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Arrowhead and Exemplar deliver better than expected results

But Covid-19 presents risks for the property sector.
Arrowhead's Access Park retail property in Claremont, Cape Town. Image: Supplied

Despite tough market conditions well before the Covid-19 outbreak in South Africa, JSE-listed real estate counters Arrowhead Properties and Exemplar Reitail posted financial results ahead of expectation this week.

Arrowhead reported its half-year results to the end of March on Wednesday, while Exemplar posted results for its full year ending February 29 on Tuesday.

While Arrowhead is a diversified real estate investment trust (Reit), with a property portfolio in the retail, office and industrial sectors, Exemplar is solely invested in retail property in rural and township areas. Both counters are SA-focused, unlike many of their listed property peers that are increasingly investing offshore.


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Arrowhead, which has a dual A and B share structure, reported distributable income growth of 4.1% to 56.77 cents for its A share. The group also narrowed the distribution per share (DPS) decline of its B share to -7.69%, which translated to 31.46 cents for the half year compared to 34.08 for the corresponding prior period.

Dividend withheld

In line with similar moves by most South African Reits, Arrowhead has opted not to declare a dividend for its half year and has deferred the decision to its year-end.

Questioned by Moneyweb about the total value of withheld dividends for the period, Arrowhead CEO Mark Kaplansaid it comes to around R340 million.

“We are focusing on long-term sustainability and think it is prudent to hold back interim dividends, considering the uncertainty around Covid-19,” he explained. “Things are fluid in the market and it’s also quite a dynamic situation. It makes sense to retain dividends to strengthen the group’s balance sheet.”

Arrowhead has also withdrawn its DPS guidance for the year, but Kaplan tells Moneyweb the group is still “hoping to pay out” some sort of dividend for its September 30 year-end. The group publishes its full-year results in late November.

“We are not making any forecasts and will decide closer to our year-end, but we would like to pay out as much [of] a dividend as we can,” he notes.

Positive performance

He says despite “a very challenging economic environment” over the six-month period to the end of March, Arrowhead reported positive letting activity and a strong performance from its directly held portfolio. Vacancies decreased from 7.5% at September 30, 2019, to 7.1% at March 31, 2020 (retail 6%, office 13% and industrial 3.7%).

“We are pleased with the progress we made in the first half of the year in strengthening our balance sheet and delivering solid earnings. Our focus during the balance of the year will be on responding appropriately to the impact of Covid-19 on our operations and managing the business with long-term sustainability in mind,” says Kaplan.

“Our strategy to defensively reposition our portfolio to yield sustainable income over the medium to long term is progressing well.

“During the half-year, Arrowhead disposed of 41 assets, totalling R840 million. Around R395 million was transferred by March 31, 2020.”

While the group’s loan-to-value (LTV) ratio was up marginally, to 41.21% for the period, Kaplan says he is confident it will come down to around the 40% mark by year-end. The Reit, which has investment property and financial assets totalling R14.9 billion, is expecting to transfer the bulk of its remaining disposals before then.

Virus impact yet to be felt

Commenting on Arrowhead’s interim results, Kelly Ward, an investment analyst at Metope Investment Managers, says the group “has done well in a challenging environment”. However, she notes that it largely does not include the impact of Covid-19.

“Arrowhead’s asset base, through both its core holdings and investments in Indluplace and Dipula, is 100% South African focused, and so risks to the business can largely be contained to the local environment,” she adds.

Ward says she is “not too concerned” about Arrowhead’s higher LTV, considering some of its disposals are yet to transfer.

“The group should be able to withstand some degree of valuation write-down before any covenants are breached. More concerning however is the interest cover ratio, which will come under pressure if rent collections do not pick up in the coming months.”


Meanwhile, Exemplar delivered double-digit dividend growth of 11.9% for its full year. The “tightly held” fund is majority controlled by the McCormick family and listed on the JSE in 2018.

The group reported distribution of 92.27 cents per share for the year ended February 29, against a forecast of 91.27 cents.

Exemplar has a property portfolio of 22 retail assets, including landmark centres such as Alex Mall in Alexandra, Johannesburg. The group’s overall portfolio is valued at just under R5.8 billion.

Exemplar Reitail’s Alex Mall property in Johannesburg. Image: Supplied

“In a market dominated by unfavourable macro-economic conditions, these results speak volumes about both the defensive nature of the Exemplar portfolio and the strength of the team managing it,” the group said in a statement.

“As we brace ourselves for the uncertainty that lies ahead in the post-Covid-19 environment, we are confident in our ability to read the landscape and rapidly adapt to any change in order to continue evolving for the needs of our customers and our country,” noted Exemplar CEO, Jason McCormick.

He added that for the year ahead, the group will be focusing on the sustainability of its existing portfolio and the tenants within it.

Despite the uncertainty around Covid-19, Exemplar noted that it “continues to see significant upside potential” and forecasts further investment within its specific rural and township retail niche.

Read: Township-focused Exemplar eyes acquisitions for growth

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