Emira delivers positive dividend growth, facilitated by portfolio repositioning
Diversified real estate investment trust (Reit) Emira Property Fund achieved a 3.1% year-on-year increase in distributions for the six months ended December 31, 2018.
In addition to a positive improvement in distribution growth and having met market guidance, Emira CEO Geoff Jennett on Wednesday reported that the company had acquired Truman’s Marketplace shopping centre in Grandview, Missouri, with the asset having transferred in December 2018.
Emira paid $6.1-million for a 49.5% equity interest in Truman’s Marketplace at an expected initial equity yield of 11.1% a year.
This acquisition forms part of the company’s strategy to increase its international exposure, which grew to 10.8% of its balance sheet during the year, with US investment now constituting 5% of its total assets or $50.5-million.
Income from the company’s co-investment in the equity of a portfolio of grocery-anchored dominant value-oriented convenience retail centres in robust markets in the US totalled R30.1-million.
This US portfolio now comprises six assets.
Further to increasing its international exposure, Jennet enthused that the Reit had also completed the rebalancing of its portfolio out of lower-grade offices with the disposal of a R1.8-billion 25-office-asset portfolio to Inani Prop Holdings.
Inani is 51% owned by Zungu Investment Company (Zico), a 98% black-owned and Level 1 B-BBEE entity, and 29% by Boyno Trade and Invest, a subsidiary of One Property Holdings. Emira owns the remaining 20%.
After Competition Commission approval was received late in December 2018, the first 11 assets of R701.8-million transferred to Inani on January 4.
The remaining transfers are expected to be completed before Emira’s financial year-end in June.
This transaction reduced the company’s office exposure from 35.7% to 25% of total assets, leaving the company with a total of 20 office buildings, all P and A grade.
Emira ended the year with 104 directly held South African properties valued at R12.7-billion, including the 25 office buildings for the Inani transaction, which had yet to transfer at that point.
During the period, Emira also focused on improved portfolio metrics, including aggressive vacancy management and leasing, which saw the company reduce its portfolio vacancies from 4.5% in the prior half-year to 3.7%.
Office vacancies improved considerably from 9.4% as at December 31, 2017, to 5.6% for the period under review.
The company achieved a high tenant retention rate of 88%, up from the 75% recorded 12 months earlier.
New letting and contractual escalations saw Emira’s stable portfolio notch up like-for-like net income growth of 3.8%.
The company also maintained and improved its portfolio with R62.4-million worth of major projects during the six months, excluding its The Bolton residential conversion.
The company’s gross cost-to-income ratio increased slightly from 36.4% to 37.3%, owing to higher rates charges, which were not recoverable.
Enyuka, Emira’s rural retail property venture with One Property Holdings, which holds R1.1-billion of lower living standard measure shopping centre assets, contributed R37.5-million to Emira’s distributable income.
Distributions from Growthpoint Properties Australia (GOZ) were down 8% after Emira sold GOZ units during the period in addition to those it sold in June 2018 to take advantage of the A-Reit’s record-high share prices.
The distribution per unit from the underlying GOZ units, however, increased by 3.6%.
Emira’s remaining investment of 3.3% of total GOZ units in issue is valued at R918.1-million, which represents a 161.5% increase on its initial investment.
Emira also entered the residential property market, with the residential conversion of the former Sasol Rosebank offices in a co-investment arrangement with the Feenstra Group.
The Bolton apartments will be valued at an estimated R207-million when completed in May.
Building on its asset diversification, Emira increased its exposure to the residential rental sector during the half-year by taking a 34.9% stake in JSE Alt-X listed Transcend Residential Property Fund.
Emira’s gearing ratio was slightly above its 40% upper gearing benchmark, however, Jennet highlighted that it expects this to reduce rapidly.
When the first tranche of office disposals transferred to Inani on January 4, it returned to sub-40% levels and is set to be around 37% before the end of the current financial year.
Emira expects to deliver distribution growth in the second half at similar levels to those achieved in the first half.