Sending the right signs — but time to step up
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.