Emira reports strong full-year profit
EMIRA Property Fund has performed strongly in its financial year to June and will work to create value for shareholders, despite expecting a difficult year ahead, says CEO Geoff Jennett.
On Wednesday Emira reported dividend growth of 8.8% per share for the year to June. At the end of June, the company had managed to maintain moderate gearing, with a loan:value ratio of 35.4%, and 93.1% of its interest rate exposure having been fixed.
Emira is a medium-cap diversified JSE-listed property company that owns office, retail, and industrial property. Its assets comprise 144 properties valued at R12.9bn. Emira is also internationally diversified, through its direct interest in Australian Stock Exchange-listed Growthpoint Properties Australia (GOZ), valued at R940.4m.
“Our financial year to June 2016 was strong, and we feel we have achieved impressive results. The group’s revenue increased 5.6% during the year because of the effect of past acquisitions, as well as organic portfolio growth,” Jennett said.
“Besides top-line growth, we also kept expenses contained and improved recoveries of municipal expenses. In general, we’ve made good leasing progress and vacancy levels match or better industry benchmarks.”
However, the fund expected its dividend payout to shrink 2% for the year to June 2017, because of increased vacancies in its office portfolio, an oversupply of offices in the market, and expected negative rental reversions, which have resulted from a weak macroeconomic environment.
Despite “good leasing numbers overall”, the fund was hit with 30,000m² of sudden vacancies in eight office buildings, five of them in Pretoria, according to Emira.
“We have clear operational and strategic steps in place to address this. Emira has been strengthening its portfolio composition by reducing exposure to lower-grade offices for a few years now. We will continue to rebalance the portfolio and responsibly lower our office exposure to better align it for this persistently tough market,” Jennett said.
“With this strategy and our focused, proactive asset management and aggressive leasing, we expect to be back on track for real distribution growth in the 2018 financial year,” he said.
Nesi Chetty, a fund manager at MMI Investments, said Emira’s annual results were solid, with its dividend growth beating the market average.
“Distribution growth of 8.8% is better than what Growthpoint Properties and other larger funds have managed. I think Emira has also done well to keep its property operating costs down. Property expenses only rose by just under 10%,” he said.
Emira’s listed investment in GOZ grew 22% because of increased distributions from GOZ, the lower dividend-withholding tax, and the rand depreciating against the Australian dollar.
Jennett said Emira would focus on growing itself in SA, and wanted to become a fund worth about $1bn in the next few years.
“We will always consider opportunities abroad, but right now we want to be a South African-dominant fund and we are not taking steps to increase our holding in GOZ,” Jennett said.
Grindrod Asset Management chief investment officer Ian Anderson said Emira would need to work hard to win over better market sentiment.
“Emira has always been viewed as a turnaround story, following the institutional influence in its early years. Up until very recently, investors had been pleasantly surprised by the progress being made, but now management have a mountain to climb convincing the market that this is a temporary hiccough and that growth will resume again from financial year 2018.”
“The share price has been supported in the short term by the prospect of corporate action, after Arrowhead expressed an interest in acquiring the entire issued share capital of Emira in a transaction that is not supported by Emira’s management.”