2012-02-24 · Property Market Reports
Emira Property Fund has announced a distribution of 53.81 cents per Emira
participatory interest (PI) to PI holders for the six months ended December 2011 – a
2.5% decline over the same period in 2010.
The reduction in the Fund’s disbursements for the period is in line with the prospects
statement at the time of the Fund’s release of its June 2011 financial results and is
symptomatic of the general malaise in the SA property market, particularly the office
sector, characterized by weak domestic economic conditions and concern over global
economic issues.
Says Emira CEO, James Templeton:
“As expected, conditions during the period under review remained tough with
tenants, particularly in the office market, unwilling to commit to new space largely
because of the global economic uncertainties.
“As a result, rentals continued to be under pressure and landlords needed to be
highly competitive in trying to attract or retain tenants.”
Highlights of the period, however, were: a reduction in the general level of vacancies
across the portfolio – especially in the industrial sector where vacancies declined
from 7.2% to 4.4%; a restructuring of R1,2bn worth of the Fund’s debt facilities;
increased investment income from the Fund’s 8.1% interest in Growthpoint
Australia, and a sharp decline in asset management expenses following an
amendment to the service charge agreement payable to the Fund’s manager,
Strategic Real Estate Managers, last year.
Notes Templeton:
“Although income from listed investments rose and management expenses declined
as a result of the amendments to the Trust Deed last year, distributions declined
fractionally due to muted net property income growth and rising finance costs
following increased levels of debt in the Fund due to on-going capital expenditure
and acquisitions.”
participatory interest (PI) to PI holders for the six months ended December 2011 – a
2.5% decline over the same period in 2010.
The reduction in the Fund’s disbursements for the period is in line with the prospects
statement at the time of the Fund’s release of its June 2011 financial results and is
symptomatic of the general malaise in the SA property market, particularly the office
sector, characterized by weak domestic economic conditions and concern over global
economic issues.
Says Emira CEO, James Templeton:
“As expected, conditions during the period under review remained tough with
tenants, particularly in the office market, unwilling to commit to new space largely
because of the global economic uncertainties.
“As a result, rentals continued to be under pressure and landlords needed to be
highly competitive in trying to attract or retain tenants.”
Highlights of the period, however, were: a reduction in the general level of vacancies
across the portfolio – especially in the industrial sector where vacancies declined
from 7.2% to 4.4%; a restructuring of R1,2bn worth of the Fund’s debt facilities;
increased investment income from the Fund’s 8.1% interest in Growthpoint
Australia, and a sharp decline in asset management expenses following an
amendment to the service charge agreement payable to the Fund’s manager,
Strategic Real Estate Managers, last year.
Notes Templeton:
“Although income from listed investments rose and management expenses declined
as a result of the amendments to the Trust Deed last year, distributions declined
fractionally due to muted net property income growth and rising finance costs
following increased levels of debt in the Fund due to on-going capital expenditure
and acquisitions.”
During the period, the Fund embarked on a substantial restructuring of its debt,
consisting of the replacement of R700m worth of expiring debt facilities with newloans, as well as R500m of brand new facilities to be used for the growth of the
portfolio. Emira also commenced with a PI repurchase programme approved by
shareholders in November. By the end of December it had repurchased and
cancelled 1 543 941 PI’s at a cost of R18.2m resulting in a modest earnings
enhancement for the Fund.
In addition, it placed increasing effort on improving the quality of Emira’s portfolio
through the acquisition of new properties, the refurbishment of existing assets as
well as the disposal of properties deemed to be non-core.
The Fund’s asset management team was expanded with a view to placing a greater
focus on reducing vacancies, retaining tenants and improving the quality of the
Fund’s existing buildings.
A total of 11 buildings were transferred out of the Fund or sold unconditionally in the
six months to December realizing a total of R266.3m.
Additionally, Emira acquired a new 13 787m² A-grade office building being
developed by the Eris Property Group at the intersection of Corobay and Aramist
Avenues, Menlyn, Pretoria, for R306.9m. The building is already 70% let and there is
a one-year warranty on the balance of the vacant space from completion. It’s
expected to yield 9.1% when it’s completed later this year.
The Fund is also busy with several major property refurbishments within its portfolio
worth around R298m. Among the refurbishments is the redevelopment of the
Podium building in Menlyn into 9 239m² of prime office space at a cost of R176m.
The refurbishments are expected to be completed later this year and tenants are
currently being sought for the building, with letting progress expected to be made by
the end of March 2012.
A number of other smaller building refurbishments projects have been approved by
the Emira Board and are expected to commence later this year.
All this is part of Emira’s strategy of reducing its exposure to B-grade office space
and improving the quality of its portfolio by buying large, high quality properties.
Across the portfolio vacancies were marginally down (from 11.5% to 11.3%) with
the greatest declines in the industrial sector where vacancies are now running at
4.4%. However, vacancies in the office portfolio are slightly up (from 18.4% in June
2011 to 19.8% in December) as too are vacancies in the retail sector (from 7.5% to
8.2%). Stripping out the six properties currently under refurbishment, where letting
has deliberately not been undertaken due to the construction work, vacancies
declined from 10.3% to 10.0% by December 2011.
Templeton notes that reducing vacancies across the portfolio will be key to the
Fund’s future performance.
He says that while there have recently been signs of improved letting interest from
tenants he says they still appear to be reluctant to commit to new, long-term leases
and improved clarity on the local and global economic conditions is required before
there can be expected to be a material improvement.
“Expectations are that the Fund’s performance for the twelve-month period ended
June 2012 will show a similar trend to that for the six-month period ended
December 2011. As a result, the level of distributions from the Fund for the full
financial year is expected to be below that achieved in the twelve months to 30th
June 2011.”
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