Acquisitions help boost Arrowhead’s results

Listed property fund Arrowhead expects distribution growth for the year to September to be at the upper end of its forecast of between 8 percent and 10 percent.

Johannesburg - Arrowhead, the listed property fund, expects distribution growth for the year to September to be at the upper end of its forecast of between 8 percent and 10 percent.

The fund reported yesterday an 11 percent growth in dividends a share to 20.76c for the three months to March.

Together with the 20.03c dividend for the previous quarter, the dividend a share grew by 9.52 percent to 40.79c in the half-year to March compared with the previous corresponding period.

The fund added that assuming a gearing ratio on the portfolio of 25 percent and an annual effective interest rate of 9 percent, the total growth in distributable income for the six months to September should be 8.5 percent.

Revenue increased by almost 34 percent from R555.6m to R743.6 million in the six-month reporting period.

Arrowhead chief executive Gerald Leissner attributed this substantial increase to the full effect of the acquisitions concluded during the previous financial year.

Leissner said this was also helped by acquisitions concluded during the current financial year and annual escalations to existing leases.

Growing portfolio

Bad debts amounting to R500 000 were written off in the reporting period and the provision for bad debt increased to R7m from R6.9m in September. The combined amounts are less than 1 percent of revenue.

Arrowhead at end-March owned 155 buildings valued at R9.5bn in total. Of these buildings, 46 percent were retail, 42 percent offices and 12 percent industrial by value.

It is also invested in 109 residential properties through its 60 percent stake in listed Indluplace Properties.

Mark Kaplan, the chief operating officer of Arrowhead, said the fund had proved its deal-making abilities through building its property portfolio from 89 properties at listing five years ago to 155 now, while still remaining true to their investment strategy of only concluding yield enhancing acquisitions.

The average value of Arrowhead properties increased to R46.7m at end-March from R17m in 2011.

Kaplan said this reflected not only the increase in size, but also an increase in the quality of the portfolio of assets.

Acquisitions completed in the reporting period included Cleary Park from Redefine Properties for R466m, the Indluplace purchase valued at R500m and the acquisition of a 10.5 percent stake in listed Rebosis Property Fund for R591m.

Listed property funds Vukile, Arrowhead and Synergy in March reported that they had achieved broad consensus on a proposed deal that would result in Vukile becoming an almost exclusively retail fund and Arrowhead using Synergy as a vehicle for its strategy of a separately listed high-yielding, high-growth fund.

The proposed deal followed Synergy last year becoming a subsidiary of Vukile, which owns 65 percent of the fund.

It aims to create an initial R4bn fund within the existing entity of Synergy, with Vukile acquiring the bulk of Synergy’s retail assets in return for the sale of Vukile’s office and industrial assets to Synergy.

Synergy will also acquire 100 percent of the shares in Cumulative Properties, a subsidiary of Arrowhead that will house its portfolio of higher-yielding properties in return for Synergy B shares to Arrowhead. Management control will be with Arrowhead.

Kaplan said this deal would enable Arrowhead to move its smaller properties into a separate fund as was originally planned with Cumulative.

“Through this vehicle Arrowhead will be able to focus on bigger and better quality properties while keeping exposure to the smaller, high-yielding properties we know and understand,” he said.

Arrowhead’s shares rose 1.1 percent to close at R8.30 on the JSE yesterday.

BUSINESS REPORT