JSE-listed real estate investment trust (Reit) Emira Property Fund has increased its net asset value a share by 4.2% to R16.97 a share for the nine months ended March 31, and declared a final dividend of 30.35c a share, taking its dividend a share for the nine months to 96.78c a share.

The company has changed its financial year end to fall on March 31 and, while the results for the nine months are not directly comparable to its prior full-year figures, the company is firmly focused on its strategic progress and operational metrics.

“The company is in good shape,” said Emira Property Fund CEO Geoff Jennett during a presentation of its financial results.

Distributable earnings for the nine months were R558-million, compared with R673.9-million for the financial year ended June 30, 2022.

The positive nine-month performance was a result of consistent strategic delivery, unlocking value from investments, a strong balance sheet and the added advantage of various capital recycling initiatives, he said.

The group reduced its vacancies to 4.7% over the period from 5.3% at the end of June 2022. All sector vacancies were well below benchmarks. Rental collections were 101.6%, said Emira Property Fund COO Ulana van Biljon.

“The office sector remains under pressure, and a recovery in the office sector is dependent on good economic growth. Looking forward into the 2024 financial year, the 12.5% vacancy rate in the office sector [down from 15% at the end of June] could come under pressure and could increase," she added.

Meanwhile, Emira's balance sheet remained healthy. The weaker rand had also contributed to an increase in value of Emira’s US investments and the income they generated from a rand perspective, said Emira Property Fund CFO Greg Booyens.

The group's loan-to-value (LTV) ratio had been temporarily elevated to 44% from 40.5% in June owing to strategic initiatives undertaken during the year, specifically those related to retail-focused Reit Transcend. However, the LTV was expected to trend down as other initiatives were concluded in the new financial year, he said.

“Emira’s balance sheet remains healthy with a more than adequate 2.9-times interest cover ratio, unused debt facilities of R376.2-million and cash-on-hand of R125-million. Debt metrics remain comfortably within covenant levels," he said.

Further, its commercial portfolio benefitted from R146.5-million in tactical upgrades, many of these focused on energy efficiency, solar plants and installing backup power in response to South Africa’s electricity crisis.

“Emira’s environmental, social and governance strategy supports the sustainability of its properties by prioritising energy efficiency, water conservation and biodiversity,” said Jennett.

The group's energy efficiency improvements and renewable solar power drives had accelerated into top gear in response to increased loadshedding. These initiatives helped manage risks to energy and water security and the environment, he added.

“Decreasing energy and water security, and rising costs for rates, taxes and utilities pose major risks for the entire property sector. Loadshedding increases the cost of doing business, intensifying the risk of tenant defaults and business failure,” he emphasised.

Around 79% of the gross lettable area in Emira’s commercial portfolio had full backup power, including tenant generators. With the increased need for backup power, Emira’s diesel costs rose substantially for the nine months to R27-million from R4.9-million for the prior 12 months. Emira recovered 84% of these costs, said Van Biljon.

As part of Emira's environmental initiatives, it has 9 solar photovoltaic plants with more than 26 000 panels that generated about 8 200 MWh of power for the company, reducing its emissions by around 8 200 t of carbon dioxide equivalent.

Water efficiency remained a focus for the Emira operations team, and it was also pursuing rain- and groundwater harvesting. It produced the equivalent of 30 Olympic-sized swimming pools of water across its properties, she highlighted.

Further, Emira had beehives at five sites that produced 85 kg of honey, which was shared among staff and tenants on site to support the group's biodiversity awareness and preservation efforts, she added.

OUTLOOK
The company was focusing on the diversity of its portfolio during the coming year, said Jennett.

“When times are challenging, such as they are currently, diversification is important, as greater diversification provides more tools with which to overcome challenges, and limits risks of overexposure to one economy or asset type. This will receive more focus from us,” he said.

Driving diversification requires liquidity, and Emira had ensured that it had greater liquidity, he added.

“Our South African and US portfolios delivered pleasing operational performances, notwithstanding local and global challenges. The solid results extend Emira’s consistent track record of reliable performance, and our leasing success and lower vacancies are clear indicators of an attractive and sustainable portfolio.

“During this period of change, we remain focused on fundamentals and managing the elements within our control. As a diversified fund, Emira has several levers at our disposal, all of which are working well to ensure that we are stable, have lower risk and are attractive to the market,” he said.

In the US, Emira’s 12 equity investments, which are grocery-anchored, dominant and value-oriented centres, total R2.7-billion. The gradual but consistent positive growth in the US economy and low unemployment, at 3.5%, supports Emira’s investment in US open-air centres with a high-quality tenant base focused on popular value retail and essential goods and services.

The group selected robust markets with sound property fundamentals. Its US portfolio remained strong, said Jennett.

“We are continuously looking at opportunities to invest in the US. It is important for us to only proceed when it makes commercial sense and meets all of our strategic criteria.”

The US remains a challenging environment to acquire property owing to the high interest rates and the debt uncertainty.

“However, given a right corner retail site and essential services, we have not seen a stronger leasing market in 15 years. We will remain fussy and particular in terms of investments, but we are looking to gain exposure to an underlying stronger economy that is not facing the types of headwinds we have in South Africa,” he said.

Meanwhile, Jennett highlighted that the group had set an executive performance target to distribute 118.48c a share during the coming financial year.