Listed real estate investment trust (REIT) Emira Property Fund is set to offload its entire portfolio of wholly owned Cape Town properties to Spear, a prominent player in the sector, in a deal worth approximately R1.15 billion.
Should all the conditions precedent for the transaction be met, Spear REIT, which invests exclusively in the Western Cape, will take ownership of the 13 properties.
The portfolio comprises six office properties, five industrial facilities and two specialist/retail properties, with the majority of the portfolio value being in office properties.
The selling price has been agreed at a small discount to book value, which is expected for this type of portfolio sale, said Emira.
Geoff Jennett, CEO of Emira Property Fund, said: “The growing demand for investment property in the Western Cape presented an exciting liquidity opportunity for Emira because our regional holdings there are smaller and not something we want to add to at the current pricing levels. We are alive to market opportunities and agile in responding to prospects that further our strategic ambitions.”
The proceeds of the agreed transaction will boost Emira’s war chest, placing it in a strong position to take advantage of strategic investment opportunities, the group said.
It will also further reduce Emira’s exposure to the South African office sector, which is still grappling with recovery given the new ways of working post-pandemic and the country’s anaemic economic growth.
The deal carefully considers the consistency of management experience and expertise, and the knowledgeable Emira team directly responsible for managing that portfolio of properties will join Spear.
“We have no doubt that these properties will be in good hands at Spear and our people will find a good home with them. With its specialist Western Cape focus, we are confident that Spear will achieve great value from these assets. This transaction is mutually beneficial for Emira and Spear and we believe it is a win-win for all involved,” said Jennett.
Emira said it entered this transaction with a R15 billion diversified portfolio that is balanced with a mix of assets across sectors and geographies.
Post this transaction, Emira’s South African portfolio of commercial and residential assets will reduce from R12.3 billion to R11.2 billion while its US equity investments with its in-country specialist co-investment partner, The Rainier Companies, will remain R2.8 billion (USD151.9m) comprising 12 grocery-anchored open-air convenience shopping centres.
Shares in Emira have declined by 11% over the past year.
The acquisition will see Spear's asset ownership rise from 28 to 40 real estate assets, further enhancing its portfolio diversification and geographical spread.
Currently, its investment portfolio is made up of 28 properties comprising a well-balanced mix of Industrial (56%), Commercial (32%), Retail (12%), real estate by gross lettable area (GLA).
Moreover, Spear is committed to sustainability, evident from its "People, Planet, Profit" approach. As part of this commitment, Spear plans to implement its PV solar strategy across the acquired portfolio, with an investment of approximately R20 million aimed at reducing reliance on fossil fuel-generated electricity supply.
Looking ahead, Spear's growth strategy remains focused on the Western Cape, with aspirations to become a significant mid-cap sized REIT in the coming years.
Post-acquisition, Spear's assets under ownership are projected to increase to around R5.4 billion, with a gross lettable area of approximately 502,000 square meters within the Western Cape.
Its current total gross lettable area of the portfolio is 443 155 m² which is let to 419 tenants divided into 37% A-grade, 55% B-grade, 2% C-grade tenants and 6% vacant ranging from JSE-listed entities to small or medium enterprises.
The acquisition is subject to various conditions precedent, including compliance with JSE Listings Requirements, approval from competition authorities, and securing funding.
However, once completed, the effective date of the acquisition is anticipated to be around December 31, 2024.
Trading update
In atrading update on Wednesday, Spear said that during FY24 while slower than anticipated progress was made in vacancy contraction within the office sub-sector, however, letting momentum has improved since year-end.
Despite this, occupancy levels were at 84.37% endFY24. The total office areas vacated or expired at the end of February 2024 was 36 096 m2 of which 37 602 m2 has already been relet (effective immediat ely) at -4.67% gross rental reversion.
Letting activity within the commercial office portfolio has remained consistent and encouraging, with additional inroads being made into office vacancies at No. 2 Long Street, Northgate Corporate Office Park and SableSquare.
No. 1 Waterhouse (Century City), Bloemhof (Tygervalley), Omnipark (Tygervalley) and Liberty Life (Century City) are all fully let.
"Outside of just the large occupier demand, Spear's commercial office portfolio remains well positioned to benefit from the return to office momentum as small and medium scale occupiers return to the office leasing market as notable leasing momentum at No. 2 Long Street and Sable Square started to manifest," it said.
Shares in Spear are up 8.85% over the past year.
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