Heading for its mark, with plenty in the quiver
Arrowhead Properties is a very well-run real estate investment trust (Reit). Since listing in late 2011, the fund has been a strong performer which has regularly exceeded market expectations.
Arrowhead was created by property doyen Gerald Leissner, who has worked in the property industry since he was in his 20s. He is now 73 and, as CEO, is managing to find good deals which are bringing double-digit returns to Arrowhead’s shareholders.
Since listing Arrowhead with a portfolio of assets worth R1,72bn, Leissner has aimed to reach a portfolio worth R10bn by 2016. This would make it a midsized investment proposition.
His mission is on track as the group’s property portfolio is currently worth about R6,5bn. This is after Arrowhead separately listed its R1,6bn residential portfolio as Indluplace Properties last month.
The head of listed property funds at Stanlib, Keillen Ndlovu, says Arrowhead has surprised him on the upside and that the fund has timed its strategy well.
Leissner’s right-hand man is Mark Kaplan, the fund’s chief operating officer. He had some experience in affordable housing and Leissner took a shine to him. His appointment was however unpopular because he was in his early 30s when he joined Arrowhead. But the fund’s overall performance suggests the team is managing well.
Imraan Suleman is the CFO and is managing the fund’s debt and expenses very carefully.
Arrowhead grew its distributions by 19,03% in the half year to March this year compared with the same period last year, following aggressive acquisitive growth. This means Arrowhead is on track to achieve total distribution growth of nearly 12% for the year to September 2015, outperforming the listed property sector, which has delivered average distribution growth of only 8%-9%.
Kaplan is right to praise the performance of Arrowhead’s core portfolio over the six-month period. “Core portfolio growth of 9% for the period, together with income from revenue enhancing acquisitions, has once again enabled Arrowhead to pay growing distributions above those paid by many of our peers,” he says.
Ndlovu says the distribution growth has been especially impressive because it was achieved while expenses were kept at notable lows.
Arrowhead’s share price is likely to climb throughout the rest of this year, on the back of financial results for the year to September.
The group will also acquire more buildings to add to its diverse portfolio, which has exposure to office, industrial and retail assets. Over the first six months of this year, Arrowhead’s A units achieved a total return (which includes capital and income growth) of 5,59%. Arrowhead’s B units grew 2,88% over the same period.
The fund is still interested in taking over Dipula Income Fund, which is a retail focused Reit. Currently Arrowhead owns about 11,5% of Dipula’s B units. Kaplan has said he is attracted to its portfolio and that it is coincidental that Dipula is a broad-based black economic empowerment company.
Market speak is that Dipula CEO Izak Petersen is reluctant to relinquish his shares in the company, which he started.
Leissner is a shrewd deal maker and the fund is active in all of SA’s nine provinces.
There are murmurs in the market that he may retire from the property game soon to join some of his family abroad, but Leissner has said he enjoys property management too much to exit the industry just yet. Perhaps he is grooming Kaplan to be a future star.