Send­ing the right signs — but time to step up

Financial Mail - Investors Monthly - - Analysis - Alis­tair An­der­son

While some fund man­agers have hold­ings in Emira’s re­tail port­fo­lio, many say its of­fice port­fo­lio con­tains too many old as­sets.

Emira listed on the JSE in Novem­ber 2003, mak­ing it one of the old­est real es­tate in­vest­ment trusts on the ex­change. Its prop­erty port­fo­lio is spread across the of­fice, re­tail and in­dus­trial sec­tors. It re­cently spent a fair amount con­vert­ing its B- and C-grade of­fices to Agrade of­fices. It is also con­vert- ing of­fices in Rose­bank into res­i­den­tial prop­er­ties, which the Feen­stra Group will man­age.

Emira’s results for the year to June 2017, re­leased in Au­gust, did not please in­vestors. The com­pany’s share price fell on the day the results were re­leased and the day af­ter.

Emira warned a year ago that its div­i­dend pay­out would dis­ap­point. It was the first prop­erty com­pany to have the courage to do so, but it needs to con­tinue be­ing so open with share­hold­ers.

In line with its warn­ing, Emira de­clared a div­i­dend of 143.18c/share for the year to June 2017, down 2% on the 2016 fi­nan­cial year.

At year-end, Emira had im­proved va­can­cies across its port­fo­lio to 5.3%, from 7% at its De­cem­ber half-year. But its of­fice va­cancy at 12.5% was still no­tably higher than the in­dus­try av­er­age of 11.8%.

In­vestors were also un­happy about Emira not pro­vid­ing a fore­cast for its div­i­dend pay­out for the June 2018 fi­nan­cial year.

Man­age­ment said op­er­at­ing con­di­tions and the SA po­lit­i­cal en­vi­ron­ment are un­pre­dictable, and the com­pany does not want to re­lease fore­casts it might not meet due to un­fore­seen changes in its work­ing en­vi­ron­ment.

The com­pany is cur­rently led by for­mer fi­nan­cial director Ge­off Jen­nett. He has been try- ing to make a strong ac­qui­si­tion for about a year, but has strug­gled to find deals that fit. Much of the com­pany’s cur­rent work in­cludes new builds and con­ver­sions.

Emira isn’t size­able enough to part­ner with off­shore groups. Its model would be to buy as­sets di­rectly in an overseas market, which would be quite risky if the group were to try a deal in pop­u­lar East­ern Europe. It may look to Western Europe for po­ten­tial deals. In SA, it has a solid pipe­line.

Emira is al­ready in­ter­na­tion­ally di­ver­si­fied through its di­rect in­ter­est in Aus­tralian Stock Ex­change-listed Growth­point Prop­er­ties Aus­tralia, hold­ing 4.5% of the com­pany’s to­tal shares in is­sue. This stake is worth R901.4m. Com­pared with the ini­tial cost price of R416.8m, it makes for a 116.3% in­crease in the in­vest­ment in the fi­nan­cial year. Emira’s in­come from Growth­point Aus­tralia dur­ing the year in­creased 0.8%.

The group sold 11 non­core prop­er­ties or about 4% of its to­tal port­fo­lio at a 1.1% av­er­age pre­mium to book value.

“This shows that our as­sets are val­ued real­is­ti­cally and that Emira’s net as­set value un­der­pin is fair and rea­son­able,” Jen­nett said re­cently.

A fur­ther 16 prop­er­ties are be­ing held for sale.

At its year-end, Emira was in­vested in 135 prop­er­ties worth R13.3bn. It de­creased its ex­po­sure to of­fices from 44% to 41% dur­ing the 2017 fi­nan­cial year. Its urban and ru­ral re­tail prop­erty in­creased to 44% of Emira’s port­fo­lio, in­clud­ing its stake in Enyuka Prop­erty Fund. In­dus­trial prop­er­ties were con­stant at 15% of its as­sets.

Emira spent R624.2m in 17 projects to mod­ernise, ex­tend and re­de­velop mostly of­fice as­sets. The largest scheme is the de­mand-driven phased Pgrade green re­de­vel­op­ment of Knights­bridge in Bryanston. It was 68.4% prelet in its first phase and is on tar­get for com­ple­tion in Septem­ber. Its fully let sec­ond phase will be de­vel­oped by June 2018.

Enyuka, a part­ner, is set to ac­quire five new shop­ping cen­tres. Its orig­i­nal port­fo­lio of 15 ru­ral as­sets will stand at 20 and be val­ued at R851.6m.

Emira also closed a R364.2m strate­gic BBBEE deal that placed 5% of its shares in black own­er­ship, adding value to Emira and its ten­ants, while also abid­ing by the new prop­erty sec­tor char­ter.

The com­pany may be send­ing the right sig­nals, but it needs to get onto a pos­i­tive in­come pay­out path soon.

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