Archives for August 15, 2022

Fortunately, only one wing of the centre had structural damage, and around 30% of Block A was cordoned off safely without affecting trade in the rest of the centre, including anchors Food Lovers’ Market, HiFi Corp and Baby City. While work continued on the fire-damaged section, a concerted communications effort let shoppers know the property was open and which stores were trading. As part of reinstating the centre, Emira took the opportunity to refresh and refine its tenant mix and reconfigure space to improve the overall shopping experience.

“We considered general shopping trends, monitored consumer patterns in Springfield Retail Centre’s catchment area and observed the centre’s tenant performance in order to identify improvements for its offering and match them with the type of retailers that would work best for the refreshed centre and its shoppers,” explains Ulana van Biljon, Emira COO.

This included improving the centre’s tenant mix and reconfiguring an underutilised part of the property to create floor space for Coricraft’s new home and decor showroom. The Coricraft concept store opened in April this year, with a new layout and design unique to Springfield Retail Centre. Similarly, Ted’s Home Store also took the opportunity to upgrade its 1,000sqm-plus store at Springfield Retail Centre to create an all-new showroom, which opened in May 2022. The combined impact has created one of the strongest home and décor retail offerings in the region.

Finally, most of the restoration work has been completed and Springfield Retail Centre is already trading fully with only Westpack still to open at the end of August 2022. The open-air shopping experience has a refreshed array of tenants, from fashion and home furnishings to babies, tech and more.

The effectiveness of its strategic re-leasing is evident in the return of customers to Springfield Retail Centre, notwithstanding current economic pressures.

Emira applies its strategic leasing philosophy to all its shopping centres, constantly gathering data to keep track of macro and local market trends, analysing how different tenants are performing and considering this in relation to their position and adjacencies within a centre.

“Using these insights, we aim to place the best retailer into an optimally-sized store in the ideal location within a centre in order to benefit its customers, trading, neighbouring stores, the mall’s overall flow and its capacity to attract buying power,” says van Biljon.

She adds, “Signing a make-do lease to fill a vacancy without considering these factors is often a short term and potentially very costly exercise. By emphasising what our customers want, our strategic leasing supports excellent trading densities for tenants and the good performance of our retail assets.”

Strategic leasing for Emira is definitely not a one-size-fits-all process. It recently completed another such project for a very different asset – the large 91,000sqm regional Wonderpark Shopping Centre in Pretoria, Gauteng.

However, since its listing, Transcend’s ability to grow has stalled with significant changes in the nature and dynamics of equity capital markets, particularly in South Africa. It is now restricted to issuing new equity at a substantial discount to net asset value (NAV), thereby diluting existing shareholders.

Transcend’s ability to raise equity capital stuttered in December 2021, as highlighted by its R156m capital raising where Emira was required to subscribe for an amount greater than its proportionate share. Emira has stated that it will not support the issue of further equity at a discount to NAV. Thus, Transcend’s listing, originally intended to access affordable equity capital on an efficient basis, no longer presents it with a viable or conducive means to raise significant equity. In addition, Transcend already has a relatively high loan-to-value ratio for a REIT of 44.9%. These factors severely constrain its ability to grow by adding residential assets.

Transcend also faces fundamental obstacles deterring a broader universe of institutional investors. It is a highly illiquid small-cap with less than 0.9% of its issued shares trading over the last three months. Further, its external management company structure is unpopular within the investment community.

“We firmly believe that operating Transcend in the unlisted environment is the only realistic alternative for the future, given its limitations. Controlling it as an Emira subsidiary makes sense from a cost, access to capital and investor interest perspective,” notes Geoff Jennett, CEO of Emira.

Jennett adds, “We see no benefit to maintaining two listed entry points into Transcend’s assets, which we strongly believe would be better served in an Emira-controlled subsidiary where we would be able to support the assets and prospects of Transcend without having to further increase its gearing or raising more equity as a discount to NAV. Emira is not supportive of Transcend issuing new equity capital to the extent that it results in a dilution of either Emira’s shareholding in Transcend or its NAV per share, which, other than via increasing the LTV ratio, is the only way to meaningfully fund acquisitive growth. This will constrain Transcend’s strategy to grow into a larger specialised residential REIT and, as a result, any future benefits of achieving economies of scale are unlikely to be realised. Therefore, we want to provide a once-off liquidity event to existing Transcend shareholders and ensure the focus is on driving shareholder value rather than Transcend’s size and share liquidity.”

Emira’s general offer is a liquidity event for all existing shareholders at a clean share price of R5.38 per Transcend share – representing a 17% premium on the recent vendor placement price of R4.60, which most legacy shareholders declined to take up. This once-off liquidity event also represents a 12% premium to the effective R4.80 clean closing price of 8 July 2022. The clean share price will be escalated by an estimated distribution accrual per share for the applicable distribution period up until the finalisation date of the offer.

Emira has already received irrevocable undertakings from 16.7% of existing shareholders to support the general offer. Should competition commission approval be obtained and the general offer runs its course, this would effectively give Emira a minimum 57.4% stake in Transcend.

“We are confident the December 2021 vendor placement price most accurately reflects shareholders’ perceived value of Transcend, and the premium offered represents good value to those shareholders seeking an exit strategy to realise the value of their investment,” comments Jennett.

For Emira shareholders, the consolidation of Transcend as a listed subsidiary is a logical progression of its residential rental property strategy that it embarked on in 2018. It will result in value accretion for both Emira’s distributable income per share and NAV per share.

“This transaction achieves more than shifting our indirect investment in Transcend’s assets into a directly-held residential-to-let property portfolio. By taking Transcend in-house, Emira would realise value for shareholders by adding the advantage of critical mass, removing cost duplication on a corporate level, enabling better access to capital, and driving increased stakeholder value. At the same time, we would honour existing management arrangements with IHS for continuity of operations across the Transcend assets,” explains Jennett.

Emira has posted the necessary cash guarantees with the Takeover Regulation Panel for the value of the full offer. It used a new specific R500m facility from Rand Merchant Bank and available cash. Proceeds from Emira’s planned sale of its stake in Enyuka will comfortably settle this new facility and support its ongoing capital recycling programme.

Emira is a leading diversified REIT invested in a quality, balanced portfolio of retail, office, industrial and residential properties. Emira’s rental residential property exposure includes its stake in
Transcend and a direct investment in The Bolton, Rosebank with co-investor the Feenstra Group. Emira has total assets of R12.6bn, including 77 directly-held properties valued at R9.8bn in South Africa. A 17% portion of its total asset base is international, made up of equity investments in 12 grocery-anchored open-air convenience shopping centres in the USA.