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L2D pays out full-year dividend despite 46.5% plunge in distributions

Stronger balance sheet allows group to weather Covid-19 better than some of its listed property peers, like Redefine.
Sandton City, Liberty Two Degrees's flagship retail property asset 'recovered' to reporting turnover being down by just 1.5% in December. Image: Supplied

Precinct and retail-focused real estate investment trust (Reit) Liberty Two Degrees (L2D) has stuck to a 100% payout ratio for its financial year ending December 31, 2020, declaring a full-year dividend of 32.33 cents per share on Monday.

The fund, which is the part-owner of flagship properties like Sandton City, Eastgate Shopping Centre and Liberty Midlands Mall, saw its full-year distributions plunging 46.5% in 2020 due to the Covid-19 economic fallout. In 2019, it paid out a final dividend of 60.43 cents per share.

Read: Liberty Two Degrees sees annual profit slump by over 50%

Despite the pandemic blow to earnings, and consequently distributions, L2D maintained a 100% payout on the back of a strong balance sheet.

Its gearing or loan-to-value (LTV) ratio at the end of the financial year stood at 20.5%, one of the lowest levels in the Reit sector.

Most of its JSE-listed property peers have reduced dividend payout ratios to retain cash and thus boost balance sheets in the face of the Covid-19 crunch.

Other Reits that are struggling to keep gearing levels down amid bigger property devaluations, like Redefine Properties and Rebosis Property Fund, have decided not to pay out full-year dividends.

Redefine, which is a much larger and more diversified property counter than locally-focused L2D, has a LTV ratio of over 43%.

Speaking to Moneyweb following the release of L2D’s full-year results, chief executive Amelia Beattie, said the group’s low LTV has allowed it to better whether the Covid-19 storm.

“We have deliberately kept our LTV low and it puts us in a good position to get through these uncertain times, despite also facing portfolio devaluations,” she pointed out.

“That’s why L2D has been able to maintain a 100% payout ratio,” she added.

Beattie, however, was reluctant to confirm whether the group would continue paying out 100% of dividends in the next financial year.

“We have no commitment to this … We will have to see what is best for the business and how we can continue to deliver value for our shareholders. Consideration will need to go into our balance sheet position when future decisions are made,” she said.

Meanwhile, despite the plunge in distribution per share for 2020 and continuing uncertainty due to Covid-19, Beattie seemed a little more optimistic about 2021.

“Lockdowns, other related restrictions and economic conditions have had an impact on our results, however, there was encouraging signs of a recovery in the last quarter of our financial year,” she said.

“In fact, Sandton City’s turnover was down just 1.5% in December … This is remarkable, considering 2020 being the most difficult year we have had,” added Beattie.

She pointed out that the luxury “Diamond Walk” section of the mall was “doing extraordinarily well”, even with some of L2D’s hotels in the Sandton City precinct being closed and international tourism being in the doldrums.

“There’s no death of super-regional malls, especially quality retail assets like Sandton City,” she said.

“Yes, footfall has been impacted and will take some time to recover. Vacancies at the centre also ticked up to 2.2% at the end of the financial year. However, this [vacancy level] does not worry me at all,” she added.

Overall retail occupancies in the L2D portfolio came in at 95.3%. Post year-end, with new letting, the occupancy level has increased to 96.8% currently.

At December 31, 2020, L2D’s 100% South African property portfolio was valued at R8.5 billion, compared to R10.1 billion in 2019. Its net asset value per share has decreased from R9.65 at December 2019 to R7.71 as at December 2020.

Read: Liberty Two Degrees hit by R1.5bn portfolio devaluation

“Valuations were negatively impacted by inter alia; discounts given on current year rentals and the rebasing of certain leases as well as the revised growth assumptions for the forecasted period,” the group noted in a results statement.

L2D said that in addition to operational support, its co-owned portfolio (together with Liberty Group and Pareto on some of its properties) provided total rental relief to the value R336 million during 2020. Its effective share of the rental relief offered to tenants came in at R112 million.

“Given the economic climate, tenant arrears have increased to R96.4 million at December 31, 2020 (R30.8 million December 31, 2019). Consequentially L2D’s provisioning for credit losses have seen a similar level of increase,” the group added.

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Comments on this article are closed.

How low can the share price go? I believe the reit industry has seen the worst already and well positioned for positive share price performance gong forward. My assumption is that share price should be guided by the net asset value of the company. For LTD, net asset value per share is R7,71. Current price of R4,80 is a 37% discount from the actual asset value. The assets are valued based on the expected rental cashflows and not just a thumb-suck. The current portfolio value of R8,5b should be based on the latest revised cash flows after industry discounts from 2020 lockdown renegotiations. If we can assume that we have already seen the worst of economic impact from last year, the current value of asset cannot be expected to decrease further but an inflation adjustment at the least can be expected when rentals are renewed. Lets not forget that the reit regulations enforces the payment of distributions and L2D is well positioned to continue with distributions given their balance sheet. Their borrowing ratio (LTV) of 20% is much lower than industry. Given my assumptions, I believe that L2D share price will surprise many critics with a strong growth going forward.

End of comments.





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