Big property debt benefits long-term investors: James Templeton
James Templeton, the CEO of Emira Property Fund, isn’t afraid of debt. The fund has snapped up about a dozen commercial properties this year using mostly debt financing and has plans to keep buying. Templeton says this should be good for investors in the long run. He isn’t worried about defaulting tenants, noting here that the emphasis is on buying quality properties with good tenants. Emira also has retail and industrial properties in its fund. Emira has a market cap of about R8bn, while its property portfolio is valued at more than R11bn. Its share price has been climbing this year (see chart below). Redefine announced last month that it was increasing its stake in Emira.- JC
By James Templeton*
Property debt has advantages for investors: James Templeton explains the thinking behind Emira’s shopping spree.
With 12 key property assets acquired so far in 2014, resulting in a R1,6 billion increase to its portfolio value in the past 12 months, Emira Property Fund has boosted its future earnings growth for the medium term.
Already earning rental income, all properties, bar one, have transferred to Emira. They are portfolio enhancing, and represent combined aforward yield of 9.1%. The assets have raised Emira’s portfolio value by in excess of 15%.
The acquisitions were more than 80% debt financed with long term facilities of between three and four years, with close to 90% of the debt having been completely hedged out for a similar duration.
This means that the growing income streams from the portfolio of assets acquired, combined with the substantial level of long-term, fixed debt, results in a geared benefit that drops through to Emira’s bottom line in future years.
These strategic acquisitions will support the growth of the fund’s earnings over the next few years. They have improved the quality of our portfolio and brought high-quality tenants on long-term leases into the Emira fold. They also increase the average value of Emira’s properties.
The properties include the R614 million prestigious, fully-let 25,767m2 Menlyn Corporate Park in Pretoria, which is expected to yield 8.6% for Emira in its first year. This prime-grade asset is the largest single acquisition Emira has made to date.