Emira Property Fund | Westward bound

Emira reported an interim DPS of 70.65 for the HY'18 period, posting growth of 2.5% y/y, in line with the latest management guidance of positive growth. Operationally, net property income declined by 2.9% y/y. However, the fund disposed of 15 properties since December 2016 and restructured its rural retail portfolio into an equity-accounted JV, which distorts the base. Adjusting for these factors on a like-for-like basis, NPI rose by 7.8% y/y. Emira has embarked on an incremental portfolio rebalancing over the past five years which has seen the counter's risk and quality characteristics evolve positively. However, we believe the fund's South African assets should continue to trade at a discount to the sector. Emira announced a joint venture into the USA together with its US partners, the Rainier Group. While Emira's current exposure to the US retail sector is c.2% of total assets, management indicated its plan to target an exposure of c.12%-13% by FY'20. In this note we explore the SA portfolio rebalancing, the fundamental dynamics of the US retail property sector and the earnings implications of the US expansion.