The part owner of flagship malls Sandton City and Eastgate, Liberty Two Degrees (L2D), on Monday reported a 14.8% or R1.5 billion devaluation in its predominantly retail and urban-based property portfolio.
The latest financial results for the JSE-listed L2D’s half-year to June 30, 2020, shows that the Covid-19 pandemic has dealt a major blow to the group, with double-digit declines in most key metrics.
L2D said its interim revenue and net property income (NPI) decreased by 15.9% and 40.4% respectively, compared with the prior period.
“The NPI of R201.8 million for the six months ended June 30, 2020 [June 30, 2019: R338.8 million] was significantly impacted by decreases in footfall as shopper behaviour changed with the advent of Covid-19 and subsequently the national lockdown and restricted trading periods,” L2D noted.
“We present our financial results for the six months ended June 30, 2020 amid unprecedented and evolving market conditions. The Covid-19 pandemic has had far-reaching consequences beyond the spread of the disease itself, as customer sentiment and behaviour continue to echo the uncertainty of the pandemic,” L2D CEO Amelia Beattie said in a statement.
“The constrained local economic conditions as well as the related uncertainty, has dealt an immediate and near-term impact to prospects for growth globally. Consequently, we expect our performance to be impacted for the remainder of the 2020 financial year,” she added.
L2D noted that due to the distributable earnings decline and “prevailing uncertainty” resulting from the Covid-19 impact, the group’s board has decided not to pay an interim distribution.
However, it will consider payment of a final distribution for its 2020 full-year, which “meets the regulatory requirements”.
At June 30, 2020, L2D’s 100% South African property portfolio was valued at R8.7 billion, compared with R10.2 billion for the 2019 half-year. The group’s net asset value per share decreased by 19.5%. This excludes its stake in the Century City offices, which were pending transfer as at June 30, 2020 and subsequently transferred this month.
“Our independent property valuers have decreased the portfolio value by 14.8% compared to June 30, 2019,” said L2D’s financial director, José Snyders.
“Valuations have been negatively impacted due to the impact of Covid-19 by inter alia, the decrease in rentals for the current year, the negative reversions and lower growth assumptions for the periods forecasted, as well as an increase in vacancies and the time required to re-let vacant space,” he noted.
“Our valuers have also applied more conservative valuation metrics including adjustment to exit capitalisation rates, discount rates and an increase in the periods allowed to re-let space. The finalisation of the property valuations has required care and prudence to ensure that a balanced outcome was achieved. This does however remain challenging during this time.”
The group is the first local real estate investment trust (Reit) to report its financial results for the new reporting season. JSE-listed peer Accelerate Property Fund is the only Reit that is yet to report financial results for its full-year to 31 March 2020, however, this is expected on Wednesday.
Craig Smith, head of research and property at Anchor Stockbrokers, tells Moneyweb L2D’s latest results are largely in-line with the group’s recent trading update and guidance.
“The interim results are a clear sign of the strain being placed on the [property] retail sector, especially metropolitan retail with higher exposure to tenants catering towards discretionary spend, as a consequence of the Covid-19 pandemic and ensuing lockdown measures,” he noted.
“We believe the asset write-down is prudent and a reflection of the lower growth environment and reality of rental reversions and subdued rental growth from rebased market rents… L2D does however still have a strong balance sheet and this cannot be underestimated, especially during an extremely challenging period for the economy and retail in general,” added Smith.