Further update on the impact of covid 19 on Emira’s business, trading statement and appointment of directors
Further to the announcement released on SENS on 25 March 2020, the Company wishes to update shareholders regarding the impact of COVID-19 on its South African and United States of America (“USA”) operations, together with other relevant information, prior to its year-end on 30 June 2020 when it will enter a closed period.
As is well known, the impact of COVID-19 on the South African economy is severe, with the ultimate effects on the overall commercial and trading impact still to be determined. The current operating environment is extraordinary and fluid, changing constantly.
Constraints on consumer spending will have a direct effect on retailers’ trading numbers, which could potentially push national and regional retailers to reduce their number of shops and/or trading areas. Consumers’ shopping patterns, including the frequency of their visits to shopping centres, may take some time to return to pre-COVID-19 levels. Businesses are also improving online and delivery technology to complement/improve their sales.
Demand for commercial office space and tenants’ requirements may change, not only due to the risk of business failures, but also with more employees working from home. That said, social distancing could potentially increase space requirements of office tenants.
Emira has taken a long-term view when assessing the type and level of rent relief provided to tenants. Tenant sustainability has been at the forefront of our considerations, to ensure that as many tenants as possible survive this period. A considerable amount of time has been spent engaging with tenants, both directly and through collective industry initiatives, to understand the impact of the COVID-19 related lockdown on their businesses.
Emira has shared the burden by aiding most of its tenants, with a particular focus on those tenants hardest hit by the lockdown, specifically those unable to trade and Small, Medium and Micro Enterprises (“SMMEs”). Concessions in the form of gross rental deferrals and/or rental remissions have been provided to tenants, depending on their specific circumstances, for the months of April, May and June 2020 and certain negotiations are still underway. The rent deferrals provided have payment terms ranging from three to nine months, with the majority of deferred rentals being payable in nine equal instalments, commencing October 2020. From a commercial perspective, it is more efficient for Emira to invoice the deferred portion of rentals only when payable, hence the applicable deferred rental portions have been credited in April, May and June 2020, respectively.
The table below illustrates the extent of relief given for April, May and June 2020, expressed as a percentage of the original contractual rental, together with the rental collected as a % of both the contractual rental billed and the contractual rental billed adjusted for rent relief.
The extent of the rental concessions granted to the 1 152 SMME tenants across Emira’s direct portfolio totals approximately R74.9 million and demonstrates the extent and focus we have on sharing the burden with the tenants that are hardest hit by this pandemic. Collection rates are expected to increase as the lockdown eases and tenants’ trading improves.
A similar approach was adopted with the Enyuka portfolio in respect of rent relief granted to tenants. The table below illustrates the extent of relief given for April, May and June 2020, expressed as a percentage of the original contractual rental, together with the rental collected as a % of both the contractual rental billed and the rental billed adjusted for rent relief.
In the USA, Emira’s portfolio of ten co-owned power centres have fared moderately in the wake of the COVID-19 pandemic. The properties are located in seven states (Florida, Georgia, Indiana, Missouri, Ohio, Oklahoma and Texas), each of which has applied their own level of restrictions on businesses, travel and “stay-at-home” orders. Most states applied restrictions from as early as March, with the earliest easing of restrictions commencing in May. Currently, few restrictions remain, relating mostly to capacity restrictions in restaurants, bars, etc. and places of entertainment. Nonetheless, the restrictions seen in the USA were far less stringent than those seen in South Africa, with most businesses being allowed to trade if they adhered to certain regulations. This saw many of the portfolio’s tenants utilise e-commerce to supplement normal trade, coupled with delivery or “kerb-side” pick up of products, and most restaurants were able to provide take out services. Smaller tenants were able to access significant federal funding through the CARES Act. Despite this, overall retail sales were estimated by the US Census Bureau to have dropped some 14.7% from March to April, and then improved by approximately 17.7% from April to May.
Considering the open-air nature of Emira’s centres, the fact they are shadow anchored by major grocer retailers and the high credit quality and value offering focus of the medium-sized to larger tenants, trading at these properties has been far less impacted compared to traditional enclosed malls. To date, collections and assistance given to tenants is as follows:
To date, negotiations have been concluded or are in advanced stages with tenants representing approximately 73% of total rental income.
*Reflective of collections as at 18 June 2020
Owing to the credit quality of our US tenants, relief has generally taken the form of deferments of a varying portion of rentals for April, May and June, typically with expense recoveries not being deferred. In the uncommon instances of rental abatements being given, the landlord generally received equal economic benefit through various means, including lease extensions and/or reduction in future tenant installation commitments. Although May and June trading has increased as restrictions have eased and illustrated the benefit of the value offering of many of the US portfolio’s tenants, the pandemic has put significant pressure on many retailers that were in difficult positions prior to the pandemic. The Company is confident that the US portfolio will continue to attract and retain retailers that are able to weather the crisis and trade successfully into the foreseeable future.
The Company completed the disposal of the balance of its GOZ shares in June 2020. The proceeds received have been used to reduce debt and the corresponding Australian Dollar cross currency interest rate swaps were settled in full.
Capital management and liquidity
Emira entered the COVID-19 lockdown with a strong balance sheet, given its lower debt levels and prudent approach to valuing assets. As at Tuesday, 23 June 2020, the Company had a total of approximately R680 million available in cash and undrawn debt facilities.
Emira has a diversified funding base. On 20 May 2020, a new two-year R200 million debt facility was put in place with a local bank. On 12 June 2020, Emira repaid the maturing R200 million three-year bond, EPF012, using available debt and cash.
Emira has R509 million of debt maturing in the six months ended 31 December 2020 and a further R1.2 billion that matures in the six months ended 30 June 2021, all of which are anticipated to be refinanced.
The Company is in advanced stages of finalising two new facilities to further bolster its liquidity and has R2.6 billion of unencumbered, directly held properties available for security.
While base interest rates have declined over recent months, margins have increased in this uncertain environment and this trend is expected to continue. Approximately 84% of Emira’s debt is fixed at an average fixed rate of 6.1%. The weighted average duration of Emira’s interest rate hedges is 3.0 years, with the US Dollar cross currency interest rate component, on a stand-alone basis, being 4.5 years.
At 31 December 2019, Emira reported a loan-to-value ratio of 35.1% (as measured by the majority of the Company’s lender banks) and an interest cover ratio of 3.2 times. Whilst the rent relief given to tenants since the start of the COVID-19 lockdown will result in a reduction of the Emira’s profit for the 2020 financial year, and property valuations are likely to be negatively impacted going forward, all bank covenants are expected to be met for this reporting period and thereafter.
In line with the donations announced by President Cyril Ramaphosa and the South African Cabinet to the Solidarity Fund on 13 April 2020, all Emira’s directors, both executive and non-executive, sacrificed 30% of their April, May and June salaries or fees in favour of the Solidarity Fund, resulting in a total contribution of R1 million.
Change in directorate
Shareholders are advised that Ms Berlina Moroole has been appointed to the board of directors of Emira (“Board”) as an independent non-executive director with effect from 1 July 2020.
Berlina will be joining Rand Mutual Assurance as Chief Risk Officer. Prior to joining Rand Mutual Assurance she was an independent non-executive board member, chairperson of the audit committee and social and ethics committee as well as a member of the risk committee at Assupol. She has held several other senior management roles at different companies, including Chief Internal Audit, Risk and Sustainability Officer of the Motus Corporation as well as Group Chief Risk Officer and Group Executive for Group Internal Audit Services at Liberty Holdings Limited, and was a partner at Deloitte & Touche. Berlina is a qualified Chartered Accountant.
Shareholders are further advised that Mr James Templeton has been appointed to the Board of directors of Emira as a non-executive director with effect from 1 July 2020.
James is a representative of the iGroup, a Cape Town based property investment and development group, which owns circa 33% of Emira shares in issue. Further, he is the CEO of Castleview Property Fund and the former Chief Executive Officer of Emira. The Board welcomes Berlina and James and looks forward to their contribution to the Company.
Emira uses distribution per share (“DPS”) as its relevant measure of financial performance. In terms of the JSE Listings Requirements, the Company is required to publish a trading statement as soon as it becomes reasonably certain that the DPS for the next period to be reported on will differ by at least 15% from that of the prior corresponding period.
Shareholders are referred to the announcement released by Emira on SENS on 25 March 2020, wherein the Company advised that it had withdrawn the dividend guidance it gave on 19 February 2020 for the six-month period ending 30 June 2020, as a result of the uncertainty surrounding the financial impact of the COVID-19 pandemic on Emira.
Shareholders are now advised that, because of the rental concessions, including remissions and deferments, provided to its tenants for the months of April, May and June 2020 in response to the COVID- 19 lockdown, Emira expects its distributable earnings for the current financial year, on which its DPS is based, to decrease by at least 15% (R118 million) when compared to the distributable earnings for the financial year ended 30 June 2019.
Given the uncertainty regarding the future effects of COVID-19 on global economies, and the impact thereof on Emira’s future financial performance and position, the Board will revisit Emira’s distribution policy, which is currently to pay out 100% of distributable earnings. This, however, will only be formally considered at the Board meeting scheduled for the end of August 2020 and will take into account Emira’s financial position and liquidity forecast at that date.
A further announcement will be made once the Company has greater clarity regarding the range within which it expects its DPS for the current financial year to fall.
Year end results announcement
The Company is scheduled to release its results on Monday, 31 August 2020.
The contents of this announcement and the financial information on which it has been based have not been reviewed, audited or reported on by the Company’s auditors.