Emira restructures its debt expiry profile

Medium-cap Real Estate Investment Trust (REIT), Emira Property Fund, said yesterday that the group was continuing to advance its “conservative approach to funding”, which underpins its agile approach to market opportunities.

“As part of its proactive debt management, it is on a drive to enhance its debt expiry profile, supporting a better risk profile, improving its refinancing risk and, at the same time, minimising its cost of capital,” Emira said in a statement.

Emira’s debt strategy is to have diversified sources of funding and staggered maturity dates. Its multisource approach to funding also puts it in a strong position to access competitive rates. Emira spreads its funding sources between bank funding and debt capital markets with its Domestic Medium-Term Note (DMTN) programme. It has a low-risk multibank approach to bank funding which allows it access to competitive debt pricing and its intelligent financial management underpins its performance for its investors.

Greg Booyens, Chief Financial Officer of Emira, reports the REIT is restructuring and extending its debt expiry profile, which at 31 December 2017 was reported at around 1.4 years. “We endeavour to have no more than 33% of debt expiring in a single period, however, we have some larger facilities of different terms that are expiring in this 2018 calendar year, totalling R2,5bn or 46% of debt.”

He said: “This creates the opportunity to extend and fine-tune our debt expiry profile and we are comforted by the fact that we have already completed the refinancing of more than half of the maturing facilities. Discussions are underway with the funders of the remaining expiries and we are confident that with our proactive funding management, these will be rolled. We also have in place backup facilities should we decide to settle a portion of the upcoming maturities”

A diversified JSE-listed REIT, Emira is invested in a quality, balanced portfolio of office, retail and industrial properties. Emira’s directly held assets comprise 111 properties valued at R12.7 billion and indirectly 21 shopping centres valued at R900,8 million through its exposure to Enyuka. Emira is also internationally diversified through its investment in ASX-listed GOZ valued at R940.4 million, and its equity investments in four grocery-anchored convenience centres with a combined value of USD32.2 million through its USA subsidiary.

Emira began its debt expiry restructure in late 2017 by pushing out a substantial proportion of the expiries to terms of either three or five years. This approach has continued in 2018. Further, Emira has increased its facilities with Absa by R350 million, comprising a new R200 million three-year facility and R150 million two-year facility. It has another R400 million of bank facilities, which have been pushed out for at least five-years, with suitable gaps between the expiry dates.

“The combined effect of this reduces risk and improves the weighted average duration to expiry of Emira’s debt,” notes Booyens. “While the expiry profile is our focus, we’ve also locked in our interest rates at a very competitive 8% for a weighted average period of 3.2 years,” he added.

Emira has also received good support from the debt capital markets this year. It has recently rolled a R300 million 4-year note for a period of 3 years, with demand for a further R100 million, increasing the new note to R400 million. Emira places no more than 50% of its debt with debt capital markets. It is currently at 35%, with the rest of its debt spread between traditional banks.

“This is because the market risks associated with the extension of debt in the debt capital markets is higher than that of bank debt, as liquidity can dry up” clarifies Booyens.
Keeping its risk well managed, Emira aims to have 80% to 100% of its debt that is long-term – anything with a term greater than 12 months – hedged. Currently, this stands at more than 90%. Should there be a spike in interest rates, it will have a minimal impact on Emira. “We’ll look to reduce this slightly, moving closer to the 80% band, as we are in a cycle where interest rates are expected to reduce and we don’t want to lock in interest rates at higher levels in this market,” said Booyens.

“For the foreseeable future, we will keep our loan-to-value ratio in the 35% to 40% band, with the longer term objective being a level of sub 35%,” he added. At, 31 December 2017, it was 37.2%.

Emira said it was confident in this approach for several reasons, including its thorough process of property valuation. It has been able to dispose of its properties at an average premium to book value, which proves its values are properly adjusted for the current economic climate and represent true fair market value.

The REIT also favours keeping backup facilities in place and, as such, Emira has untapped facilities in place of over R500 million. “It reduces our financial risk on maturing debt and provides us with the necessary liquidity to move quickly and be agile to pursue opportunities as they arise,” notes Booyens.