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LIBERTY TWO DEGREES - Summarised results for the period ended 31 December 2016

Release Date: 16/02/2017 07:30
Code(s): L2D     PDF:  
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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