SAREIT

Liberty Two Degrees’ quality assets underpin solid performance

Solid capital structure positions Liberty Two Degrees for positive and sustainable performance.

  • Delivered 60.43 cents per share full year distribution in line with guidance
  • Favourably refinanced 2019 debt expiry at improved rates
  • Sandton City trading density growth of 9% boosts retail portfolio trading density to 3.6%
  • Retail vacancy rate remains low at 2.3%
  • Successful delivery of key sustainability and bold market-leading initiatives

Monday, 24 February 2020 Liberty Two Degrees Limited (“L2D”), the South African precinct focused, retail-centred REIT, is pleased to announce its results for the year ended31 December 2019. The L2D Board has declared a final dividend of 31.12 cents per share for the second half of the 2019 financial year, bringing the total distribution declared to 60.43 cents per share being 0.7% ahead of guidance.

At 31 December 2019, L2D’s 100% South African property portfolio was valued at R10.27 billion (FY18: R10.15 billion) which includes the acquisition of a R24 million additional stake in Botshabelo Mall. L2D reported net property income of R694 million for the year, an 18% increase from 2018. The net asset value per share increased from R9.45 in 2018 to R9.65 at the end of 2019. L2D continues to benefit from a purpose driven strategy that contributes to creating a customer focused approach to portfolio initiatives.

The underlying quality of the assets, supported by the drive and passion of the team in the implementation of the key strategic initiatives has led to a strong portfolio operational performance. For the period, sustainable trading density growth of 3.6% is reported for the retail portfolio with Sandton leading at 9% up from 4.0% in 2018.

Retail vacancies remain low at 2.3% and below the SAPOA benchmark of 4.2%. This improvement was mainly driven by retail leasing initiatives which saw leases covering149 101m² renewed in the period (FY18: 49 472m²) and a further 37 031m² (FY18: 52 557m²) in new tenant lease agreements concluded across the portfolio, reflecting a healthy demand for rental space at the centres. Overall, the office space vacancy increased marginally to 10.2% from 9.8% at June 2019. The portfolio office letting remains strained in the absence of economic growth.

With a commitment to gender diversity and transformation, L2D has made strategic appointments in the period to strengthen the leadership team and deepen the talent pool. Heloise Mgcina who joined L2D as a Marketing and Communications Executive on 1 January 2020 and Head of Analysis, Sumenthree Moodley, were both appointed to the L2D Management Committee.

Commenting on the results, Chief Executive, Amelia Beattie said: “The period was characterised by positive distribution growth and good trading performance as a result of active management. The implementation of our strategic building blocks continues to show great traction in creating experiential spaces, having a resultant positive impact on customer experience and stakeholder value. Our operational results are testimony to the quality of our portfolio as well as the solid fundamentals supporting our asset base in a challenging environment.”

L2D’s Loan To Value (“LTV”) remains conservative at 16%, with 75% of interest rate exposure being hedged as at 31 December 2019. The business achieved an interest cover ratio at 4.68 times for the period.

“Our targeted long term LTV level of 35% leaves headroom for considered acquisitive growth whilst mitigating risk in a strained economic cycle. Costs were well managed across the portfolio during the period, however municipal and utility costs increased substantially ahead of inflation and remain a challenge,” said José Snyders, Financial Director.

L2D continues to take the lead in transforming the retail industry in an environmentally sustainable manner. On 1 January 2020, L2D implemented a ‘no plastic shopping bags’ policy across its malls. This is in line with its Good Spaces commitment to ensure minimal impact on the environment and to achieve the company’s NetZero target by 2030. In addition, the Aquaponics Farm District at Eastgate Shopping Centre was launched, utilising smart new technologies to provide sustainable solutions to food production and security to patrons of the centre as well as the broader Johannesburg.

“To ensure that the customer experience journey remains strong, L2D will make targeted investments in initiatives to remain at the forefront of retail evolution. Tenant experience remains key through an optimised rental base translating into sustainable operational performance. L2D’s guidance for the 2020 full year distribution is to be equivalent to 2019. We aim to ensure prudent capital and risk management which we believe will maintain a strong balance sheet through disciplined capital allocation. Our commitment to our portfolio’s overall NetZero target by 2030 will see us deliver a NetZero waste target by 2020” Beattie concluded.

Redefine Properties strengthens its balance sheet with value-enhancing Madison International Realty equity deal

Johannesburg, South Africa – 21 January 2020: JSE listed diversified real estate investment trust Redefine Properties is strengthening its balance sheet and enhancing its logistics platform in the fast-growing Polish market through the introduction of leading international real estate private equity firm, Madison International Realty (Madison) as an equity investor.

In terms of the deal, announced today and expected to be finalised by the end of February, Madison is acquiring a 46.5% equity stake in Redefine’s Polish logistics platform held through European Logistics Investment (ELI). As part of the transaction, Griffin Real Estate who own 5% in ELI will acquire a further 2% from Redefine on the same terms as Madison, leaving Redefine with a 46.5% equity interest. The transaction is in line with Redefine’s stated intention to introduce a high-quality international equity partner to strengthen Redefine’s balance sheet and continue to expand its Polish logistics platform.

The platform comprises 19 assets totaling around 560,000 sqm, with 80,000 sqm nearly completed and an additional development pipeline of 270,000 sqm to be started once pre-leases are secured. The completed properties are around 95% occupied and spread across the key distribution hubs of Poland in Warsaw, Lodz, Krakow, Silesia, Pomerania and Poznan regions and developed to a high technical specification.

The Polish logistics market is poised to continue to grow as a key logistics hub for international e-commerce players, as well as an increasing number of manufacturing companies establishing their operations in Poland.

As part of the transaction, Madison will provide a €150 million (approximately R2.4 billion) commitment to ELI, of which €83.7 million (approx. R1.3 billion) will be used to acquire their share of the existing assets and developments in progress while leaving a commitment of €66.3 million (approx. R1.1 billion) to expand the portfolio over the next three years. In terms of the deal Redefine will match Madison’s equity commitment of €66.3 million. Panattoni Europe, a market leading European logistic developer, is a co-manager of the platform.

Andrew Konig, CEO, Redefine Properties, says, “The deal fits perfectly with our investment strategy and provides us with an opportunity to reduce our loan to value ratio. It also means we are able to source additional, well priced capital in order to secure the exclusive priority right to development opportunities with Panattoni over the next three years.”

“The focus for 2020 firmly remains on asset quality, offshore expansion through development activity, notably through ELI and leveraging opportunities to participate in a broader, more diversified portfolio of logistics assets. We are delighted to be working with Madison in the heart of CEE’s most attractive real estate market.”

Redefine will realise €87.2 million (approx. R1.4 billion) from this transaction of which €14.7 million (approx. R235 million) will be surplus cash after reinvestment in ELI to the tune of €72.6 million (approx. R1.2 billion) – comprising the equity commitment of €66.3 million and completing existing developments in progress totaling €6.3 million (approx. R101 million).

“The JV with Madison enables Redefine to continue to benefit from the priority right development pipeline with Panattoni. By co-investing with Madison, over the next two to three years, ELI will have access to sufficient capital (€148.7 million) for its logistic platform portfolio to grow to a sizable scale (increasing from 560 000 sqm to circa 910 000 sqm in gross leasable area) and benefit from attractive development yields and low cost of European debt funding,” adds Konig.

“In attracting this level of commitment from Madison, we’re continuing our track record of speed and agility in both sourcing capital and building a diversified and significant logistics platform, improve letting and capital value appreciation, as-well-as realisation of value prospects,” says Konig.

“This transaction clearly demonstrates Redefine is on course to reduce balance sheet risk while continuing to deliver sustainable quality earnings, as well as alleviating investors’ apprehension around liquidity.”

The final closing of the transaction is targeted for end February 2020 and is conditional on Polish regulatory clearance.

Equites to develop a R1.3bn warehouse for Pepkor

Cape Town, 21 January 2020 – Equites Property Fund Limited (Equites) today announced an agreement with leading JSE-listed retailer Pepkor, to develop a 122 734 square metre logistics warehouse facility in Hammarsdale, KwaZulu-Natal. The indicative total cost of development is R1.3 billion, which includes the cost of the land of R281 million. Equites will enter into a 15-year “triple net” fully repairing and insuring lease with Pepkor on completion of the development. Pepkor will have a right to renew for three additional five-year periods. The development is expected to be completed by November 2021.

Equites CEO, Andrea Taverna-Turisan, said the company is pleased with the transaction as it meets all its investment criteria. As a specialist logistics investor and developer, Equites has successfully delivered modern and efficient logistics facilities to users both in South Africa and the United Kingdom. A transaction of this size with a client of Pepkor’s stature and exacting requirements will assist to further cement the company’s aim of being recognised as a developer of choice to the largest logistics, retail and e-commerce participants in the South African market.

The modern, state-of-the-art logistics facility will be situated in Hammersdale, a prime logistics node due to its location along the N3 national road and its proximity to the rail network linking Gauteng to the Durban port. It is also close to the inland container terminal at Cato Ridge which is expected to change the logistics landscape in KZN. Other prominent South African retailers, such as Mr Price and Ackermans, have logistics warehouse facilities close to the property, providing further evidence of the attractiveness of this node. The warehouse will boast a clear height to eaves of 15.8 metres and yard depth in excess of 45 metres. Both companies place strong emphasis on sustainability in their assets from the outset and the facilities have been designed with increased steel tolerances to accommodate the installation of photovoltaic panels.

Taverna-Turisan said: “The development will increase Equites footprint in the key logistics node of KwaZulu-Natal and create further scale in our high-quality logistics portfolio. Importantly, the developed facility will also add to the quality, defensiveness and income predictability of Equites. We are excited to welcome Pepkor as a client.”

Vukile grows dividends by 3.5%

Vukile Property Fund today reported 3.5% growth in dividends to 80.84 cents per share for its half-year to 30 September 2019 in line with its market guidance.

Vukile is a leading South African retail REIT with R35bn of property assets of which 48% are in Spain through its 82.5% held subsidiary Castellana Properties SOCIMI SA. Its unique investment proposition in the South African market is providing stable, predictable and growing Rand-denominated income streams for shareholders generated from property assets in one of Europe’s strongest economies.

Laurence Rapp, CEO of Vukile Property Fund, notes that the half-year results reflect an incredibly strong performance from its Spanish portfolio together with a continued solid showing from its South African shopping centres even in a stalled economy. Vukile’s half-year results extend its track record of unbroken growth in dividends for investors into its sixteenth year.

Rapp comments, “Vukile’s clear strategy, retail sector specialisation and strong operational emphasis is paying off, and the positive outcome can clearly be seen in this standout set of results”

The robustness of Vukile’s funding, financial, and business models was affirmed by GCR Ratings upgrading the national scale issuer ratings for Vukile to AA-(ZA) and A1+(ZA) for the long and short term respectively, with a stable outlook.

Vukile’s inbuilt diversification means its assets and future earnings are split almost equally between Southern Africa and Spain. With its employment growth and an A-grade credit rating with stable outlook, Spain is contra-cyclic to SA. This makes Vukile a solid Rand-hedge property company.

Now the eighth biggest REIT in Spain by market capitalisation and seventh largest retail landlord by gross lettable area, Castellana is well established as a substantial player in the Spanish market. Castellana increased its EPRA NAV by 3.1% and saw good deal flow and growth opportunities. Its proven business model continues to grow base rentals and scale up value in an environment that isn’t over-retailed.

Castellana is consolidating Spain’s fragmented retail property market. Its assets topped EUR1bn after the accretive acquisition of the 30,000sqm dominant, modern Puerta Europa shopping centre in Algeciras, Cadiz. It also invested EUR37m in El Corte Ingles big-box units and is redeveloping them. The 12-month project at Los Arcos, Bahía Sur and El Faro shopping centres is already over 80% pre-let and should be completed in September 2020. It will further add to the dominance and the value of the centres.

A strong operational performance in Spain reduced vacancies to 1.4%, with positive rental reversions up 6.7%, and 21% rental growth on new leases. Portfolio retail sales increased by 3.1%, double the 1.4% national benchmark. Similarly, shopper numbers grew 5.3%, well above the national index of -1.2%.

Vukile’s Southern African portfolio of shopping centres delivered another strong performance despite a distressed operating environment. “The defensive nature of our grocery-anchored shopping centres, which mostly sell everyday goods to everyday South Africans and have a mix of retailers that offer necessities and value-driven items, is serving us well,” confirms Rapp.

Operationally, Vukile’s tight focus and new internal structures helped to buck the trend and reduce vacancies to 2.8%, retain 82% of retail tenants and gain impressive like-for-like net property income growth of 6.1%. It’s internalised leasing team is building closer relationships with retailers and, actively engaging second-tier nationals, it introduced 92 new brands to the portfolio in six-months thereby enhancing the overall customer experience through expanded choice.

By providing profitable trading space for retailers, like-for-like trading densities increased 3.5% in the portfolio, well ahead of national averages, and with the Vukile team’s asset management interventions making a significant contribution, trading density growth improved by nearly 5%. It lowered its rent-to-sales ratio to 5.9%, which supports the ability to attract the best retail tenants for its shopping centres.

The net cost-to-property revenue ratio tightened to 16.9%. Vukile cares for its properties to ensure they are efficient, compliant and enjoyable for its customers and tenants. Sustainable energy and water management is a significant factor in this. Adding science to the building maintenance process, Vukile completed a comprehensive portfolio-wide building assessment to produce a five-year capital expenditure plan that will see it investing some R70m per annum in maintaining its SA assets.

Vukile’s R516m acquisition of Mdantsane Mall in the Eastern Cape, which transferred in November, extends its geographical footprint and its foothold in South Africa’s high-density township retail market with another dominant asset.

Vukile collaborates with retailers to provide exceptional experiences for the people who shop at its nodally dominant centres. Understanding customers is at the heart of this. Vukile has invested heavily in installing fibre at its centres and has various customer-centric pilot programmes in both South Africa and Spain, which enables it to understand customers better. “This insight helps us to manage our shopping centres better, which leads to better customer experiences, retailer trading and results for our shareholders,” notes Rapp.

With this in mind, a strategic priority for Vukile is investing in skills around customer-centricity. Developing these capabilities internally is a key success factor for its shopping centres going forward.

Transformation is at the forefront of Vukile’s business sustainability. In another real commitment to transforming the property sector, Vukile has partnered with AWCA Investment Holdings (AIH) to form a black-women-owned and -managed property asset management company, which will start by managing Mbako Property Fund. Mbako has acquired Vukile’s R700m remaining non-retail property assets as its initial portfolio.

Rapp concludes that Vukile will maintain its position as a high-quality low-risk retail REIT invested in defensive low- and mid-income retail centres in SA while capitalising on Castellana’s strong and growing market share in Spain. “Vukile is in a confident position as a well-diversified business with strong cash flows that offer predictability and ongoing growth for its shareholders.”

Vukile reaffirmed its guidance of between 3% and 5% dividend growth in FY20.

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