Archives for February 16, 2022

Emira Property Fund (JSE: EMI) reported an interim dividend of 56.59 cents per share and distributable income of R329.2m for the six-month period to 31 December 2021. The cash-backed dividend is based on Emira’s strong balance sheet and liquidity position and is 8.8% higher than the prior year’s, part of which was deferred to the second half to mitigate market uncertainty. Emira deems this unnecessary now with the world being on a better path with more informed and balanced pandemic responses.

Geoff Jennett, CEO of Emira Property Fund, attributes the company’s solid performance to the safeguard built into its portfolio’s diversification across geographies and sectors, which has successfully mitigated risk from sectors under strain.

The Emira portfolio is structured for diversity and balanced to deliver stability and sustainability through different economic and property cycles. It is diversified across property sectors and internationally through a mix of directly-held assets and co-investments with partners who are experts in their respective fields.

Emira is invested in a quality, balanced portfolio of diverse retail, office, industrial and residential properties. It has 77 directly-held properties valued at R9.8bn in South Africa. A 14.8% portion of its asset base is international, made up of equity investments in 11 grocery-anchored open-air convenience shopping centres in the USA.

Jennett comments, “The diversified nature of Emira’s business model has proven robust and resilient. The portfolio is solid, and our strategies are paying off. Despite the continued pressure on local property fundamentals, particularly in the office sector, the diversified portfolio performed above expectations. Strong performance from our US investments amplified dividends. Emira will remain focused on consistently performing fundamentals with skill and excellence.”

South African direct investment portfolio

Emira has done well to reduce vacancies in its direct South African portfolio from 6.4% to 6.1%. Sound performance from the local industrial and retail portfolios countered the impacts of the stressed local office market.

Emira increased its tenant retention rate to 86%, extended its weighted average lease expiry to 2.8 years, and achieved monthly collections of a pleasing 102.4% of rent billed, including 100% of deferred rental from April, May and June 2020. Portfolio arrears again decreased to R62.7m and where necessary, potential credit losses have been appropriately provisioned.

During the six months, Emira gave its tenants, primarily hospitality and entertainment businesses, rental concessions of R1.8m – a significantly lower amount than the prior six months, indicating fewer restrictions. “It is still uncertain how Covid-19 will evolve, but we will remain cautious and continue to support our tenants limited by restrictions as we have done throughout the pandemic.”

Positive tenant trading continued in Emira’s resilient urban retail portfolio, which comprises 49% of total property asset value and is 96.4% occupied, and turnover increased by 2.5% for the 2021 calendar year on year.

Office properties, which are 30% of total property assets, are 81.8% occupied. Increasing Covid-19 vaccination rates bode well for the return to offices and the sector. However, the challenging environment in light of shifting working habits suggests office supply will outpace demand for some time. Emira continues to intensify its tenant attraction strategies.

Its industrial properties have a stable occupancy of 96.5% with a broad tenant base and comprise 19% of the overall Emira property portfolio. They are experiencing rising demand, albeit this is extremely sensitive to the ongoing power supply disruptions that challenge the sustainability of businesses in this sector.

Emira’s only direct residential asset is The Bolton, Rosebank, a co-investment with the Feenstra Group, targeting high-demand, mid to lower markets. Its occupancy levels dipped to 92.2% at end-December 2021 but have since returned to 95% and should increase further as Rosebank-based corporates return employees to their offices.

Emira acquired the multitenant Northpoint Industrial Park in Cape Town for R103m and took transfer of the property post-period on 20 January 2022. It disposed of the Epsom Downs Shopping Centre and Epping Warehouse after the interim close and currently has a further two assets, The Colony Shopping Centre and Universal Industrial Park, held for sale.

Emira understands that high-quality, enjoyable properties attract great tenants, so it regularly upgrades its assets to increase their competitiveness. Emira invested R64m in projects across its portfolio in the period to maintain and improve its directly-held assets. “Continual reinvestment into our portfolio ensures our properties remain relevant, attractive and in high demand,” notes Jennett.

Emira’s short-term focus for its local directly-held portfolio includes retaining and attracting tenants to contain and reduce vacancies in the office portfolio. It is also expediting projects for alternative energy, water harvesting and backup power.

South African specialised indirect investment partnerships

Emira grew its indirect exposure to residential rental property, with an increased 39.2% stake in specialist JSE-listed REIT Transcend Residential Property Fund. Transcend’s total property portfolio is valued at R2.3bn, and it contributed R14.7m to Emira’s distributable income in the period.

Through its 49.9% stake in Enyuka Property Fund, a dedicated rural and lower LSM retail property venture with One Property Holdings, Emira invests indirectly in 24 shopping centres valued at R1.7bn, which continued to perform well. Enyuka contributed R42.6m to Emira’s distributable income for the six months.

USA co-investment

Emira’s equity investments in the US now total R1.9bn (USD119.4m) in 11 grocery-anchored dominant value-oriented power centres with its partner, The Rainier Companies. These assets are in robust markets in the US. They are open-air environments with quality tenants focusing on the popular value retail segment providing essential goods and services, especially with grocer anchors, and are geared towards communities.

This high-quality asset base is underpinned by sound property fundamentals, and they delivered a good performance to contribute R89.1m to Emira’s distributable income for the period.

“Our US investment strategy proved its value as a buffer against South Africa’s constrained economy with its US$-denominated returns driven by supportive fundamentals in a more resilient environment. We will continue to explore acquisition opportunities that match our selective criteria,” says Jennett.

The US economy continued to recover and grow, with strong annualised GDP growth of 6.9% for the final quarter of 2021, elevating GDP growth materially higher than pre-COVID-19 levels and driving household consumption up and unemployment down. The environment supports Emira’s value-oriented retail investment, even with more moderate economic growth in 2022.

Leasing momentum and activity was solid, and vacancies in the US portfolio improved from 7.1% to 5.9% over the six months. The portfolio has a weighted average lease expiry of 5.5 years. The partnership continued to unlock value from Emira’s US investment with development, refurbishment and other asset management interventions.

Funding and treasury management

The value of Emira’s local properties was reduced by a net 0.2%, factoring in a fair value increase of 0.5% and capital expenditure of R64m for the six months. Its net asset value per share increased 1.5% to 1,540cps.

Emira’s loan-to-value (LTV) ratio showed a 0.9% movement to 41.8%, ensuring ample debt headroom with a more than adequate 2.8-times interest cover ratio.

The REIT continues to benefit from diversified funding sources and has facilities across all major South African banks, and access to debt capital markets. It has access to undrawn facilities of R615m and cash on hand of R103.8m. Since May 2021, Global Credit Rating Company has given Emira’s corporate long-term credit rating of A(ZA) and short-term rating of A1(ZA), with a negative outlook.

Environmental, social and governance (ESG)

Projects focused on making Emira’s properties more sustainable remain a priority, particularly those that improve energy efficiency and water conservation. Utilities supply disruptions and continued above-inflation increases of rates, taxes and utilities costs pose major risks for the property sector.

During the period, it began expanding its photovoltaic (PV) solar farm at Wonderpark Shopping Centre in Pretoria to increase output more than three-fold from 1.2MWp to 3.8MWp. It also commenced a new PV farm in its quest to achieve the net-zero carbon operation of its Knightsbridge Office Park in Johannesburg.

As a responsible corporate citizen committed to genuine transformation in South Africa, Emira maintained its Level 2 B-BBEE Contributor rating with verified effective black ownership of 71.15%.

“We are dedicated to finding material ways to bolster Emira’s effect on local socio-economic development and the environment,” says Jennett.

Conclusion

Jennett concludes, “Emira has done well to endure and hold firm through uncertain times, continue our track record of consistently delivering on strategies and come through challenges stronger. We can do this because we have a distinct purpose and clear direction. Most of our assets are in South Africa, where the local macroeconomy remains concerning and needs political reform to improve meaningfully. Our tenants need a growing economy to sustain their businesses and thrive. In contrast, our assets in the USA are enjoying the benefit of a growing economy, which shields Emira and validates our diversified investment approach as a good risk mitigation strategy. We are well positioned for the future and expect to continue to perform for our stakeholders and pay shareholders cash-backed dividends.”

Emira Property Fund (JSE: EMI) reported a half-year dividend of 52 cents per share and distributable income of R333.7m for the six-month interim period to 31 December 2020.

Emira is invested in a quality, balanced portfolio of diverse office, retail, industrial and residential properties. It has 78 directly-held properties valued at R9.9bn in South Africa and equity investments in 10 grocery-anchored open-air convenience shopping centres in the USA. Its portfolio is diversified across property sectors and internationally in a combination of directly-held assets and co-investments with partners who are experts in their respective fields. The Emira portfolio is structured for adaptability to deliver stability and sustainability through different economic and property cycles.

Geoff Jennett, CEO of Emira Property Fund, comments, “In the context of the current uncertain and challenging operating environment, these results reflect the robustness of Emira’s business, portfolio and processes. A key feature of a REIT investment is its cash-backed income component and at Emira we believe that if we can reasonably pay dividends while still protecting our business’s longevity, we should. We are confident that our decision to pay an interim dividend, albeit at suitably conservative levels, is the right one for our shareholders.”

Emira also continued to look after the interests of its tenants, staff, service providers, portfolio of assets, co-investors, funders, communities, and environment. “It is our actions in all these areas that come together to form a sustainable business,” notes Jennett.

Continuing efforts to ensure as many of its tenants as possible survive the COVID-19 pandemic lockdowns’ adverse effects, Emira provided support to 363 tenants with a further R17.8m in permanent rental remissions during the six months. This relief supported some high-risk tenants including gyms, restaurants and entertainment venues. Emira expects to consider further rental concessions in the second half of its financial year, on a limited case-by-case basis.

During the six months from July to December 2020, the effects of the pandemic and its various lockdowns in South Africa continued to batter the local economy, business confidence and household spending placing massive pressure on all key property metrics.

While Emira’s overall direct South African portfolio vacancies edged up from 4.1% to 5.9%, they remained low relative to national averages. Emira’s only directly held residential property, The Bolton, increased its occupancy from 80.9% at the start of the period to 97.5% at the close.

Emira enjoyed a pleasing improvement in rental collections, with collections as a percentage of billings at 99% for the six months ended 31 December 2020. The collection of deferred rentals, in particular, was better than anticipated at 80%.

Emira achieved impressive tenant retention of 83% by gross lettable area (GLA), the largest renewal being the South African Local Government Association at Menlyn Corporate Park in Pretoria, for over 7,000sqm. In addition, it concluded some new leases during the period, the largest being iMvula Healthcare Logistics in 3,500sqm at 1 Medical Road in Johannesburg.

“Overall, the outlook remains challenging and uncertain with further increases in vacancies and reversions still ahead for the property sector. More than ever before, Emira is focusing on maintaining its occupancy levels by retaining existing tenants. Close tenant relationships promote the understanding and agility to deliver appropriate, good quality, well-priced space, which benefits tenant retention and attraction. The manner in which the Emira team has supported and collaborated with our tenants through the pandemic has strengthened relationships, positioning them well for the future, and I commend our people and partners for this achievement.”

As part of its strategic asset management, Emira has an ongoing capital recycling programme and, under this focus area, Emira disposed of a Gauteng building to its tenant, Steiner Services. The R34.5m sale price realised a 17% premium to book value and an exit yield of 8%, supporting Emira’s realistic property valuations. It has two assets valued at R171.3m held for sale.

Emira continued to maintain and improve its properties while scrutinising capital expenditure. Fortunately, consistent investment into the portfolio over the years has ensured that its portfolio remains relevant and attractive on the whole. Elevating energy efficiency and water conservation remains a focus area of its capital improvements. Its photovoltaic (PV) solar programme’s positive environmental and operational impacts were further enhanced with two new installations completed and one commenced during the period.

“We continue to expedite alternative energy supply, water harvesting and back-up power projects in light of utilities supply disruption and the overinflated increases of utilities, rates and taxes costs,” notes Jennett. Emira kept a keen focus on containing costs. Even so, its property expenses increased 5.9% during the six months.

Emira’s equity-accounted investments – Transcend Residential Property Fund, Enyuka Property and its USA investments – delivered R118.3m of distributable income for the half-year.

A 34.9% stake in specialist JSE Main Board listed REIT Transcend gives Emira indirect exposure to the residential rental property sector. Transcend’s total property portfolio is valued at R2.5bn, and Emira received R23.4m of distributable income from Transcend.

Through Enyuka, a dedicated rural retail property venture with One Property Holdings, Emira invests in 24 lower-LSM shopping centres valued at R1.7bn. Notwithstanding the economic impacts felt during the six months, the rural retail sector outperformed all other retail sectors, resulting in lower-than-expected rental concessions granted. Emira received R41.9m of income from Enyuka via interest on its shareholder loan, as well as an asset management fee of R2.3m.

On the international front, Emira invests in grocery-anchored dominant value-orientated convenience retail centres in robust markets in the US with the Rainier Companies, and Emira’s share had a carrying value of R1.4bn at the close of the period. The type of property in which Emira invests in the US performed better than enclosed malls and lesser quality properties in the context of COVID-19. They are geared towards communities, provide essential goods and services especially with grocer anchors, focus on the popular value retail segment, have quality tenants, and offer open-air environments where people feel safe. The period was defined by reduced COVID-19 restrictions, more government stimulus and relief, fewer tenant requests for rental relief, and a high 100.4% collection of all rentals billed. Distinguished by sound property fundamentals and a high-quality tenant base, the portfolio has a weighted average lease expiry of 5.9 years. With limited leases up for renewal, a positive rental reversion of 1.5% was achieved, but, as expected, vacancies increased from 5.2% to 8.5%. Vacancies should reduce by year-end with deals that focus on high credit-quality tenants. Distributable income received by Emira from its investments in the US was R72.7m.

Emira reduced its direct portfolio value by a carefully considered 3.6% for the period and, in accordance and taking into account a reduced derivative liability number, its net asset value (NAV) decreased by the same percentage.

The REIT continues to benefit from diversified sources of funding and has facilities across all major South African banks. Emira met all commitments to its funders and reduced its finance costs by lowering its debt levels and as a result of lower interest rates. It reduced its loan-to-value (LTV) ratio slightly from 43% to 42.5%, as it moves closer to its long-term LTV target of below 40%. Emira closed the interim period with a group interest cover ratio (ICR) of 3-times. Global Credit Rating Company affirmed Emira’s corporate long-term credit rating of A(ZA) and short-term rating of A1(ZA) with a negative outlook, in September 2020. At 31 December 2020 it had access to undrawn facilities of R720m and cash on hand of R122.6m, which adequately covers short-term commitments.

Continuing its good business journey, Emira made a significant improvement in its B-BBEE rating, moving from a level 5 to a level 2 contributor, with a verified effective 76.68% black ownership. The improvement furthers Emira’s positive role in the economy and society.

“At Emira, our numbers show that we are consistently doing all the basics, and doing them well, even in an exceedingly difficult environment. We are encouraged by the possibility of an ongoing low-interest-rate environment and the potential for economic recovery increasing towards the end of 2021 provided that the rollout of vaccines goes ahead successfully. Emira will continue to protect and generate value for our stakeholders with a robust balance sheet, well-funded and sustainable operations, and a diversified, balanced portfolio of quality properties,” Jennett concludes.

Given the current uncertainty, Emira’s reiterated it would not provide earnings and distribution guidance until such guidance is highly probable. However, it reaffirmed its management KPI target for distributable earnings of 119.7 cents per share for the year to 30 June 2021.