Arrowhead CEO Mark Kaplan. Picture: FINANCIAL MAIL
Arrowhead CEO Mark Kaplan. Picture: FINANCIAL MAIL

The shareholders of JSE-listed real estate investment trusts (Reits), Gemgrow Properties and Arrowhead Properties have approved the proposed merger of the companies, paving the way for the creation of a R16bn property fund. 

The reverse takeover of Gemgrow by Arrowhead, which previously held 53.3% of Gemgrow’s shares, will create a larger, and more well-balanced property portfolio of 212 properties, diversified across the three asset classes with a gross lettable area of 1,335,197m² spread across all nine provinces in SA. Arrowhead will also continue to invest in SA only.

Investors will be able to trade the new entity’s shares from Monday, September 16.

“The current environment for 100% SA property funds remains difficult, but the team is focused on matters it can influence, including the letting of vacant space, the renewal of leases and collection of rentals. While one is cognisant of both the global and local challenges, we remain positive and will continue to strengthen the operational requirements of the business, thereby controlling what is in our hands. As a larger, stronger entity we are well positioned to weather the current uncertain conditions and beyond,” said Arrowhead’s CEO Mark Kaplan.

He said the merger will create a simpler, more efficient structure that improves liquidity for Gemgrow shareholders and will better position the company to access equity markets to pursue growth opportunities should equity markets improve in the future.

“Management’s focus, post-merger, will be to strengthen the company’s balance sheet and deliver long-term shareholder value and sustainable earnings,” Kaplan said.

Leading up to the transaction, Gemgrow strengthened its balance sheet by selling off a number of non-core assets with non-sustainable income. To date, it has disposed of more than R800m of assets, of which R350m has already been transferred to the company. The proceeds will be used to reduce debt.

The merged entity will have 41% of its income coming from Gauteng; 10% from KwaZulu-Natal; 13% from the Western Cape; and 16% from Limpopo. It will be well-balanced across different asset classes, with 46% of income in retail, 36% in office and 18% in industrial property. 

The new Arrowhead will be headed by Kaplan as CEO, Junaid Limalia as CFO, Riaz Kader as COO, and Alon Kirkel as chief investment officer.