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November 18 2024 15:00

Geoff Jennett, Emira CEO

SOUTH AFRICA

Emira Property Fund (JSE: EMI) which released financial results for the six months to end-September 2024 last week, said it was more likely to invest abroad than locally in the near to medium term.

The diversified group which has already spread its investments out of SA by co-owning grocery and fast fashion outlet – anchored shopping centres in the US has just announced its first investment in Europe, in Poland to be specific. The group invested €55.5m for a 25% equity stake in DL Invest. DL Invest is a Polish group which owns logistics warehouses. It also creates mixed-use office complexes and retail parks, valuing its assets at €730m and its net asset value (NAV) at €278m pre-investment. The company is domicile in Luxembourg. Emira plans to make another tranche investment of €45m for another 20% equity stake. This will take Emira’s total offshore exposure up to about 37%, with the first tranche having taken it to 26.8% including its exposure to the US.

“We will go where the opportunities are best. We are excited that the DL Invest investment will generate a 7.2% escalating income yield. DHL Invest owns circa €740m of mostly high-quality logistics assets and we want access to these assets. We don’t see similarly attractive opportunities in SA right now,” said Jennett.

He said DL Invest had a development pipeline of more than €200m in logistics.

“We like the this diversification into Poland. It is a growing economy. Their logistics sector is feeding much of Europe given their central position,” says Jennett.

Some people however do note that Emira has entered the Polish logistics market later than competing SA landlords including Redefine Properties and Fortress. Some analysts still wish to learn more about DL Invest and its credit risk profile. DL Invest needed funding and chose Emira.

Emira said last week about its results that it had reported strategic delivery, diversification-enhancing acquisitions, active capital recycling, and strong operational and balance sheet metrics for its six-month interim period to end-September 2024. The company’s interim distributable income per share increased 6.9%. It declared a 1.1% higher cash-backed interim dividend per share of 62.39c. Emira’s net asset value per share increased 12.3% to 1,945.50cps during the six months, driven by rising property valuations and the fair value equity gain from Emira’s DL Invest investment in Poland.

Jennett, said it had pulled off a positive performance because of strengthening operational metrics, active asset recycling, and strategic deal-making, reflected in its reshaped portfolio.

Emira was on track to deliver on its objectives for the full year, which it expected to result in marginally higher distributable income compared with that achieved for its past financial year.

“Emira’s local portfolio outperformed, our US investments are comfortably on track, and we completed the first tranche of our investment into DL Invest, bolstering our diversification by tapping into Poland’s burgeoning economy with its unique growth drivers and opportunities,” said Jennett.

Emira’s option to expand its position in DL Invest Group by investing an additional €44.5m, which will  increase its equity holding to 45%. This second tranche subscription option must be exercised by January 31 2025 and requires shareholder approval to pursue. Castleview Property Fund, which holds around 58% of Emira’s issued shares, has given its irrevocable vote in favour of exercising the option, and shareholders can expect to receive a circular regarding the option.

Funding for the first tranche of the DL Invest investment came from Emira’s balance sheet and recent disposals. Its non-core commercial and residential property sales transferred, completed and agreed upon during the period totalled R2.6bn. The group had sold industrial Cape Town-based assets to Spear Reit.

Jennett said Emira’s balance sheet was healthy, with an adequate 2.3x interest cover ratio and a loan-to-value ratio that declined from 42.4% to 42.0% over the six month reporting period and was expected to decrease further as property disposals transfer and a portion of the proceeds are deployed to reduce debt. It reported unutilised debt facilities of R370m and cash on hand of R112.8m at half-year which will increase as proceeds from disposals are realised. 

“Emira has a strong and diversified financial foundation, with support from all major South African banks and the proven ability to access the debt capital markets. In October, GCR affirmed its corporate long-term credit rating of A(ZA) and corporate short-term rating of A1(ZA), with a stable outlook,” the group said.

Emira’s direct South African portfolio of 84 properties worth R12.1bn is diversified across commercial property sectors and residential rental property. Emira’s exposure to the United States is with US-based partner The Rainier Companies. Emira holds equity interests, with unanimous voting rights, in 12 dominant, value-oriented grocery-anchored power centres.

The local portfolio performed well, surpassing most key targets. SA commercial vacancies are already low and tightened to 3.9% from 4.1%. The portfolio saw an increase in like-for-like valuation of 4.7%, reflecting enhanced metrics across all three sectors and improved business sentiment. Residential occupancy was at 96.7% and, similarly, maintained like-for-like valuation levels.

Emira’s commercial portfolio by value was split between urban retail (43%), office (25%) and industrial (15%) of the directly held SA portfolio. All sector vacancies are below the applicable benchmarks, and tenant retention increased from 81% to 83% by revenue during the period, reinforcing Emira’s effective leasing strategies. Its 15-property directly held retail portfolio of primarily grocery-anchored neighbourhood centres catering to their communities is trading well with improved metrics, including low vacancies of 4.2%. Despite the slump in office sector fundamentals, Emira’s portfolio of 20 mainly P- and A-grade office properties saw office vacancies improve into single-digit territory, from 10.9% to 9.4%. Emira’s diversified industrial portfolio of 28 properties are at near full occupancy, with vacancies stable at 0.7%.

Residential rental assets comprise 21 properties, or 17% of Emira’s directly held SA portfolio by value. These are the Bolton in Rosebank, Johannesburg, and the 20 suburban units of Transcend Residential Property Fund, Emira’s wholly-owned specialist residential company. The portfolio of 3,588 units is split between Gauteng’s (90% by value) and Cape Town’s (10% by value) high-demand areas. The portfolio is achieving rental growth, with sustained demand for accommodation.

Overall, the commercial portfolio benefited from R119.8m in upgrades, including various sustainability-driven initiatives, reconfigurations and refurbishments. Emira also invested R8.6m into its residential portfolio.

Emira’s 12 equity investments in US grocery-anchored dominant value-oriented power centres total R2.56bn (USD147.1m). The US economy is on a growth trajectory, with GDP up 3% for Q2 2024 and 2.8% for Q3 2024 coupled with low unemployment, easing inflation and a 50bps cut to interest rates in September and another 25bps trim in November, data shows. While US elections introduced some uncertainty to the economy, stability should return with clarity of the new government’s priorities and policy.

Robustly resilient property fundamentals and high-quality tenants underpinned the US portfolio’s low vacancy rate of 3.5% and combined portfolio WALE of 4.5 years. It delivered a solid performance, adding R120.1m to Emira’s distributable income.

‘These solid half-year results put us firmly on track for a marginal increase in distributable income for FY25, reinforcing Emira’s consistent record of reliable performance,” said Jennett.

247@propertyflash.co.za

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