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Arrowhead will sell Rebosis and Dipula stakes ‘at the right price’

Full-year income hit by major devaluation of its listed investments.
Arrowhead's Access Park retail property in Claremont, Cape Town. Image: Supplied

Diversified real estate investment trust (Reit) Arrowhead Properties is looking to offload its stakes in fellow JSE-listed Reits Rebosis Property Fund and Dipula Income Fund, after suffering writedowns for the stakes totalling R968 million.

The devaluations revealed in its full-year results to end September, which were published on Wednesday, saw Arrowhead report a 7.2% decline in dividend per share (DPS) for its ‘B’ share. It has a dual share structure (A and B), offering different risk profiles for investors following its merger with Gemgrow Properties in August.

Arrowhead delivered DPS of 111.51 cents per A share for the year, while that for the B share dropped from 74.1 cents to 68.74 cents. Its dual share structure means that A shares have preferential rights to earnings.

Speaking to Moneyweb following the release of the results, Arrowhead CEO Mark Kaplan noted that excluding the group’s listed investments in Rebosis and Dipula, its core R10.8 billion portfolio delivered net operating growth of 3%.

Watch: Arrowhead CEO Mark Kaplan on the group’s latest results

“We effectively have a 17% stake in Rebosis,” he says. “However, the group did not pay out a dividend this year, so their poor performance hurt our investment income. In addition, Dipula paid out lower dividends.”

He adds: “Arrowhead is looking to sell the stakes we own in both these companies; however, it needs to be at the right price.”

Read: Rebosis expects to retain Reit status, despite paying no dividend

Rebosis, which has had a torrid year following losses related largely to its failed foray into the UK, has seen its share price lose more than 90% of its value on the JSE over the last year. The group is in talks to merge with fellow black-empowered SA Reit, Delta Property Fund.

Asked about the proposed Rebosis/Delta merger, Kaplan surprisingly said Arrowhead has not been approached by Delta to sell its Rebosis stake.

“We have not seen any details yet related to the merger. Arrowhead has however told the market that we plan to exit Rebosis as well as Dipula over time. With regards to Rebosis, we will support any merger deal that makes sense.”

Read: Delta and Rebosis merger back on the table

With the major devaluation of Arrowhead’s listed investments, largely its Rebosis stake, Kaplan says the fund’s listed investments now only make up around 1% of the group’s balance sheet.

In its 2018 financial year, listed investments made up 7% of its balance sheet and contributed R154 million to the group’s income. For its full-year to September, income from listed investments fell to R37.7 million.

Read: Listed property continues to underperform

Vacancies down slightly

While Kaplan concedes that 2019 was a tough year for the group overall, he said the merger with Gemgrow was a positive, as was a slight improvement in vacancies within Arrowhead’s directly-held property portfolio. Vacancies declined from 7.7% to 7.5%

“In August Arrowhead merged with Gemgrow to create a larger and more simplified business, considering the current operating environment. Leading up to the transaction, Gemgrow started to sell non-core assets as part of the repositioning of its portfolio.

“To date the merged group has concluded sales of 57 non-core assets in excess of R1 billion,” he says.

Nesi Chetty, a senior listed property fund manager at Stanlib, says Arrowhead now has a sizeable portfolio of around R10.8 billion following the merger with Gemgrow.

“It still predominantly has retail and office properties, both of which have come under pressure in the SA market. Management is currently busy on asset management initiatives across the portfolio to reduce vacancies and improve trading densities.”

He adds: “Arrowhead’s loan-to-value ratio (LTV) of 40.5% at year-end will have been affected by the sharp fall in Rebosis and Dipula’s share prices. However, the group’s sale of R1 billion in non-core assets helped mitigate this. Its LTV is expected to improve further, following the transfer of some of these assets and the sale of more of its non-core or smaller properties.”

Arrowhead share over the past year

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