Real estate investment trust Emira Property Fund is not planning to sell its office portfolio despite high vacancy rates. It will keep these properties until it makes business sense to sell.
Emira’s office vacancy rates stood at 9.1% for the five months to the end of August, dropping from 10.9% in March.
Speaking at the company’s pre-close briefing on Thursday, CEO Geoff Jennett said it was not in Emira’s best interests to dispose of these assets at this point.
"The desire to dispose of assets is one thing, but you need to be able to have a practical plan to execute that. We will dispose of assets only when it makes business sense," he said.
Emira has 20 properties in its office portfolio. This segment was among the hardest hit by the Covid pandemic, with some still recovering.
During the pandemic, office vacancies reached a 17-year high, shooting up to 15% for the first time since 2004.
While recovery has been slow, vacancies have declined for eight consecutive quarters since 2022. According to the South African Property Owners Association, office vacancies in the second quarter of 2024 declined to 14.2%.
Vacancies were at their highest in Johannesburg at 16.9%, while Cape Town had the lowest at 6.3%.
Sandton and Rivonia accounted for the most vacancies, at more than 34%.
However, a report compiled by the Property Owners Association revealed that the decline in vacancies came at the cost of rental growth, which has continued on its downward path since 2019.
Despite this, Jennett was confident the economy would improve and the country would see an uptick in business growth.
"At some stage, because of the government of national unity [GNU] and absence of load-shedding, plus lower interest rates, we will see the country experiencing more business activity, and there will be a need for office space once again."
Emira COO Ulana Van Biljon said while office vacancies have remained depressed, the property fund has found tenants for some of the larger spaces.
"Standard Bank vacated the office in Hyde Park about a year ago. We have fully let that space to a single tenant," she said.
Unpacking its local commercial portfolio, Van Biljon said Emira performed well and is running in line with expectations.
"Total vacancies across the portfolio have increased marginally to 4.3% by gross lettable area at the end of August 2024. This
increase was due to the effect of the disposals made during the period."
Emira disposed of six properties during this period, including two retail properties — Park Boulevard in Durban and a Makro store in Johannesburg.
It has put a further 20 retail properties on the market, a process which once completed will generate R1.9bn in gross proceeds.
On the company’s residential portfolio, Van Biljon said vacancies in Gauteng and Cape Town increased to 5.8%. She was, however, adamant this was no cause for concern as Emira was in the process of selling some of the properties in its residential portfolio as well.
Of more than 3,600 residential units owned by the property fund, it sold 163, with 31 others under contract to be disposed of.
"As many as 24 of these are expected to transfer by tomorrow as part of our recycling strategy," " said Van Biljon.
Emira CFO Greg Booysens said the company had relied on debt facilities of R300m together with cash-on-hand of R144m
during the process.
"The fund’s liquidity will be bolstered by proceeds to be received from the properties now under contract for disposal. Then
debt is to be permanently settled for those properties which have been mortgaged," Booysens said.
On the performance outlook, Jennett said Emira was "sitting happy" and was confident it would meet its key metrics for the 2025 financial year.
"We are pretty confident we will meet our targets, especially achieving an increase in distributable income per share."
He said the performance of its underlying investments and a recent Polish deal, in which Emira acquired an effective 25% initial stake in Polish property developer and investor DL Invest Group, would contribute to the increases.
Jennett said while performance was likely to be affected by expectations of slow
interest rate cuts, there was still positive consumer sentiment and confidence that the GNU would play an important role, all of which could have a positive impact on Emira’s full-year results.
The Reserve Bank cut the repo rate by 25 basis points last week.
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