Diversified real estate investment trust (Reit) Emira Property Fund has doubled its investments in the US to R1.1 billion over the past year while cutting its stake in Growthpoint Properties Australia (Goz) by almost a half, to around R550 million.
Responding to Moneyweb during a media briefing on the release of the group’s 2019 full-year results on Wednesday, Emira CEO Geoff Jennett said the Reit is shifting its offshore investment exposure from Australia to the US, where there are higher yielding opportunities.
He said that during the fund’s 2019 financial year, it sold down its stake in Goz from around R956 million to R760 million. “However, post year-end, we sold another stake.
“Our view is that Goz is fully valued and it [then] makes sense to reduce our exposure to Australia and recycle some of that capital to higher yielding US retail property opportunities,” he said.
Emira is a minority shareholder in Goz with a below 2% stake, while fellow JSE-listed peer Growthpoint Properties is a majority shareholder with a 63% stake, valued at around R22.8 billion.
There are no plans to sell Growthpoint Properties’ shares in Goz, says its CEO Estienne de Klerk. However, he says the company reduced its stake somewhat following Goz carrying out a rights issue earlier this year. “Growthpoint did not take up the offer, which effectively diluted our stake as other institutional investors came in,” notes de Klerk.
Emira initially invested R272 million in the Australian listed fund and the fund says it has seen a capital increase in the investment of almost 180%.
Listed property analysts agree that Emira’s move to ‘sell down’ in Goz makes sense.
“Its holding in Australia is passive while its US foray is more active,” says Evan Robins, portfolio manager at Old Mutual Investment Group. “It makes sense for the company to concentrate on one offshore investment rather than to have bitty investments in other countries …
“As per its investment case, Emira should get a higher return from its US investment.”
Nesi Chetty, senior fund manager at Stanlib, says the Australian market has become a lot more competitive in recent years. “Its GDP growth trajectory is still good, but yields have come down in certain sectors. Emira has used some of this rerating to recycle into the US, where it wants to build a bigger exposure through the US-based Rainier Group, which sources retail deals.”
Jennett says Emira is currently looking at three further retail property acquisition opportunities in the US valued at $30 million (around R462 million). The fund, which has a total property and investment portfolio of some R14 billion, owns stakes in nine retail assets in the US together with its local partner Rainier. If the three deals under negotiation are sealed, the value of Emira’s US investments will top the R1.5 billion mark.
Emira closed its 2019 full-year to June 30 with a portfolio of 80 directly-held South African office, retail, industrial and residential properties, valued at R10.9 billion. Besides its US and Australian exposure, the fund has also diversified into the local residential property sector with a 34.9% stake in JSE AltX-listed Transcend Residential Property Fund. Transcend made a positive R37.9 million contribution to Emira’s total income during the period.
“Residential property is still a small 5% of our portfolio, but Emira benefits from SA’s best residential expertise. We only co-invest with respected hands-on specialists in their fields,” notes Jennett.
In terms of its financial results, Emira reported a 3.1% increase in distributions for the year, delivering on its market guidance. The fund reduced its loan-to-value (LTV) ratio to 36.1% giving it some space to make acquisitions.
Office vacancies down
On the operational side, Emira’s office vacancies improved significantly from 7.1% to 5.3%, mostly thanks to its R1.8 billion portfolio disposal to black empowered entity Inani Property Holdings. Its overall property portfolio vacancies were marginally up at 3.6%.
Emira chief operations officer Ulana van Biljon says the fund has reduced its directly-held South African office exposure from 35.3% to 24.5% of total overall assets. “This has left Emira fundamentally rebalanced, with a manageable 21 office buildings of which 19 are P- [prime] and A-grade,” she notes.
Commenting on Emira’s results, Chetty notes: “The performance was in line with the fund’s guidance. Emira has done well in the last few years to improve the quality of assets.
“The strategic focus to sell B-grade office assets and recycle into share buybacks and offshore investments is starting to pay off.”
He adds: “Management have done well to reduce the company’s gearing [LTV ratio] from 37.9% to 36.1%, supported by its SA office disposal.”
Wynand Smit, real estate analyst at Anchor Stockbrokers, says Emira has done well by delivering on its guidance considering that there are quite a few Reits that are struggling to meet distribution growth rate guidance “due to the challenging local property fundamentals, especially around lease negotiations with tenants”.
Smit says Emira’s stock is currently trading at a dividend yield of around 13% and at a 30% discount to its net asset value, which he believes could be an attractive entry point for long-term investors.
Emira’s share price was up just over 1% on the JSE on Wednesday.