Arrowhead Properties + Emira Property Fund = Opportunity

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Arrowhead Properties CEO, Gerald Leissner says Emira Property Fund acquisition is a good opportunity for the company. Arrowhead Properties CEO, Gerald Leissner says Emira Property Fund acquisition is a good opportunity for the company.

JSE-listed Arrowhead Properties, has hit the headlines today after revealing a bid to buy diversified real estate investment trust (REIT), Emira Property Fund in an all-share deal.

South Africa’s listed property companies have struggled to find well-priced acquisition opportunities, and takeovers are becoming more difficult to achieve now as there are no easy targets.

The majority of property companies that listed in the past two years have grown organically, and not many are valued at less than R3bn.

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Private developers have been hesitant to sell some of their properties, waiting for higher prices. This has seen many of the large listed funds turning their attention to assets abroad in Europe and Australia.

Fresh on the heels of buying 10.5% stake in retail-focused Rebosis Property Fund, 11% stake in Dipula Income Fund, and it listed SA’s first pure residential property fund Indluplace Properties in 2015 – owning a 60.1% stake in the fund, Arrowhead Properties is considering offering 1.67 of its shares for each Emira share. This represented a 3% discount to Emira’s share price at Monday morning’s prices.

Arrowhead said its offer was a "nonbinding expression of interest" subject to a satisfactory conclusion of due diligence on Emira’s forecast income for the financial year under way to end June 2017.

Headed by industry veteran Gerald Leissner, who has over the past five years grown the value of Arrowhead property portfolio six-fold from R1.4 billion to R9.5 billion for the six months to March 31 2016.

“This proposed acquisition is a good opportunity for Arrowhead. As a team we have consistently exceeded market expectations and we believe we are able to extract maximum value from the combined portfolios,” Leissner said.

Arrowhead, who successfully acquired Vividend in 2014, has engaged with a limited number of key shareholders of Emira, and have received support from shareholders holding approximately 22% of Emira’s shares in relation to the proposed transaction. The shareholders have either signed letters of support or irrevocable undertakings.

Emira Property Fund last month became the first real estate investment trust (Reit) to forecast negative distribution growth in the coming results season. Its CEO, Geoff Jennett, said in February that it had reached a size at which it could pursue takeovers. But itself has become a takeover target. The company has a market capitalisation of about R8bn and owns a stake in Growthpoint Australia.

Redefine Properties, one of the top five Reits on the JSE, already owns about 11% of Emira.

Arrowhead’s share price fell 2% to R8.40 on Monday morning, giving it a market capitalisation of R8.8bn  Emira’s share price rose 1.47% to R14.46, giving it a market capitalisation of R7.3bn.

“The successful conclusion of this transaction will result in a combined market capitalisation of approximately R16 billion,” commented Imraan Suleman, Arrowhead CFO.

In May, Arrowhead declared a dividend payout growth of 9.5% to 40.79 cents per share, and it is forecasting dividend growth for the year to be at the upper end of 8% and 10%.  This comes at a time when most property counters are downgrading their dividend growth citing SA’s worrying state of the economy.


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