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Liberty Two Degrees hit by R1.5bn portfolio devaluation

Covid-19 fallout largely to blame.
Eastgate Shopping Centre, the super-regional mall owned jointly by Liberty Holdings and Liberty Two Degrees. Picture: Supplied

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.

Read:
Growthpoint warns of up to 20% decline in SA property values
Headwinds for Hyprop as SA portfolio devalued by R1.1bn

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.

Read: Hyprop echoes Growthpoint and L2D warning on worsening distributions

“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.

Read: Vukile boss plays down pandemic pressure on property valuations

“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.

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This is the thin end of the wedge. A transition from “take-it-or-leave-it” price-making letting, with over inflated asset values to huge vacancies and significantly changed consumer behavior, will leave our commercial landscape dotted with both physical and corporate white elephants

Add to that the socialist redistributive taxes like municipal rates and taxes that includes a tax on capital formation, as well as the corruption and inefficiency tax of Eskom, then it is clear that property is being expropriated without compensation on a pandemic scale. Property values are redistributed among those who live in the squatter camps, who do not hold title deeds and the politically connected elite at BEE schemes who benefit from contracts with Eskom. To enriching the members of labour unions, the municipal employees and BEE cadres, the Tripartite Alliance syphons off the asset value of a property.

The decline in real terms of the value of listed property over the last decade simply proves the “efficiency and effectiveness” of the ANC redistributive policies. These are the symptoms of a socialist developmental state and social engineering. The covid disease is nothing compared to the socialist pandemic. Socialism is like those bad lifestyle choices that lead to cancer and diabetes. It takes 25 to 30 years before you see the symptoms.

You are over analysing (and policising) a pragmatic business decision.
Property values are plunging all over the world, SA is no exception. Also, property rates and taxes are a major source of income for councils all over the world. In some countries/states property taxes are the only source of income for state goverments and (relatively) are very, very high.
Liberty is erring on the side of caution and shareholders should expect nothing less than pragmatic decision making from it’s leaders.

In a few short years Liberty will review this decision and if markets have corrected itself, the properties will be revalued (upwards) to improve the Balance Sheet.

Reggwat, municipalities provide cost-effective services in civilised countries. They do not protect destructive monopolies like Eskom. They do not infringe on property rights to the same extent as the ANC does.

Their property values haven’t crashed by 80% in real terms like ours have. Economic activity and growth is always politics. There is no distinction between politics and economic activity.

Are you suggesting that the crash in the real asset value of Liberty actually was due to a “pragmatic decision”? Tell that to the owner of the pension fund who have to fund his lifestyle with “pragmatic decisions”.

Could Eastgates empty stores be used for low cost housing…

A very good point.

Bricks and mortar have been a dying business for sometime. The lock down has caused this trend to not only accelerate but to literally drop off a cliff.

The centres that are in key points, need to be quickly reinvented and sold as key distribution hubs as per the comment below. However, these will be very few. Most will be abandoned and turn into slums, where the homeless will mass squat, as they will have no where else to go. They will be strictly no go zones for police.

The ANC will blame covid 19 and the EFF will blame white monopoly capital. Justifying their occupation by default. As the OM/ Libertys/ Sanlams etc look to exit these white elephants – do not be surprised to see a form of mass centre nationalisation – where government expropriates them for this purpose – the only question will it be with or without financial compensation.

A similar situation to that which occurred in USA. Eventually Amazon bought a chain of stores dotted around the country as distribution hubs. Expect the same to happen here. A more interesting story is that of We Work in USA that due to lockdown saw a significant decline in the demand for office space due to people working from home.

Property in any form is a toxic investment in the New Dawn…

This is true.
I like property as an investment class but in this country it has become too dangerous.
Will keep my primary residence and thats about it.
Pity.
#GingerLivesMatter

The commentators will ignore the amazing opportunity there is to buy incredible assets at fire sale prices.

Yes, lots of fires .. but property burns. Lots of people looking to burn things, esp property. I like my assets to not be burnable

In a country that respected private property rights, and understood why they matter so much for the prosperity of its citizens, I would agree with you.

In a bankrupt country run by a desperate African liberation looting machine thats already made rumblings on undermining property rights?

No thank you.

# GingerLivesMatter

Eish – and I always wondered which of Liberty of Momentum will make like ”Donald and Duck” first!

…..Liberty or Momentum……

The ANC wrecking ball in full swing.

You are watching Radical Economic Transformation taking place in real time, under the cover of Covid 19.

The OTHER arm of the ANC – the EFF – is continuing with their BIG BROTHER balloon floating and ridiculous statements, as long as you understand that the real radical left inside the ANC, lets the EFF do its dirty work.

https://www.iol.co.za/news/politics/julius-malema-accuses-scientists-sitting-on-ministerial-advisory-of-misleading-nation-on-covid-19-5e73f11d-7f93-4319-9c93-dcad5921c056

I agree on the fire sale comment. I would add that any sale has a start and an end date – the fire sale has just started, buying now might be catching a falling knife, wait if you have cash as prices have much further to fall in my opinion.

This looks to be a possible watershed week! Watch US$/ Gold/ Silver/ DOW as the future direction (next 4-6mths) is currently unfolding in front of us. This will include asset prices like the one in this article.

…and still they build shopping centres ??

We all know the total SA brand has decreased in value. Does not matter what it is.

Soon they will only have their “dignity” left this ANC lot. CR loves the word and thinks everybody is too stupid to figure out what he means by “economic dignity”

Some know and see him for what he is.

He might not realize that is why his country is going “up the creek” and the “Brand” has been harmed.

End of comments.

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