Emira Property Fund (JSE: EMI) today announced growth in distributable earnings of 3.8% and a 1.0% increase in its cash-backed dividend of 119.79cps for the year to 30 June 2022. Its net asset value per share increased 7.3% during the financial year to 1,628.60cps.
Geoff Jennett, CEO of Emira Property Fund, attributes the strong performance and improved metrics to consistent strategic delivery and incremental steps taken to achieve the best value from investments.
Jennett comments, “Emira has done well to increase dividends and, in the consistent Emira way, continue the strategic direction of the fund with active asset management, focusing on basic property fundamentals and performing them with excellence. In a challenging environment, distinguished by the close correlation between the South African economy and real estate sector performance, it is pleasing to see how Emira’s assets have withstood the pressure and how well aligned our business is for the future.”
Emira’s diversified portfolio is balanced to deliver stability and sustainability through different cycles. It is a mix of 74 directly-held retail, office, industrial and residential assets worth R9.8bn and indirectly-held investments with specialist co-investors, including the JSE-listed specialist residential REIT Transcend Property Fund and retail property venture Enyuka Property Fund. 18% of its asset base is made up of equity investments in 12 grocery-anchored open-air convenience shopping centres in the stable economy of the USA, which provide a buffer to the low-growth domestic environment.
Locally, Emira’s portfolio is most exposed to the retail sector by value and the industrial sector by number of assets. Steady performance from these two portfolios countered the strained local office market. Over several years, Emira has steadily reduced office exposure to 30% of its directly held portfolio value. Emira’s only direct residential asset is The Bolton in Gauteng, where occupancies rose to 98.9% as Rosebank-based corporates returned employees to their offices.
Emira improved its direct portfolio vacancy rate by 1.1% to 5.3%, signifying effective leasing strategies. It achieved a tenant retention rate of 83%, a weighted average lease expiry of 2.7 years and achieved pleasing monthly collections of 100.2% of rent billed. Reflecting the excellent credit quality of Emira’s tenant base, portfolio arrears decreased further to R47.6m. Estimated credit losses have been appropriately provisioned. Emira continued to support its tenants that remained subject to pandemic restrictions, mainly hospitality and entertainment businesses, however, with the easing of restrictions, rental concessions were R1.9m – significantly lower than the prior year’s R33.6m.
The like-for-like value of Emira’s direct South African properties increased by 1.8% during the year and, factoring in capital expenditure of R133.1m, there was a net increase of 0.4%. Emira acquired the multi-tenant Northpoint Industrial Park in Cape Town for R103m and de-risked its portfolio by disposing of five assets during the year, with a further one held for sale. It also focused inwardly and invested in maintaining and improving its assets to increase their attractiveness and competitiveness, including solar energy, water harvesting and backup power projects.
These projects support Emira’s sustainability considerations, a key component of its operations and approach to creating long-term value. Prioritising carbon emissions reductions and partnering to achieve this, Emira achieved a Level B for its eleventh consecutive annual CDP submission.
The REIT increased renewable energy generation at its local properties through energy management and efficiency initiatives. Also, Emira advanced its responsible water and waste management and established natural habitats and indigenous landscaping at its properties to minimise impacts on the natural environment. These initiatives provide Emira and its tenants with resource security and, to some extent, some protection against the continued high increases in utility costs and general deterioration of municipal infrastructure, which are major concerns for business generally and the property sector specifically. As a responsible corporate citizen devoted to genuine transformation in South Africa, Emira remained a Level 2 B-BBEE Contributor.
Emira grew its indirect exposure to residential rental property by increasing its stake in Transcend to 40.69%. Transcend, which has a R2.4bn portfolio, added R32.7m to Emira’s distributable income. Post year end, Emira confirmed it intends to make a general cash offer for all shares in Transcend it does not already own and already has irrevocable support from 16.7% of Transcend shareholders.
Through its 49.9% stake in Enyuka, a retail property venture with One Property Holdings, Emira invests indirectly in shopping centres valued at R1.7bn. Enyuka contributed R89.5m to Emira’s distributable income. Emira has agreed to sell its stake in Enyuka to One for R638,6m, which Emira will use to continue recycling capital. The transaction is expected to be transferred by December 2022.
For its equity investments in the US, Emira invests with its US partner The Rainier Companies. This year, it grew its international assets to 12 grocery-anchored dominant value-oriented power centres that now total R2.4bn (USD148.6m). The US economic environment supports Emira’s value-oriented retail investment, even with rising inflation and interest rates in the broader market. Its open-air centres have quality tenants focusing on the popular value retail segment and providing essential goods and services, especially with grocer anchors. These high-quality value-orientated assets in robust markets enjoy sound property fundamentals and delivered good performance to add R176.7m to Emira’s distributable income.
Emira’s loan-to-value ratio moved slightly lower to 40.5%, with ample debt headroom and a more than adequate 2.8x interest cover ratio. In May 2022, GCR Ratings confirmed Emira’s corporate long-term credit rating of A(ZA) and short-term rating of A1(ZA) and revised its outlook from negative to stable. 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 R869m, including R500m allocated to the Transcend offer, and cash on hand of R66.7m.
Given the enduring market uncertainty, Emira chooses not to provide earnings and distribution guidance but instead noted its executive directors’ KPI for distributable earnings is 129.46cps for FY23.
Jennett concludes, “After six years of diligent repositioning and capital recycling into strategic investments that improve our portfolio quality and diversification, all our metrics are well aligned and pointing in the right direction. We are in a strong position to manage for the future.”