Emira Property Fund: Holding back on Australia

EMIRA Property Fund’s share price has been under pressure in recent months, no doubt following the surprise resignation of James Templeton in June and uncertainty about the strategic direction of the company under new CE Geoff Jennett.

Templeton left at the end of August to pursue his own interests after 11 years at the helm.

Redefine Properties, which last year bought a stake in Emira, sold some of its shares earlier this year after a strengthening of Emira’s share price. That may have prompted other investors to follow suit.

Though Jennett, previously Emira’s CFO, said at the recent annual results presentation that it was too early to say what his future plans for the company were, he stressed that he would not introduce any radical shifts. “I may do things slightly differently, but the focus will remain on growing distributions and creating value for shareholders.’’

The chartered accountant, who has a strong banking background, is likely to continue bulking up assets with quality acquisitions. He said the company was in a favourable position to go into its next growth phase following a successful restructuring of the portfolio over the past three years.

Growth will be supported by a development pipeline of R2,3bn that is likely to come on stream over the next 24 months. Jennett said many good deals were coming to the market from private property owners looking to cash out a portion of their portfolios.

Though management had a mandate to increase Emira’s Australian exposure through its R797m stake in Growthpoint Australia (Goz), Jennett said they had decided against such action following a recent visit to the country. He noted that the prices of Australian Reits had run so hard that the sector was now trading at an average 30% premium to net asset value.

“Prices are just too full. We are not going to go offshore just for the sake of it.’’

However, Jennett plans to raise debt in Australia against Emira’s Goz asset at much lower rates than those available in SA, which will boost the company’s bottom line significantly.

Emira was trading on a forward yield of close to 9% earlier this week, a sizeable discount to the sector’s average 6,5%.

“We believe Emira is undervalued, especially given the solid 9% dividend growth achieved for the year to June in a challenging economic environment,’’ says Maurice Shapiro of property fund managers Ma’alot Investments.

Meago Asset Managers director Thabo Ramushu agrees that the counter is a good buy at current levels of around R17,25. “The recent strong performance is evidence of the successful completion of Templeton’s three-year turnaround strategy. We especially like the way cash is being recycled.’’

Ramushu says management has made attractive yield-enhancing acquisitions, particularly in the retail space, during the year, while reducing vacancies across the portfolio and maintaining costs at a reasonable level.

Emira was traditionally overexposed to older, B-grade offices, which dragged the company’s performance down. Underperforming properties worth R1,4bn have been sold over the past three years and the proceeds reinvested in refurbishments, upgrades and acquisitions.

Emira’s flagship asset, Wonderpark Shopping Centre in northwest Pretoria, last year underwent a R500m extension. The size of the mall was increased from 63 000m2 to 90 000m2.

Says Ramushu: “Geoff Jennet takes over a company that is in good shape.’’

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