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Pre-Close Investor Update
LIBERTY TWO DEGREES LIMITED
(Registration number: 2018/388906/06)
JSE share code: L2D
ISIN: ZAE000260576
(“L2D” or “the Company”)
Pre-close Investor Update | 29 November 2019
Quality in uncertain times
L2D continues to deliver operational growth despite a depressed domestic economy that
continues to exacerbate subdued levels of confidence in the real estate sector.
Our ongoing efforts to respond through our focused strategy to an ever-changing environment,
allows us to remain at the forefront of retail and leisure trends whilst maintaining operational
excellence at our assets. We have implemented a number of initiatives in 2019 that contribute
to engaging customers in a way that creates a memorable experience. The implementation of
these initiatives has translated into positive trading metrics.
We are pleased to present our pre-close operational update where L2D:
• continued to focus on the implementation of our strategic building blocks to ensure
customers remain engaged in a way that creates a memorable experience;
• achieved positive trading density growth in the retail portfolio of 3.0% with Sandton at
8.4%*;
• achieved low retail portfolio vacancies at 1.8% with Sandton City at 0.6%;**
• successfully completed the refinancing of R505m of term debt that was due on 31
October 2019. The refinancing was concluded at improved interest margins and the
average duration of term debt is 3 years. Currently 81.6% of interest rate exposure on
our term debt is hedged for an average hedge duration of 3 years;
• completed the Sandton City Checkers Hyper upgrade which included many new
offerings that are a first for the Checkers brand in addition to opening a new flagship
Sportscene and baby care lounge at Sandton City;
• made progress together with the tenants in implementing a single-use plastic bag,
straw and balloon free policy across all L2D malls by January 2020 in line with the 2030
Net Zero sustainability target;
• reduced our Edcon exposure to below 4% of total gross leasable area (GLA);
• converted the hotel operating agreements to hybrid lease agreements for the Sandton
hotels portfolio;
• commissioned the catheterisation laboratory at Melomed making the hospital the
leading medical facility in the rural area of Richards Bay and a centre of excellence;
• awarded 12 footprint marketing awards including a Spectrum Award at the 2019 South
African Council of Shopping Centres (SACSC) Annual Congress for experiential events
and promotions; and
• leads smart new technologies in sustainable solutions to food production and food
security through Eastgate Shopping Centre’s new Aquaponic Farm District.
*reporting of trading data is as at September 2019
**reporting of leasing data is as at September 2019
Retail sector trading performance
Despite the challenging operating environment, overall retail sales growth remains positive in
our portfolio albeit at a restrained pace. Our overall portfolio (excluding Melrose Arch and
Midlands Mall Lifestyle Centre) reported annualised trading density growth of 3.0% at the end
of September 2019. This is an improved performance relative to the December 2018 growth of
2.9% and above the 2.8% reported at June 2018.
Annualised trading density growth over a 12-month rolling period
The table below details the trading density growth across the portfolio.
Annualised % growth YoY
trading density at September
2019
Sandton City 58 530 8.4%
Eastgate Shopping Centre 36 757 -2.0%
Nelson Mandela Square 57 976 4.9%
Promenade 41 365 3.2%
Midlands Mall (excl. Lifestyle Centre)* 38 159 -0.2%
Botshabelo 32 291 12.2%
Portfolio (excl. Melrose Arch and Lifestyle 45 256 3.0%
Centre)
Melrose Arch* 29 389 11.8%
Full Portfolio (excl. Lifestyle Centre) 44 142 4.1%
*L2D owns a minority stake in Melrose Arch and does not directly manage the retail component.
*24 months of data is required in order to calculate the annualised trading density growth and the Lifestyle Centre has
not been operational for a full 24-month period.
Retail leasing remained encouraging in the period with 32 725m² in new leases concluded
across the portfolio in 2019. Included in these are:
Sandton City Eastgate Midlands
Capitec Bank Mr Price Home RJ’s
(Relocation)
Daniel Wellington Milady’s Liberty Group
(Refurbishment) Offices
Sportscene* Miniso Fabiani
My Cotton Tree Kingsley Heath Sneaker Factory
African Bank Salon Paul Mitchel Rain pop-up
Bogart Poetry
(refurbishment)
*Flagship store
Sandton City and Eastgate will introduce a number of new tenants before the end of 2019.
These include:
Sandton City Eastgate Shopping Centre
Salomon Panel Lab
NWJ Hoops Lounge
Reebok PnP Clothing*
Franco Hair-care Lacoste (expansion)
Tammy Tailor Rage*
Tower FX Cotton On & Cotton On Kids*
CBD Store Belle Alure (Refurbishment)
Freddy Jeans DMF
* Flagship store
The overall portfolio vacancy rate of 4.4% has shown a positive movement from 4.6% in June
2019 (3.4% in December 2018). This improvement was mainly driven by retail leasing initiatives
which saw vacancies drop to 1.8% from 2.4% in June 2019 (1.2% in December 2018). The
retail portfolio continues to perform better than its peers. The South African Property Owners
Association (SAPOA) Q2 retail benchmark is at 4.3%.
The following initiatives were implemented in support of our strategy:
Smart Spaces
• Syenap, the camera-based foot count system, has now been rolled out across the
entire portfolio and continues to enable management to better understand customer
activity thereby improving leasing and marketing strategies
On-demand Spaces
• My Sandton City Stop
• Iconic Mall shuttle between Sandton City and Eastgate Shopping Centre. A partnership
with Zeelo
• Introduction of service tenants such as banks and other service centres
Good Spaces
• Reverse Vending Machines were installed at Sandton City in October 2019, offering
an opportunity for customers to recycle waste and earn money. This enables
customers to make recycling a part of their daily routine
• Smart water and electricity meters throughout the portfolio
• Eastgate Shopping Centre will be launching its rooftop Aquaponic Farm District in
partnership with Ichthys
Inclusive Spaces
• Baby care lounge (Sandton City)
• Phone charging points have been installed at Sandton City and Eastgate Shopping
Centre
• Snap study launched in September 2019 – an informational rewards programme that
affords shoppers an opportunity to upskill themselves through short, online courses on
various subjects
Immersive Spaces
• In order to create a more immersive experience into the life and culture of Nelson
Mandela we introduced into the Piazza and retail section touch points of sayings,
storytelling and product relating to the life and times of Nelson Mandela. Unique
interactive digital experiences such as the digital aquarium at Sandton City
• The creation of “Social” moments through family focused activations as well as
collaborations with the Art and Fashion industries through SA Fashion Week and
Latitudes Art Fair
• Creating hospitality shopping packages with our partners in the Sandton Sun and
Garden Court for travel shopping experiences aimed at our regional and international
shoppers
Tenant risks
To mitigate risk on the portfolio, L2D continually monitors tenant performance and proactively
engages expected problem areas.
Forever 21
L2D’s exposure to Forever 21 is limited to one store at Nelson Mandela Square which is
managed by a franchisee and represents 0.27% of total portfolio GLA. The store is currently
open and trading as normal and will close at the end of April 2020. A number of replacement
tenants have been identified as this is a high traffic area of the mall.
Hamleys
Hamleys went into business rescue in early 2019. The business rescue process was concluded
with new owners being Rand Outfitters and Osbro taking over after the previous owner
absconded. An acknowledgement of debt for a portion of the arrears at Sandton City and
Eastgate Shopping Centre has been signed and the new owners are now operating the stores.
We continue to seek recourse against the previous owner.
Starbucks
On 1 November 2019, Taste Holdings announced that the company would be selling its
Starbucks franchise business in South Africa. L2D’s exposure to Starbucks is limited to
Sandton City, Eastgate Shopping Centre and Melrose Arch and amounts to a GLA of around
0.10%. The store is open and trading at all three centres and management is currently engaging
with the buyer to ascertain the impact and to mitigate risk on the portfolio.
In closing
The office sector
The competitive environment in the office sector coupled with an oversupply of space as well
as the dampened growth in the South African economy remains a challenge. Considerable
efforts are being made to attract the right calibre of new tenants and retain current tenants. The
overall office vacancy rate remained flat at 9,8% in September 2019 compared to June 2019
and remains below the SAPOA rate of 11.0% for the third quarter of 2019.
Although the office market is under pressure, there have been some exciting leasing initiatives
in the period that we hope will soon deliver results.
Management continues to monitor the impact on the portfolio due to the negative reversions
expected in the office sector.
Hotels
The Sandton hotels have performed well compared to market peers, however the segment
continues to be under significant pressure as a result of the weak economic environment. The
newly signed hybrid lease agreements enhance our upside participation due to the rental
structure and performance clauses introduced whilst better managing our operational risks in
the assets.
To support our vision of being the leading South African precinct focused, retail-centred REIT,
we believe that our focus towards fulfilling our purpose of continuously creating experiential
spaces to benefit generations, will serve us well in continuing to deliver quality in uncertain
times.
The portfolio’s performance is in line with expectations in a challenging retail environment.
The successful implementation of leasing strategies and continuous engagement with tenants
throughout the year have improved the retail portfolio vacancy and allows us to stay abreast of
tenants showing signs of strain.
The Company enters a closed period as at 1 December 2019. L2D’s full-year financial results
for the period ending 31 December 2019 are due to be released on SENS on Monday, 24
February 2020. A presentation of the results is scheduled to take place on the same day.
The information set out in this update has not been reviewed or reported on by the Company’s
external auditors.
Contacts
investors@liberty2degrees.co.za
011 448 5500
Johannesburg
29 November 2019
Sponsor
The Standard Bank of South Africa Limited
Date: 29-11-2019 09:30:00
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