As at end-December 2017, the fund’s direct portfolio consisted of 111 properties with a total asset value of R12.6bn.

The office portfolio contributes 45%to total value while retail and industrial assets contribute 40% and 15% respectively.

The effects of an over supplied office market along with subdued demand have led to high vacancies, increased tenant incentives and lower rental rates in the market.

While offices remain the major contributor to total value, the fund has significantly improved the quality of its office portfolio through redevelopments and disposals of noncore assets.

Grade A and P offices contributed 39%of the office portfolio in 2011; this make-up has changed dramatically with 80% of the portfolio now consisting of quality A and P grade assets.

The likes of the Knightsbridge development in Bryanston, Johannesburg; Summit Place in Menlyn, Pretoria; as well as the conversion of an older office building in Rosebank (Johannesburg) to residential has contributed to the improved quality in the portfolio.

Good progress has also been made in reducing vacancies from 16.1%in the previous year to 9.4% at end-December 2017 with initiatives such as the “Intelligent Relocation” helping to attract new tenants.

In line with the need to reduce the fund’s office exposure, R918m of the RLI bn worth of assets held for sale are office properties with R237m already sold in the six months to end-December 2017.

These properties have transacted at an average premium to book value of 14.8%(largely due to a Cape Town property sold at a 73% premium). Capital from disposals is expected to be recycled into convenience shopping centres in the US.

Emira first made inroads into the US market in October 2017 with the acquisition of the Belden Park Crossing in North Canton, Ohio. Since then, the fund has acquired three additional properties with a total investment of US$32.3m.

This is the first time an SA-listed property company acquired direct assets in the US market. Key to the US investment strategy is the in-country partnership with Rainier, a Dallas, Texas-based investment and real estate business, in order to mitigate country-related risk.

Emira has identified some other southern and central US states with meaningful GDP growth rates as targeted territories for expansion. The management team is of the view that grocery-anchored convenience centres where consumers do their daily bread and milk runs are “safer, recession-resistant and a familiar property asset class for Emira®”.

The introduction of the US acquisitions comes in light of very few accretive opportunities in the SA market. Emira has been able to achieve double-digit cash-on-cash returns in dollars compared to single digit yields achievable in SA.

Due to the size of the investment, the US contribution to distributions is still relatively small. The US portfolio contributes 3% to total assets bringing the overall offshore exposure to 9%.

This includes the Growth point Australia investment currently accounting for 6%of total assets with a previous five-year compound annual growth rate in distributions of 4.1%.

Other investments include Emira’s share in the Enyuka property holding which holds 21 low LSM retail properties with a portfolio value of R901Im. The latter contributes 9.7%to distributable income.

After a period of negative growth in dividends per share, Emira returned to positive territory for the six months ending March 2018, with interim dividends per share growth of 2.5% (-2% in 2017).

Management has guided to similar growth levels for the second half of 2018 with an expectation of real growth thereafter. Emira has outperformed the SA listed property index on a year to date basis(to June152018)with the share gaining 11%compared to the market’s 21%loss.

The rerating of the share is likely due to a strong recovery in the core portfolio and increased diversification through the US acquisitions. Emira is currently trading at a 10%forward yield and a 12% discount to net asset value (at June 15 2018).

Madibana Letsoalo  Property analyst, Momentum  Investments