Emira Property Fund’s turnaround efforts continue
The days of property companies being able to easily deliver inflation-beating dividend growth and increased profitability are seemingly numbered, given the bearish forecasts emerging from the sector.
One of the companies prompted to adapt to tough market conditions is mid-cap (R7.5 billion) property counter Emira Property Fund, as the company’s three-year long effort to turn its fortunes around is set to continue.
Along with declaring an 8.8% growth in dividend payouts for the year to June 30 2016, the company on Wednesday announced its plans to invest more into the retail sector and dispose of more properties.
Emira, which owns a portfolio of office, retail and industrial properties worth R12.9 billion – with the Wonderpark Shopping Centre in Pretoria being the flagship property, also has the potential to make a foray into the residential sector by converting office properties into rental units.
The company still has a bias towards the office sector, with office properties making up 41% of its property portfolio by value for the period under review.
However, Emira’s CEO Geoff Jennett said the company will change tack by predominantly investing in defensive assets like shopping malls. “In the long term we are looking to have a 50% exposure to the retail sector,” he said.
Shopping malls are considered to be defensive during a slowing economy and Emira’s peers such as Rebosis Property Fund and Vukile Property Fund have recently bolstered their exposure to this segment.
Much of Emira’s focus in recent years has been on improving the quality of its property portfolio. It has moved from B- and C-grade (typically viewed as older buildings) to P-grade offices (viewed as newer or high-quality buildings) largely in nodes such as Bryanston in Johannesburg, Menlyn and Centurion in Pretoria.
Emira had reduced its vacancies from nearly 15% two years ago to single digits by disposing of non-core properties. However vacancies increased from 4% to 5.3% with its office properties faring the worst with vacancies of 10.5% for the period under review. It has achieved tenant retention of 75% by gross lettable area.
Grindrod Asset Management’s chief investment officer Ian Anderson said the company has identified a further 18 properties that are collectively valued at R850 million that it intends to sell in 2017.
He said Emira’s asset disposal plans should help reduce its vacancies in the portfolio and enable it to increase its exposure to more defensive property sectors by using the proceeds from the sales.
It has plans to invest R2 billion on P-grade office developments and refurbishments on existing properties. With a loan-to-value of about 35.4%, Emira’s CFO Greg Booyens said it has a mandate to increase the figure to above 35% as opportunities are available to the company.
But tough times are ahead for Emira, as it already warned the market of a negative growth in its dividend per share of about 2% for the year to June 30 2017.
Said Anderson: “The company’s ‘recovery’ has suffered a major setback and management has their work cut out convincing the market they can turn this ship around in an extremely difficult market.”
At a time when local property companies have made large investments into Central and Eastern Europe in recent months to diversify against South Africa’s worrying state of the economy, Jennett says the company is comfortable with its exposure to the Australian market through its R940 million investment in Australian Stock Exchange-listed Growthpoint Australia. “Given the volatility in the rand, the Brexit vote and renewed focus on our portfolio, I don’t foresee us making more offshore investments in the near future,” he said.
The company recently spurned takeover advances from its peer Arrowhead Properties.
Emira’s stock is still an affordable entry into South Africa’s listed property sector as its trading off a forward yield of 10.5% compared with the sector’s average of 6.2%.