Arrowhead’s dividend slides as growing vacancies pose big problem
The property group is spending more to retain existing tenants and to lure new ones
Diversified South African-focused property fund Arrowhead reported a 15% decline in its full-year dividend to 74.1c a share on Wednesday, as a tough economy weighed on rental income.
The Arrowhead property portfolio comprises a mix of retail (61%), office (31%) and industrial (8%) assets that are directly held, and provides indirect investment exposure to other commercial and residential assets through its separately listed subsidiaries, Gemgrow Properties and Indluplace Properties.
Arrowhead also has investments in listed securities Rebosis Property Fund (16.42%) and Dipula Income Fund (8.6%).
South African dividend growth in the property sector came under significant pressure in 2018 as the macroeconomic environment deteriorated, resulting in weakened income contributions from Arrowhead’s property portfolio and listed investments.
“As a result of prevailing economic conditions, tenants continue to reduce space and work forces. Costs of retaining existing tenants and attracting new tenants take the form of reduced rentals, increased letting commissions, higher tenant installation costs and longer beneficial occupation periods — far higher than in the past," COO Riaz Kader said.
"Creative and competitive deal-making is required to let properties in these difficult economic times and Arrowhead has been dynamic in its approach, with a strong focus on tenant retention”.
Arrowhead vacancies started the year at 12.1% and were forecast to increase to in excess of 13%, but finished the year at 7.9%, well ahead of expectations. Arrowhead anticipates that distributable property income from its direct property portfolio (comprising 49 properties valued at R5.6bn) will grow in excess of 2% in the September 2019 year.