Emira eyes asset base expansion, R2.5bn investment in potential projects

Emira Property Fund is mulling the injection of R2.5-billion in capital expenditure (capex) for projects-in-planning across its portfolio after several successful redevelopment, expansion and improvement projects, as well as acquisitions and disposals, boosted the JSE-listed real estate investment trust’s (Reit’s) portfolio value. Emira’s local investment property value across 146 properties increased 4.2% to R13-billion in the six months to December 31, with some R515.1-million in capex spread across 13 property redevelopment and extension projects that were currently under way.

The modernisation, extension and redevelopment programme included the R69.4-million upgrade and refurbishment of the 19 342 m2 Kramerville Corner, in Marlboro, which would be completed by March.

Another significant project was the R795-million three-phase redevelopment of the Knightsbridge Manor office park, in Bryanston, from a 10 000 m2 B-grade office park to a 29 352 m² P-grade, seven-building, 4-Star Green Star SA-rated office park. The R368-million, 13 500 m2 first phase, on which work started in November last year, was scheduled for completion in May 2017.

The rest of the project would be developed in line with tenant and market demand, with expectations that phases two and three would be completed in April 2019, said CEO Geoff Jennett.

The group was also extending its 60%-owned Ben Fleur centre, in eMalahleni, at a cost of R19.9-million and revamping its 9 Long Street, Wonderpark and Bradenham Hall assets, in Cape Town, Pretoria and Rivonia respectively, at an aggregate cost of R28.7-million. These projects were set to be completed this year.

“The number of projects under way reflects the fund’s strategy to continually upgrade the portfolio and extract value from existing bulk,” Jennett said, pointing out that the yield of the top six projects would be, upon completion, above 7.8%, while the yield on all 13 projects would be 7.7%.

Speaking at Emira’s interim results presentation, in Sandton, on Thursday, he noted that, if the market could absorb it, Emira would gradually realise about R2.5-billion worth of projects that were in planning.

The potential projects being considered included a R730-million residential/office development at the 12 Baker street and 2 Sturdee road Rosebank properties; the R550-million development of Harbour Place, in Cape Town; the development of the Southern Sentrum, in Bloemfontein; Podium Phase 2, in Menlyn; Quagga Centre Phase 1, in Pretoria; and Ben Fleur Phase 3, in eMalahleni.

DISPOSALS AND ACQUISITIONS

During the six months to December, Emira entered into agreements to dispose of R421-million worth of properties and had acquired properties to the value of R240-million.

It bought a 50% undivided share in Mitchells Plain shopping centre, in Cape Town, for R75.3-million at an initial yield of 9.3%, in addition to a 50% undivided share in Summit Place, Menlyn, for R403-million at an average yield of 8.14%.

The first two completed buildings, Summit Place 1 and Summit Place 2, had been transferred to Emira in December at a cost of R86.4-million.

The remaining three buildings, which included both office and retail space, would be developed by Emira and completed by January 2017. By December 31, R110-million had been paid for the land and development costs to date for Summit Place 3 and Summit Place 4.

The company was also in negotiations to buy the remaining 40% in the Ben Fleur centre.

Further, Emira was acquiring, for R70-million, the vacant 1 West 21 000 m2 property, in Centurion – one of its projects-in-planning. The company was considering embarking on a R561-million commercial development on the site.

Emira continued its “recycling of capital” with strategic noncore property disposals and reinvesting the proceeds in strategic acquisitions, developments and upgrades.

The Reit had sold two buildings during the first half of the financial year, with the transfer of Brandwag shopping centre and Kosmos flats, in Bloemfontein, concluded in September for R250-million.

One disposal was concluded post the close of the half-year, while the remaining three transfers would be completed within the next three months after agreements were entered into for the sale of the noncore offices in Bloemfontein for R171.2-million.

“The successful execution of the fund’s disposal strategy is nearing completion with very few noncore properties remaining on its disposals list,” Jennett noted.

ASSET BASE EXPANSION

Emira planned to increase its asset base of office, retail and industrial properties to R20-billion within the next two-and-a-half years and cautiously increase its exposure to offshore Reit holdings to about 10% in the next 12 to 18 months.

The group’s international diversification was being undertaken through a 4.9% direct holding in ASX-listed Growthpoint Australia (GOZ), at a value of R942.7-million, which brought Emira’s total current asset value to R14-billion.

Income from Emira’s 27.2-million-unit investment in GOZ increased by 21.8% as a result of increased distributions and the rand’s depreciation against the Australian dollar.

In line with this, the group planned to build up the skills and capacity to become comfortable enough to pursue direct investments in an offshore jurisdiction at a low risk.

FINANCIAL RESULTS

During the first half of the year, Emira delivered an 8.8% increase in distributions a share to 70.34c, owing to the increased income from the GOZ investment, an improved portfolio occupancy, acquisitive growth and contractual escalations on most of its portfolio.

CFO Greg Booyens said the company had generated revenue of R883-million in the first half of the year, a 5.4% rise on the prior corresponding period, while the company’s property expenses were well contained with the gross cost-to-income ratio marginally higher at 35.7%.

Municipal expenses, maintenance costs and bad debt provision had resulted in a 11.4% increase in property expenses to R323.7-million.

Management and administration expenses remained stable at R43-million during the half-year under review.

Emira’s net asset value increased 2.9% from R17.51 a share as at June 30, 2015, to R18.01 a share as at December 31 – taking the Reit’s net asset value growth over the past five years to 12.4% compounded a year – following the revaluation of investment properties and the investment in GOZ, as well as the acquisition and development of further properties.

Emira recorded a continued low vacancy rate of 4.7% and high tenant retention of 82%.

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