Battling companies compound Arrowhead woes

Arrowhead Properties’s investments in other property companies have come back to bite it in 2019.

Arrowhead was formed by the late SA real estate doyen Gerald Leissner.

Rebosis Property Fund, Dipula Income Fund and Indluplace Properties have all performed poorly recently, compounding the challenges Arrowhead has faced at its directly held properties that have made the company’s financial year to September difficult.

Rebosis chose not to pay a dividend in its latest reporting season while the dividends from the other companies have shrunk.

During the year under review Arrowhead merged with Gemgrow Properties, creating a company with improved liquidity, nearly R11bn worth of assets and a market capitalisation of about R6bn.

The merged entity retained the Arrowhead name while maintaining Gemgrow’s dual A and B share structure, to appeal to shareholders with varying risk appetites. Investors in A shares, who tend to be risk averse, have a preferential claim to earnings and are paid their dividends before B-share investors are paid.

The group’s A share delivered a dividend of 111.51c per share while its B-share dividend fell 7.2% from 74.10c to 68.74c for the year to September.  

But CEO Mark Kaplan said Arrowhead’s portfolio is being refined and the company is focused on getting most of its income from its directly held SA properties.

“It’ll take time but we are becoming more and more confident about our local portfolio. We are able to get at least 80% of our income from directly held property now. While the B-share dividend will see negative growth in 2020, the fund will normalise and will be positioned to perform well when SA’s economy recovers,” he said.  

A number of market commentators said they expected worse results from the diversified property group and praised the management’s restructuring of the portfolio.

“Arrowhead’s results are a lot better than many people expected. The B-share dividend only shrank in the single digits and they have managed to sell more than R500m worth of weaker assets,” said Evan Robins, a fund manager at Old Mutual Investment Group.

Senior portfolio manager at Stanlib Nesi Chetty said Arrowhead’s management will have to work through the fund’s portfolio to find an optimal mix of assets, and investors will have to be patient.

Arrowhead’s B shares closed 7% higher at R3.65 on Wednesday.

andersona@businesslive.co.za