The diversified real estate investment trust (Reit) is looking to offload Epsom Downs shopping centre in SA’s largest suburb, Bryanston, to ease pressure on its balance sheet after its loan-to-value (LTV) ratio rose above the level that investors regard as an indication that it can meet financial obligations.

US EXPOSURE

Emira, which listed in November 2003, owns 79 directly held SA properties valued at R10.2bn, as well as an investment in 10 grocery-anchored open-air convenience shopping centres in the US, worth Rl.6bn. It is the only JSE-listed property company with exposure to the US. It also has a 34.9% stake in Transcend, a JSE-listed residential fund, worth R403m, and a 49.9% stake in its BEE partner, Enyuka, worth R59m. “We need to sell some of our older assets to decrease our debt levels and shore up cash. Epsom Downs, which has been in our portfolio for a long time, should be sold in the next few months,” said CEO Geoff Jennett. “It has been an incredibly tough period for Emira, but I firmly believe that the diversified nature of the company and our underlying strong asset base has cushioned much of the effect of the pandemic.” he said.

Epsom Downs shopping centre is valued at R68.5m. The company’s net asset value fell 14.6% to 15300 per share as a result of an increase in net derivative liabilities on lower interest rates in SA and the US and a weaker rand. The value of its property portfolio fell 8.5% in the year to June because of deteriorating macroeconomic conditions in SA, where the economy is set to shrink by double digits in 2020. With property values being the denominator in LTV ratios, this indicator increased to 43% from 37%. Emira’s long-term LTV target remains below 40% and asset sales would help bring the measure below 40%, Jennett said. LTV measures the ratio of the company’s debt and its assets. Fund managers prefer companies to have LTVs of 30%-35%, with 40% seen as the maximum, before the company starts to show financial risk.

MARKET GUIDANCE

A healthy LTV is a sign that a Reit can manage to meet finance costs regularly. In the first six months to endDecember 2019, Emira’s performance was in line with its positive market guidance despite the constrained local economy, and it declared a 74.l¢ per share half year dividend. But the Covid-19 pandemic and the relief that Emira and its investment partners provided to tenants saw its 2020 financial year second-half dividend tumble 61.4%.The total dividend fell 31% from the previous year.”Protecting our strong balance sheet and liquidity position remains our priority, so we have been very conservative in our treatment of distributions, with sustainability being our foremost consideration. “Emira is only distributing cash-backed net profits that it received during the period, after making provision for additional cash reserves in its US investments,” said Jennett.

PAYOUT POLICY

“The adjustment to our dividend composition this year does not change our payout ratio policy and has no punitive tax consequences,” he said. Emira provided Rll9m in rental relief, in the form of discounts and deferrals, to more than 1,150 tenants to help them survive through the lockdown. Its share price was 4.17% lower at the close of trade on Monday at R5.51, down 56.27% in 2020 so far.