Emira’s turnaround pays off


Outgoing Emira Property Fund CEO James Templeton.

Emira Property Fund’s four-year turnaround strategy of reducing its exposure from the ailing office sector to improve the quality of its R12.7 billion property portfolio seems to be paying off.

Disposing office properties, building scale through acquisitions and redeveloping existing assets over the years has boosted Emira’s performance.

The vacancy rate of Emira’s property portfolio is a case in point. In 2011, Emira, with a market capitalisation of R8.7 billion, saw its overall vacancies at 11.5%. But management lead by the outgoing CEO James Templeton managed to drive down vacancies to 4% for the 12 months to June 2015.

Office vacancies are the highest in Emira’s portfolio, dropping from 8.8% in the previous year to 7.8%. Its retail vacancies increased to 2.8% from 2.7%, while industrial vacancies also increased to 1.4% from 1%.

“We have been reducing our B-grade office exposure, increasing our prime office and retail exposure. Prime office space is performing relatively well and that’s what we want to be in. It does not mean we want to get entirely out of office,” Templeton says. B-grade offices are considered to be older buildings.

Emira’s retail exposure is now dominant at 35% of its property portfolio’s gross lettable area of 1.2 million square metres. The office and industrial sector now makes up 33% and 32% respectively.

Emira is bulking up its portfolio through retail acquisitions and refurbishments to existing properties. For the period under review Emira acquired a 60% share in the in Ben Fleur Shopping Centre in Mpumalanga for R66.5 million and a 50% share of the Mitchell’s Plain Shopping Centre in the Western Cape for R76 million.

Management redeveloped Emira’s R1.57 billion flagship Wonderpark Shopping Centre in Pretoria, where it spent R561 million in growing the centre’s size from 63 000 to 89 000 square metres.

About 19 properties stand to be refurbished, of which the biggest project planned is the R57.8 million upgrade to the Kramerville Corner in Sandton.

It seems like patient investors who endured Emira’s slump have been rewarded throughout the property counter’s transformation. Its stock was among the worst performers in 2011, returning a negative total return of 5.88%, according to figures from Catalyst Fund Managers. Up until June, Emira has delivered a 1.59% total return.

On Wednesday Emira announced a 9% growth in distributions of 134.27 cents per participatory interest.

Industry players seem to rate Emira as a recovery play.

Grindrod Asset Management chief investment officer Ian Anderson says Emira’s performance shows that despite a weaker economy, an actively managed listed property company is still capable of producing income growth.

“[Emira’s performance is] a highly prized attribute in a world where earnings growth is becoming increasingly scarce and where earnings downgrades and negative surprises are becoming more commonplace,” Anderson says.

Director at Meago Asset Managers Thabo Ramushu supports Anderson’s view: “We view the performance [of Emira] as strong and further evidence of a successful completion of a turnaround strategy undertaken during the tenure of the exiting CEO.”

Ramushu says the decline of the vacancies in Emira’s portfolio is “a strong positive”, given the pressures the sector remains in nationally.

Emira has also benefitted from its offshore investment in Growthpoint Properties Australia, growing the value of its 4.9% stake to R796.9 million from R666 million in the previous year.

At a forward yield of 8.9% relative to the sector’s 6%, Emira is positioned as affordable and attractive. Trading at 6% discount to net asset value at current levels of R17.15 per share, which Anderson says suggests there is significant upside in the stock, relative to larger listed property counters.

Emira has appointed the fund’s former chief financial officer Geoff Jennett as CEO from September 1. Incoming management, Ramushu says, should focus on convincing the market that the stock is underpriced and deserves be rated in line with peers and the listed property sector.

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