JSE-listed real estate investment trust (Reit) Emira Property Fund has highlighted disruptions to the supply of utilities in South Africa, as well as above inflation increases of rates, taxes, and utilities costs as a key risk for the property sector in the short-term.
The owner of The Bolton residential property in Rosebank further warned that because the interruptions, especially in electricity supply, the cost of doing business has increased, paying rent may be tough for its tenants, ultimately placing Emira’s earnings at risk.
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Unprecedented levels of power cuts over the reporting period have strained the group’s existing backup generation capacity installed at its properties throughout its portfolio.
According to the Reit, its own back-up generators together with that of its tenants cover approximately 79% gross lettable area of Emira’s properties.
Diesel costs
In just nine months however, Emira said it spent R27.9 million on diesel costs, this compared to R4.9 million spent over a 12-month period in 2022.
“These generators were intended only as emergency backups however the ongoing electricity supply constraints has meant that they are now operating for extended periods of time. Given the high cost of diesel, running these generators has increased the cost of doing business, which will invariably negatively affect tenants’ abilities to pay rent,” Emira said.
“This could ultimately result in sustained negative rental reversions, lower escalations, and greater tenant defaults.”
As such, the group says it is exploring possible solutions to reduce load shedding-related costs and rising electricity prices.
To do so, Emira says it is looking at including battery solutions as an alternative to generators and to cut down on rising electricity costs. The fund says it is also looking to source cheaper energy from independent suppliers to further reduce its reliance on state utility Eskom.
Financial performance
Emira updated investors on its financial performance for the nine-month period ending 31 March 2023 on Wednesday, noting that its decision to shift the end of the reporting period from the end of June has distorted earnings, making them incomparable to the 2022 period which reports on a 12-month period.
The fund says it has shifted its reporting period to align its financial year-end with that of its majority shareholder, Castleview Property Fund Limited.
Therefore, the group’s distributable earnings came in at R558 million during the period, 17.2% lower than the R673.9 million reported in the comparable period, with distributable income per share (Dips) reported at 106.76 cents.
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Revenue from Emira’s directly held portfolio – which includes 94 properties in South Africa – came in at R1.3 billion, 11.2% lower than R1.47 billion in the comparative period.
Overall vacancies decreased to 4.7% from 5.8% in the previous period with the troubled office segment also registering modest declines from 15% to 12.5% this period.
“Both our SA and US portfolios delivered pleasing operational performances, notwithstanding local and global challenges,” Emira CEO Geoff Jennett said.
“The solid results extend Emira’s consistent track record of reliable performance, and our leasing success and lower vacancies are clear indicators of an attractive and sustainable portfolio.”
“During this period of change, we remain focused on fundamentals and managing the elements within our control. As a diversified fund, Emira has several levers at our disposal, all of which are working well to ensure that we are stable, have lower risk and attractive to the market,” he added.
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Looking forward to the next financial period, Jennett said the fund will look to execute on property fundamentals as well as gain further ground on capital recycling projects that will further diversify Emira’s investments in more stable economies.
Emira’s share price closed over 1% stronger on Wednesday, clawing back some losses and closing at R9. However, the share is still over 10% weaker than a year ago.
Listen to Jennett speaking about the group’s latest results on SAfm Market Update:
You can also listen to this podcast on iono.fm here.
