Arrowhead merger to launch South African focused property fund

CEO of Arrowhead Properties, Mark Kaplan.
CEO of Arrowhead Properties, Mark Kaplan.

Shareholders in Gemgrow Properties and Arrowhead Properties gave their stamp of approval at their respective shareholder meetings on Thursday, 22 August 2019 to the reverse takeover of Gemgrow by Arrowhead, launching a R16 billion (including listed investments), South Africa-focused property fund.

The reverse takeover of Gemgrow by Arrowhead, which previously held 53.3% of Gemgrow’s shares, will create a larger, and more well balanced property portfolio of 212 properties, diversified across the three primary asset classes with a gross lettable area of 1 335 197m² spread across all nine provinces in South Africa. The larger group, which will be listed under the well-known Arrowhead Properties Limited name with JSE ticker code AHA and AHB for the A shares and B shares respectively, will be better placed to weather current tough market conditions. Investors will be able to trade the new entity’s shares from Monday the 16 September 2019.

CEO of Arrowhead, Mark Kaplan comments:

“The current environment for 100%-South African property funds remains difficult, but the team is focused on matters it can influence including the letting of vacant space, the renewal of leases and collection of rentals. Whilst one is cognisant of both the global and local challenges, we remain positive and will continue to strengthen the operational requirements of the business thereby controlling what is in our hands. As a larger, stronger entity we are well positioned to weather the current uncertain conditions and beyond.”

Other advantages of the merger are that it creates a simpler, more efficient structure which improves liquidity for Gemgrow shareholders and will position the company better to access equity markets to pursue growth opportunities should equity markets improve in the future. The new Arrowhead retains the Gemgrow dual-class share structure, which, although there is no current intention to issue additional A shares, is a valuable differentiator in the REIT sector.

“Management’s focus, post-merger, will be to strengthen the company’s balance sheet and deliver long-term shareholder value and sustainable earnings” Kaplan says.

Leading up to the transaction, Gemgrow progressed well in strengthening its balance sheet by selling off a number of non-core assets with non-sustainable income. To date, it has disposed of over R800 million of assets, of which R350 million has already been transferred. The proceeds will be applied to reducing debt.

The merged entity is well diversified across South Africa with 41% of its income in Gauteng; 10% in KwaZulu Natal; 13% in the Western Cape and 16% in Limpopo respectively. It is well balanced across different asset classes, with 46% of income in retail, 36% in office and 18% in the industrial space. 

The new Arrowhead will be headed by Mark Kaplan as Chief Executive Officer, Junaid Limalia as Chief Financial Officer, Riaz Kader as Chief Operating Officer and Alon Kirkel as Chief Investment Officer.