The office sector is still under pressure, with the recovery thereof being wholly dependent on good economic growth, JSE-listed Emira Property Fund COO Ulana van Biljon said on August 17.

Until such time as the local economy experiences better growth, office letting will continue to remain deflated following the impact of Covid-19, she said during a presentation of the company’s results for the financial year ended June 30.

“However, we are seeing many businesses returning to their office spaces with flexible working arrangements but less working from home on a permanent basis,” she pointed out.

Van Biljon noted that the closing of office letting deals remains very difficult, because tenants are “spoilt for choice” owing to an oversupply of office space.

“We definitely expect that this oversupply will continue for the next few years,” she said.

Nonetheless, despite slow economic growth, the industrial sector showed an increase in activity, she revealed, noting an increase in demand for good-quality industrial space.

“However, the one thing that definitely concerns business owners is the uncertainty of electricity and water supply and the impact that this will have on their businesses,” Van Biljon stated.

She added that, where possible, Emira had invested in solar power installations, back-up power installations and water harvesting to ensure better security of supply for tenants and to increase the attractiveness of the properties.

FINANCIAL PERFORMANCE

Emira reported a growth in distributable earnings of 3.8% and a 1% increase in its cash-backed dividend of 119.79c a share for the year ended June 30.

Its net asset value a share increased by 7.3% to R16.29.

Emira CEO Geoff Jennett attributed the strong performance and improved metrics to consistent strategic delivery and incremental steps taken to achieve value from investments.

“Emira has done well to increase dividends and continue the strategic direction of the fund with active asset management, focusing on basic property fundamentals. In a challenging environment, distinguished by the close correlation between the South African economy and real estate sector performance, Emira’s assets have withstood the pressure,” he said.

Emira’s diverse portfolio is a mix of 74 directly-held retail, office, industrial and residential assets worth R9.8-billion, as well as indirectly-held investments with specialist co-investors, including the JSE-listed specialist residential real estate investment trust Transcend Property Fund and retail property venture Enyuka Property Fund.

Eighteen per cent of Emira’s asset base is made up of equity investments in 12 grocery-anchored open-air convenience shopping centres in the US, which provide a buffer to the low-growth domestic environment.

Locally, Emira’s portfolio is mostly comprised of the retail sector by value and the industrial sector by number of assets. Steady performance from these two portfolios countered the strained local office market, the company reported.

Over several years, Emira has steadily reduced its office exposure to 30% of its directly held portfolio value. Emira’s only direct residential asset is The Bolton, in Gauteng, where occupancies rose to 98.9% as Rosebank-based corporates returned employees to their offices.

Emira improved its direct portfolio vacancy rate by 1.1% to 5.3% and achieved a tenant retention rate of 83%, a weighted average lease expiry of 2.7 years and achieved monthly collections of 100.2% of rent billed.

Portfolio arrears decreased to R47.6-million, while Emira continued to support its tenants that remained subject to pandemic restrictions, mainly hospitality and entertainment businesses.

However, with the easing of restrictions, rental concessions decreased significantly to R1.9-million against the prior year’s R33.6-million.

The like-for-like value of Emira’s direct South African properties increased by 1.8% during the year, the company reported. When factoring in capital expenditure of R133.1-million, there was a net increase of 0.4%.

Emira acquired the multi-tenant Northpoint Industrial Park, in Cape Town, for R103-million during the period and derisked its portfolio by disposing of five assets, with a further one still up for sale. The company also invested in maintaining and improving its assets to increase their attractiveness and competitiveness.

Emira increased renewable energy generation at its local properties through energy management and efficiency initiatives.

Moreover, the company advanced its water and waste management efforts and established natural habitats and indigenous landscaping at its properties.

These initiatives were aimed at providing Emira and its tenants with resource security and to provide some protection against the continued high increases in utility costs and general deterioration of municipal infrastructure, which remain significant concerns for the South African economy and, in particular, the property sector, Jennett noted.

During the period, Emira grew its indirect exposure to residential rental property by increasing its stake in Transcend to 40.69%. Transcend, which has a R2.4-billion portfolio, added R32.7-million to Emira’s distributable income.

Jennett said that, post year-end, Emira made known its intention to make a general cash offer for all the remaining shares in Transcend and that it already had irrevocable support from 16.7% of Transcend shareholders.

Through its 49.9% stake in Enyuka, a retail property venture with One Property Holdings, Emira invests indirectly in shopping centres valued at R1.7-billion. Enyuka contributed R89.5-million to Emira’s distributable income for the year.

Emira has agreed to sell its stake in Enyuka to One for R638.6-million, which the company will use to continue recycling capital. The transaction is expected to be transferred by December.

“After six years of diligent repositioning and capital recycling into strategic investments that improve our portfolio quality and diversification, all our metrics are well aligned and pointing in the right direction,” Jennett said.

Given the ongoing market uncertainty, Jennet said the company had chosen not to provide earnings and distribution guidance but would instead note its executive directors’ key performance indicators for distributable earnings at 129.46c a share for the 2023 financial year.