Emira first local property group to invest directly in US
Emira Property Fund has become the first South African-based real estate investment trust (Reit) to invest directly in American property.
Emira’s new US investment strategy, to be undertaken with strategic partners in that country, will focus on grocery-anchored convenience retail centres.
Emira is already internationally diversified, with 6% of its income derived from its investment in Australian Securities Exchange-listed Growthpoint Properties Australia (GOZ). Its US investment strategy will result in this quickly growing to an overall 8% with potential to expand to at least 10%.
Geoff Jennett, CEO of Emira, said: "GOZ has been a phenomenal investment for Emira for many reasons and, building on this, we have targeted further international diversification in developed markets.
"Having considered several investment destinations, we identified the USA as being the best fit for us. It is the primary first-world market and the US dollar is the world’s benchmark currency.
"As the biggest market in the western world, it is extremely solid and well diversified, plus we see attractive value in our chosen segment."
Jennett said Emira’s US investment strategy would be prudent, risk mitigated, recession resistant and would offer good returns.
"We have committed R290m to our initial investment in the USA, which is only about 2% of our total assets. We can comfortably fund this from our own balance sheet and furthermore we can take advantage of access to relatively cheap, in-country, long-term debt finance," he said.
The investment will earn Emira’s stakeholders US dollar-denominated double-digit returns of about 10.5% per annum, compared with the single-figure yields achievable in SA.
Emira will co-invest with Rainier Companies, a Dallas, Texas-based investment and real estate business, which is headed by Texan J Kenneth Dunn, its co-founder and principal.
"Rainier shares strong synergies with its South African counterpart. It is driven by a small entrepreneurial team and has built a successful 15-year track record as a skilled real estate investor and asset manager. Rainier currently has more than $1.5bn property assets under management," said Jennett.
Where opportunities met predefined investment criteria, Emira and Rainier would partner on a 49% to 51% equity basis, respectively, at the individual property level.
Emira would hold its investments through a US-based subsidiary managed by in-country fund manager Continuum Investments LLC, based in Dallas, which is headed by CEO Rick Makin, a US-based South African entrepreneur.
"Our partners, Rainier, have a wealth of experience and local market insight, as well as an existing investor base. As the major equity partners, they are putting up their own money, and we are confident to invest alongside them. In addition, Makin and the in-country Continuum team will be Emira’s feet on the ground. We are comfortable that our co-investment strategy mitigates the risk of our entry in this offshore market," said Jennett.
Rainier has identified certain states in the US, including some of the major southern and central states, which have meaningful GDP growth rates, as the target territories for its investment.
It has identified grocery-anchored convenience shopping centres, about 5,000m² to 40,000m² in size, as its asset class of choice.
"Already, two quality assets have been identified for investment, and the first deal transferred in October 2017. Emira hence owns a minority equity stake in the Belden Park Crossings shopping centre in North Canton, Ohio, for which it paid R112m. The centre is well-tenanted and this first deal includes lead co-investor Stark Enterprises, which is a well-known and respected US retail property developer and investor. The second asset that is already under contract is situated in Texas," said Jennett.
Emira is a medium-cap diversified JSE-listed Reit with assets that comprise 135 properties valued at R13.3bn. Emira is also internationally diversified through its direct interest in GOZ valued at R901m.
"There have been a number of local funds that have been looking at the US but have been faced with various challenges, mainly relating to how to get around the tax issue.
"We expected the offshore diversification strategy to continue among most REITs with more focus in Eastern Europe. Offshore exposure now makes up over 40% of the listed property sector," said Keillen Ndlovu, head of listed property funds at Stanlib.