Archives for February 2023

Monthly Chart Book February 2023

February 28, 2023 by SAREIT

Liberty Two Degrees’ enhanced customer experience strategy drives demand for retail space, resulting in positive momentum in performance

February 27, 2023 by SAREIT

Highlights in the period

100% distribution pay-out of 36.47 cents per share with distribution growth of 6.95%. Distribution impacted by c. 2c on unsuccessful Sandton City Municipal Valuation appeal
Strong balance sheet maintained with loan-to-value of 24.42%
Strong performance in retail operations
1. Portfolio foot count up 24.9% on FY21 (9.9% vs FY19)
2. Retail turnover up 21.9% on FY21 (18.3% vs FY19)
3. Retail occupancy increased to 97.9%
4. Portfolio reversions improved considerably to -10.4% from -25.9% while retail reversions improved to -9.7% (FY21: -26.0%)
Notable recovery in average hotel occupancies
Continued progress across all pillars to attain targets of Net-Zero status by 2030
All L2D malls achieved Gold ratings for 2022 in the annual SHORE assessment, with Sandton City, Nelson Mandela Square and Eastgate achieving Platinum status

Reporting its annual results for the 2022 financial year which illustrated continued positive momentum in operational and financial metrics, Liberty Two Degrees (L2D) announced a 100% pay-out of the full-year distributable earnings of 36.47c per share (FY21: 34.1c), representing a 6.95% growth on the 2021 payout. The L2D Board is satisfied with the company’s capital management efforts and that the core business remains sustainable.

Despite the unsuccessful outcome of the Sandton City rates appeal, which has resulted in a reduced distribution by circa 2 cents per share, L2D’s performance in the period remains strong. Supported by its quality assets, L2D’s performance in the period was buoyed by improved consumer confidence, an uptick in travel and tourism and improved general sentiment despite a difficult and uncertain economic environment.

L2D Chief Executive, Amelia Beattie comments: “Despite consumer inflation slowing for the third consecutive month in January, reaching its lowest level since May 2022, we continue to see a significant shift in consumer behaviour driving activity back into our physical shopping environments.

“Looking at the good performance achieved in our key financial and operational metrics in the period, it is clear that customers are coming back to our environments and in so doing supporting our outlook for 2023. We are, however, not underestimating the current economic realities of increasing costs which are fuelled by economic pressures related to the power crises, above inflationary municipal charges and the pressure on reversions. We remain focused and invested in the right things for our business and its longevity.”

L2D strives to elevate its physical spaces to create a euphoric experience for customers, which has led to customers continuing to choose L2D’s retail environments to spend their hard-earned disposable income. This can be seen in both the significant foot count and turnover growth over the year for 2022. In particular, the portfolio has generated R21.3bn in turnover for the year, with Sandton City and Eastgate Shopping Centre contributing a combined 64.7% to the total turnover. This is 21.9% ahead of 2021 and 18.3% ahead of 2019.

“Luxury remains one of our best-performing categories within the portfolio and still plays a large part in differentiating our assets and more specifically Sandton City from competitors. Luxury brands play a key role in supporting our performance. We see that excluding the extraordinary impact of the luxury category, the portfolio is still up by 21.1% year-on-year and 13.1% vs. 2019,” adds Beattie.

The portfolio saw a foot count growth of 24.9% in 2021 and 9.9% in 2019. In the period, L2D won a total of 29 awards at the 2022 Footprint Marketing Awards for excellence in shopping centre marketing, innovation and creativity as well as financial success. The activations across L2D malls over the festive period were well attended.

The portfolio occupancy level improved to 93.5% in December 2022 with demand for both retail and office space increasing. The higher demand for retail space resulted in improved retail occupancy rates of 97.9% (June 2022: 97.2%, December 2021: 96.8%). 344 leases (renewals and new deals) were concluded over the full year of 2022, equating to 84 443m². L2D’s office portfolio represents only 26.2% of the total portfolio GLA and therefore carries less weighting on the overall vacancy.

The decline in the office occupancy to 80% in December 2022 (vs. June 2022 83.3%), was due to the sale of the fully let Standard Bank building. The occupancy level in the office portfolio, on a like-for-like basis, has improved since June 2022 due to increased leasing in Sandton Office Tower, Atrium on 5th and Nelson Mandela Square offices. L2D remains focused on office leasing with various strategic measures in place.

The portfolio has made positive strides, improving the reversion trend over the 2022 financial year. Rental reversions across the portfolio were -10.4%, with retail renewals -9.7% and offices -25.5% which is a significant improvement to the negative reversions achieved in December 2021: portfolio -25.9%, retail -26.0%, office -24.8%.

Commenting on L2D’s financial overview Financial Director, José Snyders says: “In the period, Net Property Income, excluding lease straight-lining increased by 7.27% to R568.6 million. This is supported by healthy lease income escalations and improved activity in the retail portfolio and the hospitality assets.

“Included herein, utility costs increased due to higher consumption which was compounded by the increased cost associated with load shedding. Municipal rates and above inflationary increases in tariffs for utility costs had a negative impact on the portfolio cost base. These costs and the consequential impact thereof on the cost of occupation for tenants is growing at an unsustainable rate.”

Aided by the spike in tourism and economic activity, Snyders says the hospitality sector has continued to show signs of recovery with increased occupancies at the Sandton Sun, Sandton Towers and Garden Court hotels.

Snyders adds that L2D remains conservative in its capital management.

“This is done to protect value during the current uncertainty and create a platform to deliver sustainable operations and position the portfolio for growth over the medium term. A sizeable amount of our capacity is now earmarked for investment in renewable energy and initiatives that create further efficiency in the portfolio – the yields on these initiatives are accretive to the portfolio as we aim to implement them over the next two years. With a loan-to-value (LTV) of 24.42% at 31 December 2022 (31 December 2021: 23.87%) and a healthy interest cover ratio at 2.95 times, we have sufficient liquidity to meet our operational needs and remain well within our banking covenants.”

L2D’s property portfolio was valued at R8.2 billion as at 31 December 2022, a marginal 0.33% increase on the June 2022 valuation and a 0.39% decrease on the December 2021 valuation (on a like-for-like basis).

Our focused ESG strategy

The L2D ESG strategy is focused on driving its sustainability targets with continued progress across all pillars to attain its bold targets of Net-Zero status by 2030. “We’ve seen continued progress across all pillars to attain our bold targets of Net-Zero status by 2030. Overall water and energy consumption in Q2 2022 has surpassed the same period in 2021 yet remains well below the 2019 baseline and MSCI Industry averages. The waste journey is on track for 2022 with the portfolio diversion from landfill continuing to improve. The waste diversion from landfill has reached 89% for the portfolio at 31 December 2022.”

Outlook

“While 2023 will present another tough operating environment, we aim to keep our portfolio the sought-after retail destination for customers and tenants, as well as an attractive investment proposition for stakeholders; delivering on the sustainability project milestones that will start to significantly alleviate cost pressures, and focus on extracting value in our operational activities,” concludes Beattie.

Octodec launches newly upgraded, landmark Shoprite building in Tshwane CBD

February 23, 2023 by reit_sthe

The company completes its R60 million multifaceted Shoprite upgrade, playing its part in uplifting Tshwane retail business district.

JSE-listed REIT, Octodec Investments Limited, today unveiled the new look and feel of its Shoprite building in the heart of the Tshwane CBD – an R60 million investment project announced in August 2022 to boost and uplift the bustling central node.

Jeffrey Wapnick, MD of Octodec, says, “This project cements our commitment to the City of Tshwane which continuously presents growth opportunities for our already dominant inner-city retail and residential portfolio. It represents a renewal of our relationship and an upgrade of our service to a city that is increasingly attracting national retailers”.

“We are excited to see this new building bring an elevated experience to our tenants, who have trusted us with quality developments that enhance their day-to-day lives. It is a value-adding project that will further deepen the trust and confidence our clients have in our inner-city knowledge, which bodes long-term relations”, added Wapnick.

While Shoprite continued to trade during the upgrade, tenants will now enjoy their daily shopping in a newly furbished 4000m² Shoprite supermarket which includes a new Shoprite Liquor and new retail shops on the ground floor.

In addition, the tenants will be exposed to other prominent brand-new architectural elements such as a triple volume entrance with escalator access from Helen Joseph Street, which lead downwards to the newly refurbished OK Furniture store.

A launch event was held with Shoprite staff celebrating the new building and exciting customer activities including prize giveaways from in-store suppliers and Shoprite branded promotional- items.

The post Octodec launches newly upgraded, landmark Shoprite building in Tshwane CBD appeared first on Octodec.

Global Credit Ratings (GCR) reaffirms Octodec’s rating

February 23, 2023 by reit_sthe

JSE-listed REIT Octodec Investments Limited today announced that Global Credit Ratings (GCR) had reaffirmed Octodec’s credit rating.

Shareholders and noteholders are advised that GCR undertook a credit rating review of Octodec, as guarantor of wholly owned subsidiary Premium Properties Limited’s Domestic Medium-Term Note Programme dated 23 February 2015. On 21 February 2023, GCR reaffirmed the long-term national scale issuer rating assigned to Octodec of A-(za) and the short-term issuer rating of A2(za), with the outlook stable.

GCR’s credit rating announcement is publicly available on GCR’s website at https://gcrratings.com/announcements/gcr-affirms-octodec-investments-limiteds-issuer-ratings-of-a-za-a2za-with-a-stable-outlook/

Shareholders and noteholders can also contact Elize Greeff at elizeg@octodec.co.za to request an electronic version.

The post Global Credit Ratings (GCR) reaffirms Octodec’s rating appeared first on Octodec.

SABC News – On Point – 16 Feb 2023 @ 12h30 – Emira

February 22, 2023 by reit_sthe

The post SABC News – On Point – 16 Feb 2023 @ 12h30 – Emira appeared first on Emira Property Fund.

SA REITS returns likely to outperform cash, bonds in the long-term

February 22, 2023 by SAREIT

South Africa’s real estate investment trusts (SAREITs) are likely to outperform cash and government bonds in the long term with COVID-19 in the rear-view mirror, the increased interest rate cycle nearing its end, and landlords finding power generation solutions, according to SA REIT Association Chairman and Growthpoint Properties CEO (SA), Estienne de Klerk.

De Klerk says that while returns for the SA real estate investment trusts (REITs) listed on the JSE have been negative for the past five years, the performance of the SAREITs was not unique, as global real estate faced the same challenges.

“We need to contextualise the performance of SAREITs because, unlike other sectors of the economy, the sector faced headwinds in the form of floods, COVID-19, riots, inflation, and higher interest rates, negatively impacting the sector,” he says.

He explains that the good news is that the increasing interest rate cycle is nearing its end, and this will improve investment in real estate. This will further be supported by the improved property fundamentals as evidenced by improved industrial and retail property’s stronger returns.

“We are noticing a strong demand for industrial real estate and growth in this sector, and strong letting in Cape Town and Durban where vacancies are falling, and retail, office and industrial sectors performance have come back strongly.”

“The Gauteng economy remains under pressure, but supply and demand dynamics are expected to improve as businesses start to return to their office spaces as most corporates preference of their place of work.”

“The irony is that load shedding has resulted in more people returning to their offices. Therefore, it is reasonable to expect improved demand over time which could result in positive rental growth over the long run, particularly in offices with high green credentials.

“Indeed, the inflationary pressure on the development cost has raised the required rentals of new developments substantially, which will support increased rentals on existing properties. Therefore, landlords will have room to raise rents and actual returns.”

According to De Klerk, there is a 40% differential between the rentals required on new industrial properties compared to the in-force rentals on existing properties.

“They always say you make money when you buy, not sell. SA REITs are beneficial to investors in that they have an effective tax structure, low transaction costs at acquisition, liquidity, transparent reporting, and diversified portfolios, often with exposure to the offshore real estate markets.

“In every challenge, there’s an opportunity. Landlords are rolling out solar power in their properties, and there’s an increase in environmental, social, and governance (ESG) reporting and green-building portfolios. Real estate companies can take advantage of this opportunity, and in the future, the deregulation of the electricity industry will create more avenues to improve returns,” De Klerk says.

He says the sector has faced unusual headwinds in the last five years, like COVID-19, which is hopefully behind the sector.

“Most landlords have been proactive in supplying generators and looking into other generation solutions like gas and solar. All will contribute to an improvement in electricity supply in the long run.”

De Klerk remains optimistic about the asset class.

“No doubt real estate property remains an attractive asset class with cash, bonds and equities. It is because property investment is more of a long-term game, and investors such as pension funds favour the asset in their allocation of investable funds.”

The past five years have been a mixed bag for the SAREIT industry, not least because of their investment strategies but because of the macro environment where the sector has been at the mercy of the low growth economy, load shedding and high-interest rates, which have affected the appetite for the asset class.

During the period under review, the sector has also had to contend with the COVID-19 pandemic. The pandemic, in particular, resulted in softer demand for commercial and industrial property as companies issued work-from-home mandates.

Counterpoint Asset Management Portfolio Manager Ian Anderson, who has collaborated with the SA REIT Association on its sector analysis, says that when one looks at the structure of the SAREIT market, it is mainly characterised by above-average exposure to large malls and offices. It is why returns were affected, especially during the pandemic.

“There is a silver lining in the next two to three years, but the performance of the sector and returns will largely depend on the resolution of the power crisis and uptick in economic growth. It will improve investor confidence and, over time, demand in commercial and industrial property,” Anderson explains.

“Undoubtedly, load shedding poses a significant challenge for all South African businesses, but the property sector is likely to be the most negatively impacted, especially in the short-term, given the need to spend large amounts of capital when the cost of capital has risen sharply in the last 12 months.”

However, he points out that many REITs are already ahead of the curve and have done a lot already. Still, the market is concerned about the need for significantly increased capex spend at a time when the demand for space is still weak in several markets.

High-interest rates and economic growth may not improve property fundamentals. However, most bad news has been priced into many SAREITs, which are trading at a deep discount to net asset value (not too dissimilar to 20 years ago).

Anderson says most REIT management teams have spent a considerable amount of time and energy improving the quality and relevance of their property portfolios while at the same time strengthening the balance sheets.

Therefore, the industry should be able to cope relatively well with higher interest rates and produce moderate growth in profits and dividends over the medium term. However, they are unlikely to exceed inflation which is expected to remain between 4% and 6% over the forecast period.

Investors should expect the income yield plus 3% to 5% per annum as a total return (between 9% and 12% per annum).

Anderson ends by explaining that if sentiment towards the sector improves due to reduced load shedding or interest rates or an improvement in the economic outlook, then the large discounts to net asset value will unwind, adding a further 10% to 20% to returns over a three-year period.