Arrowhead Properties reached an agreement with Jika Properties for the acquisition of a residential property portfolio at an aggregate purchase price of R406m payable in cash.
The portfolio would be managed by Jika Properties for two years and would receive a guaranteed return of no less than 10% in the first year and 10.8% in the second year.
"Arrowhead is aiming to be the first company to get into listed residential property when it burgeoned in South Africa‚" chief executive Gerald Leissner said.
Arrowhead's overall strategy is to increase its portfolio to R10bn by 2016 through the purchase of secondary properties that offer attractive yields. It currently owns properties valued at more than R2.5bn.
"Eventually residential property has to take off in South Africa in the listed sector. This is not yet a focus for Arrowhead but the portfolio we have bought will help set us up to move when things do fall into place‚" Leissner said.
South Africa's listed property has only 1% residential exposure by value‚ according to investment bank Stanlib‚ compared with about 11% in developed markets and 15% in emerging markets.
If Arrowhead's deal is approved by relevant competition authorities‚ Arrowhead will join Octodec Investments and Premium Properties in the listed retail property space.
Octodec has 8% residential exposure‚ and Premium has 30% exposure.
These property portfolios are both managed by City Property and are the JSE's only property companies with significant residential components.
Growthpoint Properties‚ the largest South African listed property company with a market capitalisation of about R48.7bn‚ has 43 residential properties. These are flats in the V&A Waterfront and fall into the higher end of residential property.
The Jika Properties portfolio comprises 1‚089 affordable-housing units in 36 properties‚ with a gross lettable area of just over 79‚000m2.
The portfolio is spread across Johannesburg and includes properties in Berea‚ Yeoville‚ Randburg and Windsor.
"The risk on this portfolio is extremely low. This is a well-spread‚ low-cost housing portfolio overall which is very well managed and fits in exactly with what Arrowhead buys‚" chief operating officer Mark Kaplan said.
He said Arrowhead had not directly sought a residential portfolio but had analysed the residential sector for years.
Leissner said Jika had approached Arrowhead. "People have tried to get residential property going in South Africa. I tried in 2009 to start a fund around it. I could get the money but I could not find the stock. Then Jika Properties brought this portfolio to us and we saw it was a good fit," he said.
"Our phones are ringing. Since announcing this transaction in July‚ we have been approached with about R5bn in opportunities worth exploring. I am surprised at all the interest in residential property and believe this portfolio can be a catalyst for future investments in residential‚" Leissner said.
Arrowhead's decision to enter the residential market was well received by analysts.
"The acquisition is a step in the right direction. We have long been advocating for more residential exposure in the listed property sector‚" Stanlib's Keillen Ndlovu said.
"It brings a different element compared with retail‚ office and industrial sectors which means that it is a good diversifier‚" said Ndlovu.
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