Fifth delivered set of solid annual results for Arrowhead Properties

Westgate Mall
Westgate Mall; one of the commercial properties that makes up Arrowhead's property portfolio.

– Distribution of 82,55 cents per share, growth of 9,85%.
– 5 years of superior dividend growth.
– Strong balance sheet; LTV of 27,5%.
– Core property portfolio growth of 6,1% and 7,9% with the effect of gearing.
– Diversified and defensive investment.

Arrowhead has declared a dividend of 82,55 cents per share for the year ended 30 September 2016. This is growth of 9,85% from the previous year. Arrowhead has an investment portfolio valued at R11,5 billion. R10 billion of our property portfolio is located across all provinces within South Africa, while R1,5 billion comprise of REIT investments. Its core property portfolio grew at 6,1% and 7,9% with gearing for the reporting period. Arrowhead is well diversified with properties across the country and sectors, including residential. It is a defensive investment especially in this challenging environment.

“We remain focused on paying growing income distributions to our investors on a quarterly basis. This is achieved through effective asset and property management which results in a growing core portfolio and through acquiring revenue enhancing properties as well as investments in other REITS,” commented Mark Kaplan, COO of Arrowhead.

Rental income and expenditure recoverable from tenants, increased significantly from R1,217 billion to R1,531 billion for the year ended 30 September 2016. The increase in revenue is due to the full effect of property acquisitions concluded during the previous financial year, annual escalations to existing leases and the impact of acquisitions concluded during the reporting period. As at 30 September 2016, Arrowhead owned 154 buildings of which 47% is retail, 41% offices and 12% industrial by value.

“We have aggressively grown our portfolio over the past five years and successfully increased the quality of our portfolio. Our focused strategy of only acquiring properties on a yield enhancing basis has stood us in good stead,” remarked Kaplan.

Vacancies have increased marginally from 7,3% at 30 September 2015 to 7,8% at 30 September 2016.

“Despite the tough macro-economic environment currently, we continued to achieve average rental escalations of 8,11%, on lease renewals across the property portfolio. Our balance sheet is well positioned to weather the challenging environment,” commented Imraan Suleman, CFO of Arrowhead.

The company’s loan to value ratio decreased marginally from 27,9% to 27,5% as at 30 September 2016. Interest rates on 84,1% of total borrowings are fixed.

At 30 September 2016 Arrowhead’s shareholding in Indluplace was 60,1%, 11,5% in Dipula and 19,0% in Rebosis. During the current financial year Arrowhead identified an opportunity to acquire a meaningful investment in Rebosis. This investment was made on a revenue enhancing basis and accounts for the large increase in listed securities income. Arrowhead strongly believes that the sector is well poised for consolidation and is positioning itself to take advantage of the potential opportunities.

On 25 October 2016 Arrowhead disposed of its subsidiary, Cumulative Properties, to GEMGROW Properties for R1,89 billion. Upon conclusion of this transaction, Arrowhead (excluding its subsidiaries) will own 54 properties valued at R5,7 billion with a vacancy of under 6,0% and an average property value of R107,0 million.

GEMGROW Properties will be positioned to acquire smaller, higher yielding properties. This market presents significant opportunities because it falls outside the focus of most funds in the listed property sector.

“The management team of the company will seek to position itself to drive consolidation within the property sector over time, growing the portfolio on an accretive basis with properties valued at under R50,0 million per property,” said Kaplan.

Gerald Leissner, CEO of Arrowhead, concluded, “We anticipate that Arrowhead’s distribution growth for 2017 should be between 6,0% and 8,0%, excluding the positive effects of any acquisitions or the letting of vacant space during the year”.

“2017 will be a transformative year for Arrowhead as we focus on improving the quality of our portfolio going forward.”