Property Flash


May 30 2024 17:45

JSE-listed real estate investment trust (Reit) Emira saw its share price drop 3.85% to R9.49 on Thursday despite it releasing pleasing financial results for the year to end-March 2024. The results were released on the day after SA’s seventh democratic election. Early counting suggested that the ruling African national Congress (ANC) is set to garner below 45% of the vote, losing its parliamentary majority for the first time in thirty years. There are concerns as to what arrangement will be reached post the election to instil a government, be it a coalition based on vote numbers or one of national unity where parties are invited to rule together based on other reasons. This has put strain on share prices across the JSE.

Emira is a diversified real estaste investment trust (Reit) with investments in South Africa and the US. It reported that it had declared a full year dividend per share of 117.02c for the 12 months to end-March. Its net asset value per share increased 2.2% to 1,733.10 cents per share over the period.

CEO Geoff Jennett said the group’s positive performance stemmed from the successful unlock of value from investments, a strong balance sheet and the added advantage of various liquidity-strengthening capital recycling initiatives.

“Our twelve-month financial period can’t be directly compared to the previous nine-month year, but even so, it is crystal clear that our strategy is paying off, and the numbers are headed in the right direction. Both our SA and US portfolios delivered pleasing operational performances, notwithstanding local and global challenges,” he said.

Leasing success and low SA commercial vacancies down from 4.7% to 4.1% over the year and high and stable residential occupancy of 97.4%, were “proof of a portfolio that’s attractive, competitive, flexible and built to deliver sustainable value”, according to Jennett.

Emira expected to deliver marginally higher distributable income for its current financial year to end March 2025. This was despite ongoing low-growth expectations for South Africa, persistently high interest rates and general market uncertainty.

He said that Emira’s diversified portfolio was balanced to deliver stability and sustainability through different cycles with a mix of assets across sectors and geographies and through direct property holdings and indirect property investments with specialist third-party co-investors.

Emira made progress in capital recycling which reshaped its portfolio and extended its established track record of deal-making. It finalised the scheme of arrangement for the 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 LSM retail-focused Enyuka Property Fund. It also concluded direct non-core property disposals, including two industrial properties at sale prices above book value. Sales of R596m were transferred during the year, and a further R2.4bn was set to transfer in the next six to twelve months, including Emira’s post year-end sale of 13 office and industrial properties in the Western Cape to Spear Reit.

Emira’s directly held portfolio consisted of 90 properties located in South Africa worth R12.1bn, which were split between the retail, office, industrial and residential sectors. Emira held 19% of its assets in indirect property through 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 US economy served as a defence against global economic challenges and subdued growth in South Africa.

Its 17-property strong directly held retail portfolio included primarily grocery-anchored neighbourhood centres. The total weighted average rental reversion lifted from -5.5% to -0.5%. Vacancies were low at 3.9%, tenant retention was stable at 88.7%, and the weighted average lease expiry (WALE) was steady at 3.2 years.

Despite depressed fundamentals in the office sector, Emira’s portfolio of 20 mainly P- and A-grade office properties saw 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.

Emira’s diversified industrial portfolio of 32 properties enjoyed strong demand and delivered defensive performance. The portfolio was 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 included 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 due to higher interest rates.

Emira’s 12 equity investments in US grocery-anchored dominant value-oriented power centres total R2.8bn ($147.1m). The US economy was on a stable footing with GDP growth of 3.4% for the quarter ending 31 December 2023 and 1.6% for the quarter ending 31 March 2024, 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 5.0 years. It delivered a solid performance, adding R222.6m to Emira’s distributable income.

Emira’s balance sheet had a 2.3x interest cover ratio and a loan-to-value ratio that decreased from 44% to 42.4%. It reported unutilised debt facilities of R1bn and cash on hand of R180.8m. 

“By creating the ability and flexibility to recycle capital we are able to reallocate resources to diversify our investments in those with better growth prospects. This solid set of results and our expected marginal increase in distributable income for FY25 reinforce Emira’s consistent track record of reliable performance. We will continue to focus on Emira’s strategic direction, operational excellence and portfolio-enhancing capital recycling,” said Jennett.

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