Picture: THINKSTOCK
Picture: THINKSTOCK

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FRESH on the heels of buying a significant stake in retail-focused Rebosis Property Fund, Arrowhead Properties is now shifting its higher-risk, smaller assets into a new investment vehicle with the support of Vukile Property Fund, as it looks to cater for investors with a different risk orientation.

Arrowhead has grown its assets from less than R800m at listing in 2011 to about R10bn, largely through acquisitions, and has decided that it needs to rationalise its portfolio to include its highest-quality assets.

Last year, Arrowhead placed about 100 properties, each worth R50m or less, into a subsidiary called Cumulative Properties that the fund wanted to list separately.

Now, instead of going through the costly running of a new listing, Arrowhead, Vukile Property Fund and Synergy Income Fund have reached an agreement.

The three funds have a plan to turn Synergy into a fund with a market capitalisation of R4bn, with an A and B share structure. Synergy A shares will offer more risk-averse investors preferential distributions, capped at 5% growth per annum.

After paying distributions to A-linked shareholders, remaining distributable earnings will accrue to B-linked shareholders.

In terms of the deal, Synergy will acquire 100% of the shares in Cumulative Properties and then house its portfolio of higher-yielding retail, office, and industrial properties in return for the issue of Synergy B shares to Arrowhead.

Arrowhead chief operating officer Mark Kaplan said Arrowhead would hold between 55% and 65% of Synergy B, depending on how the deal was finalised.

Meanwhile, Vukile, a retail-focused fund, will become a 25% shareholder through an asset swap. The remaining 10% of Synergy B shares will be held by other institutional and retail shareholders.

The bulk of Synergy’s retail assets will move into Vukile, and Vukile will inject the majority of its office and industrial assets into Synergy. The Synergy A structure will remain as is.

Vukile CEO Laurence Rapp said that the deal was crucial for his fund. "The transaction furthers our goal for transforming Vukile into a leading retail real estate investment trust.

"Retail has been the most defensive property class through the current cycle, and is investors’ most preferred sector," Mr Rapp said.

Grindrod Asset Management’s chief investment officer Ian Anderson said the deal was a shrewd one.

"Management have been discussing the carving out and separate listing of a high-yielding, high-growth portfolio with shareholders for some time now and this transaction, at first glance, appears a clean and efficient way of doing exactly that, while shareholders of both Vukile and Synergy also stand to benefit," he said.