Liberty Two Degrees grinds out a dividend


Liberty Two Degrees grinds out a dividend


Published Date: 2021-07-27 | Source: INCE|Community | Author: The Finance Ghost

Liberty Two Degrees grinds out a dividend

Liberty Two Degrees (L2D) has released results for the six months to June 2021. The share price closed 2.9% higher in a nod to a relative recovery in retail trading conditions in iconic malls.

The retail occupancy rate has improved to 96.7% from 95.3% at the end of December 2020. The problem is that office occupancy went the wrong way, declining from 87.6% to 86.6%. The industry benchmark is currently 85%, which is why I find it incredible that some REITs in the market continue to value properties based on long-term office vacancies of under 5%. It's time the industry got real about the situation out there.

Portfolio occupancy increased to 93.7% from 93.3%.

The challenge isn't just in occupancy ratios. Rental reversions are a major issue for the sector, as leases are being renewed at lower rates. Negative reversions for retail and office are 26.6% and 21% respectively, so retail vacancies are being filled at much cheaper rates than before.

The good news is that mall foot count and turnover was higher than 2019 levels in May, at least on a nominal basis. On a real basis (i.e. adjusted for inflation), trading activity is still below 2019 numbers.

L2D enjoys relatively low gearing for a REIT, with a loan-to-value ratio of just under 24%. Unlike some REITs, L2D isn't at the mercy of its bankers and isn't being forced to offload properties to keep the debt under control. The average cost of debt is 7.92%.

The net asset value per share (NAV per share) is R7.62 and the closing share price was R4.94, so the fund is trading at a discount to NAV of 35%. Considering 33% of the gross lettable area is in office properties, it's likely that the market will continue to price in much higher office vacancies than in prior years.

L2D has declared a distribution of 15.79 cents per share for the first six months of 2021, reflecting an annualised yield on yesterday's price of 6.4%.


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