Arrowhead Properties reports 12.36% distribution growth

Posted On Wednesday, 13 November 2013 11:47 Published by
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Arrowhead Properties, the only JSE listed property loan stock company to pay quarterly distributions, today exceeded expectations by achieving a 12,36% growth in distributions for the year ended 30 September 2013. 

Gerald LeissnerThis is well above the 7% average growth achieved in the sector and the Fund's forecast 10% distribution growth for the year. 

The year ended 30 September 2013 marks Arrowheads second year as a listed entity and the last as a property loan stock company. Arrowhead converted to a REIT with effect from 01 October 2013.

A total distribution of 113,01 cents per combined A and B unit represents a 12,36% growth over the 100,58 cents per unit for the previous year. The asset base grew by R723 million to R3,1 billion.

The distribution for the fourth quarter of the financial year was 29,33 cents and the company expects the next distribution to exceed the 30 cent threshold at which the A units start to participate in the growth in distributions.

Commenting on the results, Gerald Leissner, CEO of Arrowhead said, "Our primary focus is growing income for our unit holders. This growth has been achieved by sweating the existing portfolio, containing costs to a level lower than rental growth and deriving income from acquisitions."

Arrowhead owns a diverse portfolio of retail, commercial and industrial properties in secondary locations throughout South Africa. The Fund has grown its portfolio significantly over the last two years and has diligently adhered to its stated objective of only making acquisitions that will enhance distributions. To further diversify their offering, Arrowhead recently concluded the acquisition of a portfolio of residential properties servicing the affordable housing market to the value of R406 million.

"Secondary properties bring with them additional risk. We manage this risk by growing the portfolio as diversely as possible in terms of the number of properties, spread of tenants and locations and a spread of retail, office, industrial and now residential." continued Leissner.

Commenting on the newly acquired residential portfolio, Mark Kaplan COO of Arrowhead added, "We are excited about this direction that the Fund is taking as have identified the residential market as an opportunity which could offer significant growth and a competitive advantage in a tough market. We are delighted with the support received from our investors and intend to grow the portfolio by R1 billion during the next financial year.

Best practice property management processes have been put into place which will ensure sufficient value is extracted on an on-going basis."

Occupancy levels are currently at 91%, an increase from 87% on the comparable period.

Imraan Suleman, CFO of Arrowhead commented; "The majority of the vacancies are in the commercial sector where the letting of office space has proved challenging but this was not unexpected. Whilst there has been a noticeable increase in enquiries for vacant office space, we anticipate only seeing the take up once the economy starts to improve."

Average rental escalations of approximately 8% are being achieved across the portfolio.

Gearing levels reduced from 28% to 23% of which 90% are fixed at an average cost of 8.17%. It is anticipated that once the current pipeline is concluded the gearing level will increase to approximately 33%, which will be well within the covenant set by the board.

"We have seen a tough market this year and believe that the cost of equity and debt will be higher in the coming year. To maintain our strategy of purchasing only revenue enhancing assets, all properties in 2014 will have to be at higher yields than anticipated.

"We are confident that Arrowhead will continue delivering above market returns. Taking into account the prospects for the existing portfolio as well as the effect of new acquisitions, distributions are expected to be between R1,27 and R1,29 per A and B unit in the 2014 year, an increase of between 12% and 14% over the distribution of R1,13 paid in 2013," concluded Suleman.

Last modified on Thursday, 14 November 2013 06:48

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