Emira Property Fund has updated investors for the five months ended August 2024, saying it’s ‘on track to achieve most of its objectives for FY2025’.
Total vacancies across its commercial portfolio have increased marginally to 4.3% (by gross lettable area – GLA) (March 2024: 4.1%) due to the impact of its disposals made during the period. The REIT says tenant retention remains a priority and 87% (by GLA) of leases that matured during the period were retained.
The weighted average total reversions have been stable at an overall 3.1% (March 2024: 3.3%) with the fund’s weighted average lease expiry (WALE) improving to 3 years (March 2024: 2.7 years). Average annual lease escalations were maintained at 6.5%.
Emira’s collections versus billings for the period were 95.9% with the expectation to revert closer to 100% by the end of September 2024.
Six assets were sold during the period, generating total gross proceeds of R446 million. These disposals included two retail properties, Park Boulevard and Makro in Johannesburg and four industrial assets in Johannesburg and Pretoria. An additional 20 assets are under contract for disposal and on completion, will generate R1.9 billion in gross proceeds.
Emira’s retail portfolio, which comprises 15 assets of mainly grocer-anchored neighbourhood centres, recorded an increase in vacancies to 4.2% (March 2024: 3.9%) with the portfolio’s WALE improving to 3.6 years (March 2024: 3.2 years) and 92.4% (by gross rental) of maturing leases in the period were retained. Total weighted average reversions declined to -5.7% (March 2024: 0.5%).
In its office portfolio, vacancies decreased to 9.1% (March 2024: 10.9%) with the WALE reducing to 2.5 years (March 2024: 2.7 years) and 69.2% (by gross rental) of maturing leases retained. Total weighted average reversions declined to -10.7% (March 2024: 6.3%). Emira owns 20 office assets of which most are P- and A-grade properties.
The fund’s industrial vacancies increased to 1.6% (March 2024: 0.7%) with the WALE increasing to 2.9 years (March 2024: 2.1 years) and 86.6% (by gross rental) of maturing leases were retained. Total weighted average reversions improved to 4.4% (March 2024: 4.8%). The REIT owns 28 industrial assets which are split between single-tenant light industrial and warehouse facilities and multi-tenant, midi- and mini-unit industrial parks.
Emira’s residential portfolio consists of 3 612 units (March 2024: 3 775) in Gauteng and Cape Town. Vacancies across the portfolio were 5% (by units) (March 2024: 4.5%) which was higher due to held-for-sale units, and if these are excluded, vacancies were 3.4%. Collections versus billings in the residential portfolio were 99%.
163 residential units were transferred during the period, realising gross disposal proceeds of R149.2 million with a further 31 units currently under contract.
Emira’s USA portfolio, which comprises 12 equity investments in 12 grocery-anchored, open air power centres, reported vacancies across 12 assets which has remained constant at 3.6%.
DL Invest Group S.A (Poland)
In late August 2024, Emira acquired an effective 25% interest in DL Invest through the subscription of 141 new B shares and 141 9% loan notes with each loan note linked to a B share issued to Emira to form a linked unit. The aggregate consideration for the Tranche 1 subscription was €55.5 million, comprising €11.1 million in respect of the B share subscription and €44.4 million in respect of the loan notes.
Emira will receive a return on the linked units of at least 7.2%, escalated annually by the Harmonised Index of Consumer Prices for the European Area (HICP) with a floor of 2% and a cap of 4%. The target return will comprise interest at 9% per annum in respect of the loan notes.
The aggregate subscription amount of €55.5 million for the linked units was funded in ZAR by a combination of cash reserves and undrawn existing debt capacity. Emira has converted an effective €45 million of the ZAR funding into Euros using cross currency interest rate swaps whereby three-month Jibar has been swapped to a fixed EUR interest rate. The CCIRS were struck at a EUR versus ZAR strike price of 19.96 for a weighted average duration of 4 years and at a weighted average fixed EUR interest rate of 2.85%.
Under an option agreement entered simultaneously, Emira and DL Invest each hold a redemption option, granting both parties the right to facilitate the redemption of the linked units. This involves redeeming the B Shares and fully repaying and redeeming the corresponding outstanding amounts (including any accrued but unpaid interest) under the loan notes. The redemption will occur on the earlier of a trigger event and the fifth anniversary of the transaction, for a redemption value of €101.6 million, escalated annually from the commencement of the investment to the redemption date by HICP, with a floor of 2% and a cap of 4%.
Transaction costs of R18.1 million, funded by cash reserves, have been incurred on the transaction.
In terms of the subscription agreement, Emira has been granted a subscription option of which it may, at its election, subscribe for a further 113 B Shares and 113 9% loan notes (the “Tranche 2 Subscription Option”) for an aggregate cash subscription price of €44.5 million, comprising €8.9 million in respect of the B Share subscription and €35.6 million in respect of the loan note subscription. If Emira elects to exercise the Tranche 2 Subscription Option, it will hold 45% of the aggregate DL Invest shares in issue. The Tranche 2 Subscription Option was granted at no consideration and must be exercised by not later than the 31st of January 2025, failing which it will lapse.
The acquisition of the B Shares and loan notes pursuant to Emira’s exercise of the Tranche 2 Subscription Option, when aggregated with the Tranche 1 Subscription, constitute a Category 1 transaction and is subject to Emira shareholder approval. Emira will not exercise the Tranche 2 Subscription Option until it has received the requisite shareholder approval to do so in accordance with the JSE Listings Requirements. Castleview Property Fund, which holds 59.26% of Emira’s issued shares, has irrevocably undertaken to vote in favour of the resolutions required for Emira to exercise the Tranche 2 Subscription Option. A circular to provide shareholders with information relating to the Tranche 2 Subscription Option is currently being drafted and is expected to be posted to shareholders during or by November 2024.
As at 31 August 2024, Emira has unutilised debt facilities of R300 million together with cash-on-hand of R144 million. The fund’s liquidity will be bolstered by disposal proceeds to be received from assets currently under contract for disposal net of the debt to be permanently settled for these assets which have been mortgaged.
The REIT’s loan-to value ratio (LTV) has increased to c.43.4% as at 31 August 2024 (March 2024: 41.2%) because of the DL Invest Tranche 1 Subscription, which was partially offset by the property disposals transferred during the period. The LTV will reduce once the properties currently under contract for disposal have transferred and proceeds received are used to reduce debt.
Emira expects to release its results for the half year ended 30 September 2024 on Thursday, the 14th of November 2024.
