Geoff Jennett, CEO of Emira Property Fund, attributes the positive performance to successfully unlocking value from investments, a strong balance sheet and the added advantage of various liquidity-strengthening capital recycling initiatives.
Jennett reports, “Our twelve-month financial period can't be directly compared to the previous nine-month year, but even so, it is crystal clear that our strategy is paying off, and the numbers are headed in the right direction. Both our SA and US portfolios delivered pleasing operational performances, notwithstanding local and global challenges.
Our leasing success and low SA commercial vacancies - down from 4.7% to 4.1% over the year - and high and stable residential occupancy of 97.4%, are positive proof of a portfolio that's attractive, competitive, flexible and built to deliver sustainable value.”
He adds that Emira expects to deliver marginally higher distributable income for its current financial year to 31 March 2025. This is despite ongoing low-growth expectations for South Africa, persistently high interest rates and general market uncertainty.
Emira’s diversified portfolio is balanced to deliver stability and sustainability through different cycles with a mix of assets across sectors and geographies and through direct property holdings and indirect property investments with specialist third-party co-investors.
During the year, Emira made significant strides in strategic capital recycling that has noticeably reshaped its portfolio and extended its established track record of successful deal-making.
It finalised the scheme of arrangement for the residential specialist Transcend Property Fund in a takeover that boosted its exposure to the defensive residential property sector and sold its share of the lower LSM retail-focused Enyuka Property Fund.
It also concluded various direct non-core property disposals, including two industrial properties at sale prices significantly above book value. Sales of R596.0m were transferred during the year, and a further substantial R2.4bn is due to transfer in the next six to twelve months, including Emira’s post year-end sale of 13 office and industrial properties in the Western Cape to Spear REIT.
“Our capital recycling creates capacity and flexibility for Emira, demonstrating the effectiveness of our diversified strategy to seize opportunities with better growth prospects that align more closely with our long-term strategic objectives. Emira has several levers at our disposal, all of which are working well and enable us to pivot towards opportunities that ensure we are stable, have lower risk and are attractive to the market. This year, we have established a particularly strong liquidity position, which will be further bolstered by the R2.4bn of proceeds from upcoming transfers,” notes Jennett.
Emira’s directly held portfolio consists of 90 properties located in South Africa worth R12.1bn, which are split between the commercial - retail, office, industrial - and residential sectors. Emira now holds 19% of its assets in indirect property investment in equity investments in 12 US-based grocery-anchored open air shopping centres, for which Emira has unanimous voting rights on all major decisions.
Its partnership with The Rainier Companies in the stable US economy serves as a strong defence against current global economic challenges and subdued growth in South Africa.
Its direct commercial portfolio is split between urban retail (43% of directly held SA portfolio value), office (24%) and industrial (14%). All sector vacancies are well below the applicable benchmarks, reinforcing Emira’s effective leasing strategies.
Its 17-property strong directly held retail portfolio of primarily grocery-anchored neighbourhood centres catering to their communities is trading well with improved metrics. The total weighted average rental reversion lifted from -5.5% to -0.5%.
Vacancies were a low 3.9%, tenant retention was stable at 88.7%, and the weighted average lease expiry (WALE) was steady at 3.2 years.
Despite depressed fundamentals in the office sector, Emira’s portfolio of 20 mainly P- and A-grade office properties saw key operational metrics move in a positive direction. Improved office vacancies moved down from 12.5% to 10.9%. The total weighted average rental reversion lifted from -14.8% to -6.3%. Tenant retention was 59.1% and the WALE was maintained at 2.7 years.
Emira’s diversified industrial portfolio of 32 properties enjoyed strong demand and delivered defensive performance. The portfolio is near full occupancy, with vacancies decreasing from 2.1% to 0.7%. Emira leveraged the robust demand when negotiating lease terms, and rental reversions improved from -6.5% to -4.8%. Tenant retention increased to 84.6%, and the WALE improved to 2.1 years.
Residential rental assets increased from one to 21 properties over the year – or 19% of Emira’s directly held SA portfolio – and include The Bolton in Rosebank, Johannesburg, and 20 properties from Transcend. The portfolio of 3,775 units is split between Gauteng’s (87% by value) and Cape Town’s (13%) high-demand areas. With a 2.6% vacancy, excluding units held for sale, the portfolio is achieving rental growth, as demand for rental accommodation rose in response to the elevated cost of owning property due to higher interest rates.
Overall, the commercial portfolio benefited from R168.2m in tactical upgrades, including various sustainability-driven initiatives, reconfigurations and refurbishments.
Emira also invested R25.3m into its residential portfolio, mainly to focus on making buildings more resource-efficient and backing this up with Edge certifications, as well as enhancing lighting and safety at properties during power cuts.
“Deteriorating municipal infrastructure remains a concern, as our properties and the entire real estate sector rely heavily on it. Difficulties with electricity, water, and other essential services with rising associated costs make it tough for Emira and our tenants to operate effectively. In response to these challenges, Emira has fast-tracked projects to harness solar power, save water, and install backup systems so that when services fail, our tenants can keep their lights on, their doors open, and their businesses thriving. We also remain committed to saving energy at our buildings, thereby reducing tenants’ operating costs. Emira’s ESG strategy and our environmental action set our properties apart and make them an excellent choice for any business,” notes Jennett.
Emira’s 12 equity investments in US grocery-anchored dominant value-oriented power centres total R2.8bn (USD147.1m). The US economy remains on a stable footing with GDP growth of 3.4% for the quarter ending 31 December 2023 and 1.6% for the quarter ending 31 March 2024, coupled with low unemployment. This environment supports Emira’s investment in US open-air centres focused on popular value and needs-based retail in robust markets.
Sound property fundamentals and a high-quality tenant base supported US portfolio vacancies of a low 3.6%, with positive rental reversions of 5.8% and a consolidated WALE of portfolio 5.0 years. It delivered a solid performance, adding R222.6m to Emira’s distributable income.
Emira’s balance sheet remains healthy, with a more than adequate 2.3x interest cover ratio and a loan-to-value ratio that decreased from 44% to 42.4%. It reported unutilised debt facilities of R1bn and cash on hand of R180.8m. Emira has a strong and diversified financial foundation, with support from major South African banks and the proven ability to access the debt capital markets. During the year, GCR affirmed Emira’s corporate long-term credit rating of A(ZA) and corporate short-term rating of A1(ZA), with a stable outlook.
Jennett concludes, “By creating the ability and flexibility to recycle capital we are able to reallocate resources to diversify our investments in those with better growth prospects. This solid set of results and our expected marginal increase in distributable income for FY25 reinforce Emira's consistent track record of reliable performance. We will continue to focus on Emira’s strategic direction, operational excellence and portfolio-enhancing capital recycling.”
