Diversified real estate investment trust (Reit) Emira’s headline earnings a share decreased by 6.1% to 80.12c for the six months ended December 31, 2020.
Earnings a share decreased by 100.6% to 0.46c for the period.
After taking into account the adjustments relating to the effects of the Covid-19 pandemic, which reflect the cash-backed position, Emira has declared an interim dividend of 52c a share for the six months.
This is after the deferral of 5.09c of the available cash-backed dividend per share to the second half of the year, which the company believes is “prudent given the uncertainty on the future operational performance”.
Distributable earnings for the period decreased by 13.9% from the prior corresponding period to R333.7-million.
Considering that global economies continue to be constrained by the impact of Covid-19 and the related lockdowns, Emira’s diversified nature with its investments on a sectoral and geographical basis, including its offshore exposure and its co-investment methodology, “has proved defensive, seeing some sectors and regions being hit harder than others”, the company said on February 17.
Therefore, the company reiterated its focus on maintaining the strength of its balance sheet and occupancy levels, and collecting rentals, to ensure that it comes through these trying times in the best possible position.
“In the context of the current uncertain and challenging operating environment, these results reflect the robustness of Emira’s business, portfolio and processes,” comments CEO Geoff Jennett, who adds that a key feature of a Reit investment is its “cash-backed income component”.
Emira also continued to look after the interests of its tenants, staff, service providers, portfolio of assets, co-investors, funders, communities and the environment through continuing efforts to ensure as many of its tenants as possible survive the Covid-19 pandemic lockdowns’ adverse effects.
Emira provided support to 363 tenants with a further R17.8-million in permanent rental remissions during the six months.
This relief supported some high-risk tenants including gyms, restaurants and entertainment venues. Emira expects to consider further rental concessions in the second half of its financial year, on a limited case-by-case basis.
Additionally, tenant retention is Emira’s key focus area, “more so than ever before”, as the company continues to work with tenants to understand their needs and deliver on space that is appropriate, of good quality and well-priced to help keep vacancies at low levels without compromising on future growth.
During the six months from July to December 2020, the effects of the pandemic and its various lockdowns in South Africa continued to batter the local economy, business confidence and household spending placing massive pressure on all key property metrics.
While Emira’s overall direct South African portfolio vacancies edged up from 4.1% to 5.9%, they remained low relative to national averages. Emira’s only directly held residential property, The Bolton, increased its occupancy from 80.9% at the start of the period to 97.5% at the close.
The company had an improvement in rental collections, with collections as a percentage of billings at 99% for the six months ended December 31, 2020. The collection of deferred rentals, in particular, was better than anticipated at 80%.
Emira achieved "impressive" tenant retention of 83% by gross lettable area (GLA), and what is said to be the largest renewal, by the South African Local Government Association, at Menlyn Corporate Park, in Pretoria, for over 7 000 m2. The company also concluded some new leases during the period, the largest being iMvula Healthcare Logistics in 3 500 m2 of office space in Johannesburg.
Turning towards financials, revenue for the period decreased by 3.6% to R741-million compared with R771-million for the comparative period, while net asset value per share decreased by 19.7% to R10.47.
Distributable earnings decreased by 13.9% to R334-million compared with R387-million for the comparative period; and the company’s dividend decreased by 29.8% to 52c a share compared with 74.10c a share for the comparative period.
Emira’s equity-accounted investments (namely Transcend Residential Property Fund, Enyuka Property and its USA investments) delivered R118.3-million of distributable income for the half-year.
A 34.9% stake in specialist JSE-listed Reit Transcend gives Emira indirect exposure to the residential rental property sector. Transcend’s total property portfolio is valued at R2.5-billion, and Emira received R23.4-million of distributable income from Transcend.
Through Enyuka, a dedicated rural retail property venture with One Property Holdings, Emira invests in 24 lower living standard measure (LSM) shopping centres valued at R1.7-billion. Notwithstanding the economic impacts felt during the six months, the rural retail sector outperformed all other retail sectors, resulting in lower-than-expected rental concessions granted.
Emira received R41.9-million of income from Enyuka via interest on its shareholder loan, as well as an asset management fee of R2.3-million.
On the international front, Emira invests in grocery-anchored dominant value-orientated convenience retail centres in robust markets in the US with the Rainier Companies, and Emira’s share had a carrying value of R1.4-billion at the close of the period.
The type of property in which Emira invests in the US performed better than enclosed malls and lesser quality properties in the context of Covid-19. These properties are geared towards communities, provide essential goods and services especially with grocer anchors, focus on the popular value retail segment, have quality tenants, and offer open-air environments where people feel safe.
However, Emira on February 17 said the period was defined by reduced Covid-19 restrictions, more government stimulus and relief, fewer tenant requests for rental relief and a high 100.4% collection of all rentals billed.
Distinguished by sound property fundamentals and a high-quality tenant base, the portfolio has a weighted average lease expiry of 5.9 years. With limited leases up for renewal, a positive rental reversion of 1.5% was achieved, but as expected, vacancies increased from 5.2% to 8.5%.
However, Emira said vacancies should reduce by year-end with deals that focus on high credit-quality tenants. Distributable income received by Emira from its investments in the US was R72.7-million.
Emira reduced its direct portfolio value by a carefully considered 3.6% for the period and, in accordance and taking into account a reduced derivative liability number, its net asset value decreased by the same percentage.
Meanwhile, in continuing its good business journey, Emira made a significant improvement in its broad-based black economic empowerment rating, moving from a level 5 to a level 2 contributor, with a verified effective 76.68% black ownership.
Overall, Jennet noted, the outlook remains challenging and uncertain, with further increases in vacancies and reversions still ahead for the property sector.
“More than ever before, Emira is focusing on maintaining its occupancy levels by retaining existing tenants. Close tenant relationships promote the understanding and agility to deliver appropriate, good quality, well-priced space, which benefits tenant retention and attraction.
Emira continued to maintain and improve its properties while scrutinising capital expenditure.
"Fortunately, consistent investment into the portfolio over the years has ensured that its portfolio remains relevant and attractive on the whole”.
Elevating energy efficiency and water conservation will continue to remain a focus area of its capital improvements, and the company’s solar photovoltaic programme’s positive environmental and operational impacts were further enhanced with two new installations completed and one commenced during the period.
Given the current uncertainty, Emira reiterated it would not provide earnings and distribution guidance until such guidance is highly probable. However, it reaffirmed its management's key performance indicator target for distributable earnings of 119.7c a share for the financial year to June 30, 2021.