LIBERTY TWO DEGREES - Unaudited summarised interim results

Release Date: 23/07/2018 08:00
Code(s): L2D
 
Wrap Text
Unaudited summarised interim results

Liberty Two Degrees
JSE 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
(Registration number: 2007/029492/07)
("the Manager")

UNAUDITED SUMMARISED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018

Commentary

Profile

Liberty Two Degrees ("L2D") is a portfolio established under the Liberty Two Degrees Scheme ("the Scheme") in terms of the Collective
Investment Schemes Control Act, 2002 (Act No. 45 of 2002) ("CISCA"), as amended, to afford investors growth in income and capital by
investing at fair prices in a balanced spread of immovable properties and related assets as permitted by the Trust Deed. L2D is required
by CISCA to be structured as a JSE-listed portfolio within a trust with an external independent trustee and an external management company.
The Scheme was registered by the Registrar of Collective Investment Schemes on 28 October 2016 and is managed by STANLIB REIT Fund
Managers (RF) Proprietary Limited ("the Manager") and the appointed external independent trustee is FirstRand Bank Limited acting through
its RMB Trustee Services Division. The Manager has also been appointed as the asset manager of Liberty Group Limited ("LGL")'s interest
in the Liberty Property Portfolio ("LPP"). L2D acquired its undivided shares (and other interests) in the LPP effective 1 December 2016 and
commenced its business operations with effect from that date.

L2D is listed on the Johannesburg Stock Exchange ("JSE") with a market capitalisation of R6.8 billion at 30 June 2018 (30 June 2017:
R8.6 billion) and is included in the South African Listed Property index ("SAPY").

At 30 June 2018, L2D's iconic, 100% South African direct property portfolio was valued at R8.7 billion (30 June 2017: R6.1 billion) with cash
of R132.8 million (30 June 2017: R2.9 billion) invested. L2D currently has no interest-bearing debt.


Financial results

L2D reported net property income of R272.8 million (30 June 2017: R179.5 million) for the six months ended 30 June 2018 after taking into
account the additional 9% of the co-owned LPP assets pursuant to LGL exercising its put option with effect from 1 July 2017. Profit from
operations (before interest income and fair value adjustments) amounted to R255.2 million (30 June 2017: R158.8 million). Interest income
has reduced significantly to R6.1 million (30 June 2017: R109.1 million) as a result of the acquisition of the additional 9% of the co-owned
LPP assets. The impact has been to substitute the interest income previously earned for net property income as a consequence of the
acquisition of an undivided share of the LPP assets.

The board of directors of the Manager has declared a distribution of 29.31 cents per unit for the six months ended 30 June 2018 (30 June 
2017: 30.00 cents per unit).


Changes in fair values

L2D's property portfolio was valued by external independent registered valuers on an open market value basis at 30 June 2018 resulting
in a net decrease of 0.77% amounting to R67.3 million (30 June 2017: net increase of R41.0 million). This marginal decline is primarily due
to a weakened economic outlook impacting on discount rates and other valuation metrics. In total investment properties decreased by
R3.5 million after capitalised development and maintenance capital expenditure. In terms of IAS 40 and IFRS 13, L2D's investment properties
are measured at fair value through profit or loss using valuation inputs which are categorised as level 3 on the fair value hierarchy. There were
no transfers between levels 1, 2 and 3 during the period.


Property portfolio

The portfolio achieved comparable net property income growth of 7.0% and the vacancy rate decreased during the period to 6.0%
(31 December 2017: 6.4%).

Leases covering 15 022m2 (30 June 2017: 34 166m2) were renewed during the period at a retail reversion rate of 2% and an office reversion
rate of -11% which resulted in an average rental reversion of -0.3% (30 June 2017: 5.4%). An additional 23 401m2 (30 June 2017: 15 633m2)
of new tenant deals were concluded across the portfolio during the period.

Arrears increased to 6.23% (30 June 2017: 5.33%) of the collectable book debt. The increase in arrears is principally a result of financial
pressure on tenants.
                                                                                                                                                                  Gross                 Gross
                                                                                                                                                               lettable              lettable
                                                                                                                                                                 area(1)                 area
Sectoral profile                                                                                                                                                    (m2)                   (%)
Retail                                                                                                                                                          523 107                  57.7
Office                                                                                                                                                          332 290                  36.6
Specialised                                                                                                                                                      52 089                   5.7

Total                                                                                                                                                           907 486                 100.0


                                                                                                                                                                  Gross                 Gross
                                                                                                                                                               lettable              lettable
                                                                                                                                                                 area(1)                 area
Geographic profile                                                                                                                                                  (m2)                   (%)
Gauteng                                                                                                                                                         675 180                  74.4
KwaZulu-Natal                                                                                                                                                   118 975                  13.1
Western Cape                                                                                                                                                     92 588                  10.2
Free State                                                                                                                                                       20 743                   2.3

Total                                                                                                                                                           907 486                 100.0


(1) The gross lettable area is for 100% of the assets and L2D owns a 31% undivided share of the LPP properties as at 30 June 2018. This data includes Melomed hospital and Midlands Lifestyle Centre.


                                                                                                                                            30 June         31 December               30 June
Vacancy profile - Gross lettable area (%)                                                                                                      2018                2017                  2017
Retail                                                                                                                                          4.3                 4.3                   1.8
Office                                                                                                                                          9.7                10.3                   6.0
Specialised                                                                                                                                       -                   -                     -

Total                                                                                                                                           6.0                 6.4                   3.3


Lease expiry profile - Gross lettable area (%)                        Vacant          Monthly              2018              2019               2020               2021                 2022+
Total retail                                                             5.6              1.2               8.5              17.3               11.1               14.1                 42.2
Total office                                                            10.2              4.6               6.0              36.3               10.7                6.2                 26.0
Total specialised                                                          -                -               2.1              11.7                3.5                8.2                 74.5

Total                                                                    7.0              2.4               7.2              23.9               10.5               10.9                 38.1

Note: Vacancies include storerooms, management offices and excludes pre-let deals.


L2D's portfolio strategy

L2D's strategy remains anchored on:

-  An iconic retail focused real estate portfolio with a mix of defensive anchor assets and supplemented by growth from selected
   developments;
-  Focusing on enhancing growth opportunities in South Africa;
-  Maintaining industry leading operational metrics and prudent balance sheet management to support future returns; and
-  Evolution and growth of the portfolio by the management team whilst benefiting from a proven track record, industry expertise and
   familiarity with the portfolio of assets.


Commitments

Capital development commitments outstanding amount to R392.8 million (30 June 2017: R241.0 million). Capital commitments will be
funded from existing resources and borrowings.


Prospects

L2D is in the process of implementing the restructuring transactions as announced in the cautionary announcement dated 18 May 2018.
This includes the conversion of the business to a corporate REIT, the internalization of the manager, the cancellation of the Liberty PUT
option and the acquisition of an additional R1.2 billion of the property portfolio from Liberty. These assets include an undivided share of the
hospitality assets forming part of the Sandton precinct. These transactions remain subject to regulatory approval with the unitholder vote
scheduled for 28 August 2018. The Manager, on behalf of L2D, is entering into finance agreements in order to fund the total value of the
proposed transaction and costs (R1.5 billion), as well as for a revolving credit facility of R100 million. The conservative amount of borrowings
introduced as a consequence hereof will support an enhanced equity return going forward.

The series of transactions proposed enhances the commercial structure in which the business operates and aligns it to REIT industry best
practice. It also affords the business an improved platform from which to engage in value adding commercial opportunities and, in time, will
contribute to aligning the unit trading price to the net asset value.

The proposed transactions are expected to contribute to an enhanced distribution growth in the future which remains a primary measure
of L2D's financial performance.

In spite of the current weak economic environment and tough trading conditions retail sales are recovering, however, the Board remains
cautious that a recovery is sustainable.

The forecast statements contained herein have not been reviewed or reported on by L2D's external auditors.


Declaration of a cash distribution

The Manager has approved and notice is hereby given of a distribution of 29.31 cents per unit for the six months ended 30 June 2018 ("the
distribution").

The distribution is payable to L2D unitholders in accordance with the timetable set out below:

                                                                                                                                       2018

Last date to trade cum dividend:                                                                                         Tuesday, 21 August
Units trade ex dividend:                                                                                               Wednesday, 22 August
Record date:                                                                                                              Friday, 24 August
Payment date:                                                                                                             Monday, 27 August

Unit certificates may not be dematerialised or rematerialised between Wednesday, 22 August 2018 and Friday, 24 August 2018, both days
inclusive.

Payment of the distribution will be made to unitholders on Monday, 27 August 2018. In respect of dematerialised units, the distribution will
be transferred to the Central Securities Depository Participant ("CSDP") accounts/broker accounts on Monday, 27 August 2018. Certificated
unitholders' dividend payments will be posted on or about Monday, 27 August 2018.

Units in issue at the date of declaration of this distribution: 908 443 335

L2D's income tax reference number: 9087144235

In accordance with L2D's 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 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 a distribution distributed by a REIT. This distribution is, however, exempt from dividend withholding tax in
the hands of South African tax resident unitholders, provided that the South African resident unitholders provide 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 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. 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.

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 unitholder, the net dividend amount due to
non-resident unitholders is 23.448 cents per unit. A reduced dividend withholding 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.


Events after reporting date

In line with IAS 10 Events after the Reporting Period, the declaration of the distribution occurred after the end of the reporting period,
resulting in a non-adjusting event which is not recognised in these financial statements.


Basis of preparation

The summarised unaudited interim financial statements are prepared in accordance with International Financial Reporting Standard,
IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa and
the JSE Listings Requirements. The accounting policies applied in the preparation of these interim financial statements are in terms of
International Financial Reporting Standards and are consistent with those applied in the previous financial statements. Jose Snyders CA(SA),
the Manager's financial director, was responsible for supervising the preparation of these summarised interim financial statements.
These summarised interim financial statements have not been reviewed or audited by L2D's independent external auditors.

By order of the Board of Directors

23 July 2018


Statement of financial position

                                                                 Unaudited     Unaudited       Audited
                                                                    30 Jun        30 Jun        31 Dec
                                                                      2018          2017          2017
                                                                     R'000         R'000         R'000
Assets
Non-current assets                                               8 705 235     6 143 980     8 708 712
Investment properties                                            8 656 908     6 073 167     8 629 809
Investment properties under development                             48 327        70 813        78 903
Current assets                                                     299 234     3 000 102       396 888
Trade and other receivables                                        163 408        80 286       168 793
Financial investments                                              132 831     2 919 705       211 772
Cash and cash equivalents                                            2 995           111        16 323

Total assets                                                     9 004 469     9 144 082     9 105 600
Liabilities
Current liabilities
Trade and other payables                                           116 378       114 321       146 796

Total liabilities                                                  116 378       114 321       146 796
Participatory units' capital and reserves
Capital                                                          8 663 950     8 663 658     8 663 950
Retained surplus                                                   266 188       272 540       265 406
Non-distributable reserve                                          (42 047)       93 563        29 448

Total unitholders' funds                                         8 888 091     9 029 761     8 958 804

Total unitholders' funds and liabilities                         9 004 469     9 144 082     9 105 600


Statement of comprehensive income
                                                                                                Twelve
                                                               Six months     Six months        months
                                                                Unaudited      Unaudited       Audited
                                                                   30 Jun         30 Jun        31 Dec
                                                                     2018           2017          2017
                                                                    R'000          R'000         R'000
Property portfolio revenue                                        417 213        259 578       665 854
Rental and related income                                         422 056        264 186       692 835
Adjustment for the straight-lining of operating lease income       (4 843)        (4 608)      (26 981)
Property operating expenses                                      (144 425)       (80 052)     (236 709)
Net rental and related income                                     272 788        179 526       429 145
Administration expenses                                            (2 985)        (1 968)       (4 142)
Net property income                                               269 803        177 558       425 003
Asset management fee                                              (14 565)       (18 771)      (34 599)
Profit from operations                                            255 238        158 787       390 404
Net interest                                                        6 148        109 144       115 063
Interest income                                                     6 148        109 144       135 001
Interest expense                                                        -              -       (19 938)
Dividends received on financial instrument                              -              -         5 492
Loss on disposal of financial instrument                           (4 153)             -          (460)
Profit before fair value adjustments                              257 233        267 931       510 499
Net fair value adjustments on investment properties               (62 499)        45 669         2 319
Fair value adjustments                                            (67 342)        41 061       (24 662)
Adjustment for the straight-lining of operating lease income        4 843          4 608        26 981
Fair value adjustments on equity instrument                             -              -         2 067
Total earnings                                                    194 734        313 600       514 885
Basic and diluted earnings per unit
Basic earnings per unit (cents)                                     21.44          34.52         56.68
Fully diluted earnings per unit (cents)                             21.44          34.52         56.68


Statement of changes in participatory unitholders' capital and reserves

                                                                  Unaudited     Unaudited       Audited
                                                                     30 Jun        30 Jun        31 Dec
                                                                       2018          2017          2017
                                                                      R'000         R'000         R'000
Balance at beginning of period/year                               8 958 804     8 760 421     8 760 421
Transaction costs for issue of new units                                  -          (197)           95
Total earnings for the period/year                                  194 734       313 600       514 885
Distribution to unitholders                                        (265 447)      (44 063)     (316 597)

Balance at end of period/year                                     8 888 091     9 029 761     8 958 804


Statement of cash flows
                                                                                                 Twelve
                                                               Six months     Six months         months
                                                                Unaudited      Unaudited        Audited
                                                                   30 Jun         30 Jun         31 Dec
                                                                     2018           2017           2017
                                                                    R'000          R'000          R'000
Cash flows from operating activities                                8 647        187 524        127 248
Cash generated by operations                                      267 946        122 443        328 782
Interest received on financial investment                           5 752        109 144        133 801
Bank interest received                                                396              -          1 200
Interest paid                                                           -              -        (19 938)
Distribution to unitholders                                      (265 447)       (44 063)      (316 597)
Cash flows from investing activities                              (21 975)      (188 898)      (112 702)
Expenditure on investment properties                              (98 849)       (44 071)      (121 205)
Expenditure on investment properties under development                  -              -        (43 765)
Acquisition of investment properties                                    -              -     (2 476 555)
Acquisition of investment properties under development                  -              -        (36 350)
Investment in financial instruments - mutual funds                (74 752)      (144 827)     2 716 799
Investment in financial instruments - equity instrument                 -              -       (182 725)
Disposal of financial instruments - equity instrument             151 626              -         31 099
Cash flows from financing activities                                    -           (197)            95
Units issued for cash on listing                                        -              -              -
Transaction costs (incurred)/reversal for issue of new units            -           (197)            95
Net (decrease)/increase in cash and cash equivalents              (13 328)        (1 571)        14 641
Cash balance at the beginning of the period/year                   16 323          1 682          1 682

Cash and cash equivalents at the end of the period/year             2 995            111         16 323



Headline earnings, distributable income and earnings per unit
                                                                                        Unaudited     Unaudited    Audited
                                                                                           30 Jun        30 Jun     31 Dec
                                                                                             2018          2017       2017
                                                                                            R'000         R'000      R'000
Reconciliation of total earnings to headline earnings and distributable income
Total earnings (basic earnings)                                                           194 734       313 600    514 885
Fair value adjustment to investment properties and financial investment                    62 499       (45 668)    (4 386)
Loss on disposal of equity instrument                                                       4 153             -        460
Headline earnings                                                                         261 386       267 932    510 959
Adjustment for straight-lining of operating lease income                                    4 843         4 608     26 981

Distributable income                                                                      266 229       272 540    537 940
 
                                                                                            Cents         Cents      Cents
Earnings per unit
Basic and diluted                                                                           21.44         34.52      56.68
Headline                                                                                    28.77         29.49      56.25
Distributable income                                                                        29.31         30.00      59.22
Net asset value per unit                                                                     9.78          9.94       9.86

                                                                                            000's         000's      000's
Number of units in issue                                                                  908 443       908 443    908 443
Weighted average number of units in issue                                                 908 443       908 443    908 443


Segmental analysis 

Segment information                                                                                                                                   Administra-
                                                                                          Retail                Office          Specialised            tion/other(1)             Total
30 June 2018                                                                               R'000                 R'000               R'000                  R'000                R'000
Total property GLA (m2)                                                                  523 107               332 290              52 089                      -              907 486
L2D's share of total GLA (m2)(2)                                                         137 785                56 614               7 606                      -              202 005

Segment earnings
Property portfolio revenue                                                               284 346               116 834              15 696                    337              417 213
Rental and related income                                                                287 650               118 191              15 878                    337              422 056
Adjustment for the straight-lining of operating
lease income                                                                              (3 304)               (1 357)               (182)                     -               (4 843)
Property operating expenses                                                              (97 915)              (40 231)             (5 405)                  (874)            (144 425)
Net rental and related income                                                            186 431                76 603              10 291                   (537)             272 788
Administration expenses                                                                        -                     -                   -                 (2 985)              (2 985)
Net property income                                                                      186 431                76 603              10 291                 (3 522)             269 803
Asset management fee                                                                           -                     -                   -                (14 565)             (14 565)
Profit from operations                                                                   186 431                76 603              10 291                (18 087)             255 238
Net interest                                                                                   -                     -                   -                  6 148                6 148
Interest income                                                                                -                     -                   -                  6 148                6 148
Interest expense                                                                               -                     -                   -                      -                    -
Dividends received on financial instrument                                                     -                     -                   -                      -                    -
Loss on disposal of financial instrument                                                       -                     -                   -                 (4 153)              (4 153)
Profit before fair value adjustments                                                     186 431                76 603              10 291                (16 092)             257 233
Net fair value adjustments on investment properties                                      (42 629)              (17 516)             (2 354)                     -              (62 499)
Fair value adjustments                                                                   (45 933)              (18 873)             (2 536)                     -              (67 342)
Adjustment for the straight-lining of operating
lease income                                                                               3 304                 1 357                 182                      -                4 843

Total earnings                                                                           143 802                59 087               7 937                (16 092)             194 734

Segment assets and liabilities
Investment property                                                                    5 937 737             2 439 729             327 769                       -           8 705 235
Trade receivables                                                                         91 932                37 773               5 075                  28 628             163 408
Financial investment                                                                           -                     -                   -                 132 831             132 831
Cash and cash equivalents                                                                      -                     -                   -                   2 995               2 995
Total assets                                                                           6 029 669             2 477 502             332 844                 164 454           9 004 469
Trade payables and other                                                                 (72 659)              (29 855)             (4 011)                 (9 853)           (116 378)

Net assets                                                                             5 957 010             2 447 647             328 833                 154 601           8 888 091


(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.
(2)  Segment earnings, asset and liabilities have been segmented per category GLA as a percentage of total GLA.

                                                                                                                                                          Administra-
                                                                                            Retail                  Office        Specialised             tion/other(1)          Total
30 June 2017                                                                                 R'000                   R'000              R'000                  R'000             R'000
Total property GLA (m2)(2)                                                                 500 973                 332 290             38 280                      -           871 543
L2D's share of total property GLA (m2)(3)                                                  110 238                  73 119              8 423                      -           191 780

Segment earnings
Property portfolio revenue                                                                 148 979                  98 817             11 384                    398           259 578
Rental and related income                                                                  151 628                 100 574             11 586                    398           264 186
Adjustment for the straight-lining of operating
lease income                                                                                (2 649)                 (1 757)              (202)                     -            (4 608)
Property operating expenses                                                                (45 729)                (30 331)             (3 494)                 (498)          (80 052)
Net rental and related income                                                              103 250                  68 486               7 890                  (100)          179 526
Administration expenses                                                                          -                       -                   -                (1 968)           (1 968)
Net property income                                                                        103 250                  68 486               7 890                (2 068)          177 558
Asset management fee                                                                             -                       -                   -               (18 771)          (18 771)
Profit from operations                                                                     103 250                  68 486               7 890               (20 839)          158 787
Interest received                                                                                -                       -                   -               109 144           109 144
Profit before fair value adjustments                                                       103 250                  68 486               7 890                88 305           267 931
Net fair value adjustments                                                                  26 252                  17 412               2 005                     -            45 669
Fair value adjustments                                                                      23 603                  15 655               1 803                     -            41 061
Adjustment for the straight-lining of operating
lease income                                                                                 2 649                   1 757                 202                     -             4 608

Total earnings                                                                             129 502                  85 898               9 895                88 305           313 600

Segment assets and liabilities
Investment property                                                                      3 531 631               2 342 493             269 856                     -         6 143 980
Trade receivables                                                                           43 034                  28 544               3 288                 5 420            80 286
Financial investment                                                                             -                       -                   -             2 919 705         2 919 705
Cash and cash equivalents                                                                        -                       -                   -                   111               111
Total assets                                                                             3 574 665               2 371 037             273 144             2 925 236         9 144 082
Trade payables and other                                                                   (61 477)                (40 777)             (4 698)               (7 369)         (114 321)

Net assets                                                                               3 513 188               2 330 260             268 446             2 917 867         9 029 761


(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.
(2)  The total property GLA allocation was revised to accurately split the precincts GLA between retail, office and specialised.
(3)  Segment earnings, asset and liabilities have been segmented per category GLA as a percentage of total GLA.


Fair value hierarchy for financial instruments and investment property

IFRS 13 requires that an entity discloses for each class of assets and liabilities measured at fair value, the level in the fair value hierarchy into
which the fair value measurements are categorised in their entirety. The fair value hierarchy reflects the significance of the inputs used in
making fair value measurements.

The fair value hierarchy has the following levels:

-  Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-  Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices)
   or indirectly (i.e. derived from prices);
-  Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).


Fair value hierarchy for financial instruments and properties

                                                                                                   Unaudited 30 June 2018
Assets (R'000)                                                                  Fair value         Level 1         Level 2        Level 3
Investment properties                                                            8 656 908               -               -      8 656 908
Investment properties under development                                             48 327               -               -         48 327
Financial investments - mutual funds                                               132 831               -         132 831              -

                                                                                 8 838 066               -         132 831      8 705 235


                                                                                                    Unaudited 30 June 2017
Assets (R'000)                                                                  Fair value         Level 1         Level 2        Level 3
Investment properties                                                            6 073 167               -               -      6 073 167
Investment properties under development                                             70 813               -               -         70 813
Financial investments - mutual funds                                             2 919 705               -       2 919 705              -

                                                                                 9 063 685               -       2 919 705      6 143 980


The fair value of trade and other receivables, cash and cash equivalents and trade and other payments approximate their carrying value and
are not included in the hierarchy analysis as their settlement terms are short-term and therefore from a materiality perspective fair values
are not required to be modelled.

Details of changes in valuation techniques

There have been no significant changes in valuation techniques in the period under review.

Significant transfers between level 1, level 2 and level 3

There have been no transfers between level 1, level 2 and level 3 financial investments and investment property for the period under review.


Valuation techniques used in determining the fair value of assets in level 2 and 3


LEVEL       INSTRUMENT                         VALUATION BASIS                                       MAIN ASSUMPTIONS
2           Mutual funds                       Quoted put (exit) price provided by the fund          Not applicable
                                               manager

3           Investment properties              Discounted cash flow                                  Exit capitalisation rate, discount rate, annual
                                                                                                     rental and operating escalation, annual cost
                                                                                                     escalation and vacancy.

3           Investment properties under        Fair value                                            Not applicable
            development


Investment properties - basis of valuation

The investment properties were independently valued as at 30 June 2018 by professional valuers, namely Rode and Associates Proprietary
Limited and Jones Lang LaSalle Proprietary Limited, both of which are registered valuers in terms of the Property Valuers Professional Act,
No. 47 of 2000.

The valuation of the properties is prepared in accordance with the guidelines of the South African Institute of Valuers for valuation reports
and in accordance with the appraisal and valuation manual of the Royal Institution of Chartered Surveyors, adapted for South African law
and conditions.

The properties have been valued on a discounted cash flow basis. In the majority of cases, discounted cash flows have been used to
determine a present value net income to which the capitalisation rate is applied as at 30 June 2018. In order to determine the reversionary
rental income on lease expiry, renewal or review, a market gross rental income (basic rental plus operating cost rental) has been applied to
give a market-related rental value for each property as at 30 June 2018. Market rental growth has been determined based on the individual
property, property market trends and economic forecasts. Vacancies have been considered based on historic and current vacancy factors as
well as the nature, location, size and popularity of each building.

Appropriate discount rates have been applied to cash flows for each property to reflect the relative investment risk associated with the
particular building, tenant, covenant and the projected income flow. Extensive market research has been conducted to ascertain the most
appropriate market-related discount rate to apply, with regard to the current South African long-term bond yield (R204 risk-free rate) and
the relative attractiveness that an investor may place on property as an asset class.

On the basis that turnover or profit rental income has a greater degree of uncertainty and risk than the contractual base rental, a risk
premium of between 1% and 6% has been added to the discount rate and to the market capitalisation rate, to reflect the greater investment
risk associated with the variable rental element on a property by property basis.


Reconciliation of level 3 assets

The table below analyses the movement of level 3 assets for the period under review.


                                                                                                                        June             June
                                                                                                                        2018             2017
                                                                                                                       R'000            R'000
Investment property and investment property under development
Opening balance                                                                                                    8 708 712        6 060 439
Capitalised cost                                                                                                      63 865           42 480
Fair value adjustments (unrealised)                                                                                  (67 342)          41 061

Closing balance                                                                                                    8 705 235        6 143 980

The fair value gains and losses are included in the fair value adjustments line in profit or loss.


Sensitivity analysis of level 3 assets

Investment property

Investment properties fair values were derived by determining sustainable net rental income, to which an appropriate capitalisation rate is
applied. Capitalisation rates are adjusted for occupancy levels, age of the building, location and expected future benefits of recent alterations.
The capitalisation rates applied at 30 June 2018 range between 6.25% and 9.00% (30 June 2017: 6.25% - 9.00%).

Inter-relationship between key unobservable inputs and fair value measurements

The estimated fair value would increase/(decrease) if:

-  capitalisation rate was lower/(higher)
-  market rental growth was higher/(lower)
-  expense growth was lower/(higher)
-  vacancies were lower/(higher)
-  occupancy rate was higher/(lower)
-  rent-free periods were shorter/(longer)
-  discount rate was lower/(higher)
-  reversionary capitalisation rate was lower/(higher).


Related party disclosure

Ultimate parent

Standard Bank Group Limited ("Standard Bank")


Parent

Liberty Holdings Limited ("LHL")


Transactions with related entities

At 30 June 2018 there is a R54.8 million (30 June 2017: R39.3 million) loan due from LGL to L2D.


Liberty Centre Head Office Cape Town

The property is fully let to LGL with a lease period of five years. Rental income received by L2D for the six-month period was R5.2 million
(30 June 2017: R5.6 million).


Liberty Centre Head Office Umhlanga Ridge

Approximately 80% of the property is let to LGL on a five-year lease. Rental income received by L2D for the six-month period was R3.6 million
(30 June 2017: R2.3 million).


Transactions with STANLIB REIT Fund Managers (RF) Proprietary Limited

R14.6 million of management fees were paid to the Manager for the period 1 January 2018 to 30 June 2018 (30 June 2017: R18.8 million) in
respect of management and administration of the collective investment scheme.


Transactions with other related entities

JHI Retail Property Proprietary Limited ("JHI")

The property management function in respect of L2D is undertaken predominantly by JHI. JHI manages the Sandton City Complex,
the Eastgate Complex, Liberty Promenade Shopping Centre, Liberty Midlands Mall, Nelson Mandela Square, Liberty Centre Head Office
(Umhlanga), John Ross Eco-Junction and the Standard Bank Centre.

A consortium comprising JHI and Epsidex Proprietary Limited ("Epsidex") is managing the Botshabelo Mall. Amdec Investments Proprietary
Limited ("Amdec") continues to manage the Melrose Arch precinct. Neither Amdec nor Epsidex are related parties of L2D.

JHI is 51% owned by JHI Properties Proprietary Limited and 49% by LHL. It is accounted for as a joint venture of the group. Mrs A Beattie is
a director of both JHI (resigned effective 12 July 2018) and the Manager. Property management service net fees paid by L2D to JHI for the
period 1 January 2018 to 30 June 2018 amounted to R11.9 million (30 June 2017: R7.8 million).

STANLIB Property Development Proprietary Limited

Development fees amounting to R0.6 million (30 June 2017: R0.2 million) were paid to STANLIB Property Development Proprietary Limited
and were capitalised to the relevant development projects.


Transactions with Standard Bank

Standard Bank Centre

The Standard Bank Centre is fully let to Standard Bank on a seven-year lease. Rental income received by L2D for the period 1 January 2018
to 30 June 2018 was R8.9 million (30 June 2017: R5.9 million).

Changes in accounting policies

This note explains the impact of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers on L2D's
financial statements and also discloses the new accounting policies that have been applied from 1 January 2018, where they are different to
those applied in prior periods.


Impact on the financial statements

L2D elected to adopt both standards prospectively from 1 January 2018 with no restatement to comparatives in line with the transition
choices.

The initial adoption of IFRS 9 and IFRS 15 does not have an impact on the financial statements of L2D.


Accounting policies adopted from 1 January 2018

IFRS 9 Financial Instruments

Investments and other financial assets

Classification

From 1 January 2018, L2D classifies its financial assets in the following measurement categories:

-  those to be measured subsequently at fair value through profit or loss (FVPL); and
-  those to be measured at amortised cost.

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows. For
assets measured at fair value, gains and losses will be recorded in profit or loss.


Measurement

At initial measurement, the entity measures a financial asset at its fair value and transaction costs are expensed in profit or loss.


Equity instruments

L2D subsequently measures all equity instruments at fair value. Dividends from such investments continue to be recognised in profit or loss
as other income when L2D's rights to receive payments is established.

Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit or loss as applicable.


Impairment

For trade receivables, L2D applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised
from initial recognition of the receivables.


Non-derivative financial liabilities: Borrowings

Non-derivative financial liabilities, comprising long-term interest-bearing loans, are initially measured at fair value, net of transaction costs, and
are subsequently measured at amortised cost using the effective interest method. Any difference between the proceeds (net of transaction
costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings as part of the borrowing costs.

Creditors are measured at amortised cost.


IFRS 15 Revenue from Contracts with Customers

The impact is considered to be immaterial as the majority of revenue is in the scope of IAS 17 Leases.

Corporate information

Date of registration: 28 October 2016

Liberty Two Degrees
JSE 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

(Registration number 2007/029492/07)
("the Manager")


Registered office

Liberty Life Centre
1 Ameshoff Street
Braamfontein
Johannesburg, 2001
(PO Box 10499, Johannesburg, 2000)


Manager

STANLIB REIT Fund Managers (RF) (Pty) Ltd
(Registration number 2007/029492/07)
Liberty Life Centre
1 Ameshoff Street
Braamfontein
Johannesburg, 2001
(PO Box 10499, Johannesburg, 2000)


Trustee

RMB Trustee Services, a division of FirstRand Bank Limited
(Registration number: 1929/001225/06)
Mezzanine Floor
No 3 First Place
Bank City
Cnr Jeppe and Simmonds Street
Johannesburg, 2001
(PO Box 786273, Sandton, 2146)


Company secretary of the Manager

Jill Parratt
Liberty Life Centre
1 Ameshoff Street
Braamfontein
Johannesburg, 2001
(PO Box 10499, Johannesburg, 2000)


Contact information

Telephone: +27 11 448 5500
Email: info@liberty2degrees.co.za
www.liberty2degrees.co.za


Auditors

PricewaterhouseCoopers Inc.
4 Lisbon Lane
Waterfall City
Juskei View
2090


Sponsor

The Standard Bank of South Africa Ltd
(Registration number 1962/000738/06)
30 Baker Street
Rosebank, 2196
(PO Box 61344, Marshalltown, 2017)
Tel: 011 721 6125

23 July 2018


Presentation starts: 09:00am Tuesday 24 July 2018

Webcast:
https://www.corpcam.com/LibertyTwoDegrees24072018


Conference call details:

Participant telephone numbers (Assisted)
Johannesburg (Neotel)                                        011 535 3600
Johannesburg (Telkom)                                        010 201 6800
USA and Canada                                               1 508 924 4326
UK                                                           0 333 300 1418
Australia (Toll Free)                                        1 800 350 100

Please ask to be joined into the Liberty Two Degrees call.


Conference replay
South Africa:                                                010 500 4108
UK:                                                          0 203 608 8021
Australia:                                                   073 911 1378
USA:                                                         1 412 317 0088
International:                                               +27 10 500 4108
Replay Access Code:                                          15427


End Date: July 30, 2018
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