'Drop in vacancies key' - Emira

Emira Property Fund announced that it has distributed 53.81 cents for each Emira participatory interest (PI) for the six months ended December 2011, a 2.5% decline over the same period in 2010.

The company said the reduction in the fund's payments for the period, was in line with the bleak outlook for SA's property market, due to weak domestic economic conditions and concerns over global economic issues.

"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," Emira CEO, James Templeton said.

"As a result, rentals continued to be under pressure and landlords needed to be highly competitive in trying to attract or retain tenants."

According to Templeton the main highlight for the company over the period was the reduction in the general level of vacancies across the portfolio; this was especially in the industrial sector where vacancies declined from 7.2% to 4.4%.

He added that the fund had restructured its debt facilities worth R1,2 billion, managed to increase its investment income from the its 8.1% interest in Growthpoint Australia, and also had a sharp decline in asset management expenses following an amendment to the service charge agreement payable to Strategic Real Estate Managers, last year.

During the period, Emira embarked on a substantial restructuring of its debt, consisting of the replacement of R700m worth of expiring debt facilities with new loans, as well as R500m of brand new facilities to be used to grow the portfolio.

The fund also commenced with a PI repurchase programme, approved by shareholders in November, which by the end of December had repurchased and cancelled 1.5 million PI's at a cost of R18.2m, resulting in modest earnings for the fund.

The fund's asset management team was also 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 or sold unconditionally in the six months to December realising a total of R266.3 million.

Templeton said that Emira had acquired a new 13,787 square metre building that is currently being developed by the Eris Property Group 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'".

He added that the fund was busy with several major property refurbishments within its portfolio worth around R298m. The refurbishments are expected to be completed later this year and tenants are currently being sought for the buildings, 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," Templeton said.

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 increased slightly from 18.4% in June 2011 to 19.8% in December while those in the retail sector rose 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 noted that reducing vacancies across the portfolio will be key to the fund's future performance.

He said 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 a material improvement can be expected.