Arrowhead plans to list new fund

ARROWHEAD Properties plans to list the first residential-only property fund on the JSE by the middle of this year.

Analysts have said the market is hungry for specialised property funds which are common abroad and that the demand for housing in SA is encouraging listed funds to acquire residential assets.

Arrowhead has acted as the first mover in the drive for residential property, having accumulated about R700m worth of residential property.

By April 1 the fund expects this to have grown to R1.7bn after the transfer of more properties.

“We are going through the motions necessary and should be able to list the fund in the middle of this year. The pipeline for residential property is staggering,” chief operating officer Mark Kaplan said yesterday.

“Demand really appears to be insatiable. It won’t last forever but we are very excited to be heading the residential property drive,” he said.

Mr Kaplan said he believed Arrowhead’s residential portfolio would perform better and grow more quickly as a separate listed vehicle rather than as a part of Arrowhead’s portfolio.

However, Arrowhead would be the main shareholder in the residential fund. “We believe that some sellers only want exposure to residential as opposed to other commercial property. This fund gives them that opportunity,” Mr Kaplan said.

“We feel that the residential portfolio will trade at yields lower than what Arrowhead itself trades at. We have beaten the South African property index for three years and we believe that our stake in the residential listing will help us to maintain our strong performance,” he said.

The pricing of Arrowhead’s residential fund has interested fund managers in the lead up to the listing.

“There is interest in a residential specific listed property fund. A yield of 8% was mentioned in the past which is much more than your typical residential investor could obtain,” said Evan Robins, listed property manager for Old Mutual Investment Group’s MacroSolutions boutique.

Mr Kaplan spent five years working in residential property before he joined Arrowhead. Arrowhead listed at the end of 2011 on the JSE. The company’s CEO is Gerald Leissner who has 50 years’ experience in property in SA.

The portfolio is made up predominantly of apartment blocks and mixed townhouse complexes. The rentals on the properties range from R800 to R10,000 a month; the largest part of the residential market in SA.

Mr Kaplan said 20% to 25% of the group’s residential portfolio consisted of student housing.

Housing for students is in high demand in the country as enrolments increase in tertiary education.

Ken Reynolds, regional executive of Nedbank Corporate Property Finance in Gauteng said that this year less than 10% of first-year university students could be accommodated.

“According to statistics from the department, out of a student population of 530,000, there is currently only enough student accommodation for 100,000 students — this barely meets 18% of the demand.

“As the demand for student accommodation far outweighs supply, there are excellent investment opportunities available in this market,” he said.

But Mr Kaplan said Arrowhead would not make student housing its residential focus.

“It requires specialised expertise. The properties need a lot of maintenance. We like to have some exposure and lease to universities but we are not at a point where we can make a huge dent in this market.”