Emira Property Fund CEO Geoff Jennett
Despite high interest rates and difficult operating conditions, JSE-listed Emira Property Fund reported strong operational results, strategic delivery and capacity-enhancing active capital recycling for its financial year ended March 31.
The company declared a full-year dividend a share of 117.02c, and its net asset value a share increased by 2.2% to R17.33.
The 12-month financial period compares with a nine-month period to March 2023, owing to a change in the company’s financial year-end.
The company attributed positive performance to successfully unlocking value from investments, a strong balance sheet and the added advantage of various liquidity-strengthening capital recycling initiatives.
The company’s distributable income per share was at 119.03c for the full 12-month period.
Emira expects to deliver marginally higher distributable income for its current financial year to March 31, 2025. This is despite ongoing low-growth expectations for South Africa, persistently high interest rates and general market uncertainty.
“We certainly are feeling the effects of higher interest rates on our debt levels but, ultimately, we continue to exceed our executive key performance indicators (KPI) target that we set for ourselves for the 2024 financial year,” said Emira Property Fund CEO Geoff Jennett during the company’s financial results presentation on May 30.
Emira’s diversified portfolio comprises assets across sectors and geographies and through direct property holdings and indirect property investments with specialist third-party co-investors.
During the year under review, Emira made “significant strides” in strategic capital recycling that it said had noticeably reshaped its portfolio and “extended its established record of successful deal-making.”
The company finalised the scheme of arrangement for residential specialist Transcend Property Fund in a takeover that boosted its exposure to the defensive residential property sector and sold its share of the lower living standards measure (LSM) retail-focused Enyuka Property Fund.
Jennett said Transcend was a fully consolidated, wholly-owned subsidiary of Emira, adding that Transcend was well integrated with the company.
The company also concluded various direct noncore property disposals, including two industrial properties at sale prices significantly above book value.
Sales of R596-million were transferred during the year, and a further R2.4-billion is due to transfer in the next 6 to 12 months, including Emira’s post year-end sale of 13 office and industrial properties in the Western Cape to Spear REIT.
The company’s liquidity position is set to be bolstered by the R2.4-billion of proceeds from upcoming transfers.
“You can expect that the disposals … will transfer that will create meaningful liquidity, and with that, you can expect to see further diversification with the proceeds… our executive KPI target for the 2025 financial year is expected to be marginally above that of what we've achieved for the 2024 financial year,” said Jennett.
Emira’s directly held portfolio consists of 90 properties located in South Africa worth R12.1-billion, which are split between the commercial – retail, office and industrial – and residential sectors.
Moreover, Emira now holds 19% of its assets in indirect property investment in equity investments in 12 US-based grocery-anchored open air shopping centres, for which Emira has unanimous voting rights on all major decisions.
Its partnership with The Rainier Companies in the stable US economy serves as a strong defence against current global economic challenges and subdued growth in South Africa.
Its direct commercial portfolio is split between urban retail – 43% of directly held South African portfolio value; office – 24%; and industrial – 14%. All sector vacancies are well below the applicable benchmarks.
Further, Emira’s 17-property-strong directly held retail portfolio of primarily grocery-anchored neighbourhood centres catering to their communities is trading well with improved metrics. The total weighted average rental reversion lifted from -5.5% to -0.5%.
Vacancies were a low 3.9%, tenant retention was stable at 88.7%, and the weighted average lease expiry (WALE) was steady at 3.2 years.
“Considering the tough operating conditions, the low business confidence and of course, also the weak economic environment, we know that the Emira commercial portfolio really has performed well over the past 12 months,” said Emira COO Ulana Van Biljon.
“The portfolio has performed well during the period. Rentals have improved due to letting that’s taken place, but we’ve still got the persistent negative rent reversions ... Property expenses continue to grow at a rate that seems to be higher than the actual market rental growth, which is affecting overall profitability,” said Emira CFO Greg Booyens.
Despite depressed fundamentals in the office sector, Emira’s portfolio of 20 mainly P- and A-grade office properties saw key operational metrics move in a positive direction. Improved office vacancies moved down from 12.5% to 10.9%.
The total weighted average rental reversion lifted from -14.8% to -6.3%. Tenant retention was 59.1% and the WALE was maintained at 2.7 years.
Van Biljon pointed out that the office sector remained under pressure, owing to low economic growth, adding that permanent work-from-home trends were decreasing.
Emira’s diversified industrial portfolio of 32 properties enjoyed strong demand and delivered defensive performance. The portfolio is near full occupancy, with vacancies decreasing from 2.1% to 0.7%.
Emira leveraged the robust demand when negotiating lease terms, and rental reversions improved from -6.5% to -4.8%. Tenant retention increased to 84.6%, and the WALE improved to 2.1 years.
Residential rental assets increased from one to 21 properties over the year – or 19% of Emira’s directly held SA portfolio – and include The Bolton in Rosebank, Johannesburg, and 20 properties from Transcend.
The portfolio of 3 775 units is split between Gauteng’s (87% by value) and Cape Town’s (13%) high-demand areas. With a 2.6% vacancy, excluding units held for sale, the portfolio is achieving rental growth, as demand for rental accommodation rose in response to the elevated cost of owning property owing to higher interest rates.
Overall, the commercial portfolio benefited from R168.2-million in tactical upgrades, including various sustainability-driven initiatives, reconfigurations and refurbishments.
Emira also invested R25.3-million into its residential portfolio, mainly to focus on making buildings more resource-efficient and backing this up with Excellence in Design for Greater Efficiencies, or EDGE, certifications, as well as enhancing lighting and safety at properties during power cuts.
The company’s environmental initiatives include five solar PV farms of 1.5 MW installed by the end of March, creating a total of 13 PV farms, whereby 19% of the company’s portfolio has access to renewable energy.
The company has also completed a 60 kl rainwater harvesting project at Boskruin Shopping Centre, in Gauteng, whereby 89 227 kl of total water consumption for the 2024 financial year came from rainwater and ground water harvesting across 16 properties.
Emira’s 12 equity investments in US grocery-anchored dominant value-oriented power centres total R2.8-billion, equivalent to $147.1-million.
The US economy remains on a stable footing with GDP growth of 3.4% for the quarter ending December 31, 2023, and 1.6% for the quarter ending March 31, coupled with low unemployment. This environment supports Emira’s investment in US open-air centres focused on popular value and needs-based retail in robust markets.
Sound property fundamentals and a high-quality tenant base supported US portfolio vacancies of a low 3.6%, with positive rental reversions of 5.8% and a consolidated WALE of portfolio of five years. It delivered a solid performance, adding R222.6-million to Emira’s distributable income.
“We continue to assess all of our opportunities, we certainly feel that we have been stronger together with Rainier. It's really been a great partnership… and they've certainly delivered on what we had anticipated,” said Jennett.
Emira’s balance sheet remains healthy, with a more than adequate 2.3x interest cover ratio and a loan-to-value ratio that decreased from 44% to 42.4%.
It reported unutilised debt facilities of R1-billion and cash on hand of R180.8-million. Emira has a strong and diversified financial foundation, with support from major South African banks and the proven ability to access the debt capital markets. During the year, GCR affirmed Emira’s corporate long-term credit rating of A(ZA) and corporate short-term rating of A1(ZA), with a stable outlook.