Trimming down cost and assets catapults Emira to growth

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Trimming down cost and assets catapults Emira to growth

As the fund reduces vacancies and launches acquisition drive.

JOHANNESBURG – It is Emira Property Fund’s drive to reduce vacancies across its property portfolio and containing operational costs which has helped the company enjoy a full year distribution growth of 7.5%.

CEO of Emira James Templeton describes the distribution growth as “beating budget and expectations”, which was up from its half year distribution growth of 6.5%.

“It (the company’s performance) builds on Emira’s positive turn around for investors and delivers on our promise of real growth distributions,” says Templeton.

Emira, with 141 properties in retail, office and industrial valued at R10.8 billion, reported a dip in vacancies from 5.6% to 4.5%.

The company says the industrial sector, which makes up 16% of its overall portfolio, has contributed most to the decrease in vacancies, achieving “vacancies of a mere 1%” – with fully-let properties in KwaZulu Natal and the Western Cape. Its retail assets including the 63 604 square meter Wonderpark Shopping Centre in Pretoria and more, recorded a vacancy rate of 2.7%. Meanwhile, the office sector, representing 50% of Emira’s portfolio shows the largest vacancy rate of 8.8% during the period under review.

“Office occupancies deepened largely on where properties are located in this market. As a result we are focusing our investments in better performing nodes,” says Templeton.

Emira, with a market capitalisation of R7.5 billion is on disposal drive of its six and a further seven (still awaiting transfer) non-performing assets totaling R501 million at a forward yield of 7.9%.

The company also acquired retail, industrial and office assets.
Some of the acquisitions include the R614 million worth Menlyn Corporate Park office development, Ben Fleur Shopping Centre in Emalahleni and Steelpark Industrial. The total acquisition is eight properties across retail, industrial and office sector, six of which are based in the Western Cape.

“The acquisitions will be value enhancing to Emira in following years,” says Templeton adding that the criteria is investing in sprawling nodes which are not crowded by investors.

The company has also embarked on the refurbishment of its existing portfolio including the Wonderpark Shopping Centre, which is due for completion in October 2014 and Gateway Landing which is still on going.

Other completed refurbishments include Hyde Park Lane, Kokstad Shopping Centre, East Coast Radio House and The Colony Centre. In total, Emira has a development pipeline of R1.5 billion.

In the financial year, Emira recorded rollovers and new debt of R3.7 billion, with R1.4 billion worth of debt maturing in 2015. “We are confident of refinancing that debt,” says chief financial officer Peter Thurling.

In the current interest rate rising environment, Templeton says local funds are pushing out debt facilities due to global sentiment on interest rates.

Analysts agree that Emira has positioned itself well despite a tough property market. Sesfikile Capital director Mohamed Kalla says Emira’s reduced vacancies, disposing of poor quality assets and refurbishments to properties are “all the right things happening in the portfolio.”

“Management has done a lot to ‘clean up’ the portfolio in recent years and this has come through in the reduced vacancy rate. If you look at Emira’s balance sheet, it is very well positioned for a rising interest rate environment,” Kalla told Moneyweb.

He adds: “They are redeploying proceeds into better quality assets and from that operational perspective it’s a good result. We like their balance sheet and their outlook.”

Old Mutual Investment Group portfolio group manager Evan Robins agrees with Kalla: “Operationally they are getting a handle on their portfolio, it’s not an easy portfolio, but operational metrics were impressive.”

Robins says on the distribution growth front, Emira delivered slightly better than expected. “We are more conservative with our numbers. We have seen many property companies delivering on 8% growth.”

The growth picture looks the same for Emira’s offshore investments, largely its investment in Growthpoint Austrailia. Income from Emira’s listed investment in Australia increased by 21.7% due to an increase in the distribution per unit received. While growth in Rands on a comparable basis was 15%.

“(More) offshore exposure is something we would like to do… We have capacity issues, we are small and to make a deal work is difficult. We are focusing on internal capacity,” says Templeton.

Emira shares closed 2.75% higher to R14.93 during Wednesday’s trade.

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