Listed diversified property fund Emira plans to incrementally increase its exposure to the US market.

Emira’s US portfolio, comprising 11 properties with a total value $569.5 million (R8.5 billion), of which Emira’s stake is valued at $119 million, now represents 13.6% of Emira’s total assets.

Emira CEO Geoff Jennett said on Wednesday the longer term intention is definitely to increase the US portfolio percentage contribution to Emira’s total portfolio asset value “on an incremental deal-by-deal basis into the years going forward”.

“It depends on the opportunities that are there but we have set ourselves an early target of 15% of total assets and we would look to invest and increase that in 5% increments over a long period of time.

“But it’s really subject to us finding the right assets, at the right price, in the right way,” he said.

Emira’s international investment strategy in the US with its partner, The Rainier Companies, resulted in the acquisition of its 11th US shopping centre asset in the year to end-June, the Newport Pavilion power centre on the doorstep of the Cincinnati CBD.

“We are pleased that Emira’s strong balance sheet, with cash on hand to deploy, enabled us to pursue this acquisition,” said Jennett.

“Our investment strategy facilitates capital recycling and allocation into more resilient environments that can act as a buffer against South Africa’s constrained economy with US dollar-denominated returns.”

Jennett said Emira’s equity investments in the US now total R1.7 billion ($118.9 million) and its after-tax income from equity co-investment in the US totalled R258.8 million.

Of this, R125.5 million is distributable and contributed R96 million to Emira’s distributable income for the year, he said.

Emira on Wednesday declared a final dividend of 66.65 cents per share.

This boosted the dividend for the full year to 118.65 cents per share, 13.7% higher than the previous year.

Emira closed its financial year with a 6.4% vacancy level in its direct portfolio, increased its tenant retention rate to 82%, achieved monthly collections of 99% of rent billed, and collected 95% of deferred rental from the April, May and June 2020 period.

Arrears decreased by R9.5 million over the year to R63.8 million.

Diversification key

Jennett attributed the company’s strong performance to its diversification of assets, tenants, investment methodologies and funding.

Apart from its investments in the US, Emira is invested in a portfolio of 77 directly held diverse office, retail, industrial and residential properties valued at R9.7 billion.

Emira also has indirect exposure to the residential rental property sector, with a 34.9% stake in specialist JSE-listed real estate investment trust (Reit) Transcend Residential Property Fund whose total R2.5 billion property portfolio contributed R37.8 million to Emira’s distributable income for the year.

Through Enyuka Property Fund, a dedicated rural and lower-LSM retail property venture with One Property Holdings, Emira has invested indirectly in 24 shopping centres valued at R1.66 billion.

Emira chief operating officer Ulana van Biljon said Enyuka’s portfolio continued to perform well and contributed R83.7 million to Emira’s distributable income for the year.

Unrest

However, Van Biljon said there was unfortunately extensive looting at six of the 24 properties, all of them in KwaZulu-Natal, during the recent unrest and one of the shopping centres was also partly burnt.

But she said 50% of the tenants in these centres are already trading and most of those properties will be fully operational in the next few months.

Van Biljon added that there is full Sasria insurance cover on the Enyuka portfolio.

Demand

Like-for-like tenant turnover in Emira’s urban retail portfolio, which comprises 38% of total property asset value and is 95.9% occupied, increased by 6.4% year-on-year.

Van Biljon said its industrial properties, which are 96.5% occupied and make up 14% of the overall Emira property portfolio, have held up well and there is an increase in demand for space with relatively favourable rentals being achieved.

She said office properties, which comprise 24% of total property assets and are 83% occupied, have the furthest to go in light of shifting working habits and the trend of downsizing and consolidating office space.

Future strategy

Commenting on Emira’s future strategy for its portfolio, Jennett said there is likely to be some growth in the residential portfolio because Transcend is investigating opportunities that seem to have value.

Jennett said they also see opportunities in the industrial portfolio and anticipate adding incrementally to this portfolio.

Emira is still under contract to acquire the Northpoint Industrial Park in Cape Town for R103 million but transfer has been delayed and is expected to take place by October 2021.

Jennett said Emira is not looking to specifically acquire any retail properties.

“If anything, we will look to reduce the retail portfolio and would rather look to reinvest into the existing assets that we own on our retail side,” he said.

Emira is under contract to dispose of the Epsom Downs Shopping Centre in Sandton, Gauteng, for R68 million and anticipates disposing of two other non-core retail assets for between R100 million and R200 million.

Jennett said Emira is not looking to expand its office portfolio and will take any opportunity that presents itself to reduce its sectoral exposure to offices.

But he stressed that this sort of rebalancing is difficult to achieve once there has been a pandemic or crisis.

Dividends

Jennett said Emira is unable in the current environment to provide earnings and distribution guidance.

However, he confirmed that Emira management’s key performance indicator (KPI) target for distributable earnings is 114.65 cents per share for the year to end-June 2022 and it expects to continue with its policy of paying out the cash backed portion as dividends to shareholders.

“We are confident in the strength of Emira but our tenants need a growing economy to thrive and, until this is achieved in South Africa, rentals will remain under pressure as landlords strive to contain rising vacancies,” he said.

Analyst’s view

Keillen Ndlovu, head of listed property funds at Stanlib, said Emira’s portfolio performance and earnings were better than expected, adding that the reduction in Emira’s loan to value from 43% to 41% was positive.

Ndlovu said forecasting earnings in the current environment for the whole property sector is challenging but Emira is looking cheaper relative to the sector.

Based on management’s KPI target for distributable earnings per share of 114.65 cents for the year to end-June 2022 results in a forward yield of 11.7% on a distributable earnings per share basis, which is higher than the sector average of about 10%, he said.

Ndlovu said Emira is also trading at a discount to its net asset value (NAV) of 35% compared to the sector at about 25% below NAV.

Shares in Emira rose 1.34% on Wednesday to close at R9.83.