Emira reports robust half-year results and reshapes its portfolio

Geoff Jennett, CEO at Emira Property Fund

Geoff Jennett, CEO of Emira Property Fund, attributes the positive performance to strengthening operational metrics, active asset recycling, and strategic deal-making, reflected in its reshaped portfolio. He adds that Emira is on track to deliver on its objectives for the full year, which it expects to result in marginally higher distributable income compared to that achieved for its past financial year.

Jennett reports: “Emira’s local portfolio outperformed, our US investments are comfortably on track, and we completed the first tranche of our investment into DL Invest, bolstering our diversification by tapping into Poland's burgeoning economy with its unique growth drivers and opportunities.”

Emira invested €55,5m for an initial effective 25% equity stake in DL Invest Group, a Luxembourg-headquartered property company developing logistics centres, mixed-use/office complexes and retail parks, valuing its assets at €730m and NAV at €278m pre-investment.

Emira has the option to expand its position in DL Invest Group by investing an additional €44,5m, which will increase its equity holding to 45%. This second tranche subscription option must be exercised by 31 January 2025 and requires shareholder approval to pursue. Castleview Property Fund, which holds around 58% of Emira’s issued shares, has given its irrevocable vote in favour of exercising the option, and shareholders can expect to receive a circular regarding the option.

DL Invest Group has a 17-year track record in Polish commercial real estate, with a €730m portfolio focused mainly on logistics. Emira's investment will fund DL Invest Group's logistics development pipeline, aiming to create a €1bn business. The partnership aligns with its co-investment strategy with in-country specialists. Emira will participate actively, with board representation, and has committed to an initial five to six-year investment term.

Funding for the first tranche of investment came from Emira's balance sheet and recent disposals. Its non-core commercial and residential property sales transferred, completed and agreed upon during the period totalled R2.6bn. Emira’s strategic capital recycling strengthens liquidity by disposing of non-core assets that can be sold at fuller value. This creates capacity to invest in undervalued opportunities with stronger growth potential.

Emira’s balance sheet is healthy, with an adequate 2.3x interest cover ratio and a loan-to-value ratio that declined from 42.4% to 42.0% over the six months and is expected to decrease further as property disposals transfer and a portion of the proceeds are deployed to reduce debt. It reported unutilised debt facilities of R370m and cash on hand of R112.8m at half-year which will increase as proceeds from disposals are realised. Emira has a strong and diversified financial foundation, with support from all major South African banks and the proven ability to access the debt capital markets. In October, GCR affirmed its corporate long-term credit rating of A(ZA) and corporate short-term rating of A1(ZA), with a stable outlook.

The first tranche of its latest transaction has immediately increased Emira’s international investments to 26.8% of its portfolio – with 15.5% in the US and 11.3% in Poland – while 73% remains in South Africa, shifting it towards lower-risk, more attractive diversification with enhanced stability and appeal. The second tranche DL Invest Group option creates the potential for this to become nearly 37% offshore.

Emira is a real estate investment trust (REIT) with a diversified portfolio balanced to deliver stability and sustainability through different cycles. This risk-mitigating strategy includes a mix of domestic and international assets in direct holdings and indirect investments with specialist co-investors. Emira's direct South African portfolio of 84 properties worth R12.1bn is diversified across commercial property sectors and residential rental property. Emira’s exposure to the United States is with US-based partner The Rainier Companies. Emira holds equity interests, with unanimous voting rights, in 12 dominant, value-oriented grocery-anchored power centres.

The local portfolio performed well, surpassing most key targets. SA commercial vacancies are already low and tightened to 3.9% from 4.1%. The portfolio saw an increase in like-for-like valuation of 4.7%, reflecting enhanced metrics across all three sectors and improved business sentiment. Residential occupancy remained strong at 96.7% and, similarly, maintained like-for-like valuation levels. Both sets of metrics signal a property portfolio that is attractive, competitive, adaptable and designed for lasting performance.

Emira’s commercial portfolio by value is split between urban retail (43%), office (25%) and industrial (15%) of the directly held SA portfolio. All sector vacancies are below the applicable benchmarks, and tenant retention increased from 81% to 83% by revenue during the period, reinforcing Emira’s effective leasing strategies. Its 15-property directly held retail portfolio of primarily grocery-anchored neighbourhood centres catering to their communities is trading well with improved metrics, including low vacancies of 4.2%. Despite the slump in office sector fundamentals, Emira’s portfolio of 20 mainly P- and A-grade office properties saw office vacancies improve into single-digit territory, from 10.9% to 9.4%. Emira’s diversified industrial portfolio of 28 properties enjoyed strong demand and delivered a sustained defensive performance at near full occupancy, with vacancies stable at 0.7%.

Residential rental assets comprise 21 properties, or 17% of Emira’s directly held SA portfolio by value, comprised of The Bolton in Rosebank, Johannesburg, and the 20 quality, affordable suburban units of Transcend Residential Property Fund, Emira’s wholly-owned specialist residential company. The portfolio of 3,588 units is split between Gauteng’s (90% by value) and Cape Town’s (10% by value) high-demand areas. The portfolio is achieving rental growth, with sustained demand for accommodation.

Overall, the commercial portfolio benefited from R119.8m in tactical upgrades, including various sustainability-driven initiatives, reconfigurations and refurbishments. Emira also invested R8.6m into its residential portfolio.

Emira collaborates with industry bodies to address South Africa's deteriorating municipal infrastructure, which is a concern due to underinvestment. Inconsistent utility supply and rising costs hinder operational efficiency. To combat this, Emira is driving sustainability through fast-tracked solar power, water-saving initiatives, and backup systems. "We're committed to energy-efficient buildings and are passionate about biodiversity. Our ESG strategy makes Emira properties the excellent choice for businesses," notes Jennett.

Jennett points to easing inflation, declining interest rates, and growing political stability in South Africa, transforming the outlook for local real estate. “With costs stabilising for consumers and businesses alike, spending is set to rise, boosting property demand. More favourable interest rates should bolster investor confidence and reshape tenant demand patterns. Decreased load shedding has further strengthened business confidence, prompting firms to invest in longer-term plans. Improved sentiment post-election bodes well for stronger long-term returns from the property sector, but short-term growth will be tempered as the market absorbs elevated vacancies and while economic headwinds subside. While it will take time for these positive factors to yield measurable results, they position Emira well to continue delivering strong returns to investors.”

Emira’s 12 equity investments in US grocery-anchored dominant value-oriented power centres total R2.56bn (USD147.1m). The US economy remains on a steady and stable growth trajectory, with GDP up 3% for Q2 2024 and 2.8% for Q3 2024 coupled with low unemployment, easing inflation and a 50bps cut to interest rates in September and another 25bps trim in November. While US elections introduced some uncertainty to the economy, stability should return with clarity of the new government’s priorities and policy. This environment continues to support Emira’s investment in US open-air centres focused on popular value and needs-based retail in robust markets.

Robustly resilient property fundamentals and high-quality tenants underpinned the US portfolio's low vacancy rate of 3.5% and combined portfolio WALE of 4.5 years. It delivered a solid performance, adding R120.1m to Emira’s distributable income.

Jennett concludes: “Emira’s strategic pivot is in full swing as we target opportunities with robust growth potential tightly aligned with our long-term goals. These solid half-year results put us firmly on track for a marginal increase in distributable income for FY25, reinforcing Emira's consistent record of reliable performance.”