If you are a Liberty customer you may want to take advantage of discounted shares in the new Liberty property listing.
Towards the end of this year Liberty will be listing its premium property portfolio which includes the iconic Sandton City. The Liberty Property Portfolio has consistently outperformed its CPI + 5% benchmark over a rolling five-year period since its launch 30 years ago and contains some of South Africa’s prime properties. Currently the Sandton City Complex comprises around 35% of the total portfolio value, followed by Eastgate Mall at 31% and the interest in Melrose Arch, Liberty Midlands Mall and Nelson Mandela Square at 7% each.
The property portfolio, under the name Liberty Two Degrees, will be listed on the JSE as a Real Estate Investment Trust (REIT) before the end of 2016. The nature of the REIT will allow the fund to use gearing to further expand the portfolio. On listing, Liberty expects the Liberty Property Portfolio to increase in value by between 3 and 5%.
For existing Liberty customers, Liberty will be forming the Liberty Real Estate Portfolio (LREP) which will invest exclusively in the shares of Liberty Two Degrees. The LREP will receive a full allocation of Liberty Two Degrees shares up to a value of R4 billion at a 5% discount to the listing price.
The R4 billion worth of shares will be offered as follows:
- Existing investors in the Liberty Property Portfolio have the option to switch all or part of their portfolio into the new Liberty Real Estate Portfolio (LREP) subject to a maximum subscription value of R3 billion.
- All existing Liberty customers, including those invested in the Liberty Property Portfolio, have an option to invest new funds in the LREP subject to a further limit of R1 billion. New investments will be limited to a maximum of R300 000 per customer.
This is a compelling offer to Liberty customers, especially those that do not already have investments in the Liberty Property Portfolio. If you consider that the property portfolio will undoubtedly re-rate by at least 5%, as listed property trades at a premium to its net asset value, added to the 5% discount to the listing price means you are effectively paying 10% less than the investment is worth. As this is on a first-come-first-served basis you would need to speak to your financial adviser and get your application in as soon as possible ‒ the offer ends on 31 October 2016.
Understand the risk
Existing investors in the unlisted Liberty Property Portfolio would need to assess the relative risk of the fund. The LREP carries a higher risk profile as the value is determined by the share market which is more volatile and influenced by other factors.
Currently the Liberty Property Portfolio is valued once a year based on property valuations and investment bonuses are paid based on these property valuations. The value of LREP, on the other hand, will be determined by the share price of Liberty Two Degrees which will trade on the open market. Factors such as interest rates, economic outlook and investor sentiment affect share prices on a daily basis, affecting the relative valuation of your investment in LREP.
As Liberty Two Degrees is a REIT, it will be allowed to borrow money to invest in new properties. This gearing allows the fund to grow but it also increases the risk of the fund. Over time the gearing should allow the LREP to increase in value ahead of the Liberty Property Portfolio but at a higher risk. For investors who prefer less risk and a more predictable growth rate, the Liberty Property Portfolio would be more appropriate.