After a few years of rather uninspiring returns, Emira Property Fund has quietly emerged as the top-performing property play among the JSE’s 50-odd real estate counters in the year so far.

The stock has notched up a total return of about 27% from January 2 to August 10, way ahead of the SA listed property index’s dismal -21% over the same time.

Emira was out of favour for a few years, mainly because of its overexposure to the underperforming office market. However, Momentum Investments head of property Nesi Chetty says management, under CEO Geoff Jennett and COO Ulana van Biljon, has made impressive headway in trimming its exposure to the office market and recycling the proceeds into higher-growth investments.

In addition, Emira’s overall vacancies are at a fairly low 4.5%.

"Management has done well in terms of tenant retention," says Chetty. "The extent of negative reversions in its office portfolio has also moderated somewhat."

Last year, Emira decreased its office exposure from 40.5% to 38.2% of total assets. Over the past six months, the company has disposed of a further batch of properties worth about R240m.

That brings the number of directly held office, retail and industrial properties in Emira’s R12.7bn SA portfolio to 111, down from 164 in 2010. The mid-cap diversified real estate investment trust (Reit) has indirect exposure to a further 21 shopping centres valued at R900.8m through its interest in BEE venture Enyuka.

Management’s restructuring efforts have already paid off for shareholders. Emira announced its return to dividend growth in February when it declared a 2.5% year-on-year increase in its income payouts for the six months ending December. That followed a 2% drop in dividend payouts for the 12 months ending June 2017.

The company is expected to have made further progress in returning to an inflation-beating dividend growth path when it announces its full-year results to June this week.

The proceeds of Emira’s rebalancing strategy are being reinvested in two key areas: US retail centres and the local rental housing market.

The company has been somewhat of a pioneer in both these sectors. It is the first SA property company to venture into the US real estate market, where it has acquired four grocery-anchored convenience centres in Midwestern states such as Ohio and Indiana, in partnership with experienced US property company the Rainier Group.

Chetty says early indications suggest that the joint-venture model between Emira and the Rainier Group is proving to be very successful. "Emira has a robust balance sheet with a loan-to-value sitting at 37%. So there is still room to do more value-accretive deals in the future."

Chetty notes that Rainier sources the opportunities in the US across the retail spectrum, while Emira funds the deals. "There seems to be a healthy pipeline of deals building up, which we expect Emira to tap into," he says.

Emira’s latest US acquisition is a 49% stake of Stony Creek Marketplace in Noblesville, Hamilton County, in Indiana.

The deal takes the combined value of Emira’s US interests to about R420m and its exposure to the US to 3% of total assets.

Its international exposure to developed markets now sits at 9% of total assets. The bulk is made up of a R940.4m investment in Growthpoint Properties Australia.

Emira last year also entered into a partnership with local developers, Feenstra Group, to convert 10,000m² of office space — formerly occupied by Sasol on Baker Street and Sturdee Avenue in Rosebank, Johannesburg — into 280 residential units.

The conversion project, named The Bolton, is a stone’s throw from the Rosebank Mall and marks the company’s entry into the rental housing market.

Only a handful of JSE-listed property stocks are exposed to the residential market, though most cater to lower-income tenants who can typically afford to pay rent of up to R5,000 a month. Emira is one of the first SA Reits to own rental flats targeting middle-and upper-income tenants.

Van Biljon says construction on the R200m redevelopment project, which started in September last year, is nearing completion.

Tenants have already started to move in, with rentals for bachelor, one-and two-bedroom units ranging from R7,200 a month to R12,000 a month.

All apartments are fitted with Bosch stoves and ovens and black-out blinds. The development has its own pool and braai area, an 18-seater cinema, free fibre WiFi, a laundry facility, basement parking and biometric access control.

Further batches of rental apartments at The Bolton will be released over the next four months.

"We are seeing strong demand from young professionals in the 25-35 age bracket and leasing is already ahead of budget. The project furthers our strategy to rebalance the portfolio out of the office sector and we are confident it is a much better use of these assets. The positive market response to The Bolton confirms this," says Van Biljon.

Despite the run in Emira’s share price this year, the stock is still trading at an attractive forward yield of 10.4%, well ahead of the sector’s average 8.5%, which suggests there is further share-price upside in the offing.

And unlike a number of its listed property peers that are only now starting to see tougher trading conditions placing pressure on earnings, Emira has already taken most of the pain. This should enable the company to report higher dividend growth over the next 12-24 months than many of its peers.