It’s the cash flow, stupid
Emira is not the sexiest property stock on the block but it consistently tops the dividend growth charts
A better than expected 17.4% jump in dividends for the six months to December should keep Emira on many property fund managers’ buy lists.
Despite being a smaller player, the company has in recent years emerged as one of the sector’s top performers both in terms of dividend and share price growth. Unlike many of its bigger peers, Emira hasn’t stopped paying dividends over the past three years.
“The Reit [real estate investment trust] sector didn’t do itself any favours by not paying dividends during the pandemic. There are many pensioners out there who got hurt,” says CEO Geoff Jennett.
He credits Emira’s strategy of actively recycling properties at a premium to book value, as well as the company’s increasing diversification, for its success.
Emira’s total return of 22.6% for
2022 is comfortably ahead of the measly
0.5% delivered by the
South African listed property index.
Month to date the share price is up about 12%, no doubt supported by the solid set of results released last week for the six months to
December.
Emira’s abovemarket increase in dividend payouts was boosted by an ongoing (post-Covid) recovery in trading metrics in its
R16bn mix of residential, office, industrial and retail portfolio. The latter includes a 49% stake in 12 groceryanchored convenience shopping centres in the US.
Vacancies in
Emira’s local urban retail, office and industrial portfolio dropped to 4.8% in December from 5.3% a year earlier.
Rental reversions in all three sectors also improved nicely to a weighted average of -9.4%, down from -15.2%.
The office portfolio posted a marked recovery in vacancies and reversions. Empty office space dropped by 3.4% to 11.6% while reversions were down to -12% from -16.9%.
Reversions in the Enyuka portfolio, made up of 24 mostly rural centres that cater to lower-income shoppers, turned positive again (1.9% from -3.3%) for the first time in three years.
But it’s Emira’s exposure to the US that has piqued particular interest from investors. Though the R2.5bn investment represents only 16% of total assets, it’s already providing a significant boost to earnings. Distributable income from the US portfolio surged 46% year on year for the six months to December to R117.8m. That’s despite the fact that two of the 12 centres will resume dividend payments only next year.
The strength of the US portfolio is further underscored by vacancies nearly halving from 4.5% to 2.5% in the year to December, while rentals on lease renewals were up a hefty 6.9%.
Emira is the only JSE-listed Reit that offers local investors exposure to the lucrative US retail property market.
The company first entered the US in 2017 when it bought a stake in four retail parks for about R290m through a joint venture with Dallasbased real estate investment firm Rainier Group. The portfolio has since swelled to 12 centres and Emira’s stake has ballooned to R2.54bn.
Jennett’s foray into the US initially raised eyebrows as it was widely regarded as untested territory for South Africans. But his contrarian strategy has clearly paid off for shareholders.
on open-air value centres anchored by grocery stores and other “big box” tenants such as discounted sports apparel, home goods, cosmetics and clothing retailers.
Jennett is keen to further bulk up the US presence. “We’re looking for the right acquisitions but it’s become difficult to get your hands on good stock.”
He says it doesn’t make sense to build from scratch given higher US interest rates, which are up from zero a year ago to 4.5%. Still, Jennett believes Emira’s niche focus will further support income and capital growth from existing assets.
“There’s still plenty of demand from US tenants,” he says. “And the ongoing rebound in the US economy, which clocked up GDP growth of 2.1% in 2022 amid a consistently low unemployment rate of less than 4%, remains supportive of Emira’s US investment strategy.”
Jennett says the key to Emira’s offering is that it is a consistent and reliable dividend payer. “Ultimately people invest in Reits so they can get a cheque in the post every six months.”
Earlier this week, Emira was trading at a 36% discount to NAV and a forward dividend yield of 12.3%. Ridwaan Loonat, senior property analyst at Nedbank CIB, reckons that is attractive compared with the sector average of 8.8%.
He says the company has benefited from portfolio diversification and lower vacancy levels in its retail and industrial portfolios. “While the trading environment for the office sector remains challenging, Emira’s reduction in its office vacancy caught many by surprise.”