While the Omicron Covid-19 variant has created further uncertainty, and likely to tamper with local and global economies, Emira Property Fund anticipates continued negative rental reversions with landlords to face increased competition to either retain or attract new tenants.
In a recent operational update via SENS, the REIT reported an increase of 7% in vacancies of its gross-lettable area as at 31 October 2021, compared to June 2021’s 6.4%. While 85% (by revenue) of leases (which expired during the period) were retained, rental reversions improved to 12% from the 14.6% reported in June.
Emira’s weighted average lease expiry of 2.6 years as at 31 October 2021 was similar to that reported at yearend with annual lease escalations predicted to remain under pressure, reducing marginally by the end of the period to an overall average of 7% (June 2021: 7.1%). The average annual escalations achieved on renewals were 6.9% compared to 7.2% on new leases.
Normal debtor collections versus billings for the period was at 95.5% with the fund collecting R2.1 million of deferred rentals i.e., 100% of the deferrals billed during the period and R1.6 million of the brought forward arrears.
Rental remissions totalling R1.9 million were provided to tenants who were directly impacted by Covid-19-related restrictions in July 2021.
Emira’s retail portfolio, accounting for 49% of its direct portfolio and consisting mainly of grocer-anchored neighbourhood centres, performed well with vacancies of 4.3% and 91% (by revenue) of tenants retained.
However, vacancies in its office portfolio (31% of its direct portfolio) shot up to 19.4% from 17% in June 2021, with 66% (by revenue) retained from tenants whose leases expired during the period and attracting new tenants remains a challenge. Rental reversions were at 15.5%.
“The catalyst for change in the sector is economic growth which will improve business confidence and result in investment and an expansion of businesses, ultimately increasing the demand for space”, the company said.
Vacancies in industrial, representing 18% of its direct portfolio, remained stable at 3.6% as at 31 October 2021 with continued demand for space. While 91% of tenants were retained, tenants continue to face challenges, particularly inconsistent power supply, which remains a risk to their businesses.
Its USA portfolio, accounting for 14% of investments and consisting of 11 assets in grocery-anchored, open-air power centres, experienced vacancies of 6.6% – an improvement on the 7.1% reporting at the end of June 2021.
Emira expects to pay dividends in FY22 for 9 of the 11 investments in line with the US’s economic and retail sector’s recovery.