South African focused real estate investment trust Arrowhead achieved a strong operating performance in the six months ended March 31, despite macroeconomic challenges.

Speaking to Engineering News Online COO Riaz Kader on Wednesday said that although the company was operating in a very challenging economic environment, Arrowhead experienced increased letting activity, particularly in the second quarter of the current financial year.

“Vacancies have decreased from 12.10% as at September 30, 2017, to 10.63%. The vacant Hill Street building, in Randburg, has also been sold to a student housing developer post period-end, for R60-million, which will further reduce vacancy rates,” he said, adding that the company anticipates realising the benefits of this increased letting activity in the 2019 financial year.

Kader pointed out that some of the letting successes included the take up of 11 343 m² of 13 350 m² at the 1 Sturdee building, in Rosebank. The company is in negotiations pertaining to the letting of additional space at the building.

“Kwela Logistics went completely vacant during the 2017 financial year and occupancy is now sitting at 14 484 m² of 15 450 m², split between three tenants. We have also let 3 000 m² in Owl Street and have interest in the remaining space.”

At period-end, Edcon contributed 2.64% of Arrowhead’s revenue and 3.16% by gross lettable area (GLA). Post period-end, this reduced to 2.16% by revenue and 2.70% by GLA as Edgars exited Cleary Park shopping centre, in Port Elizabeth.

“This space has been let to a national retailer. Edgars makes up 53% and Jet the other 47% of our Edcon exposure,” he said. 

Revenue increased to R1.1-billion on the back of Arrowhead’s acquisition of separately listed subsidiaries Gemgrow and Indluplace during the period, while the gross expense to income ratio remained stable at 38%.

Arrowhead company loans were R3.5-billion at the end of March.

“This represents a comfortable loan-to-value ratio of 31.3%, marginally up from 28.1% previously. We have fixed 73% of total loans and continue to maintain a well-positioned balance sheet,” he said.

Arrowhead’s holdings of noncore interests in Rebosis and Dipula moderated marginally through the additional share issuance by these listed entities.

The company declared a dividend of 40.43c a share, indicating that it remains on target to deliver on the guidance provided for the full year.