Liberty Two Degrees (L2D), formed by financial services group Liberty to hold about a third of its property portfolio, says Sandton City was the standout performer in the first half of 2019, even as the economy barely grew and consumers remained under pressure.
Trading density growth of 2.9% across L2D’s portfolio was achieved, but Sandton City led with 6.8%. Larger shopping centres such as Sandton City tend to be defensive in difficult economic conditions as shoppers still buy groceries and basic clothing, L2D CEO Amelia Beattie said.
She said Sandton City had been expanded and upgraded in the past five years, which had enabled it to remain a destination shopping centre that appealed to South Africans across a spread of wealth brackets as well as tourists.
But Beattie said shareholders' returns would be muted for the rest of the year as a R70m interest bill on new R1.5bn debt meant the group's dividend per share would be flat for 2019.
“Our portfolio is very strong and reliable. It may be a difficult time economically in SA currently, but things will get better. We will see positive dividend growth in 2020,” she said.
The group, which owns stakes in some of SA’s blue-chip malls including Eastgate, Liberty Promenade, Nelson Mandela Square and Melrose Arch, achieved net property income growth of 24.2% in the reporting period to R338.8m partly thanks to recent acquisitions, which helped it grow its portfolio value to R10.2bn.
“Sandton City has stood out as our best performing mall. It is putting the super back into super regional. We have positioned the mall to serve a very broad customer base; perhaps the broadest customer base of any mall in SA. It’s even trading up while the new Checkers has been under construction. It manages to get seven days of trade while most malls only really do well over weekends,” Beattie said.
L2D expected its dividend to be flat at 29.31c per share for the year to December 2019.
Retail-focused landlords have been grappling with weak consumer demand amid SA’s economic stagnation.
They have also had to contend with national retailer Edcon’s struggles to turn itself around. The owner of Edgars stores was recently recapitalised with the help of landlords and has been cutting space. The rescue exercise enabled it to save 140,000 jobs.
As part of the recapitalisation, L2D became an investor in Edcon. Its investment was valued at R17.5m.
L2D’s chief operations officer Jonathan Sinden said by the end of 2019, Edcon would account for less than 4% of the property group's revenue.
“We wanted to decrease risk and are happy with how the Edcon situation has worked out. We have re-let space and now our retail vacancies are low at 2.4%,” he said.
This was while the national average provided by the South African Property Owners Association (Sapoa) was 4.2%.
Vacancy rates across the portfolio rose from 3.4% to 4.6% at the end of December 2018 because of challenges in filling L2D’s offices. The company’s office vacancy rate was 9.8% at the end of June 2019, compared with 8% at the end of December 2018 and 9.7% at the end of June 2018.