Arrowhead, the listed property company, has set itself a target of increasing the value of its residential portfolio to R2 billion in the next 18 months from R150 million in March.
Imraan Suleman, the chief financial officer of Arrowhead, said yesterday that it had added residential property valued at R300m to its portfolio since March and would access further residential stock from private players and institutions.
The sale of residential property to listed companies was a natural exit strategy for developers that had built up equity in their portfolios because it allowed them to sell some of this stock to free up cash for other developments, Suleman said.
Arrowhead was not predisposed towards any particular sector of the property market and was not looking to achieve any predetermined percentage holding in any sector.
“We evaluate each potential property acquisition on its own merits. At present the residential property we have acquired is all in Gauteng but we are also not limiting ourselves to any region. We have set our targets high in residential as a way to incentivise us to achieve that.”
When Arrowhead listed, it set itself the target of growing its portfolio to R10bn within five years; in three years had grown it to just under R7bn.
He said that if Arrowhead achieved its residential portfolio growth targets, it would be about on a par with the residential portfolio of Premium Properties and Octodec, which were planning to merge.
However, he said Arrowhead would like to grow its residential portfolio more significantly beyond its 18-month target.
Arrowhead made its first foray into residential property in October last year when it reached agreement to acquire a residential portfolio from Jika Properties for R406m cash.
The company said yesterday that listed residential property in South Africa represented less than 1 percent of the listed property sector’s market capitalisation. It was as high as 15 percent in listed property sectors internationally.
Entry-level housing for rent was a low-risk investment for an income fund and it fitted Arrowhead’s model because revenue-enhancing acquisitions were available, the risk was lower because of the greater number of small tenants, equity and loan capital could be raised on residential assets, and the company had the capability and experience to assume the increased management requirements.
Arrowhead yesterday reported 13.49 percent growth in distributions per combined A and B linked units to 62.58c for the six months to March.
Its assets increased to R4.6bn from R3.1bn and its market capitalisation to R4.4bn from R2.8bn in the same period.
In the reporting period Arrowhead acquired 22 percent of the B units in Dipula Income Fund and 32 percent of the units in Vividend Income Fund and the Vividend Management Company for R88.6m.
It plans to make an offer to acquire all the issued linked units in Vividend through schemes of arrangement, with the circular expected to be sent to linked unit holders by the end of this month.
Suleman expected the transaction to be finalised by July but stressed Arrowhead did not have any intention of becoming a hybrid property company.
Arrowhead A units gained 0.8 percent to close at R7.56 on the JSE yesterday.