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Pre-close investor update
ARROWHEAD PROPERTIES LIMITED
(formerly Gemgrow Properties Limited)
Incorporated in the Republic of South Africa)
(Registration number 2007/032604/06)
JSE share code: AHA ISIN: ZAE000275491
JSE share code: AHB ISIN: ZAE000275509
(Granted REIT status with the JSE)
(“Arrowhead” or “the Company” or “the group”)
PRE-CLOSE INVESTOR UPDATE
Shareholders are advised that Arrowhead will be hosting a pre-close call with investors today at 11:00 to
provide an update in respect of the 6 months ending 30 March 2020. Shareholders that wish to participate in
the call can register at https://www.diamondpass.net/7947356.
The pre-close investor update will cover the topics set out below.
Introduction
Whilst our operating environment remains as difficult as we have ever seen we have not experienced any
material surprises in the first five months of the financial year that could have an adverse impact on operations
and the portfolio has performed in line with our expectations. As such we remain, subject to the uncertainties
surrounding the impact of the Coronavirus as discussed below, cautiously optimistic that our dividend for the
financial year will be in line with the guidance provided in the September 2019 results.
Intensive hands on asset and property management are making a positive contribution in ensuring that our
portfolio holds through these turbulent times. The additional resources employed over the last two years are
adding tremendous value and helping the portfolio perform in uncertain times.
We believe the major risk to our results for the year ended September 2020 may arise from multiple
unexpected tenant failures. Fortunately, we have not experienced any major tenant failures in the financial
year to date, significantly ameliorating this risk. We remain cautious and ready to act in the face of any
unexpected events.
Disposals program
Arrowhead has embarked on a disposals program where it is disposing of its weaker, isolated and smaller
properties (below R15 million). Arrowhead has sold and transferred R827 million (R551 million transferred
in 2019 financial year and R276 million in the current financial year) to date and has another R637 million in
the transfer process. Arrowhead is looking to retain only properties that have high tenant demand and are
capable of growth over the medium to long term.
In the financial year to date we have disposed of non-core assets with a sales value of R913 million at a 1%
premium to book value. There are however sales currently being negotiated that are at a discount to book
value. Of this R913 million, R276 million has already transferred and we expect the balance (R637 million)
to transfer during the second half of the financial year.
These sales comprise 42 assets at a weighted average yield of 10% (excluding letting assumptions on
vacancies) at an average sales price per asset of R21.7 million. By book value, the assets disposed of consist
of 46% retail, 25% office and 29% industrial. The successful disposals program aids in the repositioning of
our portfolio and enhances the quality of our asset base.
Capital Allocation
The majority of the funds of R827 million received from sales over the last 12 months have been used to
reduce debt. Of this amount, approximately 10% (R84 million) has been used for share repurchases. Just under
22 million Arrowhead B shares have been repurchased at an average price of R3.83 per share. The share
repurchases have been net asset value per share and dividend per share enhancing. A further R70 million has
been used for capital expenditure and solar investments.
Similarly, we anticipate utilizing the majority of the balance of the sale proceeds still to be received to
reduce debt, with some being applied for capital expenditure needed to maintain and improve our revenue streams.
We have put our share repurchase program on hold for the time being and will continue to evaluate this
decision against market conditions and our capital requirements.
Gearing
At Arrowhead’s September 2019 year-end results, the group reported a loan-to-value (“LTV”) of 40,5%. With
the further devaluation of the listed investments in Dipula Income Fund Limited and Rebosis Property Fund
Limited, the share repurchase program, capital expenditure and solar investments during the 6-month period,
we expect the LTV to increase marginally to around 41.5% by the end of the interim period. Listed investments
now account for just under R150 million relative to a balance sheet of R15 billion comprising only 1% of total
assets. Arrowhead is in the process of renewing a further R550 million of its debt. There is no further debt
expiring in the current year nor in the next financial period. We would expect to be hedged around the 80%
level as at 31 March 2020.
Lease expiries and letting activities
In the five months to end February 2020, gross lettable area (“GLA”) of approximately 87 728m² has expired
of which 81.5% has been renewed and a further 4.2% re-let, increasing the overall retention to 85.7%. Lease
renewal reversions at the end of February 2020 were -5% overall (if three anomalies are excluded where we
reverted for strategic reasons and/or as a defensive measure, rental reversions would be -2%), -2.97% for
office, -8.17% for retail and -3% for industrial. Leasing results have been in line with our expectations and
forecast. Of our rental revenue, turnover rental only accounts for 0.35% which positions us as defensive in an
environment where retail turnover may be under pressure.
Vacancies
Arrowhead expects vacancies to be remain stable around 8% at the time of reporting the interim results.
Arrears Management
Bad debt provisions and write offs have been in line with expectations despite the increased risk of tenant
failure and arrears.
Dividend Guidance
The Company reaffirms its forecast for the year ended September 2020 of 117 cents per Arrowhead A share
(assumes inflation of 5% even though the Arrowhead A share growth in dividend is the lower of inflation and
5%) and 66 cents per Arrowhead B share.
We are cognisant of the uncertainty surrounding the Coronavirus in South Africa and its potential impact on
business or otherwise. We will continue to monitor events closely and will communicate with shareholders
again should the need arise. Arrowhead has a well-diversified tenant base and we believe a significantly
reduced risk given the diversified nature of its portfolio.
The information on which this investor update has been based has not been reviewed or reported on by the
Company’s auditors.
16 March 2020
Sponsor
Java Capital
Date: 16-03-2020 07:05:00
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