Emira Property Fund, which owns a diversified property portfolio in SA and the US, says the ailing economy, coupled with rising interest rates and load-shedding, has had a severe affect on doing business in SA.
CEO Geoff Jennett said on Wednesday the cost of diesel to power generators would continue to squeeze tenants’ profitability and increase property owners’ running costs to keep the lights on.
“The listed property sector is faced with many challenges such as reduced income, and while Emira is not immune to these challenges we believe sectoral and geographical diversification is very important during these times,” said Jennett.
The company’s US investment provides a buffer to current global uncertainty and the low-growth domestic environment, he said.
For the nine-months to end-March, its 12 grocery-anchored malls contributed R176.8m to distributable income partly due to the recent acquisition of Summit Woods and the rand weakening against the dollar.
Emira has a diversified portfolio with a mix of assets across sectors and geographies, and through direct property holdings and indirect property investments with specialist third-party co-investors.
In SA, its portfolio includes retail, office, industrial and residential assets.
About 18% of its asset base consists of equity investments in 12 grocery-anchored open-air convenience shopping centres in the US, investing with US-based partner The Rainier Companies.
On December 15, Emira announced that it had changed its financial year-end from June 30 to March 31 to align its financial year-end with that of its majority shareholder, Castleview Property Fund. For this reason, these results are for the nine months ended March 31 [2023 financial year], rather than the 12 months ended June 2022.
Jennett said the consistent positive economic growth continues to support the fund’s 12 equity investment malls valued at R2.7bn ($151.9m). Unemployment levels in the US remained at about 3.5%, and though inflationary pressures remain, the recent annual rate of 4.9% reflects the slowest pace in two years.
The shopping centres, which focus on value retail and essential goods and services, reduced vacancies from 4.5% in June 2022 to 2.6%, with positive rental reversions of 7.9%, with a portfolio lease expiry of 5.6 years.
“We continue to look at increasing our portfolio, but we will do so when it makes commercial sense to acquire assets,” said Jennett.
The SA portfolio performed well due to leasing initiatives resulting in vacancies reducing from 5.3% to 4.7% with rentals collections exceeding 100%.
About 79% of its office, retail and industrial assets have full backup power, which includes tenant generators.
Jennett said the cost of diesel to power generators has increased the cost of doing business, and this will negatively affect tenants’ ability to pay rent — leading to lower escalations and negative rental reversions.
For the nine months to end-March, Emira’s diesel costs rose from R4.9m for the prior 12 months to R27m — with 84% of these costs recovered.
“Load-shedding increases the cost of doing business, intensifying the risk of tenant defaults and business failure,” said Jennett.
According to the RMB/BER Business Confidence Index (BCI) released on Wednesday, business confidence declined for a fifth consecutive quarter citing a challenging business environment, persistent load-shedding, rising interest rates cost and pressures weighing on profitability.
He said given the high inflationary environment and rising interest rates globally, Emira will continue to accelerate its capital recycling programme to further diversify investments in more stable economies with better growth prospects.
Emira reported R558m in distributable earnings and declared a final distribution of 30.35c for the three months ended March 31, taking its dividend per share for the nine months to 96.78c. Its net asset value per share increased by 4.2% to 1,696.60c over the nine-month reporting period.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.