International News

Emira achieves several strategic milestones while improving key operating metrics during H1 2024

CEO of Emira Property Fund, Geoff Jennett.

Emira Property Fund has published its unaudited interim financial results for the six months ended September 2023, declaring distributable earnings of R310.6 million compared to R378.7 million for the prior period, primarily because the current reporting period excludes the accrual of interest income from Inani and the higher yielding Enyuka Property Fund which was disposed of, together with lower distributable income from the REIT’s US investments and the higher absolute level of interest rates charged on debt during the period.

After adjustments, its board declared an interim dividend of 61.74 cents per share (December 2022: 6.43 cents per share), a period-on-period decrease of 7.1%.

CEO of Emira Property Fund, Geoff Jennett, notes that Emira achieved a solid operational performance in a very challenging South African economic environment. “Our portfolio metrics mostly improved across all sectors, reflecting increased stability in the operating environment, giving us cause for cautious optimism that the market is nearer to bottoming out and may be poised for upside.”

Among the positive metrices was its improved overall vacancy in its commercial property portfolio from 4.7% to 4.1% with all sectors outperforming their SA benchmarks. In addition, like-for-like net property income grew by 1.4%.

The REIT’s SA direct commercial portfolio is split between retail (51%), office (30%) and industrial (19%).

Its retail portfolio of primarily grocery-anchored neighbourhood centres traded well with trading densities growing 3.8% year-on-year with its total weighted average rental reversion improving over the six months from -5.5% to -2.6%.

Vacancies in its office portfolio of mainly P- and A-grade properties again improved, decreasing from 12.5% to 12%, showing more demand for well-maintained office space in sought-after locations. The total weighted average rental reversion also improved over the six months from -14.8% to -8.8% but still reflects the ongoing depressed fundamentals in this sector.

Emira’s industrial portfolio delivered a strong performance, with vacancies further decreasing from 2.1% to a negligible 0.6% and stable rental reversions, improving slightly from -6.5% to -6%.

Load shedding continues to plague South Africa and push up operating costs for businesses, and diesel costs for backup power generation in Emira’s commercial property portfolio was slightly higher at R17.7 million, of which 87% was recovered from tenants in line with lease agreements.

The commercial portfolio benefitted from R68.1 million in tactical upgrades, including installing backup power at three properties in response to the electricity crisis and various sustainability initiatives such as cost-saving energy and water efficiency projects and waste management systems.

In addition to the disposal of Enyuka, Emira finalised the scheme of arrangement for specialist residential REIT Transcend Property Fund, enlarging its foothold in the residential property sector that now represents 16% of Emira’s SA portfolio value.

The composition of Emira’s portfolio in the residential property sector has changed considerably from the prior comparable period. It now includes Transcend’s 20 residential properties plus The Bolton in Rosebank. Emira’s residential portfolio offers 4 063 units in Gauteng (87%) and Cape Town.

The properties are in high-demand neighbourhoods and cater to the affordable rental market in the R4 500 to R8 000 ‘per month’ range. The portfolio’s 3.4% vacancy rate includes units intentionally left untenanted for a unit-by-unit disposal process. During the period, 157 of The Bolton’s 282 had been sold and transferred and Transcend disposed of 95 units.

In the US, Emira’s 12 equity investments are grocery-anchored dominant value-oriented power centres. Real GDP growth in the US economy accelerated to 4.9% in Q3 2023, from 2.1% in Q2 2023. Inflation eased from 4.9% to 3.7% in the six months to the end of the third quarter. Additionally, consistently low unemployment of 3.8% was reported in the robust US job market. These economic fundamentals continue to support Emira’s investment in US open-air centres with a high-quality tenant base focused on popular value retail and essential goods and services in strong markets with sound property fundamentals.

Good leasing saw positive rental reversions of 6.8% achieved on new leases with a lease expiry profile of 5.6 years. US portfolio vacancies edged up slightly from 2.6% to 3.6%.

Distributable dividend cash flow income received from Emira’s US equity investments increased by R12.9 million, with both 32 East and Beldon Park resuming dividend payments. However, once-off adjustments for tenant failures meant that leasing commissions and tenant installation allowances, usually amortised across a lease period, were written off during the six months. This impacted Emira’s share of the accounting income but not the portfolio cash flow it receives.

Emira’s balance sheet remains robust. Proceeds from the sale of Enyuka helped to keep debt levels lower in the persistently high interest rate environment, contributing to an improved loan-to-value (LTV) ratio from 44% to 41.2% and cash-on-hand of R850 million. Emira has diverse funding sources, including all major South African banks, and access to debt capital markets. As expected, the higher interest rates have lowered Emira’s interest cover ratio, but the company’s debt metrics remain well within the required limits. Emira has a corporate long-term credit rating of A(ZA) and a corporate short-term rating of A1(ZA), with a stable outlook from GCR.

“We are particularly pleased to have satisfied several strategic objectives, successfully recycling capital. Our decisive operational focus delivered value-enhancing progress. The positive signs emerging in our operating environment are encouraging, and we are well-positioned to take advantage of opportunities and the eventual upward cycle. Given global and local volatility, though, we remain cautious and will continue to focus on fundamental excellence in the elements we can control,” concludes Jennett.