JOHANNESBURG - Liberty Two Degrees (L2D), the listed real estate investment trust whose predominantly retail property portfolio includes Sandton City, Eastgate and Melrose Arch, said yesterday that it was in a drive to reduce its exposure to Edcon, the troubled retailer.
José Snyders, L2D’s financial director, said the company had elected to be become an upfront landlord in Edcon’s restructuring.
“We spent just less than R25 million to buy 0.277percent of the Edcon equity as part of their restructuring. In that deal our rentals were not impacted, so we received our full rentals due to us for the next 24-month period,” Snyders said.
“In coming to the conclusions to become an upfront landlord we evaluated the risks and the commercial benefits attached to it. I think it is important to understand that after 24 months everything goes back to normal for everyone who is a landlord to Edcon.”
He added that L2D was starting to see a turnaround of Edcon’s performance in the centres L2D owns. However, Synders said the group was proactively reducing its exposure to Edcon and that by the end of the year its exposure to Edcon will be less than 4 percent of the company's portfolio.
“Almost all the space we have taken back from Edcon we already have tenants signed up and committed to take. We don’t expect Edcon to have a significant impact in the portfolio, but we are taking back space to lessen our dependence on them, given their size in the portfolio.”
Edcon took a hit a few years back after retailer Stuttafords folded following the failure of a business rescue process. Stuttafords was forced to close two of its main stores in Sandton City and Eastgate.
Edcon this year received R2.7billion from lenders, landlords and the Public Investment Corporation to restructure its business model in order to regain its competitiveness after battling for years to stay afloat.
South Africa's largest listed property investment holding company, Growthpoint Properties, in March said it had refused to give Edcon rental reprieve as its business model, which was based on contractual leases that provide a steady stream of annuity income, made it difficult to agree to the request for a rental reduction. Growthpoint was among the landlords approached in December 2018 to consider a rental reduction for retail space leased to Edcon’s brands.
L2D said its property portfolio valued at R10.2bn reported net property income of R337.8m in the six months to June compared to R272.8m in the comparable period.
The company said costs were well managed across the portfolio and benefited from the successful resolution of the Eastgate rates valuation appeal. The group declared an interim dividend of 29.31cents per share for the period under review.
L2D chief executive Amelia Beattie said the demand for rental space was healthy and the company concluded a further 20513m² of new tenant lease agreements across the portfolio during the reporting period.
“The drive and passion of our team saw the conclusion of the renewal of leases covering 133970m² during the period compared to 15 022m² in 2018,” Beattie said.
L2D shares closed 1.81percent lower at R7.05 on the JSE yesterday.