Emira’s US portfolio helps offset lockdown impacts locally
JSE-listed Emira Property Fund has declared a final dividend of 30.26c a piece, taking its dividend for the full-year ended June 30 to 104.36c a piece.
The company declared a dividend of 151.34c apiece in the 2019 financial year, reflecting a 31%, or 46.98c apiece, year-on-year decrease in this year’s dividend. The company’s distributable income a share reduced by 15.2% year-on-year to 128.36c, compared with distributable income a share of 151.34c reported in the six months ended June 30, 2019. CFO Greg Booyens says stripping out Covid-19-related adjustments, net property income would have been R940-million, with distributable income at R775-million and a dividend of 148.33c.
“The impact of Covid-19 and the relief that Emira and its partners provided to tenants saw a 61.4% decrease in the dividend payable for the second half of the financial year. Emira provided R119-million in rental relief, in the form of discounts and deferrals, to more than 1 150 tenants to help them survive the Covid-19 lockdown,” Booyens explains. COO Ulana van Biljon adds that most of the relief provided by the company in April, May and June went to small and medium-sized enterprises. She says the company recorded a 9% increase in arrears in the year under review. She explains that the company did not record a significant loss of tenants owing to Covid-19, but there has been a slower take-up of space from April. The company reported a vacancy rate of 4.1% at the end of June, while the average vacancy rate through the full year was 3.7%. Van Biljon notes that the pandemic and different levels of lockdown has had a serious impact on South Africa’s economy, while consumer spending strain increased, which reflected in retail numbers.
She explains that, in the commercial portfolio, most companies opted for a work-from-home policy, while changes in supply chains benefitted most tenants in the industrial portfolio. Booyens further states that the company settled R228-million of debt in the year under review, with R1.7-billion of debt maturing in the next 12 months. Emira had R95-million in cash at the end of June, a debt capacity of R619-million and unencumbered properties of R2.4-billion. In the year under review, Emira fully disposed of its Australian assets – in Growthpoint Properties Australia – as well as R64-million of office space. Offshore assets now comprise 12.5% of Emira’s portfolio, with $13.2-million of acquisitions being finalised in the US. The company has, to date, invested more than $90-million in US assets. Emira has ten properties in the US, valued at R493-million. Vacancies in the US sit at 5.2%.
CEO Geoff Jennet says Emira continues to exist as a platform from which investors can access the net rental income from its underlying portfolio of diversified property investments. “On this basis, and because Emira can demonstrate its ability to meet its future financial obligations, we elected to declare a final dividend to shareholders. That said, 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. As a result, our total dividend decreased by 31% from the previous year. The adjustment to our dividend composition this year does not change our pay-out ratio policy and has no punitive tax consequences,” Jennet points out.
He adds that Emira has experienced an increasingly difficult operating context, but is fortunate in that the company could enter this new environment with solid fundamentals in place. Emira has 79 directly-held South African properties valued at R10.2-billion and is diversified offshore with equity investments in ten grocery-anchored open-air convenience shopping centres in the US. Jennet says the company will continue with its proactive asset management strategy, while prioritising tenant retention and market-appropriate letting strategies. Emira’s net asset value decreased year-on-year by 14.6% to 1 530c apiece as a result of an increase in net derivative liabilities – following decreased interest rates in both South Africa and the US and a weaker rand. In addition, Emira continued its record of realistic property valuations and decreased its portfolio value by a carefully considered 8.5% in light of deteriorating macroeconomic conditions and the poor outlook.
With property values being the denominator in loan-to-value (LTV) ratios, this indicator naturally increased from 37% to 43%. Emira’s long-term LTV target remains below 40%. Meanwhile, Emira has completed construction of six solar photovoltaic plants, bringing energy savings of 6 832 kWh; two more PV farms are due to be completed soon, bringing an additional projected energy saving of 2 284 kWh. Van Biljon says businesses continue to be under strain with increased risk of tenant failures and the leasing of vacant space remaining uncertain. Future rental growth and escalations are under pressure, as well as supply from power and water utilities. However, opportunities lie in increased e-commerce activity and a fast-track to online shopping, as well as in changing demand requirements for commercial office space. Emira has resolved to not provide an earnings and distribution guidance, but management has a targeted key performance indicator for distributable earnings of 119.7c apiece for the financial year ending June 20, 2021.