Emira eyes more US investments as it posts positive results

By Suren Naidoo

Emira Property Fund – the only South African real estate investment trust currently invested in the USA – aims to secure more US assets and more than double its distribution growth next year. The company on Wednesday posted a 2.5% increase in distribution for the half year ending 31 December 2017.

The increase translates into a total dividend of 70.65 cents per share for the period. Emira expects to deliver full year growth in-line with its performance for the half year. This highlights the quick turn-around of the company, which saw a 2% drop in dividend growth for its full year ending 30 June 2017.

Speaking at a results presentation, Emira CEO, Geoff Jennett, said the fund had made a good turn around back to positive growth, and would target inflation-beating returns for its next financial year (2019). Part of its growth plans includes further investments into the USA, improving operating costs, recycling underperforming assets, and, venturing into the residential market.

Geoff Jennett, CEO Emira Property Fund

“We’ve turned the corner and are primed for greater growth. This turn-around is due to the groundwork we put in place, which has allowed Emira to achieve significant leasing progress, successfully recycle underperforming office assets, and benefit from stringent cost-cutting. It is noteworthy that this was achieved in a tough economic environment in SA,” he said.

“Going forward, we will continue to focus on the key operating metrics, while also looking at new investments and opportunities for growth both in South Africa and the US. This includes our first foray into the residential property market… Our US strategy and entry into the residential asset class in SA are very exciting growth initiatives, but, we must stress that we are working with local partners who have on-the-ground experience and expert knowledge of their sectors,” Jennett added.

As part of its US strategy, Emira is looking to secure stakes in grocery-anchored convenience retail centres in the southern and central parts of the country, in states such as Texas, Ohio, Indiana and Georgia. A further nine states in this region have been identified for future opportunities. Emira’s US partners in its North American expansion drive include the Rainier Group and Stark Enterprises.

Jennett said Emira was fortunate to have found local US partners, like Dallas-based Rainier Group. “Rainier not only have local knowledge and networks, but the group is similar in size to Emira and we have a like-minded investment vision. This has given us the confidence to co-invest with them in convenience retail centres that have good yields and are performing well.”

Through the joint venture, Emira has successfully acquired three assets thus far, two of which were after its half-year period closed. Emira now holds 46.7% equity in Belden Park Crossing Shopping Centre in North Canton, Ohio. It also has a 49% equity interest in Moore Plaza in Corpus Christi, Texas, and 32 East Shopping Centre in Cincinnati, Ohio. Emira’s combined investment in the USA is R332,2 million (USD25,8m), all funded with proceeds of disposals from its portfolio rebalancing drive.

The mid-cap fund’s initial US investment, together with its long-time investment in ASX-listed Growthpoint Properties Australia (GOZ), has seen it increase its international exposure to 7% of its balance sheet during the half-year. Emira said that income from its listed investment in GOZ increased by 0,9% for the period, while its investment in the USA delivered its first contribution to distributable income of R2,8m.

Meanwhile, Emira’s joint venture with One Property Holdings, Enyuka, became effective on 1 July 2017. It closed the period buoyed with six new properties, taking its total portfolio to 21 shopping centres valued at R900,8m. Enyuka’s total property asset value is set to top the R1 billion mark, with a further acquisition secured. The investment in Enyuka contributed R35,9m to Emira’s distributable income.

Emira, which is a diversified SA REIT with 111 directly held properties valued at R12.7bn, increased net income from its like-for-like portfolio by 7.9% during the half-year. It also reduced its gross cost-to-income ratio marginally to 37.2% from 37.9% for the period.

Drilling into the detail of its turnaround from an operational level, Emira Chief Operating Officer, Ulana van Biljon, said vacancies were reduced to 4.5% from 7.0% in the comparative half-year. Emira also made headway with its portfolio rebalancing strategy by selling six properties.

“We achieved a combined 14.8% premium to book value on the disposals… Emira effectively decreased its office exposure from 40.5% to 38.2% of total assets during the last 12 months. We are continuing with our rebalancing efforts, with R1.1bn in underperforming properties held for sale. Of this, we already have unconditional disposals worth R210m, which should transfer soon,” she said.

Van Biljon said reducing Emira’s office exposure and increasing the quality of its portfolio has been undertaken for years and was now paying off. She said that in 2011, 61% of Emira’s office portfolio was made up of B-grade properties, 37% A-grade and 2% C-grade. At the end of 2017, 45% was A-grade, 35% P-grade and the balance B-grade. During this time the average value of Emira’s office properties, more than doubled, from R52m per property to R119m.

Nesi Chetty head of listed property at MMI Investments, said Emira had made a good turn-around, posting a positive set of results. He welcomed its reduced vacancies and lower gearing, and said Emira’s exposure to the US was gaining traction.