Emira rebounds… and pioneers investment into US

Emira Property Fund returned to positive distribution growth after rebalancing its portfolio. This included selling office assets at a premium to book value, increasing its offshore exposure and a foray into the residential property market.
 
Emira reported a 2.5% year-on-year increase in distributions to 70.65c per share for its half-year ended 31 December 2017, rebounding from a decline in distributions in the corresponding period in 2016.

While revenue declined by 2.6% year-on-year to R855.4m, operating profit improved by 3.2%, and headline earnings per share (HEPS) were up 31.8%. Net asset value rose 1.5%, while vacancies declined from 7% to 4.5%.

Its portfolio consists of office and industrial properties in South Africa, including office properties it is busy converting to residential in Rosebank in Johannesburg, as well as investments in Enyuka (a rural retail property portfolio), Growthpoint Australia (GOZ) and, more recently, the USA.

Launching the US strategy

Emira is the first South African real estate investment trust (REIT) to venture into the US, with its R332.2m investment – its only acquisition during the period – funded with the proceeds of disposals.

“The US had all the right elements attached to it,” Emira CEO Geoff Jennett tells finweek. It is a First-World market with stable policies, and Emira managed to find the right partners, the right assets and the right price, Jennett says.

“It would have been so much easier to go into Eastern Europe, but we couldn’t find the right guys, those with a proven track record and prepared to put their own skin in the game.”

Together with Texas-based partners and co-investors Rainier Group, Emira has acquired three grocery-anchored convenience retail centres (one in Texas and two in Ohio). Two of these were acquired post the half-year, and Emira owns a minority equity interest of 49.5%.

“Emira has partly mitigated the risk of online shopping by going into dominant value centres through a joint venture with local partners.

“But with the natural growth of e-retailing, there could be some level of risk to the performance of those centres, especially in the medium term,” Jay Padayatchi, director at Meago Asset Managers, tells finweek.

Emira’s focus though is in the mid, southern and south-eastern states of the US, Jennett citing not only higher yields of around 8%, but location in states and car-belt areas that he says remains largely unaffected by online shopping.

Jennett says two further assets in Indiana and Georgia have been identified, anticipating that the US portfolio will reach 4% of total assets by June 2018.

International exposure at the half-year comprises 7% of Emira’s balance sheet. But with investments in 2018 and 2019 earmarked for the US, Jennett expects offshore exposure by the end of the 2019 financial year to be at least 15%.

Residential rental

Another first for the company is its expansion into the residential sector. “We are looking to make residential another component of our assets. It’s more of an opportunity now than it was three or four years ago,” explains Jennett.

Opportunities could include acquiring, or converting, assets as it is currently doing with the R121m redevelopment of its former B-grade offices in Rosebank into residential units.

In partnership with the Feenstra Group, which has invested 25% and will develop and manage the residential buildings, ‘The Bolton’ will comprise 280 mainly one-bedroom units sized between 30sqm and 40sqm, which will be rented out for between R6 000 and R9 000/month.

The project is expected to generate an initial yield in excess of 10.5%.

Enyuka rural retail portfolio

The Enyuka portfolio, Emira’s joint venture with One Property Holdings, is now well on target to reach R1.2bn worth of assets by December 2018, and with that mass, listing is a real possibility, says Jennett. Emira owns 49% of the portfolio comprised of 21 rural shopping centres valued at R900.8m.

Looking forward, the REIT forecasts the same 2.5% distribution growth for 2018. But real growth of at least inflation (estimated at 5.5%) and above is expected for the 2019 financial year and beyond, it said.

“Emira is getting a lot of the basics right. But I think there is still risk attached to their office and industrial portfolios for subsequent years,” says Padayatchi.