Gemgrow positions itself for merger

CAPE TOWN – Gemgrow Properties says it will continue to offload non-core assets and acquire those that will up its bid for the merger with its parent company Arrowhead Properties.

Gemgrow chief operating officer Alon Kirkel yesterday said that the group planned to reduce its loan to value (LTV) to 28percent from the proceeds of R424million of businesses that it disposed of in the six months to the end of March.

Kirkel said the LTV fell 2percent to 32percent during the reporting period. Further disposals of R330m were expected before the end of the financial year.

Kirkel said the group was well positioned to take advantage of the economy and its staff had already noticed an improvement in sentiment since last week’s election. “We are feeling very positive about the future.”

Kirkel said the planned merger with Arrowhead was awaiting approval from shareholders.

He said the merged portfolio would be worth more than R16billion.

Gemgrow portfolio currently consisted of 163 office, retail and industrial properties. The value had increased after 10 investment properties were acquired worth R99.9m, as were 26 properties in Moolgem Proprietary for R661m.

Gemgrow’s distributable income fell 4.6 percent during the period after higher property expenses, administrative expenses and finance charges.

Revenue, however, rose 17.7 percent to R424.8m, while property expenses increased 22.5percent to R163m partly due to acquisitions.

Thirty-six properties acquired last year were transferred in the interim period, 26 of which were acquired through the Moolgem acquisition. The remaining 10 properties were acquired directly for R99.9m, funded with the issue of R50m Gemgrow A shares.

Municipal expenses made up 69percent of the property expense, and this increased by 20percent to R112.4m.

Kirkel said Gemgrow traditionally brought many expenses on the books but it decided to spread the costs over the year to stabilise the income.

He said that additional staff were brought in to bolster operations and the benefits of this were already being seen.

A dividend of 54.54cents per “A” share and 35.31c per “B” share was declared.

Kirkel said tenant occupancy remained under pressure as the supply of letting space outweighed demand. This had resulted in an increasingly competitive environment of rental reductions and higher vacancies.

Gemgrow shares rose 0.10percent on the JSE yesterday to close at R10.01.


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