LISTED property loan stock company Arrowhead Properties said on Wednesday that it had concluded an agreement to acquire the 100% black-owned and black-managed Indite Property Fund as part of its growth and broader black economic empowerment strategies.
The deal, worth R178m, would align Arrowhead with the South African Property Charter and allow the group to enter into longer-term leases with government tenants.
Arrowhead said on finalisation of the deal it would transfer its government-tenanted buildings, valued at about R390m, into the Indite portfolio, which would be externally managed by the 100% black-owned asset manager, Indite Manco.
Arrowhead said earlier this month it had made progress in its acquisition strategy, which aims to grow the portfolio by R660m, or 30%, in this financial year. It further aimed to expand its portfolio to R10bn by 2016.
Indite Property Fund’s portfolio consists of six buildings in Gauteng, the Free State, KwaZulu-Natal and North West, with tenants including Transnet and a leading black-owned auditing firm.
The total purchase consideration of the Indite portfolio of R178m will be settled with a combination of Arrowhead units and cash.
Chief operating officer Mark Kaplan said on Wednesday that because the market was "fleeing from government property" they offered higher yields. This was because these properties were management-intensive and individuals could not easily enter the sector.
Arrowhead had been able to manage its existing government portfolio well and was receiving rental increases from the sector.
Mr Kaplan said government tenants complemented Arrowhead’s yield-targeting portfolio.
"There’s an opportunity to buy high-yielding properties with an A-grade tenant", which was usually "entrenched" in its properties.
Indite Manco CEO Thomas Matlala said the partnership held exciting opportunities.
"Together with Arrowhead, we see a great opportunity to grow Indite aggressively in the government and parastatal market.
"We are well positioned to capitalise on many opportunities in this growth sector by developing our niche strength as a 100% black-managed property fund."
Arrowhead said last week it would acquire 15 quality and yield-enhancing office, retail and industrial properties from various sellers for a combined purchase consideration of R489m and an average net yield of 11%.
The acquisition announced last week, together with the Indite transaction, would see Arrowhead already surpassing its initial portfolio growth target for the year, months ahead of its financial year-end in September.
"If this (is) all that we do this year, we will be very disappointed," Mr Kaplan said. "The deal flow at the moment is incredible."