JSE-listed Emira Property Fund has posted an 18% year-on-year decrease in distributable earnings of R310-million for the six months ended September 30, mainly owing to disposals and lower income from US investments.

A higher absolute level of interest rates charged on debt during the period also impacted on the company’s distributable earnings.

Notably, Emira changed its reporting regime to a financial year-end of March 31, compared with June 30 previously, to align with its majority shareholder Castleview Property Fund.

The interim results are compared with the six months ended December 31, 2022.

Emira declared an interim dividend of 61.74c for the period, compared with a 66.43c dividend in the prior comparable six months, marking a 7.1% decrease.

Income from Emira’s 12 property investments held in the US reduced by almost 8% from R113-million in the prior comparable period to R105-milllion in the reporting period.  The US vacancy rate also increased to 3.6%, compared with 2.6% in the prior corresponding period.

The US vacancies relate mostly to the bankruptcy of Earth Fare at Woodlands Square and Party City at Stony Creek Marketplace. Further, Bed, Bath & Beyond at Summit Woods Crossing also declared bankruptcy, but has already been replaced with Total Wine & More, which is expected to open in April 2024.

Smaller lease terminations were offset by leasing, with a new lease signed with Barnes & Noble at Dawson Marketplace and Five Below expanding at Belden Park Crossings.

During the six months under review, 31 new lets and renewals were concluded, comprising a total gross leasable area of 319 915 square feet, at an average new yearly rental of $15.31/ft² and a weighted average duration of 5.6 years in the US.

This resulted in a positive reversion of 6.8% when compared to the previous rentals, where applicable. Overall, leasing activity was reasonable and resulted in a defensive lease expiry profile with 69.3% of leases expiring in five years or longer (by rental).

CEO Geoffrey Jennet explains that the company’s distributable dividend cash flow income received from US equity investments increased by R12.9-million, with both 32 East and Beldon Park resuming dividend payments. However, one-off adjustments for tenant failures meant that leasing commissions and tenant installation allowances, usually amortised across a lease period, were written off during the six months.

This impacted on Emira’s share of the accounting income but not the portfolio cash flow it receives.

Emira’s directly-held portfolio revenue increased by 12.5% in the period under review to R944-million; however, headline earnings per share (HEPS) overall decreased by 90.2% year-on-year to 7.31c, compared with HEPS of 74.66c in the prior comparable six months.

The company’s portfolio currently comprises 91 commercial, retail, residential, office and industrial properties in South Africa valued at R12.1-billion, while its offshore asset base is made up of equity investments in 12 grocery-anchored convenience shopping centres in the US, representing a total equity investment of R2.8-billion.

The company’s total direct portfolio value increased by 0.7% in the reporting period, while net asset value increased by 0.4%.

Notably, CFO Greg Booyens explains that the variances when comparing the results for the current reporting period to the comparative period are in some instances affected by one-off events in both periods, such as the sale of noncore assets and the acquisition of new assets.

The Transcend business, in particular, has had a material impact since it was only consolidated into Emira with effect from October 7, 2022 – the prior period has 86 days of consolidation impact versus a full six months in the current reporting period.

Emira made an offer to Transcend shareholders to acquire all of the remaining ordinary shares it did not own already (52.2-million) for a consideration of R6.30 apiece, with the deal having concluded on November 13.

In turn, Emira’s disposal of Enyuka closed on July 20 for an aggregate consideration of R646-million; however, the disposal only realised cash proceeds of R516-million owing to a vendor loan of R130-million having been provided by Emira to the purchaser.

Jennet says Emira’s South African portfolio has remained resilient, with operating metrics mostly improving across all sectors, while the company’s investments in the US also continue to perform generally well despite some larger tenant failures.

While the disposal of the company’s investment in the Enyuka Property Fund and Inani assets, as well as reinvestment of the disposal proceeds into debt, has negatively impacted on distributable income, the loan-to-value ratio has pleasingly reduced to 41.2% from 44% and liquidity has improved considerably, with the company having R850-million of cash on hand.

The group’s direct property assets comprise 41% urban retail, 25% office, 19% residential and 15% industrial assets. In turn, Emira’s direct-held properties comprises 81% of the total portfolio, with indirectly held properties offshore comprising the balance.

“Our portfolio metrics mostly improved across all sectors, reflecting increased stability in the operating environment, giving us cause for cautious optimism that the market is nearer to bottoming out and may be poised for upside,” Jennet states.

Among these positive metrics is the improved overall vacancy in Emira’s commercial property portfolio from 4.7% to 4.1% over the six months with all sectors outperforming their South African benchmarks. In addition, like-for-like net property income grew by 1.4%.

Emira’s overall vacancy rate sits at 4.1%, with an 83% tenant retention rate.

COO Ulana van Biljon says the office sector remains difficult owing to slow economic growth in South Africa and oversupply of space, but the company is seeing an increase in interest, with businesses going back into offices, albeit in hybrid forms.

Additionally, she says loadshedding continues to impact on the operating environment of businesses, which remain reliant on back-up power with increased costs of doing business as a result.

Emira’s diesel cost for the reporting period was R17.7-million, which is slightly lower than the R22.2-million spent on diesel in the prior comparable six months.

Emira is adding an additional five solar photovoltaic farms totalling 1.5 MW, which will be installed by March next year, taking its total solar farms to 13.

“We are particularly pleased to have satisfied several strategic objectives, successfully recycling capital. Our decisive operational focus delivered value-enhancing progress. The positive signs emerging in our operating environment are encouraging, and we are well-positioned to take advantage of opportunities and the eventual upward cycle,” says Jennet.

“Given global and local volatility, though, we remain cautious and will continue to focus on fundamental excellence in the elements we can control,” he adds.

Jennet expects distribution earnings per share to be slightly below the executive key performance indicator target of 118.49c for the full year to March 31, 2024.