To help it through the current market difficulties caused by the impact of Covid-19, JSE-listed Arrowhead Properties will intensify its focus, in the short term, on strengthening the company’s balance sheet, as well as its operating efficiency and cash flows to further unlock the value inherent in its assets.
This focus includes three main priorities, namely expanding its asset disposal programme; enhancing operational efficiencies and reducing operational costs; and identifying opportunities to simplify and streamline the group.
The board believes a strong focus on these priorities will unlock value for shareholders, while also reducing risk and enhancing the company’s ability to deliver sustainable income to its shareholders.
As a result of the company’s proactive steps, rental collection levels throughout the national lockdown (at 75% and 65% for April and May respectively) have been ahead of its revised Covid-19 cash flow forecasts, while still accommodating tenants that were genuinely in need of assistance.
Much of the rental relief took the form of rental deferrals and, therefore, Arrowhead expect these percentages to improve.
Moreover, it says it is also seeing a steady improvement in June, with collections already at 66%, compared with 51% at the same time last month.
“We are cautiously optimistic that this represents the start of a recovery in collections closer to pre-Covid-19 levels yet stress that significant uncertainty remains,” the company says.
EXPANDED DISPOSAL PROGRAMME
Until now, the company has only sold assets that do not meet its long-term investment criteria. Under the expanded disposal programme, the company will now also pursue the sale of a limited number of its larger assets provided that this significantly strengthens its balance sheet.
“We are mindful that this is an uncertain environment, where asset sales at reasonable levels may be challenging. However, our team has a record of disposing of assets at good values, in a difficult market.
We are confident in their ability to apply the same approach to our expanded disposal programme. We will remain disciplined sellers, and the existing programme of selling noncore assets will continue,” the company said.
Further, given the potential risks to revenue, Arrowhead emphasises that it is important for the company to take advantage of all available opportunities to increase efficiency and reduce operating costs.
As previously announced, the company increased its staff complement from 20 to 34. This increased head count has already led to efficiencies and cost savings, which have more than offset the additional salary cost, it states.
There remain a number of areas where this enhanced internal capacity can improve operational efficiencies and reduce costs. Arrowhead has begun a process to unlock these further cost saving opportunities.
The company is also focused on reducing administration expenses wherever possible. In this regard a decision has been made to freeze the salaries of certain key executives, including the CEO, CFO, COO and CIO.
A decision has also been made to reduce the size of the board. Riaz Kader and Alon Kirkel have agreed to step down from the board with effect from October 1 while retaining their executive roles and responsibilities as COO and CIO, respectively.
A process is under way to review the composition of the balance of the board and further announcements will be made in due course.
Meanwhile, an exercise has been initiated to evaluate the cost benefit and other possible implications of merging Arrowhead and Indluplace Properties. Further details will be announced in due course.
Additionally, Arrowhead noted that it continues to actively seek a basis to unlock value from its holdings in Rebosis Property Fund and Dipula Income Fund.