Emira becomes first property company to forecast negative distribution growth
Emira Property Fund has become the first JSE-listed property company to forecast negative distribution growth in the coming results season as a result of weak economic growth and high vacancy rate taking their toll.
Emira said yesterday “looking forward, and taking into account current and expected future market conditions, vacancy profiles, and rental reversion expectations, the fund has completed a revised budget for the financial year ending June 30 2017, and is forecasting a negative growth in distributions per share of approximately 2%, when compared with the expected distributions for financial year 2016.”
“During the last four to six months, the fund has been negatively impacted by additional vacancies in its office portfolio that is anticipated to total approximately 30,000m². This has been primarily due to an increasingly weaker economy where a larger number of office tenants are vacating space and necessary periods are being forecast to re-let the space,” Emira reported.
In general, South African property funds that have ventured offshore have enjoyed earnings boosts, while those with a stronger focus on the domestic market, such as Emira, have experienced lower growth.
CEO Geoff Jennett said: “Things have been tough, but we will improve them in the next financial year.
“We experienced unexpected vacancies, which has weighed down on our distribution forecast.
“We want to get back to positive distribution growth as soon as possible. I think we won’t be the first fund to report negative distribution growth, and many funds are finding it hard to boost earnings … This is a long-term game and, while we would like to do business abroad too, we don’t want to rush abroad unless we find the right deal. Right now, our expertise is in SA and our balance sheet remains very strong.”
The fund was also anticipating greater than previously expected negative rental reversions on certain larger expiring leases.
Maurice Shapiro, portfolio manager at Ma’alot Investments, said Emira had limited offshore exposure, which had not mitigated the poor performance of its domestic portfolio.
“Most market participants have ventured internationally to mitigate poor market conditions locally.
“Unfortunately, Emira’s small stake in Growthpoint Australia has not been meaningful enough to counter the softness in its local portfolio,” he said.
“Given many participants’ recent comments on poor local market conditions, it is not surprising when we see soft distribution growth and, in Emira’s case the potential for negative growth.
“However, we find it strange that property book values and net asset value growth have not been impacted. It is almost as if property valuers are oblivious to the fact that interest rates have changed, yet capital rates seem not to be updated accordingly,” he said.