Diversified real estate investment trust (Reit) Arrowhead Properties reduced its vacancies from 12.1% at the start of its 2018 financial year to 7.9% by the end of the year.

This despite the fact that it had initially expected vacancies to increase to more than 13% in the financial year ended September 30.

“As a result of prevailing economic conditions, tenants continue to reduce space and workforces. Costs of retaining existing tenants and attracting new tenants take the form of reduced rentals, increased letting commissions, higher tenant installation costs and longer beneficial occupation periods – far higher than in the past.

“Creative and competitive dealmaking is required to let properties in these difficult economic times and Arrowhead has been dynamic in its approach, with a strong focus on tenant retention,” COO Riaz Kader said in a statement issued on Wednesday.

CFO Imraan Suleman commented that tough operating conditions required concerted efforts to ensure the Reit’s lettable space remains occupied and continues to generate income. He cautioned, however, that this comes at a significant cost.

Arrowhead stated that although business sentiment in South Africa may improve after the 2019 general elections, “any economic upturn is likely to be delayed” and difficult market conditions are likely to continue throughout 2019 and possibly beyond that.

“While such difficult operating conditions persist in the short term, we will continue to focus on maintaining a conservative balance sheet and to look for opportunities to reduce the group’s loan-to-value ratio to below 35%,” said Suleman.

He added that the Reit was also considering opportunities to extract value from some of its investments, particularly from its 16.42% shareholding in Rebosis Property Fund.

Arrowhead stated that Rebosis’ latest financial results had reflected earnings that were significantly below market expectations.

“For some time, Arrowhead has been exploring various options to extract value from its stake in Rebosis. Key to Arrowhead's strategy is the recognition that the company needs to ensure that it is able to exercise sufficient control over the assets in which it is invested.

“Arrowhead is of the view that, with regard to its stake in Rebosis, this is ultimately only achievable through an exit or through corporate action. We continue to actively explore all possibilities, particularly in light of Rebosis' recent results,” the Reit reported on Wednesday.