Wrap Text
Unaudited results for the six months ended 31 March 2014
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
(Approved as a REIT by the JSE)
(“Arrowhead” or “the company”)
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2014
- Distribution of 32,38 cents (2013-28,04 cents) for the quarter ended 31 March 2014 per combined A and B linked unit, growth
equivalent to 15,48% quarter on quarter and distribution of 62,58 cents (2013–55,14 cents) for the six months ended
31 March 2014 per combined A and B linked unit, equivalent to growth of 13,49 % six months on six months.
- Core property growth of 6,94% for the six months ended 31 March 2014 compared to the six months ended 31 March 2013.
- Assets increased from R3, 1 billion at 30 September 2013 to R4,6 billion at 31 March 2014 and market capitalisation
increased from R2,8 billion to R4,4 billion.
CAPITAL
Arrowhead is a Real Estate Investment Trust (REIT) 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 is 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.
Financial performance for the six months ended 31 March
2014 2013
R R
Rental income including recoveries (excluding straight line rental income) 270 456 344 193 844 211
Listed property securities income 12 686 747 -
Property expenses (92 481 415) (65 333 126)
Administration and corporate costs (11 881 409 (8 089 378)
Finance expenses (34 516 039) (24 861 236)
Finance income 43 282 357 8 561 056
- Antecedent interest 27 769 595 5 928 794
- Interest received 15 512 762 2 632 262
Distributable income 187 548 585 104 121 527
Distribution for the quarter ended 31 December 2013 87 565 841 48 780 295
Distribution for the quarter ended 31 March 2014 99 982 744 55 341 233
Cents Cents
Distribution for the quarter ended 31 December 2013 30,20 27,10
Distribution for the quarter ended 31 March 2014 32,38 28,04
62,58 55,14
COMMENTARY
Rental Income
Revenue includes rental income and expenditure that is recoverable from tenants.
Revenue has increased during the period as the full effect of the acquisitions concluded during the previous financial year,
together with the partial impact of acquisitions concluded during this period and annual escalations to the existing leases are
taken into account.
The occupancy rate within the portfolio as at 31 March 2014 is 92%.
Listed property securities income
The listed property securities income is in respect of the distribution earned on the Vividend Income Fund Limited (“Vividend”)
units held by Arrowhead.
Property expenses
Property expenses have increased in line with the enlarged portfolio. The ratio of gross property expenses to revenue has
remained constant at around 34%. The recovery of municipal expenses has increased to 91% (2013: 87%) as the processing of
recoveries becomes more efficient.
Finance income
Finance income includes 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 linked units issued to fund the acquisition of properties where the linked 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. 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 linked units
subscribed for by the Arrowhead Charitable Trust.
ACTIVITY DURING THE SIX MONTHS ENDING 31 MARCH 2014
ACQUISITION OF INVESTMENT PROPERTIES
Commercial, industrial and retail property acquired from 1 October 2013 to 31 March 2014.
Net Effective Purchase Price
Property Name yield Sector GLA (m2) Address date R
MCG Building 11.00% Industrial 18 558.00 Malvern, Johannesburg 2014/01/28 53 236 000
Cnr Drome and Pretoria Roads,
Lyndhurst Spar Retail
10.50% 7 625.88 Lyndhurst 2014/02/27 60 000 000
Lynwood
Buildings 12.50% Commercial 6 655.43 Lynwood Glen, Pretoria 2013/10/28 65 600 000
Sasol Building 15.00% Commercial 13 350.00 1 Sturdee Avenue, Rosebank 2014/02/01 250 000 010
Urban Brew 11.00% Commercial 9 804.00 274 Kent Ave, Ferndale, Randburg 2014/01/14 106 362 060
535 198 070
DISPOSALS
Arrowhead sold the Education Building in King Williams Town for R2,750 million. The building had been vacant since acquisition
in September 2011.
Residential property acquired
Purchase Net Effective
Property price yield Sector Units Address date
Honeypark R150 000 000 12.0% Residential 333 Honeypark, Johannesburg 2014/02/01
Listed property securities acquired
Purchase Arrowhead
REIT name price number of Total number of % of listed
R units units in issue REIT Effective date
Vividend 433 443 613 84 966 285 268 331 688 31,66 2013/12/13
Dipula B 252 459 422 34 543 497 156 046 243 22,14* 2014/03/18
685 903 035
*22,14% of the Dipula B units translate to 11,07% of Dipula’s total units in issue.
In addition to the listed property securities acquired Arrowhead concluded an agreement for the acquisition of the Vividend
Management Company for a purchase consideration of R88,6 million.
Commercial, industrial and retail property acquired subsequent to quarter ended 31 March 2014
Net
Property Purchase price yield Sector GLA (m2) Address
Bedfordview R 73 000 000 11.0% Office 9098 Bedfordview, Johannesburg
Residential property acquired subsequent to 31 March 2014
Net
Property Purchase price yield Sector Units Address Effective date
Jika portfolio R 305 150 889 10.0% Residential 1001 Various JHB Various in April and May 2014
Arrowhead is implementing the transfer of the remaining four properties in the Jika portfolio with an aggregating value of R61
million.
CAPITAL RAISING
Arrowhead concluded an accelerated book build on 23 January 2014. It was oversubscribed at a discount of just over 3% to the
closing price on the day prior to the book build. The amount raised was increased from R400 million to R490 million as a result
of the high demand.
UPDATE ON VIVIDEND TRANSACTION
On 1 April 2014, Arrowhead announced that Vividend and Arrowhead have entered into an implementation agreement in terms of which
Arrowhead confirmed its firm intention to make an offer to acquire all the issued linked units in Vividend which it does not
already own by means of one or more indivisibly linked schemes of arrangement (the “Scheme”) in terms of section 114 of the
Companies Act 71 of 2008, as amended or, if the conditions to which the Scheme is subject are not fulfilled, or where applicable
waived, by means of a voluntary general offer extended to all Vividend linked unitholders (the “Proposed Transaction”).
The Proposed Transaction requires the approval of Arrowhead linked unitholders in general meeting. Subject to the requisite
approvals being received from the JSE for the posting of such circular, a circular to Arrowhead linked unitholders providing the
requisite details of the Proposed Transaction and convening a meeting of Arrowhead linked unitholders to consider and vote on
the Proposed Transaction is expected to be posted to Arrowhead linked unitholders during the last week of May 2014.
SECURED FINANCIAL LIABILITIES
TERM FACILITIES
Maturity Capital
R
September 2016 387 284 437
September 2016 92 715 563
September 2017 80 944 949
March 2018 242 879 438
March 2018 70 000 000
TOTAL EXPOSURE 873 824 387
The loans of R873 million (2013: R575 million) measured against investment properties valued at carrying value of R3, 8 billion
(2013: R2,7 billion) represents a loan to value of 23% (2013: 21%). R648 284 437 of the total R873 824 387 was fixed at 31
March 2014 which equates to 74% of the total borrowings at that date. Subsequent to 31 March 2014 Arrowhead entered into further
interest rate swaps hedging in excess of 90% of outstanding debt. 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 six months ended 31 March 2014 is 8,28%.
The interest rates on more than 90% of the debts have been fixed at between 9,37% and 9,58%.
PROPERTY PORTFOLIO
By Sector
Sector Value (R) Value % m2 %Let
Commercial 1 817 421 693 48 214 349 88
Retail 1 303 757 874 35 178 424 92
Industrial 516 476 255 14 171 444 97
Residential 150 000 000 3 22 457 100
Total 3 787 655 822 100 586 674 92
By Region
Region Value (R) Value % m2 %Let
Gauteng 1 840 354 323 48 285 681 95
E.Cape 268 590 092 7 35 301 92
W.Cape 219 347 500 6 39 870 89
Limpopo 207 192 306 5 30 615 90
Mpumalanga 156 160 547 4 32 200 88
F.State 10 774 000 1 11 212 100
KZN 401 652 884 11 68 931 85
N. Cape 200 591 279 5 30 739 89
N. West 482 992 891 13 52 125 95
Total 3 787 655 822 100 586 674 92
NET INCOME GROWTH ON PROPERTIES OWNED 1 OCTOBER 2012 AND STILL OWNED ON 31 MARCH 2014
Description Actuals - 6 Months Actuals - 6 Months % Growth
31 March 2014 31 March 2014
Rental Income 141 329 046 130 090 369 9%
Recoveries 46 529 675 38 951 645 19%
Property Expenses (68 470 725) (57 402 085) 19%
Net Operating Income 119 387 996 111 639 929 6.94%
GOVERNMENT PORTFOLIO
Government revenue as a percentage of total revenue
Revenue %
Government revenue 14
Other revenue 86
Government revenue as a percentage of total commercial sector
Revenue %
Government revenue 24
Other revenue 76
RESIDENTIAL PORTFOLIO
In South Africa, listed residential property represents less than 1% of the listed sector’s market capitalisation.
In other international listed property sectors the investment is as high as 15%. Entry level housing for rent is a low risk
investment for an income fund. A strong demand for residential stock, within the listed sector will provide existing or
potential developers of new residential stock with a suitable exit strategy in order to develop further stock. This should
benefit the supply of housing in South Africa. Arrowhead’s target is a R2 billion residential portfolio within the next 18
months. Carel de Wit has been appointed to head up the operations for the residential portfolio. Carel spent 7 years at the
Johannesburg Housing Company as Operations Manager, managing approximately 4 300 residential units.
Residential property fits perfectly into the Arrowhead model for the following reasons:
- Revenue enhancing acquisitions are available.
- Lower risk because of greater number of small tenants.
- Ability to raise equity and loan capital on residential assets.
- Arrowhead has the capability and experience to assume the increased management requirements.
MANAGEMENT TEAM
An additional asset manager, a legal resource and senior residential asset manager were appointed during the period under
review.
Gerald Leissner’s contract has been extended to 31 March 2017 and Mark Kaplan and Imraan Suleman to 31 March 2019.
PROSPECTS
The distribution for the six months ended 31 March 2014 is 13,49% higher than the comparable six months ended 31 March 2013.
Based on the acquisitions concluded to date and the performance of the existing portfolio, management expects to achieve a
distribution per combined A and B linked unit for the year ended 30 September 2014 of R1,32 namely 16,8% growth on the
distribution to 30 September 2013.
These projections have not been audited or reviewed by Grant Thornton.
Summary of financial performance for six months ended:
Unaudited
Unaudited six six months
months ended ended 31
31 March 2014 March 2013
Distribution per A linked unit for six months ended 31 March 2014 (2013)(cents) 31, 29 30,00
Distribution per B linked unit for six months ended 31 March 2014 (2013)(cents) 31, 29 25,14
A linked units in issue 308 779 320 206 395 479
B linked units in issue 308 779 320 206 395 479
Net asset value per A and B linked unit excluding deferred taxation (cents) 1258,61 1075,18
Net asset value per A and B linked unit (cents) 1258,61 1029,77
Gearing ratio 23% 21%
Net asset value includes total equity attributable to equity holders and linked debentures.
The gearing 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 31 March 2014, Arrowhead`s net borrowings of R872 million (2013 – R575 million)
translate to a gearing ratio of 23% (2013 – 21%).
PAYMENT OF DISTRIBUTIONS FOR THE QUARTER ENDED 31 MARCH 2014
In accordance with Arrowhead’s status as a REIT, linked unitholders are advised that the distribution of 16.19 cents per A and B
linked units respectively meets the requirements of a “qualifying distribution” for the purposes of section 25BB of the Income
Tax Act, No. 58 of 1962 (“Income Tax Act”). The distribution on the linked units will be deemed to be a dividend, for South
African tax purposes, in terms of section 25BB of the Income Tax Act.
The distribution received by or accrued to South African tax residents must be included in the gross income of such linked
unitholders and will not be exempt from income tax (in terms of the exclusion to the general dividend exemption, contained in
paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act) because it is a dividend distributed by a REIT. This distribution
is, however, exempt from dividend withholding tax in the hands of South African tax resident linked unitholders, provided that
the South African resident linked unitholders provided the following forms to their Central Securities Depository Participant
(“CSDP”) or broker, as the case may be, in respect of uncertificated linked units, or the company, in respect of certificated
linked units:
- a declaration that the distribution is exempt from dividends tax; and
- a written undertaking to inform the CSDP, broker or the company, as the case may be, should the circumstances affecting
the exemption change or the beneficial owner cease to be the beneficial owner, both in the form prescribed by the
Commissioner for the South African Revenue Service. Linked unitholders are advised to contact their CSDP, broker or the
company, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the
distribution, if such documents have not already been submitted.
Distributions received by non-resident linked unitholders will not be taxable as income and instead will be treated as an
ordinary dividend which is exempt from income tax in terms of the general dividend exemption in section 10(1)(k)(i) of the
Income Tax Act. It should be noted that up to 31 December 2013 distributions received by non-residents from a REIT were not
subject to dividend withholding tax. From 1 January 2014, any distribution received by a non-resident from a REIT will be
subject to dividend withholding tax at 15%, unless the rate is reduced in terms of any applicable agreement for the avoidance of
double taxation (“DTA”) between South Africa and the country of residence of the linked unitholders. Assuming dividend
withholding tax will be withheld at a rate of 15%, the net dividend amount due to non-resident linked unitholders is 13,7615
cents per A and B linked unit respectively. A reduced dividend withholding rate in terms of the applicable DTA, may only be
relied on if the non-resident linked unitholder has provided the following forms to their CSDP or broker, as the case may be, in
respect of uncertificated linked units, or the company, in respect of certificated linked units:
- a declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and
- a written undertaking to inform their CSDP, broker or the company, as the case may be, should the circumstances affecting
the reduced rate change or the beneficial owner cease to be the beneficial owner, both in the form prescribed by the
Commissioner for the South African Revenue Service. Non-resident linked unitholders are advised to contact their CSDP,
broker or the company, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of
the distribution if such documents have not already been submitted, if applicable.
The Board has approved the interest distributions (distribution number 10) of 16,19 cents per A-linked unit and 16,19 cents per
B-linked unit for the quarter ended 31 March 2014 in accordance with the abbreviated timetable set out below:
2014
Last date to trade cum distribution Friday, 30 May
Linked units trade ex distribution Monday, 2 June
Record date Friday, 6 June
Payment date Monday,9 June
Linked unit certificates may not be dematerialised or rematerialised between Monday, 2 June 2014
and Friday, 6 June 2014], both days inclusive.
Income Tax number: 9779/439/15/8
BASIS OF PREPARATION
The results for the six months ended 31 March 2014 have not been audited or reviewed by the company`s independent auditors. The
financial statements have been prepared in accordance with the requirements of International Financial Reporting Standards, the
SAICA Financial Reporting Guide as issued by the Accounting Practices Committee or its successor and Financial Pronouncements as
issued by the Financial Reporting 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,
Arrowhead’s Chief Financial Officer.
The accounting policies adopted are consistent with those applied in the prior period.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
31 March 2014 31 March 2013
R R
Rental income 270 456 344 193 844 211
Listed property securities income 12 686 747 -
Straight line rental income accrual 12 535 275 9 774 170
Total revenue 295 678 366 203 618 381
Property expenses (92 481 415) (65 333 126)
Administration and corporate cost (11 881 409) (8 089 378)
Net operating profit 191 317 542 130 195 877
Changes in fair values - (9 774 170)
Profit from operations 191 317 542 120 421 707
Loan facility interest (34 516 039) (24 861 236)
Amortisation of debenture interest 39 207 109 20 393 600
Finance income 43 282 357 8 561 056
- Antecedent interest 27 769 595 5 928 794
- Interest received 15 512 762 2 632 262
Profit before debenture interest and taxation 239 290 970 124 515 127
Debenture interest (187 548 585) (104 121 527)
Profit before taxation 51 742 385 20 393 600
Total comprehensive income for the year attributable 51 742 385 20 393 600
to equity holders
Reconciliation of earnings, headline earnings and
distributable earnings
Debenture interest 187 548 585 104 121 527
Earnings 239 290 970 124 515 127
Changes in fair value of properties - 9 774 170
Deferred tax – CGT rate adjustment - -
Headline profit attributable to linked unitholders 239 290 970 134 289 297
Straight line rental income accrual (net of deferred (12 535 275) (9 774 170)
taxation)
Amortisation of debenture premium (39 207 109) (20 393 600)
Distributable earnings attributable to linked unit 187 548 585 104 121 527
holders
Number of A linked units in issue 308 779 320 206 395 479
Number of B linked units in issue 308 779 320 206 395 479
Total number of linked units 617 558 640 412 790 958
Weighted average number of A linked units in issue 245 959 460 178 898 154
Weighted average number of B linked units in issue 245 959 460 178 898 154
Basic and diluted earnings per A linked unit (cents) 48,64 37,85
Basic and diluted earnings per B linked unit (cents) 48,64 34,25
Headline and diluted headline earnings per A linked 48,64 40,82
unit (cents)
Headline and diluted headline earnings per B linked 48,64 34,25
unit (cents)
CONDENSED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited
31 March 31 March
2014 2013
ASSETS R R
Non - current assets 4 862 728 417 2 822 699 042
Investment property 3 802 919 335 2 761 570 217
Property, plant and equipment 325 402 665 582
Loans to participants of Arrowhead Unit Purchase Trust 143 291 887 60 463 243
Loans to Arrowhead Charitable Trust 134 010 000 -
Investment in Vividend 433 443 613 -
Investment in Vividend MANCO 88 600 000 -
Investment in Dipula 252 459 422 -
Derivative instruments 7 678 759 -
Current assets 39 092 688 74 463 551
Trade and other receivables 9 919 585 10 413 851
Cash and cash equivalents 29 173 103 64 049 700
Total assets 4 901 821 106 2 897 162 593
EQUITY AND LIABILITIES
Shareholders interest 554 160 236 210 662 372
Stated capital 141 100
Reserves 554 160 095 210 662 272
Non - current liabilities – debentures 3 332 154 628 1 914 741 423
Linked unitholders interest 3 886 314 864 2 125 403 795
Other non – current liabilities 872 140 130 668 814 528
Secured financial liabilities 872 140 130 575 092 364
Deferred taxation - 93 722 164
Current liabilities 143 366 112 102 944 270
Trade and other payables 43 383 462 47 525 521
Unitholders for distribution 99 982 650 55 418 749
Total equity and liabilities 4 901 821 106 2 897 162 593
CONDENSED STATEMENT OF CHANGES IN EQUITY
Stated Capital Reserves
R R
Balance at 30 September 2012 134 190 268 672
Issue of shares 7 -
Total comprehensive income for the year - 312 149 039
Balance at 30 September 2013 141 502 417 711
Total comprehensive income for the period - 51 742 384
Balance at 31 March 2014 141 554 160 095
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
31 March 31 March
2014 2013
R R
Cash flow from operating activities 43 596 998 16 946 726
Cash outflows from investing activities (646 674 318) (359 089 019)
Cash inflows from financing activities 606 866 378 216 055 398
Net movement in cash and cash equivalents 3 789 058 (126 086 895)
Cash and cash equivalents at the beginning of the year 25 384 045 190 136 596
Cash and cash equivalents at the end of the year 29 173 103 64 049 701
Investment properties
Investment properties have not been revalued as at 31 March 2014, as the directors believe there has been no material change
since 30 September 2013. Investment properties will be revalued at 30 September 2014.
Loans to participants of the Arrowhead Unit Purchase Trust
Loans to the value of R143 million were made to participants of the Arrowhead Unit Purchase Trust. The recipients include the
executive directors and staff of Arrowhead and are used to subscribe for linked units in Arrowhead. The loans bear interest at
the company’s effective rate of borrowings and are secured by the linked units subscribed for.
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.
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.
Deferred taxation
An advantage of converting to a REIT is the tax certainty from a distribution perspective and being exempt from paying capital
gains tax. Accordingly deferred taxation has been derecognised.
SEGMENTAL REPORTING
Gauteng KZN Eastern Cape Residential Other Total
R R R R R R
Revenue – Property income 180 903 489 32 880 319 20 202 495 3 984 312 32 485 730 270 456 344
Listed property securities income - - - - 12 686 747 12 686 747
Straight line rental income
accrual - - - - 12 535 275 12 535 275
Property expenses (63 763 976) (12 392 839) (5 116 159) (29 882) (23 059 968) (104 362 824)
Operating income 117 112 467 20 488 374 15 086 337 3 954 429 34 673 935 191 315 542
Finance income 146 156 25 591 8 637 - 43 101 973 43 282 375
- Antecedent interest - - - - 27 769 595 27 769 595
- Interest income 146 156 25 591 8 637 - 15 332 378 15 512 762
Amortisation of debenture premium - - - - 39 207 109 39 207 109
Finance cost (7 741) - (4 508) - (34 503 791) (34 516 039)
Net operating income 117 250 883 20 513 965 15 092 466 3 954 429 82 479 226 239 290 970
Fair value adjustment - - - - - -
Reportable segment profit before 117 250 883 20 513 965 15 092 466 3 954 429 82 479 226 239 290 969
debenture interest and tax
Debenture interest - - - - (187 548 585) (187 548 585)
Taxation - - - - - -
Reportable segment profit after 117 250 883 20 513 965 15 092 466 3 954 429 (105 069 359) 51 742 385
debenture interest and tax
Reportable segment assets 2 939 220 948 511 724 124 336 055 548 152 008 090 962 347 751 4 901 356 461
By order of the Board
12 May 2014
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
Company secretary: Probity Business Services Proprietary Limited
Website: www.arrowheadproperties.co.za
Date: 12/05/2014 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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