Real estate investment trust (Reit) Emira Property Fund’s distributions for the financial year ended June 30, increased by 2.53% year-on-year, despite persistently tough trading conditions.
This increase, CFO Greg Booyens said on Wednesday, reaffirms the company’s turnaround and return to positive dividend growth.
With its rebalancing and reinvestment strategies “firmly in place and gaining momentum”, he pointed out that Emira plans to further improve on the distribution growth achieved for the current year in its forthcoming financial year.
Emira’s “solid set of results”, CEO Geoff Jennett added, delivered on its market guidance and advanced its strategies of rebalancing its portfolio out of offices and successfully recycling underperforming capital into yield-accretive international investment in the US.
“Despite persistently tough trading conditions, Emira continued to strengthen its strategies and improve operating metrics. We also delivered on our objectives of responsibly rotating out of local offices and into US retail assets,” he elaborated.
During the period, Emira significantly reduced its portfolio vacancies from 5.7% to 3.4%, with office vacancies down substantially from 12.5% to 7.1%. Emira also had a high retention rate of 85% compared with 72% in the previous financial year.
Like-for-like net income growth of 7.5% was achieved on the back of new letting, Jennett noted.
However, the rebalancing of the company’s portfolio saw Emira dispose of about R530.6-million of assets at a combined 14.8% premium-to-book value. Of the 13 properties sold, seven were offices, which reduced Emira’s office exposure to 35.7% from 38.7% of the total assets.
Proceeds from the disposal were invested into Emira’s international investments strategy, announced in December last year, whereby Emira, through its US subsidiary CIL2, has, together with Rainer Group, acquired four grocery-anchored convenience retail centres.
The centres are located in North Canton and Cincinnati, in Ohio; in Corpus Christi, in Texas; and Noblesville, in Indiana.
Emira’s combined equity investment in the US is R458-million, about $32.3-million, which was all funded with proceeds of disposals from its portfolio rebalancing drive.
Emira’s US investments contributed R22.6-million to its distributable income, and the company intends to continue its steady investment process into the US in the year ahead.
At year-end, Emira held R1.9-billion of assets for sale, of which R1.8-billion comprised 25 offices, which are planned for future sale.
Income from Growthpoint Australia (GOZ) decreased by 5.9% for the year owing to Emira having sold down 9% of its holding in GOZ to take advantage of the Australian Reit’s record-high share prices.
It brought the proceeds back to South Africa at a good exchange rate and deployed them into a higher-yielding investment, Jennett said.
While the distribution per unit from GOZ increased by 2.9%, he pointed out that this was more than offset by the large increase in the related dividend withholding tax for foreign shareholders.
Emira’s remaining investment of 4.5% of total GOZ units in issue is valued at R956.2-million, which represents a 151.4% increase on its initial investment.
Locally, however, Emira closed the year with 104 directly held South African properties valued at R12.5-billion and reduced its gross cost-to-income ratio from 37.2% to 36.8%, which Jennett said shows that the company’s income grew faster than its expenses.
Emira’s lower Living Standard Means retail property venture with One Property Holdings contributed to the business for the first time as an equity associate for the year, where the investment in Enyuka, which held R1.1-billion of shopping centre assets at year-end, contributed about R72-million to Emira’s distributable income.
Emira further increased its international exposure to 10% of its balance sheet during the year, with its new US investment venture representing 3%.
After its successful debut in residential property investment this year, Emira plans to increase its exposure to this sector in the coming financial year.
The Bolton is Emira’s R204-million value-enhancing conversion of its Rosebank office property assets, formerly occupied by petrochemicals company Sasol, into a contemporary residential apartment development undertaken with a specialist partner and 25% co-investor, the Feenstra Group.
The project entails converting 10 000 m2 of office space into 280 residential units, the first of which were occupied at the start of August. The project is expected to be completed in January 2019.
Commenting on the residential sector, Jennett told media on Wednesday that it is a “great diversifier for Emira’s portfolio” and that the company is actively pursuing opportunities to co-invest with sector specialists that cater for the lower middle-class retail residential property markets.
Should suitable opportunities arise, he said Emira will consider other residential conversions, especially since the company is aiming to grow its residential property to between 5% and 10% of its total portfolio.