Arrowhead targets JSE

Posted On Monday, 24 October 2011 02:00 Published by eProp Commercial Property News
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Officially retired in June 2009, Gerald Leissner now plans to return to the SA listed property sector to run what could become the JSE’s sixth new real estate listing in 12 months, known as Arrowhead Properties

Gerald LeissnerGerald Leissner (69) officially retired in June 2009 when he resigned as CEO of now defunct ApexHi Properties, shortly before it merged with Redefine Properties.

But the real estate veteran has never stopped working. He spent most of 2010 commuting between SA and the UK to assemble and promote the listing of a property fund in the Channel Islands.

Leissner now plans to return to the SA listed property sector to run what could become the JSE’s sixth new real estate listing in 12 months. Known as Arrowhead Properties, the fund is set to duplicate the old ApexHi model, a high- yielding portfolio of older buildings in secondary areas originally assembled by Leissner in the early 2000s.

Arrowhead will initially house an unbundled portfolio of Redefine buildings, 98 smaller B- and C-grade retail, office, industrial and mixed-use properties worth R1,72bn. Most of the buildings are valued at less than R30m and no longer fit Redefine’s focus on larger, better- quality properties. The portfolio has a wide spread across SA, from King Williamstown in the Eastern Cape to Klerksdorp in North West .

Leissner will essentially pick up where he left off in 2009, as the bulk of the unbundled portfolio previously belonged to ApexHi. Mark Kaplan, a UCT business science graduate who cut his teeth in real estate during a four-year stint at inner- city developer Aengus Property, will join Leissner as chief operating officer.

Though Arrowhead will initially have a much smaller portfolio than ApexHi — the latter had ballooned to R14bn by the time it merged with Redefine — Leissner and Kaplan are set on growing the fund aggressively. “We have already identified a R3bn pipeline of properties that we could add to Arrowhead’s initial portfolio of R1,72bn within two to three years. We hope to take the portfolio to more than R10bn within five years.”

Leissner says most of the bigger listed funds are keen to offload secondary properties, which has created plenty of buying opportunities at yields north of 10,5%.

Arrowhead plans to list a split A and B unit structure, at an expected forward yield of around 9%-9,5% and 11% respectively, a sizeable discount to the sector’s average 8,5%. Distribution growth of 10%/year is achievable , says Leissner.

The Redefine transaction will be funded through an R800m loan secured from Standard Bank and a share swap arrangement with Redefine. These will be unbundled to Redefine investors. But Arrowhead’s listing, planned for end- November, is not necessarily a done deal. At least 75% of Redefine shareholders need to give the go-ahead on October 28. And not everyone seems to be in favour of the unbundling.

Says Thabo Motloung, listed property analyst at Old Mutual Investment Group SA: “What was the point of us voting for the mega merger two years ago to create size, liquidity and cost efficiencies if we are now asked to reverse the move? Shareholders will end up owning the same properties yet another layer of costs will be added.”

Motloung says though they understand Redefine’s strategy to clean up its portfolio, Old Mutual would have preferred management to do that in the open market to ensure buildings are sold at true market value.

Vuyani Bekwa, property portfolio manager at Investec Asset Management, raises concern about the short-term dilution in income distributions that two sets of management fees are likely to bring . Bekwa says it’s also becoming increasingly difficult to compare year-on- year results for Redefine, with the company continually changing tack. “The market is beginning to grow impatient.”

Leissner concedes that the unbundling will create an initial dilution in earnings for Redefine shareholders — an estimated 1c in year-one payouts. But he believes the earnings gap will be closed within two to three years. “We have no doubt that the Arrowhead portfolio of properties should be able to achieve higher earnings growth as a stand alone entity under a focused management team than what is the case now. Similarly, Redefine believes it can deliver higher growth for shareholders by exiting non core buildings.”

Last modified on Monday, 11 November 2013 10:50

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