Liberty Two Degrees (L2D), which owns a quarter of Sandton City, 8% of Melrose Arch and a third of Eastgate, has arguably the strongest balance sheet in the listed property sector with a low amount of debt compared with its assets, but the company is shy to make acquisitions while its peers struggle harder through the pandemic.
CEO Amelia Beattie said in an interview after the company released its three-month operational update that the company is focused on managing its existing assets for the rest of 2020, as the economy reopens amid the Covid-19 pandemic. This is while listed property funds have put premium assets up for sale as they look to raise cash to operate in an economy battling a recession.
L2D has exposure to 17 assets worth a combined R10.3bn. They include stakes in seven malls, three offices, three hotels and four other specialised properties.
“We are working hard to ensure that our existing assets excel in the most difficult environment for property companies ever. We are not going to change our strategy as a long-term investment which delivers consistent returns to shareholders," Beattie said.
Asked if L2D will be interested in buying shopping centres that may be up for sale, Beattie said: “We are aware of assets which are up for sale. We are not selling any of our assets at this stage.”
Last week Hyprop Investments said it was looking to sell two shopping centres but did not name them.
Some property fund managers in the listed sector, who did not want to be named, have said the centres are Rosebank Mall and Hyde Park Corner.
Fund manager Keillen Ndlovu, the head of listed property funds at Stanlib, said L2D was in a position to buy assets including high-quality malls.
“L2D has one of the strongest balance sheets in the sector right now with room to make acquisitions should they wish,” he said.
He said the company’s loan-to-value (LTV) is 22% vs the sector average of 45%.
It has unused revolving credit facilities totalling R400m.
LTV measures the ratio of a company’s debt and its assets. SA fund managers prefer property companies to have LTVs of 30%-35% with 40% seen as a maximum before the company starts to show financial risk.
“Could L2D buy Rosebank Mall? Hyprop refused to disclose which malls are up for sale. If L2D bought the mall, it may create concentration risk for the company given its exposure to Sandton City, Nelson Mandela Square, Eastgate and Melrose Arch. But it all comes down to the price and strategy,” said Ndlovu.
Beattie said L2D’s operating metrics had been improving as the lockdown has been eased in SA.
“Our turnover is getting closer to 2019 levels. There is a continuing positive trend in monthly turnover and specifically that the monthly portfolio turnover for July 2020 has returned to 71% of the turnover reported on for July 2019,” she said.
Botshabelo Mall, east of Bloemfontein, recorded turnover growth over the most recent three months. This strong performance was a result of the community nature of the mall and the smaller effect from Covid-19 on both tenant performance and foot count, L2D said.
There have also been improvements in trading at other centres, with Liberty Promenade and Midlands Mall 18% and 21% short of 2019 levels.
L2D said the turnover at its super-regional centres was about 30% below the comparative 2019 periods as these malls have been more severely affected as a result of the lockdowns and exposure to restaurants and hospitality.
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