Emira Property Fund (JSE: EMI) reported a half-year dividend of 52 cents per share and distributable income of R333.7m for the six-month interim period to 31 December 2020.
Emira is invested in a quality, balanced portfolio of diverse office, retail, industrial and residential properties. It has 78 directly-held properties valued at R9.9bn in South Africa and equity investments in 10 grocery-anchored open-air convenience shopping centres in the USA. Its portfolio is diversified across property sectors and internationally in a combination of directly-held assets and co-investments with partners who are experts in their respective fields. The Emira portfolio is structured for adaptability to deliver stability and sustainability through different economic and property cycles.
Geoff Jennett, CEO of Emira Property Fund, comments, “In the context of the current uncertain and challenging operating environment, these results reflect the robustness of Emira’s business, portfolio and processes. A key feature of a REIT investment is its cash-backed income component and at Emira we believe that if we can reasonably pay dividends while still protecting our business’s longevity, we should. We are confident that our decision to pay an interim dividend, albeit at suitably conservative levels, is the right one for our shareholders.”
Emira also continued to look after the interests of its tenants, staff, service providers, portfolio of assets, co-investors, funders, communities, and environment. “It is our actions in all these areas that come together to form a sustainable business,” notes Jennett.
Continuing efforts to ensure as many of its tenants as possible survive the COVID-19 pandemic lockdowns’ adverse effects, Emira provided support to 363 tenants with a further R17.8m in permanent rental remissions during the six months. This relief supported some high-risk tenants including gyms, restaurants and entertainment venues. Emira expects to consider further rental concessions in the second half of its financial year, on a limited case-by-case basis.
During the six months from July to December 2020, the effects of the pandemic and its various lockdowns in South Africa continued to batter the local economy, business confidence and household spending placing massive pressure on all key property metrics.
While Emira’s overall direct South African portfolio vacancies edged up from 4.1% to 5.9%, they remained low relative to national averages. Emira’s only directly held residential property, The Bolton, increased its occupancy from 80.9% at the start of the period to 97.5% at the close.
Emira enjoyed a pleasing improvement in rental collections, with collections as a percentage of billings at 99% for the six months ended 31 December 2020. The collection of deferred rentals, in particular, was better than anticipated at 80%.
Emira achieved impressive tenant retention of 83% by gross lettable area (GLA), the largest renewal being the South African Local Government Association at Menlyn Corporate Park in Pretoria, for over 7,000sqm. In addition, it concluded some new leases during the period, the largest being iMvula Healthcare Logistics in 3,500sqm at 1 Medical Road in Johannesburg.
“Overall, the outlook remains challenging and uncertain with further increases in vacancies and reversions still ahead for the property sector. More than ever before, Emira is focusing on maintaining its occupancy levels by retaining existing tenants. Close tenant relationships promote the understanding and agility to deliver appropriate, good quality, well-priced space, which benefits tenant retention and attraction. The manner in which the Emira team has supported and collaborated with our tenants through the pandemic has strengthened relationships, positioning them well for the future, and I commend our people and partners for this achievement.”
As part of its strategic asset management, Emira has an ongoing capital recycling programme and, under this focus area, Emira disposed of a Gauteng building to its tenant, Steiner Services. The R34.5m sale price realised a 17% premium to book value and an exit yield of 8%, supporting Emira’s realistic property valuations. It has two assets valued at R171.3m held for sale.
Emira continued to maintain and improve its properties while scrutinising capital expenditure. Fortunately, consistent investment into the portfolio over the years has ensured that its portfolio remains relevant and attractive on the whole. Elevating energy efficiency and water conservation remains a focus area of its capital improvements. Its photovoltaic (PV) solar programme’s positive environmental and operational impacts were further enhanced with two new installations completed and one commenced during the period.
“We continue to expedite alternative energy supply, water harvesting and back-up power projects in light of utilities supply disruption and the overinflated increases of utilities, rates and taxes costs,” notes Jennett. Emira kept a keen focus on containing costs. Even so, its property expenses increased 5.9% during the six months.
Emira’s equity-accounted investments – Transcend Residential Property Fund, Enyuka Property and its USA investments – delivered R118.3m of distributable income for the half-year.
A 34.9% stake in specialist JSE Main Board listed REIT Transcend gives Emira indirect exposure to the residential rental property sector. Transcend’s total property portfolio is valued at R2.5bn, and Emira received R23.4m of distributable income from Transcend.
Through Enyuka, a dedicated rural retail property venture with One Property Holdings, Emira invests in 24 lower-LSM shopping centres valued at R1.7bn. Notwithstanding the economic impacts felt during the six months, the rural retail sector outperformed all other retail sectors, resulting in lower-than-expected rental concessions granted. Emira received R41.9m of income from Enyuka via interest on its shareholder loan, as well as an asset management fee of R2.3m.
On the international front, Emira invests in grocery-anchored dominant value-orientated convenience retail centres in robust markets in the US with the Rainier Companies, and Emira’s share had a carrying value of R1.4bn at the close of the period. The type of property in which Emira invests in the US performed better than enclosed malls and lesser quality properties in the context of COVID-19. They are geared towards communities, provide essential goods and services especially with grocer anchors, focus on the popular value retail segment, have quality tenants, and offer open-air environments where people feel safe. The period was defined by reduced COVID-19 restrictions, more government stimulus and relief, fewer tenant requests for rental relief, and a high 100.4% collection of all rentals billed. Distinguished by sound property fundamentals and a high-quality tenant base, the portfolio has a weighted average lease expiry of 5.9 years. With limited leases up for renewal, a positive rental reversion of 1.5% was achieved, but, as expected, vacancies increased from 5.2% to 8.5%. Vacancies should reduce by year-end with deals that focus on high credit-quality tenants. Distributable income received by Emira from its investments in the US was R72.7m.
Emira reduced its direct portfolio value by a carefully considered 3.6% for the period and, in accordance and taking into account a reduced derivative liability number, its net asset value (NAV) decreased by the same percentage.
The REIT continues to benefit from diversified sources of funding and has facilities across all major South African banks. Emira met all commitments to its funders and reduced its finance costs by lowering its debt levels and as a result of lower interest rates. It reduced its loan-to-value (LTV) ratio slightly from 43% to 42.5%, as it moves closer to its long-term LTV target of below 40%. Emira closed the interim period with a group interest cover ratio (ICR) of 3-times. Global Credit Rating Company affirmed Emira’s corporate long-term credit rating of A(ZA) and short-term rating of A1(ZA) with a negative outlook, in September 2020. At 31 December 2020 it had access to undrawn facilities of R720m and cash on hand of R122.6m, which adequately covers short-term commitments.
Continuing its good business journey, Emira made a significant improvement in its B-BBEE rating, moving from a level 5 to a level 2 contributor, with a verified effective 76.68% black ownership. The improvement furthers Emira’s positive role in the economy and society.
“At Emira, our numbers show that we are consistently doing all the basics, and doing them well, even in an exceedingly difficult environment. We are encouraged by the possibility of an ongoing low-interest-rate environment and the potential for economic recovery increasing towards the end of 2021 provided that the rollout of vaccines goes ahead successfully. Emira will continue to protect and generate value for our stakeholders with a robust balance sheet, well-funded and sustainable operations, and a diversified, balanced portfolio of quality properties,” Jennett concludes.
Given the current uncertainty, Emira’s reiterated it would not provide earnings and distribution guidance until such guidance is highly probable. However, it reaffirmed its management KPI target for distributable earnings of 119.7 cents per share for the year to 30 June 2021.