Emira Property Fund share still relatively affordable

IT’S BECOMING increasingly difficult to find value in the listed property sector, with most counters starting to look frothy on the back of a 35% surge in the benchmark SAPY index over the past 12 months.

However, Emira Property Fund still offers income-hungry investors a relatively affordable entry into listed property at a forward yield of around 8% — not too shabby given that the sector as a whole is trading at 6,6%.

That’s despite Emira’s share price already recovering 43% since the stock hit a two-year low of R12,80 in mid-March last year. At a current level of R18,30, Emira is trading at a 12% premium to net asset value (NAV) of R16,50/share, less than half of the sector’s average 28% premium to NAV.

In recent years, Emira underperformed the market both in terms of income and capital growth. The improvement in investor sentiment has no doubt been supported by big guns such as the Public Investment Corp (PIC) and fellow JSE-listed Redefine Properties taking sizeable bets on Emira.

Redefine acquired a 13,6% stake in the fund in September, while the PIC doubled its existing holding to 10,7% in December. Redefine and the PIC were clearly buying into Emira CEO James Templeton’s turnaround strategy, which is finally starting to pay off.

Last week patient investors were rewarded with better-than-expected 9% growth in income payouts for the six months to December. That is the highest dividend increase declared by Emira since 2009.

Management has made impressive headway over the past two years to improve the quality of the fund’s portfolio and reduce its exposure to the struggling office market.

The fund has subsequently experienced a sharp decline in office vacancies, from 14,4% to 7,9% in the two years to December. Overall vacancies are now at a manageable 4,9%, down from 7,8% two years ago.

Management has also unlocked value through an extensive redevelopment and refurbishment programme of existing properties. Emira’s flagship shopping centre, the R1,5bn Wonderpark Shopping Centre northwest of Pretoria, last year underwent a R500m extension, which increased the size of the centre from 63 000m2 to 90 000m2.

The upgrade is already paying off, with sales turnover at Wonderpark up 20% in December year-on-year.

Meago Asset Managers director Jay Padayachi says Emira has come a long way over the past two years, with management embarking on an active recycling of the portfolio by selling the

poorer-quality properties and replacing them with higher-quality investments at earnings- accretive yields.

He notes the improved quality of the core portfolio is partly reflected in a healthy 8,6% increase in like-for-like net property income growth. In addition, the average value of individual properties in Emira’s R12,5bn predominantly Gauteng-based portfolio increased by 22% in the 12 months to December, from R69m to R84,2m.

Says Padayachi: “If Emira is able to maintain its strong distribution growth trajectory while continuing to improve the quality of the portfolio, it will be difficult to argue against a further rerating of the stock relative to the sector.’’

Other analysts share this view. Last week Macquarie First South Securities placed an outperform recommendation on Emira after the release of the company’s interim results. “Emira’s near-term prospects are attractive. The fund has a similar rating to other mid-cap funds such as SA Corporate Real Estate Fund and Vukile Property Fund, yet it offers better growth prospects over the next 24 months.’’ Macquarie expects Emira to deliver distribution growth of 9,2% for the 2016 financial year.

At the company’s results presentation last week, Templeton said management would continue to unlock value for shareholders through earnings enhancing redevelopments, extensions and refurbishments. Emira has a R3bn capital expenditure pipeline, with 30 projects worth R819,4m already under way.

“It is the highest number of capex projects that we have ever undertaken.”

In addition, Templeton is looking for new avenues for growth — given how saturated the traditional retail, office and industrial sectors are becoming. “We are interested in office-to- residential conversion opportunities, provided we can make money out of it.’’

Templeton says the company also has R300m to invest in offshore listed property counters to add to Emira’s current R707m exposure to the Australian property market via Growthpoint Australia.

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