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Abridged consolidated audited results for the year ended 30 September 2013
ARROWHEAD PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2011/000308/06)
JSE code for A-linked units: AWA
ISIN for A-linked units: ZAE000158101
JSE code for B-linked units: AWB
ISIN for B-linked units: ZAE000158119
("Arrowhead" or "the company")
ABRIDGED CONSOLIDATED AUDITED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2013
- Distribution of 113,01 cents per combined A and B linked unit, growth of 12,36%, ahead of 10% growth forecast
- Forecast growth in distribution of between 11% and 14%
- A unitholders to participate in growth in first quarter of 2014
Condensed consolidated financial performance for the year ended 30 September 2013
2013 2012
R'000 R'000
Revenue (excluding straight line rental income) 423 246 259 735
Property expenses (147 464) (92 567)
Administration and corporate costs (14 928) (14 310)
Finance expenses (54 810) (50 109)
Finance income 17 525 25 784
Distributable income 223 567 128 531
Distributable earnings payable to Redefine Properties Limited
("Redefine") for the months of October 2011 to November 2011 - 21 220
Distribution for the quarter / period ended 31 December 48 780 7 086
Distribution for the quarter ended 31 March 55 341 21 615
Distribution for the quarter ended 30 June 58 910 34 229
Distribution for the quarter ended 30 September 60 536 44 382
Cents Cents
Distribution for the quarter / period ended 31 December 27,10 8,09
Distribution for the quarter ended 31 March 28,04 24,68
Distribution for the quarter ended 30 June 28,54 25,03
Distribution for the quarter ended 30 September 29,33 26,02
113,01 *83,82
*Annualised distribution equates to 100,59 cents
Nature of business
Arrowhead is a property loan stock company holding a diverse portfolio of properties in secondary
locations throughout South Africa. Its main focus is on paying growing income returns to its
investors. This will be achieved through escalating rentals in terms of leases with tenants,
satisfactory renewal of leases with existing tenants, renting of vacant space within the property
portfolio, managing and reducing, where possible, costs associated with the property portfolio and
by acquiring revenue enhancing properties.
Commentary
Revenue includes rental income and expenditure that is recoverable from tenants.
Revenue has increased substantially this year as the full effect of the acquisitions concluded during the previous financial
year, together with the partial impact of acquisitions concluded during this year, are reflected.
Rentals from government tenants have reduced marginally, as a percentage of total revenue from the prior year as the properties
acquired in the financial year have been weighted towards private sector tenants. Significant progress has been made in
converting monthly tenancies with government into leases of between 12 and 24 months. Arrowhead remains committed to increasing
its exposure to government as a tenant.
Arrowhead has incorporated Indite Properties Proprietary Limited ("Indite") as a wholly owned subsidiary whose focus will be to
acquire properties that are tenanted by government and into which Arrowhead's existing government tenanted properties will be
transferred. Indite will be externally managed by a 100% black-owned asset manager, Indite Asset Management Proprietary Limited,
should enable Indite to enter into longer term leases with government. The asset manager will earn a fee of 0,5% of the fair
market value of the properties owned by Indite (the properties currently owned by Arrowhead, which will be transferred to
Indite, will be excluded from this calculation). A circular to unitholders to approve the asset management agreement was posted
on 30 October 2013 and the general meeting will be held on Friday, 29 November 2013.
Vacancies within the portfolio have decreased to 9%, which is primarily due to the acquisition of properties with an average
occupancy rate of 98%.
The majority of the vacancies are in the commercial sector where the letting of office space has proved challenging. While there
has been a noticeable increase in enquiries for vacant office space, it is anticipated that significant up take of space will
only occur once the economy starts to improve. Approximately 64% of the 112 000m2 of GLA which expired during the year was
renewed, and tenants occupying a further 21000m2 have elected to remain on a monthly tenancy.
Average rental escalations of approximately 8% have been achieved across the portfolio.
The internalisation of electricity management has been challenging, yet rewarding. During the first five months of the previous
financial year, a third party administrated the electricity management and collection, with Arrowhead having internalised this
function for the remainder of that financial year. This internal electricity management and collection contributed to increased
revenue for the year.
PROPERTY EXPENSES
Municipal expenses have increased in line with the enlarged portfolio, and the increased electricity expense resulting from the
migration to an internally managed electricity administration function. The recovery of municipal expenses has increased to 87%
(2012:79%) as a result of the implementation of the internal electricity administration. This margin will improve as
efficiencies take effect.
The majority of water, sewer and waste expenses were recovered.
All other property related expenditure has increased in line with the enlarged property portfolio. The increased letting
commissions are as a result of the renewal of a number of government leases that had expired in previous years and where tenants
remained in occupation on a month to month basis.
FINANCE INCOME
Finance income included antecedent interest, interest on loan units issued to participants of the Arrowhead Unit Purchase Trust,
interest on cash balances, interest from tenants and interest on units issued to the Arrowhead Charitable Trust.
Antecedent interest is recognised in respect of units issued to fund the acquisition of properties where the units are issued
prior to the acquisition becoming effective.
Interest on loan units is in respect of loans made to participants of the Arrowhead Unit Purchase Trust, and the loans incur
interest at the company's rate of borrowings.
The interest on the loan to the Arrowhead Charitable Trust is equivalent to the distributions accruing to the units subscribed
for by the Trust.
TERM FACILITIES
Maturity Interest rate Capital
R
September 2016 9,37% 387 284 437
September 2016 7,40% 92 715 563
September 2017 7,20% 71 762 010
March 2018 7,25% 167 836 522
TOTAL EXPOSURE 719 598 532
The loans of R720 million (2012: R615 million) measured against investment properties valued at carrying value of R3, 1 billion
(2012: R2, 2 billion) represents a loan to value of 23% (2012: 28%). Interest on R647 836 522 of the total R719 598 532 is
fixed which equates to 90% of the total borrowings. Arrowhead's target loan to value is between 35% to 40% and it is anticipated
that once the current acquisition pipeline is concluded it will be at approximately 33% loan to value.
In terms of Arrowhead's treasury function, excess funds are placed in an access facility to reduce the overall interest charge.
The effective interest rate for the year ended 30 September 2013 was 8,17% (2012: 8, 13%).
Arrowhead has further entered into interest rate swaps to hedge its exposure to fluctuations in interest rates as follows:
-an interest rate swap over R189m until 31 May 2018; and
-an interest rate swap over R72m until 31 May 2018.
INVESTMENT PROPERTIES
Arrowhead has completed the acquisition of R723 million worth of property during this financial year while revaluations of
existing properties showed increases of R144 million.
A third of the property portfolio is valued externally every year with the balance being valued by the executive directors. The
independent valuation this year was carried out by JHI.
Acquisition GLA Purchase Price -
date Property Name Sector m2 Address R
04-Oct-12 Selby Retail 16 346 106 Booyens Road, Johannesburg 112 298 441
04-Oct-12 Kwela Logistics Industrial 15 450 1 Range Road, Cape Town 41 000 000
Corner of Brahm Fischer Drive and Bond
30-Nov-12 111 792 000
Bridge on Bond Commercial 12 243 Street, Ferndale
10-Dec-12 The District Commercial 3 768 8 Kikuyu Road, Sunninghill 51 450 000
Crownwood
01-Mar-13 112 000 000
Office Park Commercial 13 347 100 Northern Parkway,Omonde
Transforum Portion 191 of Erf 272 JQ Farms,
01-Mar-13 72 000 000
Centre Retail 4 747 Rustenburg
12-Mar-13 Kolbenco Industrial 13 722 Erf1599, Alrode 24 000 000
22-May-13 The Media Shop Commercial 2 522 138 Kelvin drive, Sandton,2057 47 403 563
22-May-13 Wilcon House Commercial 2 659 24 Fabricia Road, Fabricia, Kimberley 23 000 000
234 Malibongwe Drive, Northriding,
01-Jun-13 Waterworld Industrial 6 524 35 344 168
Johannesburg
Bethlehem and Fatima Bhayat Street,
21-Jun-13 53 000 000
Impala Centre Retail 3 604 Rustenburg
ABSA Bank -
15-Aug-13 Retail 961 Hendrik Verwoerd and 2nd Avenue, Nigel 6 840 602
Nigel
ABSA Bank -
15-Aug-13 Retail 3 411 3 Amanda Avenue, Lea Glen, Roodepoort 9 592 895
Amanda Lea
ABSA Bank -
15-Aug-13 Retail 777 42 Uerckermamn, Heidelberg 6 711 371
Heidelberg
ABSA Bank - Ben Swaart & Voortrekker Drive, Gezina,
15-Aug-13 Industrial 2 053 17 355 132
Gezina Pretoria North
723 788 172
Loans to participants of the unit purchase trust
Loans to the value of R53 million were made to participants of the loan purchase trust this year. The recipients include the
executive directors and staff of Arrowhead and are used to subscribe for units in Arrowhead. The loans bear interest at the
company's effective rate of borrowings and are secured by the units subscribed for.
Arrowhead Charitable Trust
The loan made to the trust was to subscribe for Arrowhead units, at market value. The loan bears interest equal to the
distributions paid on the units subscribed for. Units will be sold by the trust in due course, and the loan repaid, which will
create a capital base to be used by the trust to make donations to beneficiaries, which would include underprivileged
communities in areas where Arrowhead is invested.
Trade and other receivables
This includes trade receivables, deposits and payments in advance. The balance outstanding has decreased from the prior year as
a result of concerted efforts to collect monies outstanding. Just over approximately R1, 2 million has been written off this
year and a further R2,9 million has been provided for. The combined amounts are equivalent to 1% of revenue.
Cash and equivalents
The decrease in cash and cash equivalents is due to the capital raising exercise concluded in September 2012 to fund property
acquisitions in respect of which the cash consideration payable was discharged after year end.
Non - current assets held for sale
Offers have been received on certain buildings that are vacant. The buildings that are being held for sale represent a small
portion of the portfolio.
Debentures
The increase resulted from the issue of linked units during the year. In line with Arrowhead converting to a REIT, debentures
will be derecognised and will form part of equity.
Secured financial liabilities
This is the senior term funding from Standard Bank and has increased in line with the increase in investment properties. The
short term portion appearing under current liabilities in 2012 has been refinanced and is now maturing in March 2018.
Deferred taxation
An advantage of converting to a REIT is the tax certainty from an income perspective and being exempt from paying capital gains
tax. Accordingly deferred taxation has been derecognised this year.
PROSPECTS*
Property income
All leases in the property portfolio provide for annual rental escalations. After taking into account the renewal of expired
leases as well as letting of space where leases are not renewed, rental received on the existing portfolio should increase by
approximately 6%.
The vacancy percentage is expected to remain the same as at the year end and any reduction will increase the property income for
the year.
The 56 426m2 office component let to Government is expected to perform in line with the overall office portfolio.
Every effort will be made to improve the percentage of leases renewed as well as to lengthen the lease expiry profile, both of
which should have a beneficial effect on future rental growth.
Property and administrative expenses
Taking into account a satisfactory level of recoveries of municipal charges from tenants as well as a level of maintenance
deemed necessary to safeguard the rent producing capacity of every property in the portfolio, expenses are expected to increase
in line with revenue.
Interest paid
As a result of both fixing interest rates on the majority of Arrowhead's debt of R387 million and reducing interest rates on
Arrowhead's floating debt of R234 million.
Revenue enhancing acquisitions
It is the company's policy to only acquire properties only where the income generated by the property exceeds the cost of
capital and debt used to make the acquisition. The additional revenue earned from the purchases made in 2013 will enhance the
2014 distributions, as will the acquisitions made during the 2014 year, for the period after the purchases become rent
producing.
After 30 September 2013 Arrowhead has entered into an agreement for the purchase of a portfolio of residential properties. It is
the intention to grow the residential portfolio during 2014 to between R600 million and R1 billion, and the commercial portfolio
by a similar amount. The impact on distributions will depend on the yields at which the properties are acquired, the cost of
capital for these acquisitions and the dates when Arrowhead assumes the risk and benefits of ownership.
Projected 2014 earnings per combined unit.
For the 2014 year the portfolio of properties at 30 September 2013 is projected to produce distributions of R1, 25 per A and B
unit i.e an 11% growth on the R1, 13 paid for 2013. Acquisitions during 2014 will add an additional distribution of between two
to four cents per unit. Taking into account the prospects for the existing portfolio as well as the effect of new acquisitions,
distributions are expected to be between R1, 27 and R1, 29 per A and B unit for the 2014 year, an increase of between 12% and
14%.
* These projections have not been audited or reviewed by Grant Thornton.
Summary of financial performance
Audited year Audited year
ended 30 ended 30
September 2013 September
2012
Distribution per A-linked unit for the ten months ended 30 September 2012 (cents) - 50,00
Distribution per B-linked unit for the ten months ended 30 September 2012 (cents) - 33,82
Distribution / Annualised distribution per Alinked unit (cents) 60,00 60,00
Distribution / Annualised distribution per Blinked unit (cents) 53,01 40,58
Alinked units in issue 197 395 479 170 562 166
Blinked units in issue 197 395 479 170 562 166
Net asset value per A and B linked unit excluding deferred taxation (cents) 606 484
Net asset value per A and B linked unit (cents) 606 511
Loan to value ratio 23% 28%
^ Includes units issued to the Arrowhead Charitable Trust.
*Net asset value includes total equity attributable to equity holders and linked debentures.
**The loan to value ratio is calculated by dividing interest-bearing liabilities, excluding linked
debenture liabilities, by investment properties. Surplus cash is deposited into the company's
access debt facilities. At 30 September 2013, Arrowhead`s net borrowings of R718 million (2012 - R615 million)
translate to a gearing ratio of 23% (2012 28%).
Set out below are extracts from the annual financial statements for the year ended 30 September 2013.
Arrowhead's integrated report for the year ended 30 September 2013, containing a notice of annual
general meeting which is to be held at the company's offices at 10h00 on 15 January 2014 and
incorporating the audited annual financial statements for the year ended 30 September 2013, has
been posted to linked unitholders today and is available in hard copy from Arrowhead's offices at 2nd
floor, 18 Melrose Boulevard, Melrose Arch, or in electronic form at the company's website,
www.arrowheadproperties.co.za.
The last day to trade in order to be eligible to participate in and vote at the annual general meeting is Tuesday,
24 December 2013 and the record date for voting purposes is Friday, 3 January 2014.
Payment of distributions for the quarter ended 30 September 2013
As announced on SENS on 13 November 2013, the Board has approved the interest distributions
(distribution number 8) of 15,00 cents per A-linked unit and 14,33 cents per B-linked unit for the
quarter ended 30 September 2013 in accordance with the abbreviated timetable set out below:
2013
Last date to trade cum distribution Friday, 29 November
Linked units trade ex distribution Monday, 2 December
Record date Friday, 6 December
Payment date Monday, 9 December
Linked unit certificates may not be dematerialised or rematerialised between Monday, 2 December 2013
and Friday, 6 December 2013, both days inclusive.
Basis of preparation
The abridged consolidated audited results for the year ended 30 September 2013 have been audited by the company`s independent
auditors, Grant Thornton. These results have been prepared in accordance with the requirements
of International Financial Reporting Standards, SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Reporting Pronouncements as issued by the Financial Standards Council , IAS 34: Interim
Financial Reporting, the JSE Listings Requirements and the requirements of the South African Companies
Act,2008. These results have been prepared under the supervision of Imraan Suleman CA(SA), Arrowhead's
Chief Financial Officer and is the responsibility of the board of directors.
This abridged report is extracted from audited information, but is not itself audited and the financial information has been
correctly extracted from the audited information.
The accounting policies adopted are consistent with those applied in the prior period Other than the adoption of the revised IAS
1 and IAS 12
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
30 September 30 September 30 September 30 September
2013 (Group) 2012 (Group) 2013 (Company) 2012 (Company)
R'000 R'000 R'000 R'000
Rental income 423 246 259 735 423 246 259 735
Straight line rental income accrual 20 467 10 490 20 467 10 490
Total revenue 443 714 270 225 443 714 270 225
Property expenses (147 464) (92 567) (147 464) (92 567)
Administration and corporate cost (14 928) (14 310) (14 928) (14 310)
Sign on bonuses - (13 545) - (13 545)
Net operating profit 281 320 149 802 281 320 149 802
Changes in fair values 152 056 231 377 152 056 231 377
Profit from operations 433 376 381 179 433 376 381 179
Loan facility interest (54 810) (53 746) (54 810) (53 746)
Amortisation of debenture interest 44 391 21 840 45 903 21 840
Finance income 12 338 25 784 17 525 25 784
Profit before debenture interest and taxation 435 296 375 057 441 994 375 057
Debenture interest (218 381) (128 531) (223 567) (128 531)
Profit before taxation 216 915 246 525 218 426 246 525
Taxation 93 722 (58 022) 93 722 (58 022)
Total comprehensive income for the year attributable 310 637 188 503 312 149 188 503
to equity holders - - - -
Reconciliation of earnings, headline earnings and 310 637 188 503 312 149 188 503
distributable earnings
Debenture interest 218 381 128 532 223 567 128 532
Earnings 529 018 317 034 535 716 317 034
Changes in fair value of properties (net of deferred (235 365) (187 970) (235 365) (187 970)
taxation)
Deferred tax CGT rate adjustment - 12 137 - 12 137
Headline profit attributable to linked unit holders 293 652 141 201 300 350 141 201
Straight line rental income accrual (net of deferred (23 405) (7 553) (23 405) (7 553)
taxation)
Deferred taxation other adjustment 459 (459) 459 (459)
Sign on bonus for directors - 13 545 - 13 545
Finance charges on finance lease liability - 3 637 - 3 637
Other fair value movement (7 934) - (7 934) -
Amortisation of debenture premium (44 391) (21 840) (45 903) (21 840)
Distributable earnings attributable to linked unit 218 381 128 531 223 567 128 531
holders
Number of A-linked units in issue 197 395 170 562 206 395 170 562
Number of B-linked units in issue 197 395 170 562 206 395 170 562
Total number of linked units 394 790 341 124 412 790 341 124
Weighted average number of A-linked units in issue 187 705 92 317 192 956 92 317
Weighted average number of B-linked units in issue 187 705 92 317 192 956 92 317
Basic and diluted earnings per A-linked unit (cents) 145,17 182,49 142,31 182,49
Basic and diluted earnings per B-linked unit (cents) 138,02 160,93 135,32 160,93
Headline and diluted headline earnings per A-linked 82,48 87,26 81,32 87,26
unit (cents)
Headline and diluted headline earnings per B-linked 75,32 65,69 74,33 65,69
unit (cents)
CONDENSED STATEMENT OF FINANCIAL POSITION
Audited Audited Audited Audited
30 September 30 September 30 September 30 September
2013 2012 2013 2012
Group Group Company Company
ASSETS
Non - current assets 3 162 189 2 228 916 3 296 199 2 228 916
Investment property 3 101 410 2 222 209 3 101 410 2 222 209
Property, plant and equipment 494 833 494 833
Loans to participants of Arrowhead Unit Purchase trust 52 606 5 873 52 606 5 873
Loans to Arrowhead Charitable Trust - - 134 010 -
Derivative instruments 7 678 - 7 678 -
Current assets 43 887 216 695 43 887 216 695
Trade and other receivables 18 503 26 559 18 503 26 559
Cash and cash equivalents 25 384 190 136 25 384 190 136
Non - current assets held for sale 12 000 13 952 12 000 13 952
Total assets 3 218 077 2 459 563 3 352 087 2 459 563
EQUITY AND LIABILITIES
Shareholders' interest 500 906 190 268 502 417 190 268
Stated capital
Reserves 500 906 190 268 502 417 190 268
Non - current liabilities debentures 1 890 588 1 460 144 2 023 087 1 460 144
Linked unit holders' interest 2 391 495 1 650 413 2 525 505 1 650 413
Other non current liabilities 718 058 539 419 718 058 539 419
Secured financial liabilities 718 058 445 697 718 058 445 697
Deferred taxation - 93 722 - 93 722
Current liabilities 108 524 269 730 108 524 269 730
Trade and other payables 47 988 57 853 47 988 57 853
Secured financial liabilities - 167 494 - 167 494
Unit holders for distribution 60 535 44 382 60 535 44 382
Total equity and liabilities 3 218 077 2 459 563 3 352 087 2 459 563
CONDENSED STATEMENT OF CHANGES IN EQUITY
COMPANY
Stated Reserves
Capital
R'000 R'000
Balance at 5 January 2011 - -
Issue of shares - -
Total comprehensive income for the year - 1 765
Balance at 30 September 2011 - 1 765
Total comprehensive income for the year - 188 503
Balance at 30 September 2012 - 190 268
Total comprehensive income for the year - 312 149
Balance at 30 September 2013 - 502 417
Group
Stated Reserves
Capital
R'000 R'000
Balance at 5 January 2011 - -
Issue of shares - -
Total comprehensive income for the year - 1 765
Balance at 30 September 2011 - 1 765
Total comprehensive income for the year - 188 503
Balance at 30 September 2012 - 190 268
Total comprehensive income for the year - 310 637
Balance at 30 September 2013 - 500 906
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited Audited Audited
30 September 30 September 30 September 30 September
2013 2012 2013 2012
Group Group Company Company
Cash inflow from operating activities 20 821 65 927 20 821 65 927
Cash outflows from investing activities (543 849) (307 550) (543 849) (307 550)
Cash inflows from financing activities 358 276 429 952 358 276 429 952
Net movement in cash and cash equivalents (164 752) 188 330 (164 752) 188 330
Cash and cash equivalents at the beginning of the year 190 136 1 806 190 136 1 806
Cash and cash equivalents at the end of the year 25 384 190 136 25 384 190 136
Segment reporting
GROUP
Gauteng KZN Eastern Cape Other Total
R'000 R'000 R'000 R'000 R'000
Revenue Property income 255 657 65 344 39 677 62 568 423 246
Straight line rental income accrual 14 395 2 106 1 080 2 884 20 467
Property expenses (99 584) (20 766) (8 299) (33 744) (162 393)
Operating income 170 468 46 684 32 459 31 708 281 320
Finance income 278 92 6 11 962 12 338
Amortisation of debenture premium - - - 44 392 44 392
Finance costs (7) (4) (154) (54 645) (54 810)
Net operating income 170 739 46 772 32 311 33 416 283 240
Fair value adjustment 93 583 21 229 7 997 29 245 152 056
Reportable segment profit before 264 322 68 002 40 308 62 662 435 296
debenture interest and tax
Debenture interest - - - (218 381 (218 381)
Taxation - - - 93 722 93 722
Reportable segment profit after 264 322 68 002 40 308 (61 996) 310 637
debenture interest and tax
Reportable segment assets 2 277 768 485 377 322 428 132 502 3 218 077
Reportable segment liabilities (24 152) (6 620) (1 796) (2 684 601) (2 717 171)
By order of the Board
13 November 2013
Directors: T Adler* (Chairperson), G Leissner (CEO), I Suleman(CFO),
M Kaplan (COO), M Nell*, S Noik*, E Stroebel*
* Independent non-executive
All directors are South African
Registered office: 18 Melrose Boulevard, Melrose Arch
Transfer secretaries: Computershare Investor Services Proprietary Limited
Sponsor: Java Capital Sponsors and Trustees Proprietary Limited
Company secretary: Probity Business Services Proprietary Limited
Website: www.arrowheadproperties.co.za
Date: 13/11/2013 11:06:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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