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Emira pre-close operational update ended 30 September 2024

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Shareholders and noteholders are referred to the Fund’s half-year results announcement for the six months ended 30 September 2024 (“interim results”), released on SENS on 13 November 2024. The Company wishes to provide an update to investors regarding the operational performance of its investments.

SA Direct local portfolio

Commercial portfolio

Despite a challenging economic environment, the local commercial portfolio, consisting of retail, industrial, and office properties, has delivered a resilient performance, meeting expectations for the 10 months ended 31 January 2025 (“the period”). Total vacancies across the portfolio increased to 6,8% (by GLA) at the end of January 2025 (September 2024: 3,9%). The increase was primarily due to RTT at RTT Acsa Park reducing their space from 46 673m² to 30 833m² and the impact of disposals over the period. Tenant retention remains a key focus, with 77.5% (by Gross rental) of matured leases being retained. The weighted average total reversions for the period have improved at an overall -4,2% (September 2024: -6,8%).

The Fund’s weighted average lease expiry (“WALE”) at the end of the period remained stable at 2,8 years (September 2024: 2,8 years), while average annual lease escalations remained similar at 6,4% (September 2024: 6,5%).

Collections vs billings for the period were 97.5%

During the period, 26 properties were transferred out of the Fund, generating total gross proceeds of R2.4 billion. These disposals comprised 5 retail properties, 10 office buildings, and 11 industrial parks.

Emira’s experience on the key individual sectors is as follows:

Retail:

Retail vacancies at the end of the period increased slightly to 4,4% (September 2024: 4,2%). The WALE is similar at 3,1 years (September 2024: 3,2 years) and 81,9% (by gross rental) of maturing leases in the period were retained. Total weighted average reversions for the period have improved to -0.9% (September 2024: -4,0%).

Emira’s retail portfolio of 12 properties consist mainly of grocer-anchored neighbourhood and community shopping centres, the largest being Wonderpark, a 91 038m² dominant regional shopping centre located in Karen Park, Pretoria North.

Office:

Office vacancies at the end of the period increased to 9,7% (September 2024: 9,4%). The WALE has improved slightly to 2,6 years (September 2024: 2,5 years) and 57,0% (by gross rental) of maturing leases in the period were retained. Total weighted average reversions for the period have improved to -5,8% (September 2024: -9,6%).

Emira’s office portfolio consists of 10 properties, the majority of which are P- and A-grade properties. The sector’s fundamentals remain depressed, with low demand continuing to limit real rental growth.

Industrial:

Industrial vacancies at the end of the period increased to 7,8% (September 2024: 0,7%) due to RTT at RTT Acsa Park reducing their space requirements. The WALE has decreased to 2,7 years (September 2024: 2,9 years) and 73,2% (by gross rental) of maturing leases in the period were retained. Total weighted average reversions for the period have declined to – 10,8% (September 2024: -7,9%).

Emira’s 21 industrial properties are split between single-tenant light industrial and warehouse facilities and multi-tenant midi- and mini-unit industrial parks.

Residential portfolio

The residential portfolio consists of 3 389 units (September 2024: 3 588) located in Gauteng and Cape Town.

Vacancies across the residential portfolio were 4.0% (by units) as at 31 January 2025 (September 2024: 5,0%), which was higher due to the held-for-sale units, and if these held for sale units are excluded, the vacancies were 2,9%.

Collections vs billings for the period under review were 98,4%.

In line with the Fund’s recycling strategy 386 residential units have transferred during the period, realising gross disposal proceeds of R312,9m.

USA

The US portfolio now comprises 11 equity investments, down from 12 in September 2024, in grocery anchored, value orientated, open air power centres. During the period, Emira and its co-investors successfully completed the sale of San Antonio Crossing, realising gross proceeds of USD28,2m (an 8.87% premium to book value) upon transfer on 18 December 2024. Emira held a 49,50% equity stake in San Antonio Crossing.

As at 31 January 2025, vacancies across the remaining 11 properties had increased to 3,9% (September 2024: 3,5%), mainly due to the bankruptcy of Conn’s (40 120 SF), the home goods retailer at Wheatland Towne Centre. The underlying properties are performing in line with expectations.

DL Invest Group S.A (“DL Invest”)

DL Invest is a Luxembourg-headquartered Polish property company. Through its subsidiaries (collectively the “DL Group”), it develops and holds logistics centres, mixed use/office centres, and retail parks across Poland. Through its internal structure, which includes approximately 230 employees, the DL Group’s business model assumes full implementation of the investment process and actively manages projects as a long-term owner.

Following shareholder approval at the general meeting on 17 March 2025, Emira exercised its Tranche 2 Subscription Option, and on 20 March 2025 subscribed for an additional 113 new B Shares and 113 9% Loan Notes, with each Loan Note linked to a B Share to form a Linked Unit (the “Tranche 2 Subscription”). This increased Emira’s stake to 45% of the total DL Invest shares. The total consideration for the Tranche 2 Subscription was €44.5m, comprising €8.9m for the B Share subscription and €35.6m for the Loan Notes. The Tranche 2 Subscription was funded through a new 5-year Euro debt facility, with a fixed interest rate of 4,71%.

As at 31 December 2024, the DL Group holds a portfolio of 38 properties (excluding land and properties under development) with an estimated value of approximately €670m. This portfolio consists of logistics/industrial properties (67% by value), retail properties (11% by value), and mixed- use properties (22% by value). Additionally, as of the same date, the DL Group owned land and properties under development with a combined carrying value of €182m.

As at the 31 December 2024, total vacancies across the DL Invest portfolio increased to 3,2% (September 2024: 2,0%), while the WALE remained at 5,5 years.

Capital management and liquidity

As at 28 February 2025 the Fund had unutilised debt facilities of R1,09b together with cash-on-hand of R349,2m. This was bolstered in March 2025 by a new 5 year €45m term debt facility from Rand Merchant Bank to fund the DL Invest Tranche 2 Subscription.

The Fund’s loan-to value ratio (“LTV”) decreased to circa 34,1% as at 28 February 2025 (September 2024: 42,0%) because of disposal proceeds received on properties that transferred post 30 September 2024 being used to reduce debt. Following the DL Invest Tranche 2 Subscription the LTV has increased and is expected to close at c. 36% – 37% by 31 March 2025.

Conclusion

The Fund is on track to exceed its objectives for FY25.

Emira expects to release its results for the full year ended 31 March 2025 on Wednesday, 28 May 2025.

Growthpoint unveils second phase at Arterial Industrial Estate 

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Growthpoint unveils second development phase for Cape Town’s Arterial Industrial Estate 

85% of the first phase is already let with keen demand for this prime location

Construction of the new Arterial Industrial Estate in Cape Town is steaming ahead, with Growthpoint Properties (JSE: GRT) having moved into phase two of the world-class development.

Arterial Industrial Estate is a development by Growthpoint on a 71,656sqm site in the heart of Blackheath, a growing and modernising industrial node in Cape Town.

After phenomenal success with phase one, during which national and international tenants snapped up 85% of available space, Growthpoint has launched phase two of the Arterial Industrial Estate development.

Growthpoint’s decision is in response to growing demand for space — as seen in four out of five industrial units released in the first phase of the new development, which commenced construction in July 2023 and was completed in April 2024, already being taken up by tenants. Only a single unit of 3,503sqm, perfect for light industrial businesses, remains in the phase.

The first phase of Arterial Industrial Estate spans 19,741sqm, originally featuring six warehouse units, each with a two-storey office block. Jotun, a leading decorative paints and coatings manufacturer, was among the first to secure space at Arterial Industrial Estate, opting to combine two units for its new and larger head office premises of 5,713sqm. Other tenants with facilities at Arterial Industrial Estate include well-known logistics companies Nexus Fulfilment and RTT, as well as leading tyre distributor ATT Auto Truck & Tyres.

Growthpoint has started phase two of construction, which will add 21,840sqm of lettable space, more than doubling the size of Arterial Industrial Estate. This second phase will add a further six warehouse units, ranging from 2,945sqm to 5,713sqm, enhancing the estate’s capacity to cater to diverse business needs. Arterial Industrial Estate Phase Two will be ready for occupation from March 2025.

Timothy Irvine, Growthpoint’s National Client Experience and Western Cape Asset Manager, says the new phase of the development is already seeing great interest from potential tenants. “The demand for space at Arterial Industrial Estate is unsurprising, considering the development’s central and attractive location and the steady demand for industrial space currently being experienced in Cape Town.”

Arterial Industrial Estate is close to Cape Town International Airport, public transport nodes, and arterial routes important for South Africa’s economic activity. The estate is close to the R300, N1, and N2, with prominent visibility along the Stellenbosch Arterial Road highlighting its effortless link to the winelands.

Irvine says Arterial Industrial Estate’s proximity to arterial roads, and the country’s air and sea ports network, makes it a sought-after physical address in Cape Town. “Businesses situated at this prime location can efficiently connect with both local and global markets.”

Growthpoint’s experience in logistics and industrial property investment and development enhances the experience for existing and would-be tenants at Arterial Industrial Estate. The estate boasts 24-hour security and access control, flexibly sized warehouse and office space, and measures for efficient water and energy use. Phase one of the Arterial Industrial Estate has seen the installation of solar panels, which is set to help tenants secure sustainable energy.

The estate has achieved a 4-Star Green Star certification in the industrial property category from the Green Building Council of South Africa. This is aligned with Growthpoint’s goal of making its vast portfolio of properties environmentally sustainable. Growthpoint’s climate commitment target is being carbon neutral by 2050. Its sustainable business practices help tenant businesses towards their own ESG goals and support long-term cost savings for its clients. 

Value in the current oversupply of commercial property space

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At these levels, there’s value in the current oversupply of commercial property space 

For the past seven years, South Africa’s listed property sector has been in the doldrums. A toxic cocktail of economic weakness leading to rising vacancies, the devastating impact of COVID-19 lockdowns and higher interest rates, and the added burden of load-shedding and various other costly utility challenges, created a perfect storm. It brought cruel headwinds for property owners that have left investors wary. But the winds of change are blowing.

Listed property share prices are starting to show an increased value proposition and this will inevitably lead into the physical commercial property market.

So far, in 2024, real estate investment trust REIT returns are up in excess of 50%.

Nowhere are signs of a real estate turnaround more evident than in the Western Cape, where offices that sat vacant just 18 months ago are now full.

The semigration trend to the province is part of this. But it’s not the whole story. Improving sentiment post the Government of National Unity (GNU), less loadshedding easing strain and costs, and the first reduction in interest rates, together with the expectation that they will fall further, are country-wide factors all contributing to a surge in sentiment and confidence.

In addition, most corporates are now insisting on a return to in-office work, resulting in a greater need for office space. This spells opportunity – particularly in Gauteng, which is the hub of South Africa’s economic engine, and where vacancies are still prevalent.

There’s more value to be unlocked

Successful investors look further than headlines to find value. And, as the economy starts to stir, savvy investors can scent opportunity.

Property is inherently cyclical, and it’s starting to pick up the first gusts of coming tailwinds. Yes, the sector still has an oversupply to digest, but there’s value in it if acquired at the current low pricing levels. As offices fill up and economic sentiment improves, their values will increase commensurately.

With the anticipation of reduced vacancy levels, property investment becomes more attractive, and the prospect of new developments becomes increasingly feasible, drawing investors and speculators back into the market. It’s a potentially tantalising prospect after years of stagnation.

Disciplined, sustainable growth

In fact, the future prospect is more alluring than it has been for a long time. This is even true in the local REIT sector, where we still see share prices that significantly undervalue their businesses, but with the incoming tailwinds, we will inevitably see an acceleration towards the recovery on the horizon.

When market sentiment overshoots fundamentals, long term investors like Emira stay focused on what makes business sense, not getting caught up in the hype –  acquiring at below value in places where economics are suppressed and disposing when values are full. It all comes down to strategic capital allocation and responsible growth. When markets show extreme dislocations from value, that is the time to to move and take advantage of what will eventually show as long-term value creation.

Demonstrating its agility and business sense, Emira’s recently sold off its portfolio in sought-after Cape Town at what it perceives as fuller value. This strategically aligned move freed-up capital to be deployed in Poland, where returns are extremely enticing (undervalued with strong economic growth prospects) and where we had identified the right entry point (co-invested into equity with local partners with growth aspirations) – a decision that makes business sense for Emira in its pursuit of diversification and value creation.

The stage is set for a long-awaited turnaround

Rising REIT returns, reducing vacancies, and returning office appetite all point to a sector in recovery mode. The property cycle is turning, and those with a keen eye for value are already taking notice.

The South African property sector still has meaningful operational and infrastructure hurdles to overcome, but the winds of change are starting to blow and, with a nuanced understanding of the sector and a discerning eye for emerging potential, there’s substantial value in listed property stocks right now with further value to be found in the future

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