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Johannesburg - Emira Property Fund [JSE:EMI] reported distribution growth of 8.8% per share for its full-year ended June 30 2016.
Emira is a medium-cap diversified JSE-listed Reit (Real Estate Investment Trust) that is invested in office, retail and industrial properties. Its assets comprise 144 properties valued at R12.9bn.
CEO Geoff Jennett attributes what he calls a solid performance, meeting its market guidance for 2016, to contractual escalations across most of its portfolio, benchmark-surpassing occupancy levels, tight cost controls, effective recycling of capital and Emira’s strong balance sheet.
Emira's total distribution growth beat inflation and it closed the year with moderate gearing with a loan-to-value ratio of 35.4%. About 93.1% of its interest rate exposure is fixed.
Emira is also internationally diversified through its direct interest in the ASX-listed Growthpoint Properties Australia (GOZ) valued at R940.4m. Income from Emira’s investment in GOZ grew 22%. This was because of increased distributions from GOZ, the lower dividend withholding tax and the rand depreciating against the Australian dollar.
“Emira’s revenue has increased by 5.6% during the year because of the effect of past acquisitions as well as organic portfolio growth. Besides top-line growth, we also kept expenses contained and improved recoveries of municipal expenses. In general, we’ve made good leasing progress and vacancy levels match or better industry benchmarks,” said Jennett.
In June, in order to be transparent, Emira announced its distribution outlook for the 2017 financial year before releasing its year-end results.
Emira forecasts negative growth of 2% in distribution per share for its year to June 30 2017, projecting a total dividend for that year of 143 cents per share. This is a result of increased vacancies in its office portfolio, the oversupply of offices in the market, and expected negative rental reversions resulting from the weak macroeconomic environment.
READ: Emira refines its strategy
Sudden vacancies
Jennet explained that, despite good leasing numbers overall, Emira was hit with 30 000m² of sudden vacancies in eight office buildings, five of which are in Pretoria.
“We have clear operational and strategic steps in place to address this. Emira has been strengthening its portfolio composition by reducing exposure to lower-grade offices for a few years now. We will continue to rebalance the portfolio and responsibly lower our office exposure to better align it for this persistently tough market,” said Jennett.
“With this strategy and our focused, proactive asset management and aggressive leasing, we expect to be back on track for real distribution growth in the 2018 financial year.”
During the year, occupancies across all sectors of Emira’s portfolio outperformed or matched national standards. Its overall vacancies increased slightly from 4.0% to 5.3%. Office vacancies were on par with the SA Property Owners Association's national level of 10.5%, retail stood at 2.8% (below the national average of 5.3%) and industrial vacancies were 2.4% at a level better than the national benchmark of 3.4%. Emira achieved tenant retention of 75% by gross lettable area.
READ: Emira expands retail footprint, upgrades centres
Acquisitions and refurbishments
The fund is also recycling its capital by concluding beneficial disposals of non-core properties and reinvesting the proceeds in upgrades, improvements and acquisitions. It claims to have secured a meaningful capital expenditure pipeline to support its strategic growth.
Emira acquired four properties for a total investment of R244.4m and a blended yield of 7.9%. This includes a 50% share of Mitchells Plain Town Centre in the Western Cape, the remaining 40% share of Ben Fleur Boulevard in Emalahleni in Mpumalanga, the greenfield site at 1 West Street opposite the Centurion Gautrain Station and a 50% stake in the five buildings of Summit Place, the P-grade commercial development in Menlyn, Pretoria.
“We’ll continue to find suitable ways to grow and achieve our strategic portfolio balance. To this end, we hope to announce a new strategic alliance with an unlisted rural retail portfolio soon,” announced Jennett.
Emira also undertook projects to modernise, extend and redevelop a number of its buildings, supporting their best use, quality and performance. These include Emira’s R85m major upgrade and refurbishment of Kramerville Corner, successfully transforming ageing B-grade offices into prime showroom space. Responding to letting demand, Emira extended the scope of the project. It will be complete by the end of September 2016 with the total investment being worth R220m with a first year yield of 9.5%.
Emira, furthermore, signed a seven-year agreement with WSP|Parsons Brinckerhoff for 5 800m² of head office space, triggering the first phase of its R813.8m total redevelopment of the Knightsbridge office park in Bryanston. Work began in November 2015 on the first of seven buildings, which will more than triple the size of the offices at Knightsbridge to 29 419m². The second phase will kick-off shortly upon signature of a 10-year lease with an international tenant. The office park is being built for a minimum 4-Star Green Star SA rating from the Green Building Council of SA.
Emira continued its strategy to dispose of non-core buildings, selling and transferring three properties totalling R284.5m at a combined forward yield of 6.5% and a premium to combined book value of 49%. It said it has identified a further 18 properties, valued at R835m, that it will sell to further reduce its office exposure, rebalance its portfolio and ensure sustainable earnings for its investors.
Jennett explained the disposal funds will be put to best use, including on-market buy-backs of Emira shares.
“We have great confidence in Emira’s prospects relative to its share price. The present divergence between Emira’s equity value on the stock exchange compared with its book value creates the opportunity to execute this strategy. We’ve already started the share buy-back programme and will expand it where feasible,” said Jennett.
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