Arrowhead properties by East Coast Promotions

COMPANY PROFILE

2015

Arrowhead Properties

+27 10 100 0076 | www.arrowheadproperties.co.za

company profile

‘Finding value where others don’t’ Editorial: Rebecca Bingley

Despite only being in operation for four years, Arrowhead Properties has displayed exponential and strategic growth in an industry which is becoming increasingly competitive. Declaring 13.5% distribution growth for the six months to 31st March 2014 compared to the previous year, the company’s asset base continues to grow…

The JSE-listed SA REIT (Real Estate Investment Trust), Arrowhead Properties holds a diverse portfolio of industrial, commercial, retail and more recently, residential buildings, throughout South Africa. T h e c o mp any ’s main atte ntion lie s with p a yi n g g ro w in g in co me re turns to its inv e stors – t h i s i s d ep end en t o n e scalating re ntals i n t e r m s o f s atis f acto ry re ne wal of le ase s w i t h e x i s tin g tenants , m anag ing the se costs a ss oc i a t ed w ith p o rtf o lios and re nting of va c a n t s pace w ith in the portfolio but pe rhaps m os t i m po rtantly, s ecu ring re v e nue -e nhancing p r op e r t ies . T h e A rro w h ead p ro p erty portfolio curre ntly c on si st s o f 48% co mme rcial, 3 5 % re tail, 1 4 %

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in dus t ri a l a n d 3 % re s i de n t i a l prope rt i e s a c ros s all n i n e prov i n c e s w i t h i n S out h Afri c a . In N ov e m be r l a s t ye a r, Arrow h e a d Prope rt i e s an n oun c e d a di s t ri but i on of 3 6 ,4 3 c e n t s pe r c om bi n e d A a n d B un i t for t h e qua rt e r e ndi n g 3 0 t h S e pt e m be r 2 0 1 4 . O v e r t h e s a m e pe ri od l i s t e d i n 2 0 1 3 , t h e c om pa n y de c l a re d a d i s t ri but i on of 2 9 ,3 3 , h i g h l i g h t i n g a 2 4 .2 % im prov e m e n t on ye a r. O v e r t h e ye a r t o Se pt e m be r 2 0 1 3 , t h e re fore , a t ot a l of 1 3 3 ,2 4 ce n t s pe r c om bi n e d A a n d B un i t w a s de c l a re d, a 17 .9 % i n c re a s e on t h e pre v i ous ye a r. A rrow h e a d’s a c qui s i t i on of Vi v i de n d I n c om e Fu n d a n d e n t e ri n g i n t o t h e re s i de n t i a l m a rk e t were n a m e l y t w o k e y fa c t ors w h i c h i m pa c t e d pos i t i v e l y on t h e bus i n e s s a n d on i t s re s ul t s for the ye a r.

Arrowhead Properties

C O O, Mark K ap lan e xplaine d: “We are p l e a s ed w ith the results, which re fle ct our e f f o rts d u rin g th e ye ar. We continue d to i m p ro ve th e q u ality and size of our portfolio t h r ou gh acq u is itio ns in line with our strate g y a n d cap italized o n the consolidation that t oo k p lace in the s ector with the succe ssful a c q u is itio n o f Vivide nd which adde d a pp ro ximately R 2. 3 billion worth of re tail, o f f i c e and ind u s trial prope rtie s to Arrowhe ad’s p o r t f o lio . We als o div e rsifie d the Fund t h r ou gh the es tab lishme nt of Arrowhe ad R e s id ential.” Prior to joining Arrowhead, Kaplan held the position of Managing Director at Aengus Property Holdings, responsible for controlling a portfolio of assets worth an estimated R300 million.

“ T h e qua l i t y of t h e a s s e t s i n our port fol i o i n c re a s e d ov e r t h e pa s t ye a r a n d i t i s c l e a r t h a t t h e c urre n t A rrow h e a d i s n o l on g e r t h e A rrow h e a d i t w a s a t l i s t i n g w i t h pe rc e i v e d s e c on da ry prope rt i e s . E x c l udi n g t h e re s i de n t i a l port fol i o, t h e n um be r of i n di v i dua l a s s e t s t h a t w e m a n a g e h a s i n c re a s e d from 8 9 a t l i s t i n g i n 2 0 1 1 t o 1 5 5 a t pre s e n t . T h e a v e ra g e v a l ue pe r prope rt y a l s o i n c re a s e d from R 1 7 m i l l i on t o R 4 5 m i l l i on , a s w e c on c e n t ra t e d on bui l di n g s i z e a n d qua l i t y,” e x pl a i n e d CE O, G e ra l d L e i s s n e r. “ I a m e x c i t e d a bout t h e ye a r a h e a d,” L e i s s n e r a dde d. “A rrow h e a d i s t a rg e t i n g t o a c qui re R 1 bi l l i on of c om m e rc i a l (re t a i l , offi c e a n d i n dus t ri a l ) prope rt y ov e r t h e n e x t fi n a n c i a l ye a r a n d w e w a n t t o i n c re a s e our s t a k e i n

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company profile D i p u l a P ro p erty Fu nd . The re is an additional R 1 bi l l i o n o f res id ential prope rty in the p i pe l i n e , s ettin g th e course to imple me nt what w e be l i e ve to b e very u nique opportunitie s in t h e r e s i d ential p ro p erty se ctor g oing forward. We e x p e ct that the p o rt folio of prope rtie s a s a t 30 Sep temb er 2014 should produce d i st r i bu tio n gro w th p er combine d A and B l i n k e d unit o f 11% f o r the ye ar e nde d 3 0 S e pt e m b er 2015.”

VIVIDEND INCOME FUND In a deal valued at an estimated R430 million, Arrowhead bought 31.7% of Vividend Income Fund’s linked units from Coronation Fund Managers in December 2013. This transaction added a further

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“We support clients with the complete foundation for risk management and regulatory compliance including standards development, training and implementation”

Arrowhead Properties R2.3 billion worth of commercial, industrial and retail properties to the company’s current portfolio. Arrowhead’s CFO, Imraan Suleman, explained: “In terms of the Vividends fund, we looked across the sector and we looked at yields that were trading above Arrowhead, it was in keeping with our strategy to acquire a yield in access of our cost of funding. We approached one of the larger shareholders, Correlation Asset Management, who held a 34% stake in Vividend.” “Over the course of a year, we’ve engaged in discussions with them where we have proposed a swap ratio, so for all of the Vividend unit they held, we proposed issuing them with new Arrowhead A and B link units at a ratio that was accretion to Arrowhead from an income perspective. Over the period of a year those negotiations have taken place and initially we proposed a ratio that would give us the accretion that we were looking for and that didn’t suit Correlation so it was turned down. After a year or so we agreed a swap ratio that was satisfactory to both parties.” Suleman explained further that it was the quality of the portfolio which attracted Arrowhead to Vividend, with its biggest asset in access of R500 million access parking in Cape Town and with strong retail buyers – “We really thought it was the type of asset from which Arrowhead could attract serious value. It was a perfect fit for us and it offered us yield accretion whilst improving the quality of our overall portfolio.” “We are pleased that the Vividend transaction has had the support of the Vividend management and board. The transaction is expected to create certainty and unlock significant value for Vividend shareholders by providing them with access to a larger more liquid fund with faster growing distributions,” added Leissner.

increasing from R2,8 billion to R4,4 billion as of 30th September 2013. “We have worked hard during the past six months growing our asset base, acquiring five commercial, industrial, retail properties for R535 million and residential properties for R150 million, all at yields that are revenue enhancing. We are confident that our strategy provides our investors with a diversified portfolio at acceptable risk levels that enhance distributions,” Leissner explained. By issue of Arrowhead Units, the company also acquired 22% of the B units in Dipula Income Fund but made the decision to dispose of the Education Building in King Wiliams’ Town for R2.8 million. “Our treasury places excess funds in our access facility to reduce the overall interest charge,” Suleman added. “The effective interest rate for the period is 8.28% and interest rates on more than 90% of our debt has been fixed for five years at rates of between 9.37% and 9.58%.” “We will continue to grow Arrowhead in line with our strategy. Taking into account the acquisitions concluded to date and the performance of the existing portfolio, we expect to achieve a distribution growth per combined A and B linked

AssOciAted insurAnce BrOkers i capital Risk Services (Pty) Ltd t/a

100

Our clients’ business is our business 0

AIB are independent short-term insurance brokers located in Sandton, Johannesburg, South Africa. We are Arrowhead’s Insurance Brokers and proud to be associated with them. AIB place business with most local insurers and are agents for Brokers at Lloyd’s of London

POSITIVE GROWTH Following the Vividend acquisition, Arrowhead announced positive interim results of 13.5% distribution growth in May last year. The company declared a distribution of 32,38 cents per combined A and B unit in the quarter ending March 2014, producing a 15,48% improvement on 2013. Over the six months ending March 2014, resulted in 62,58 cents per combined A and B unit, amounting to a growth of 13,49 cents compared to 2013. The company’s asset base also grew from R1,5 billion to R4,6 billion with its market capitalisation

3rd Floor, 12 Fredman Drive, Sandton, 2196 Email: info@aib.za.com Tel: 27 (0)11 883 2400 Fax: 27 (0)11 783 3664 www.aib.za.com AIB is a registered Financial Services Provider FSP 19819

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company profile unit for the year ended 30 September 2014 of 16.8% on the distribution to 30 September 2013,” concluded Leissner.

CONTINUED EXPANSION It is clear from its recent results and growth the company has experienced in the past few years that Arrowhead Properties has maintained a leading position in an industry that is increasingly competitive and continually expanding into new markets. It is perhaps Arrowhead’s unfailing strategy, whether dealing with residential or commercial property, to only look at a potential acquisition if it offers a yield in excess of the company’s costs for funding and is enhancing to the company’s existing distribution. Speaking to IndustrySA back in September last year, Imran Suleman explained: “In the last 18 months, we’ve bought between R3R4 billion worth of property, R600 million of that was on the residential side, so the way we look at residential at present is an extension

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of Arrowhead’s strategy. Our strategy is to buy yield enhancing assets and we would assess those in whatever sector the opportunity would present at that point in time and we see residential as an extension of that. This gives us more opportunity to buy property and grow the fund.” Although starting out with just 84 properties, Arrowhead’s portfolio has continued to grow, last year reaching 185 properties with the average property size rising to £14 million, up from 17 at listing. “As the property portfolio has grown, we’ve added on asset managers and legal resources. We’ve also bought on one specialised person to add up the residential side of things, he was from a company called the Johannesburg Housing Company, he’d been there for seven years and was second in charge to the CEO. He was responsible for managing 4, 000 residential units that the Johannesburg Housing Company own, he’s very experienced in his field,” Suleman concluded

Nissan SA

SEE PROPERTY DIFFERENTLY

ON THE MOVE We’re moving professional property services in Africa forward with fully integrated and self-performing solutions that deliver quality, cost-effective results. Driven by excellence and forward thinking, we’re distinguished by our proud track record as Africa’s leading trusted provider of a wide range of integrated property solutions and services. With our growing African footprint, we are setting the pace for property service excellence in Africa. OFFICES: BOTSWANA . GHANA . KENYA LESOTHO NAMIBIA . NIGERIA . SOUTH AFRICA SWAZILAND . ZAMBIA . ZIMBABWE LEGAL ENTITIES: CAMEROON . COTE D’IVOIRE DEMOCRATIC REPUBLIC OF CONGO . GABON SENEGAL . TANZANIA . UGANDA

E XC ELLERATE FACILITY MANAGEMENT . EXCELLERATE BRAND MANAGEMENT E XC ELLERATE UTILITIES MANAGEMENT . JHI . JHI RETAIL . JHI ADVISORY . JHI CRES . ENFOR CE IN TERPARK . STERIKLEEN . ERADICO KATANGA . CREATIV E TENSION . CHATTELS . FR ESH FIRST TECHNICAL . SYENAP PROPERTIES

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