Liberty Two Degrees | A simple stress test
Liberty 2 Degrees (L2D) has simplified its corporate structure and taken control of its balance sheet. We believe the restructuring is a positive development for the REIT, aligning the counter with best practice and allowing investors to shift focus towards underlying property fundamentals.In this note, we cover three elements of L2D's investment case:
1. A stress test of L2D's portfolio capitalisation rates,
2. L2D's operational performance and growth uncertainty, and
3. The implications for gearing strategies and ROE optimisation.
We also update our distribution forecasts and assign a quantitative risk score to L2D, relative to peers.
Liberty Two Degrees Limited is a South Africa-based real estate investment trust (REIT). The Trust is a portfolio established under the Liberty Two Degrees Scheme to afford investors growth in income and capital by investing at fair prices in a balanced spread of immovable properties and related assets. Liberty Two Degrees is intended to give investors exposure to the Liberty Property Portfolio by allowing them to purchase units in Liberty Two Degrees, which focuses on holding undivided shares in the Liberty Property Portfolio. The Liberty Property Portfolio is a retail property portfolio with interests in assets, such as the Sandton City Complex, the Eastgate Complex and Melrose Arch. The Liberty Property Portfolio comprises predominantly retail real-estate assets in South Africa. The Liberty Property Portfolio includes select office properties. The Liberty Property Portfolio also includes John Ross Eco-Junction.
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