sponsor
Java Capital
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