Emira Property Fund today reported distribution growth of 3.5% for its financial year ended 30 June 2013, achieving a noteworthy positive turnaround from last year’s decline in distributions.
Emira’s participatory interest holders received a total return of 26.2% for the year, with a capital return of 17.3% and income return of 8,9%. The fund’s net asset value increased by 14.9% to 1 325 cents per participatory interest (PI).
James Templeton, CEO of Emira Property Fund, assigns the upsurge in performance to the comprehensive progress made on its turnaround strategy. This includes improved leasing, rigorous cost controls and portfolio strengthening acquisitions, disposals and upgrades.
Templeton says: “The results of our new strategy now clearly show in the numbers, with every metric improving during the reporting period. Driving Emira’s performance, over the past two years we’ve improved the quality of our investment portfolio, property occupancy levels, tenant retention and built a strong, skilled team.”
He adds that Emira’s distribution growth outlook continues to improve. “We’re expecting an even better year for 2014. The headway made lowering vacancies during the 2013 financial year will continue to flow through and, based on current forecasts, should result in real distribution growth for our inventors in the coming year.”
The market has responded positively to Emira’s improved proposition. Emira’s PI price increased 17.3% during the period and some 41% of Emira PIs traded during the year.
JSE-listed Emira Property Fund began trading as a REIT on the JSE from 1 July 2013. It has a diversified portfolio of office, retail and industrial properties. Its assets comprise 148 properties valued at R9,4 billion and it has a market capitalisation of R7,0 billion. Emira is also internationally diversified through its direct interest in ASX-listed Growthpoint Properties Australia (GOZ), valued at R537,1 million at 30 June 2013.
While Emira improved performance all round this year, its increased occupancy levels tell a significant success story. From vacancies of 11.5% at 30 June 2011, to 10.5% for 2012, earlier this year they dropped below 7.0% for the first time since 2008.
Emira’s portfolio vacancies closed the 2013 financial year at a greatly improved 5.6%, a decline of more than 50% in two years. Heightened tenant retention, increasing from 65% to 78% during the year, helped achieve the better occupancy levels.
“For the first time in several years, Emira’s office vacancies are below the SAPOA benchmark of 11.0%, at 10.7%, and we expect this to reduce even further,” reports Templeton. “However rentals remain under pressure in the present competitive market defined by an increasing supply of office space in most major nodes.”
Emira’s retail and industrial portfolios have vacancy levels well below the national average, at 2.8% and 2.2% respectively. Its retail properties delivered the best like-for-like performance for the year.
Growing rental streams from contractual escalations on most of its property portfolio also contributed to its positive performance, as did cost savings from lower property management fees and its income-enhancing PI repurchase programme.
“Our property management tender, awarded in January this year to Eris and Broll, has had a positive impact on performance. Cost savings for the first 12 months are expected to be greater than initially anticipated,” says Templeton.
During the year Emira strengthened its portfolio by acquiring an A-grade office development in Menlyn, Pretoria, disposing of eight non-core properties and identifying a further 10 non-strategic properties for disposal. It has since taken transfer of three office buildings valued at R24,6 million in the A-grade Highgrove Office Park, Centurion. Emira now owns six buildings with a total value of R105,2 million in this prime business park.
A major portfolio focus for the fund over the past two years has been extracting further value from its properties by redevelopment, upgrade and expansion. Major projects include the award-winning redevelopment of The Podium at Menlyn and refurbishing its flagship retail asset Wonderpark Shopping Centre in Pretoria North, which is also expanding to become a super-regional mall.
“We are busy with, or plan to start, capital projects of around R1 billion to optimise the potential of our properties,” notes Templeton. This also includes a growing focus on green building with energy-saving, and associated costs savings, receiving increasing priority.
Income from Emira’s investment in GOZ increased by 8.4%, achieved through increased distributions, the ZAR depreciating against the AU$ and because Emira increased its shareholding in the Australian company by reinvesting its December 2012 distributions.
Acquisitions and capital projects, totalling R730 million, which became income producing around the beginning of Emira’s financial year, were largely funded through new debt facilities and resulted in a 28.5% higher interest expense to the fund.
“We’re pleased to report these positive results and to see the strategic progress we made reflected in our performance for investors. We will continue to find sustainable ways to grow income for Emira’s investors and gain further ground in the sector in 2014,” says Templeton.