File picture: James White
CAPE TOWN - Arrowhead Properties “B” shares surged by 10percent to R3.75 on the JSE yesterday after the South African-focused real estate investment trust cleaned up its balance sheet and delivered a dividend slightly ahead of forecasts in its financial year.

In a busy 12 months to September 30, during which its merger with Gemgrow was completed, Arrowhead, or Arrowgem as it is now called, sold 57 non-core assets for more than R1billion and acquired 36 more properties for R771million.

The final dividend of 34.66cents was marginally ahead of the merger guidance of 34.62c. A total dividend of 111.15c per “A” share and 68.74c per B share was higher than the guidance communicated to the market in July.

Chief executive Mark Kaplan said in a telephone interview that the fact that 57 non-performing properties were sold at an average discount to book value of only 2percent, was an indication of the strength of the group valuation processes, in a period where many competitors were struggling to sell properties.

Arrowgem holds a diverse director portfolio of retail, office and industrial properties in all provinces valued at R10.8bn.

Loan to value currently was just below 39percent, below the 41.4percent at the half year, and it was expected to slide to below 38percent on conclusion of the asset sales.

Kaplan said that they were pleased with the results, and all the right steps had been taken to de-risk the balance sheet, which presented a good opportunity for investors considering that the “B” shares were trading at R3.75 yesterday, while net asset value was at R7.15.

He said there seemed limited further downside risk, and far greater upside risk for the group operationally in the 2020 financial year, even though trading conditions on the ground remained “tough.”

In the results, the total dividend income was forecast to reduce by 3.5percent in 2020, with the dividend on the A shares expected to increase by the lower of the inflation rate or 5percent, and the dividend on the B shares to reduce by 4percent when compared with 2019.

Lower diluted headline earnings per share in the past year was impacted by fair value property adjustments of R285m, derivatives of R97m, and a devaluation of holdings in Dipula and Rebosis of R975m.

The adoption of the IFRS 9 also resulted in a negative fair value adjustment to loans to the participants of the group's share purchase and option scheme of R395m.

The size of the team at Arrowgem had increased to 32 from 20.

As at September 30, the group has a 59.6percent interest in Indluplace Properties.

Specific areas of focus were tenant retention, new deals, debt collections, utility management and tenant-centric management, said Kaplan.

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