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Abridged consolidated audited results for the year ended 30 September 2016
Arrowhead Properties Limited
(Incorporated in the Republic of South Africa)
(Registration number 2011/000308/06)
JSE share code: AWA ISIN: ZAE000203105
(Approved as a REIT by the JSE)
("Arrowhead" or "the company")
ABRIDGED CONSOLIDATED AUDITED RESULTS
for the year ended 30 September 2016
Dividend growth of 9,85% to 82,55 cents per share
Forecast dividend growth of between 6,0% and 8,0% per share for 30 September 2017
5 years of superior dividend growth
Strong balance sheet, LTV of 27,5%
Core property portfolio growth of 6,1% and 7,9% with the effect of gearing
NATURE OF BUSINESS
Arrowhead is a Real Estate Investment Trust ("REIT") holding a diverse portfolio of direct office, retail and
industrial properties. In addition, as at 30 September 2016, Arrowhead held a 60,1% holding (2015: 70,2%) in
its subsidiary, Indluplace Properties Limited ("Indluplace"), which owns a portfolio of residential properties, an
interest of 19,0% in Rebosis Property Fund Limited ("Rebosis") as well as a 11,5% interest in Dipula Income Fund
Limited ("Dipula"). The reduction in shareholding in Indluplace is as a result of Arrowhead not participating in the
Indluplace capital raise in proportion to its shareholding in October 2015. The total property portfolio, located in all
provinces of South Africa, is valued at R10,0 billion.
The company's 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, letting of vacant space
within the property portfolio, managing and reducing, where possible, costs associated with the property portfolio
and by acquiring revenue enhancing properties and investments in other REITs.
CONDENSED consolidated financial performance
FOR THE YEAR ENDED 30 SEPTEMBER 2016
R'000 2016 2015
Revenue (excluding straight line rental income) 1 531 560 1 217 913
Listed securities income 71 770 19 115
Property expenses (567 968) (411 883)
Administration and corporate costs (38 094) (31 130)
Finance charges (237 292) (219 679)
Finance income 53 360 32 650
Non-controlling interest profits elimination (net of antecedent income) (85 355) (16 688)
Distributable income 727 981 590 298
Antecedent income 31 586 21 169
Antecedent income - subsidiary 2 316 -
Accrued distribution on listed securities 67 646 22 587
Listed securities income recognised in previous reporting period (19 795) -
Total dividend 809 734 634 054
Dividend to the Arrowhead Charitable Trust* 25 620 11 749
Total dividend after effects of Arrowhead Charitable Trust 835 354 645 803
* Dividend to the Arrowhead Charitable Trust is added back as it is eliminated on consolidation
Property expenses as a percentage of revenue - gross 37% 34%
Property expenses as a percentage of revenue - net 15% 13%
Dividend for the quarter ended 31 December 198 995 156 374
Dividend for the quarter ended 31 March 207 894 157 681
Dividend for the quarter ended 30 June 214 155 165 457
Dividend for the quarter ended 30 September^ 214 310 166 291
Total dividend (cents) 835 354 645 803
Dividend per share (cents) for the quarter ended 31 December# 20,03 18,55
Dividend per share (cents) for the quarter ended 31 March# 20,76 18,70
Dividend per share (cents) for the quarter ended 30 June# 20,87 18,90
Dividend per share (cents) for the quarter ended 30 September# ^ 20,89 19,00
Total dividend (cents) 82,55 75,15
Net asset value per share (cents) 895,22 870,22
# In the prior year, Arrowhead's linked unit capital structure was converted into an ordinary share structure comprising of
A- and B-ordinary shares. Subsequently, the B-ordinary shares were converted into A-ordinary shares which were then reclassified as
ordinary shares. Shareholders' distributions have not been affected by the reclassification as the net income distributions to
A- and B-ordinary shareholders were the same.
^ The dividend was declared on 15 November 2016.
COMMENTARY
REVENUE
Revenue includes rental income and expenditure that is recoverable from tenants.
The substantial increase in revenue is due to the full effect of the acquisitions concluded during the previous financial year,
annual escalations to existing leases and partially the impact of acquisitions concluded during the current financial year. In the
current financial year, Arrowhead acquired Cleary Park in Port Elizabeth for R466,0 million and also acquired the remaining 10,0%
in Access Park for R79,7 million. Indluplace acquired R640,0 million worth of residential property.
At 30 September 2015, Arrowhead owned 157 properties directly and 95 residential properties indirectly. At 30 September 2016, Arrowhead
owned 154 properties by value (retail 47,0%, offices 41,0% and industrial 12,0%) and 116 residential properties both directly and indirectly.
Arrowhead sold four properties during the year for a value of R126,4 million which reduced the number of properties from 158 to 154. The
average gross monthly rental per m² per sector is R114 for retail, R116 for office and R39 for industrial. Vacancies have slightly increased
from 7,3% at 30 September 2015 to 7,8% at 30 September 2016 (retail 7,8%, office 9,4% and industrial 5,5%).
During the year under review, 194 736m² of gross lettable area ("GLA") in the property portfolio expired, of which 76,0% was renewed. Average
rental escalations of 8,11% have been achieved on lease renewals across the property portfolio and the average lease profile across the portfolio
is 3,76 years. Positive reversions in all sectors: retail 8,75%, office 4,68%, and industrial 11,25%, partially effected by the grossing up of
rates recoveries into gross rental.
12 - MONTH LETTING REPORT (excluding residential portfolio)
Total Let Vacant Let Vacant
(m2) (m2) (m2) (%) (%)
As at 1 October 2015 886 775 822 287 64 488 93 7
Acquisitions 36 294 34 650 1 644
Disposals (16 494) (11 268) (5 226)
Net adjustments (1 426) (1 382) (44)
Adjusted totals 905 149 844 287 60 862 93 7
Net (loss)/gain - (9 144) 9 144
As at 30 September 2016 905 149 835 143 70 006 92 8
LISTED SECURITIES INCOME
Listed securities income comprises income received on shares held in Dipula and Rebosis. During the current financial year Arrowhead identified
an opportunity to acquire a meaningful investment in Rebosis, a listed REIT, with its sought after portfolio of properties. This investment was
made on a revenue enhancing basis for Arrowhead. This accounts for the large increase in listed securities income.
In this reporting period, Arrowhead has recognised the anticipated dividends received in respect of Dipula and Rebosis in the form of an adjustment
in the distributable earnings reconciliation.
OPERATING COSTS
TOTAL TOTAL
R'000 2016 (%) 2015 (%)
Municipal expenses 352 855 62 268 968 66
Property management 50 075 9 37 591 9
Security 31 267 6 20 177 5
Repairs and maintenance 22 738 4 17 665 4
Letting commission 11 009 2 7 854 2
Cleaning 16 419 3 12 502 3
Insurance 6 385 1 5 033 1
Other 77 220 13 42 093 10
Total 567 968 100 411 883 100
Municipal expenses have increased in line with the increased revenue. The gross expense to income ratio has increased from 34,0% to 37,0% while
the net expense to income ratio increased from 13% to 15%. This is within expectations and is largely as a result of a change in the mix of the
property portfolio.
ADMINISTRATION COSTS AND CORPORATE COSTS
TOTAL TOTAL
R'000 2016 (%) 2015 (%)
Salaries 24 434 64 18 465 59
Professional service fees 6 859 18 4 923 16
Other 6 801 18 7 742 25
Total 38 094 100 31 130 100
The largest contributor to administration costs is salaries, which has increased mainly as a result of the additional headcount in Indluplace.
Indluplace salaries is included for a full financial year, compared to only three months in the prior year.
FINANCE CHARGES
TOTAL TOTAL
R'000 2016 (%) 2015 (%)
Interest paid - secured financial liabilities 224 120 95 193 176 88
Interest paid - interest rate swaps 10 326 4 23 688 11
Amortisation of structuring fee and other interest paid 2 846 1 2 815 1
Total 237 292 100 219 679 100
Finance charges increased from R219,7 million to R237,3 million which is line with increased facilities in accordance with the growth of the portfolio,
and taking current interest rate increases into consideration.
FINANCE INCOME
TOTAL TOTAL
R'000 2016 (%) 2015 (%)
Interest on group share purchase and option schemes 49 099 92 26 894 82
Interest on cash balances and tenants 4 261 8 5 756 18
Total 53 360 100 32 650 100
Interest on the group share purchase and option schemes is in respect of interest charged on outstanding balances of the loans granted to participants
of both the Arrowhead- and the Indluplace Share Purchase and Option Scheme.
INVESTMENT PROPERTIES
The company owns a property portfolio of 154 retail, industrial and office properties, and indirectly through Indluplace 116 residential properties,
valued at R10,0 billion, located in all nine provinces in South Africa. The average value per property as at 30 September 2016 was R49,2 million
(2015: R44,5 million).
ANALYSIS OF MOVEMENT IN INVESTMENT PROPERTY
COMMERCIAL PORTFOLIO RESIDENTIAL PORTFOLIO* TOTAL
NO. OF NO. OF NO. OF
BUILDINGS R'000 BUILDINGS R'000 BUILDINGS R'000
Balance at the beginning of the year 157 6 934 850 95 1 711 457 252 8 646 307
Acquisitions, additions and fair value adjustments 1 772 826 21 680 305 22 1 453 131
Disposals (4) (126 400) - - (4) (126 400)
Balance at the end of the year 154 7 581 276 116 2 391 762 270 9 973 038
* The residential portfolio is a separately listed fund on the JSE. Arrowhead's shareholding in Indluplace was 60,1% at 30 September 2016 (2015: 70,2%).
Investment property has increased from R8,6 billion at 30 September 2015 to R10,0 billion at 30 September 2016. The increase was attributable to fair value
adjustments of R232,5 million, acquisitions and additions of R1,2 billion and disposals of R126,4 million. During the year under review, 42,6% of the property
portfolio was valued externally with the balance being valued by the executive directors. Real Insight carried out the independent valuation.
Arrowhead made the following acquisitions and disposals during the year:
PROPERTY ACQUISITIONS
TRANSFER OR
PROPERTY NAME PROVINCE SECTOR EFFECTIVE DATE R'000
Clearly Park Eastern Cape Retail 1 December 2015 466 027
Remaining 10% of Access Park Western Cape Retail 1 April 2016 79 695
545 722
PROPERTY DISPOSALS
PROPERTY NAME PROVINCE SECTOR SOLD R'000
Benoni Rynfield Shopping Centre Gauteng Retail 17 December 2015 30 000
Beyers Naude (Blackheath) Gauteng Office 5 November 2015 27 200
Gradner Street (Roggebaai) Western Cape Office 1 February 2016 51 000
Witbank Vusani House Gauteng Office 31 August 2016 18 200
126 400
PROPERTY DISPOSED OFF AND IN THE PROCESS OF BEING TRANSFERRED
PROPERTY NAME PROVINCE SECTOR R'000
Business Centre Gauteng Office 33 000
Pentagraph Building Gauteng Office 26 500
Tyrwitt Avenue Gauteng Retail 36 000
95 500
NET INCOME GROWTH ON PROPERTIES OWNED AT 1 OCTOBER 2014 AND STILL OWNED ON 30 SEPTEMBER 2016 ("CORE PORTFOLIO")
YEAR ENDED YEAR ENDED
30 SEPTEMBER 2016 30 SEPTEMBER 2015
DESCRIPTION R'000 R'000 GROWTH (%)
Revenue 1 107 953 1 028 117 7,77
Property expenses (402 207) (362 685) 10,90
Net operating income 705 746 665 432 6,06
Assuming a gearing ratio on the property portfolio of 25% and an annual effective interest rate of 9%, the total growth in distributable income for the
year ending 30 September 2017, should be 7,94%. The core portfolio now includes all properties (except the residential properties) that were owned for a
full two-year period from 1 October 2014 and still owned at 30 September 2016. The core portfolio represents 93,65% of the retail, industrial and office
portfolios (by value). The projections have not been reviewed or reported on by Grant Thornton Johannesburg Partnership.
LOANS TO PARTICIPANTS OF GROUP SHARE PURCHASE AND OPTION SCHEMES
The loans to participants of group share purchase and option schemes are in respect of loans to participants of both the Arrowhead- and Indluplace share
purchase and option schemes. The recipients include the executive directors and staff of Arrowhead and Indluplace. The increase from R433,9 million to
R540,6 million is as a result of loans issued to participants of the Arrowhead share purchase scheme. The loans bear interest either at the company's effective
rate of borrowings (in respect of earlier loans in Arrowhead) or bear interest at a rate equal to the dividend of the company (in respect of more recent loans
in Arrowhead and Indluplace) and are secured by a cession of the shares. The ownership of these shares vests with the beneficiaries on date of granting of the
shares. The voting rights of the shares also vest with the beneficiaries.
TRADE AND OTHER RECEIVABLES
Trade receivables, deposits, other receivables and payments in advance increased from R61,1 million to R80,9 million. The balance outstanding has increased
from the prior year as a result of the enlarged property portfolio. Bad debts amounting to R2,9 million have been written off during the year under review,
whilst the allowance for bad debt increased from R6,9 million to R8,7 million. The combined amounts are less than 1% of revenue.
SECURED FINANCIAL LIABILITIES
The loans of R3,1 billion (2015: R2,4 billion) measured against investment properties and financial assets of R11,45 billion (2015: R8,6 billion) represents
a loan to value of 27,5% (2015: 27,9%). The interest rate swaps of R2,2 billion and the fixed rate loan of R480,0 million resulted in interest on R2,6 billion
of the total loans of R3,1 billion being fixed. This equates to 84,1% of the total borrowings.
Excess funds are placed in an access facility to reduce the overall interest charge. The effective interest rate for the period ended 30 September 2016 was
9,35% (30 September 2015: 8,96%).
3 MONTH JIBAR* PRIME RATE^ CAPITAL 2016 CAPITAL 2015
MATURITY FIXED RATE % MARGIN % MARGIN % R'000 R'000
September 2016 9,11 - - - 387 284
August 2017 - - Minus 1,5 200 000 200 000
March 2018 - - Minus 1,4 249 000 162 880
March 2018 - 2,1 - 280 000 280 000
April 2018 - - Minus 1,6 150 000 -
December 2018 - 1,77 - 300 000 300 000
April 2019 - 1,77 - 270 000 270 000
April 2019 - 1,77 - 60 000 60 000
June 2019 - - Minus 1,4 51 000 51 000
September 2019 (Indluplace) 10,1 - - 150 000 -
November 2019 - 1,70 - 610 000 610 000
March 2020 - 2,08 - 480 000 92 716
March 2020 - - Minus 1,3 19 738 -
August 2021 - 2,1 - 276 679 -
Total exposure 3 096 417 2 413 880
(Excluding loan initiation fees and fair value adjustments on swaps).
* Three-month JIBAR at 30 September 2016 was 7,358%.
^ Prime rate at 30 September 2016 was 10,5%.
Arrowhead has entered into interest rate swaps to hedge its exposure to fluctuations in interest rates of its debt as follows:
- an interest rate swap over R140 million until 15 August 2017;
- an interest rate swap over R35 million until 15 August 2017;
- an interest rate swap over R189 million until 31 May 2018;
- an interest rate swap over R73 million until 31 May 2018;
- an interest rate swap over R629 million until 31 March 2019;
- an interest rate swap over R113 million until 17 June 2019;
- an interest rate swap over R150 million until 1 September 2019 (Indluplace);
- an interest rate swap over R595 million until 2 September 2019; and
- an interest rate swap over R275 million until 25 August 2021.
PROSPECTS
Commercial property portfolio
The company expects the net property income of its core portfolio to grow at a rate of approximately 6,0%. With gearing at the current level and interest
rates fixed, the net property income of its core portfolio should grow by between 7,0% and 8,0% in the next financial year.
Sasol Rosebank
Sasol has indicated that it will vacate the Sasol Rosebank building on 31 December 2016. Arrowhead is in advanced discussions with a number of potential
tenants around a possible tenancy to commence in the next financial year. One of the potential tenants has indicated the possibility of entering into an
agreement to acquire the building. In light of the stage of these discussions we have accordingly not included assumptions on potential rental of the
Sasol Rosebank building in the forecast projections. The shortfall in income for the next financial year is in excess of R20 million. Letting of Sasol
Rosebank is an upside to the forecast numbers presented below.
Corporate activity
Subject to the fulfilment of certain conditions precedent, Arrowhead has disposed of its subsidiary, Cumulative Properties Limited, to Synergy Income Fund
Limited (the name of which is to be changed to Gemgrow Properties Limited ("Gemgrow")). The purchase consideration is to be settled by the issue to the
Arrowhead Group of 247 412 267 Gemgrow "B" shares. Gemgrow will position itself to acquire smaller, higher yielding properties that the rest of the listed
property sector does not focus on and will seek to position itself to drive consolidation within the sector. Arrowhead's earnings will be negatively affected
by the transaction by approximately R9 million being Gemgrow's estimated corporate costs for 2017. Income from the Gemgrow B shares should, from 2017/2018,
significantly add to Arrowhead's income as Gemgrow executes its growth strategy.
After this transaction, Arrowhead (excluding its subsidiaries) will own 54 properties valued at R5,7 billion with a vacancy of 6,0% and an average property
value of R107,0 million. The average length of leases will be just under 3,87 years. 2017 will be a transformative year for Arrowhead as it improves it's
quality and shape.
Gemgrow will have its own dedicated and incentivised management team, who will focus on growing the portfolio on an accretive basis with properties valued
at under R50,0 million per property. There are significant opportunities in this market.
Projected 2017 dividend per share
The forecast excludes the effects of any acquisitions that will be made during the year as well as the letting of any vacant space. It also assumes that all
leases expiring during the year will be renewed other than where the company has information to the contrary. For the 2017 financial year the company is
projected to produce dividend growth of between 6,0% and 8,0% per share. As set out above, this is after taking into account the shortfall of R9 million in
setting up Gemgrow and the shortfall in rental at Sasol Rosebank. In the event that these items are added back, growth in dividends would normalise at
between 8,0% and 9,0%. The projections have not been reviewed or reported on by Grant Thornton Johannesburg Partnership.
Given the nature of its business, Arrowhead uses dividend per share as its key performance measure as it is considered a more relevant performance measure
than earnings or headline earnings per share.
Summary of financial performance
R/Audited 30 SEPTEMBER 2016 30 SEPTEMBER 2015
Dividend per Arrowhead share (cents) 82,55 75,15
Arrowhead ordinary shares in issue^ 1 025 893 790 -
A-shares in issue^ - 437 607 408
B-shares in issue^ - 437 607 408
Net asset value per share/linked unit at reporting date (cents) 895,22 870,22
Loan to value ratio 27% 28%
^ Include shares issued to the Arrowhead Charitable Trust.
After the reporting period no additional shares were issued.
Annual general meeting
Arrowhead's integrated report for the year ended 30 September 2016, containing a notice of the annual general meeting which is to be held at the company's
offices at 11h00 on Wednesday, 25 January 2017 and incorporating the audited annual financial statements for the year ended 30 September 2016 will be made
available in electronic form on the company's website, www.arrowheadproperties.co.za and will be posted on or about 16 November 2016 to shareholders who
have requested that these items be posted to them, and will also be available in hard copy from Arrowhead's offices at 2nd floor, 18 Melrose Boulevard,
Melrose Arch. The last day to trade in order to be eligible to participate in and vote at the annual general meeting is Tuesday, 17 January 2017 and the
record date for voting purposes is Friday, 20 January 2017.
Payment of dividend for the quarter ended 30 September 2016
The board of directors ("Board") has approved a gross dividend (dividend number 20) of 20,89000 cents per share for the quarter ended 30 September 2016,
in accordance with the timetable set out below:
2016
Last date to trade cum dividend Tuesday, 6 December
Shares trade ex dividend Wednesday, 7 December
Record date Friday, 9 December
Payment date Monday, 12 December
Share certificates may not be dematerialised or rematerialised between Wednesday, 7 December 2016 and Friday 9 December 2016, both days inclusive.
In accordance with Arrowhead's status as a REIT, shareholders are advised that the dividend 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 shares will be deemed to be a dividend, for
South African tax purposes, in terms of section 25BB of the Income Tax Act.
The dividend received by or accrued to South African tax residents must be included in the gross income of such shareholders 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
they are dividends distributed by a REIT. This dividend is, however, exempt from dividend withholding tax in the hands of South African tax resident
shareholders, provided that the South African resident shareholders provided the following forms to their Central Securities Depository Participant ("CSDP")
or broker, as the case may be, in respect of uncertificated shares, or the company, in respect of certificated shares:
a) a declaration that the dividend is exempt from dividends tax; and
b) 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. Shareholders 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 distributions, if such documents have not already been
submitted.
Dividends received by non-resident shareholders will not be taxable as income and instead will be treated as ordinary dividends which are 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 dividends received
by non-residents from a REIT were not subject to dividend withholding tax. From 1 January 2014, any dividends 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 shareholders. Assuming dividend withholding tax will be withheld at a rate of 15%, the net dividend
amount due to non-resident shareholders is 17,75650 cents per share. A reduced dividend withholding rate in terms of the applicable DTA, may only be relied on
if the non-resident shareholder has provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the
company, in respect of certificated shares:
a) a declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and
b) 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 shareholders are advised to contact their CSDP or 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.
Shareholders are encouraged to consult their professional advisors should they be in any doubt as to the appropriate action to take.
Shares in issue at the date of declaration of this dividend: 1 025 893 790
Payment of the dividend will be made to shareholders on Monday, 12 December 2016. In respect of dematerialised shares, the dividend will be transferred to
the CSDP broker accounts on Monday, 12 December 2016. Certificated shareholders' dividend payments will be deposited on or about Monday, 12 December 2016.
Arrowhead's income tax reference number: 9779/439/15/8
Events after reporting period
- Arrowhead acquired an additional 13 866 171 Rebosis shares post the reporting period. The additional acquisition increased Arrowhead's stake in Rebosis to
20,02%.
- As announced on SENS on 28 October 2016, M. Kaplan, I. Suleman and G. Leissner concluded a loan and subscription agreement with Cumulative in terms of
which Cumulative will advance to each of the executives, a loan of R40 724 460 to be utilised to subscribe for 9 215 034 Cumulative shares and which shares
will be sold to Gemgrow, as part of the Gemgrow transaction.
Dividend declaration after reporting date
In line with IAS 10 Events after the Reporting Period, the declaration of the dividend occurred after the end of the reporting period, resulting in a
non-adjusting event which is not recognised in the financial statements.
Litigation statement
There are no legal or arbitration proceedings, including any proceedings that are pending or threatened, of which Arrowhead is aware, that may have or have had
in the recent past, being the previous 12 months, a material effect on the group's financial position.
Basis of preparation
The consolidated audited results for the year ended 30 September 2016 have been audited
by the company`s independent auditors, Grant Thornton Johannesburg Partnership. Their
unqualified audited opinion is available for inspection at the company's registered offices at
2nd floor, 18 Melrose Boulevard, Melrose Arch, Johannesburg.
The accompanying financial statements have been prepared in accordance with the
requirements of International Financial Reporting Standards, the SAICA Financial Reporting
Guides as issued by the Financial Accounting Practices Committee as issued by the Financial
Reporting Standard 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 I. Suleman CA(SA), Arrowhead's Chief Financial Officer.
The accounting policies adopted are consistent with those applied in the preparation of the
financial statements for the year ended 30 September 2015.
This consolidated report is extracted from audited information, but is not itself audited. The
directors take full responsibility for the preparation of the abridged report and for ensuring
that the financial information has been correctly extracted from the underlying audited annual
financial statements. This announcement does not include the information required pursuant to
paragraph 16A(j) of IAS 34.
ABRIDGED consolidated statement of comprehensive income
FOR THE YEAR ENDED 30 SEPTEMBER 2016
R'000/AUDITED 2016 2015
Rental income 1 531 560 1 217 913
Straight-line rental income accrual (13 665) 19 341
Listed securities income 71 770 19 115
Total revenue 1 589 665 1 256 369
Property expenses (567 968) (411 883)
Administration and corporate costs (38 093) (31 130)
Net operating profit 983 604 813 356
Changes in fair values 189 257 640 713
Profit from operations 1 172 861 1 454 069
Finance charges (237 292) (219 679)
Finance income 53 360 32 650
Profit before debenture interest and taxation 988 929 1 267 040
Debenture interest - (278 137)
Profit before taxation 988 929 988 903
Taxation - -
Total comprehensive income for the year 988 929 988 903
Profit for the year attributable to:
Equity shareholders of Arrowhead 888 492 945 118
Non-controlling interest 100 437 43 785
Total comprehensive income for the year 988 929 988 903
RECONCILIATION of earnings, headline earnings and distributable earnings
R'000/AUDITED 2016 2015
Profit for the period attributable to Arrowhead shareholders 888 492 945 118
Debenture interest - -
Earnings 888 492 945 118
Changes in fair value of investment property (232 524) (498 214)
Changes in fair value of investment property - non-controlling interest 14 263 26 672
Profit on sale of property (2 336) (596)
Headline profit attributable to shareholders 667 895 472 980
Debenture interest at effective interest rates - prior to de-linking* - 278 137
Changes in fair values of listed securities and financial instruments 45 603 (141 903)
Straight-line rental income accrual 13 665 (19 341)
Straight-line rental income accrual - non-controlling interest 819 425
Interest received on loan to the Arrowhead Charitable Trust (eliminated at group level) 25 620 11 749
Income from listed securities distributed in prior period (19 795) -
Accrued distribution on listed securities 67 646 22 587
Antecedent income 31 585 21 169
Antecedent income - subsidiary 2 316 -
Distributable earnings attributable to shareholders 835 354 645 803
Number of Arrowhead ordinary shares in issue^ 1 025 893 790 -
Number of A-shares in issue^ - 437 607
Number of B-shares in issue^ - 437 607
Weighted average number of Arrowhead shares in issue 970 994 -
Weighted average number of A-shares in issue - 405 621
Weighted average number of B-shares in issue - 405 621
Basic and diluted earnings per Arrowhead ordinary share (cents)# 91,50 -
Basic and diluted earnings per A-share (cents)# - 116,50
Basic and diluted earnings per B-share (cents) - 116,50
Headline and diluted headline earnings per Arrowhead ordinary share (cents)# 68,78 -
Headline and diluted headline earnings per A-share (cents) - 58,30
Headline and diluted headline earnings per B-share (cents) - 58,30
* In the prior year the debenture interest paid has been excluded from headline earnings as the linked units have been de-linked resulting in disclosure
of earnings per share compared to earnings per linked unit in the prior year. This resulted in a significant decrease in the basic and diluted earnings
per share as well as the headline earnings per share.
# The main reason for the differential in the earnings, headline and diluted headline earnings per share compared to distribution per share is due to the
change in fair value of investment property and the recognition of dividends earned on listed REITs below the line.
^ Include shares issued to the Arrowhead Charitable Trust.
ABRIDGED consolidated statement of financial position
AS AT 30 SEPTEMBER 2016
R'000/AUDITED 2016 2015
Assets
Non-current assets 12 172 867 9 649 996
Investment property 9 877 538 8 538 107
Fair value of property portfolio for accounting purposes 9 803 309 8 450 213
Straight-line rental income accrual 74 229 87 894
Property, plant and equipment 985 284
Loans to participants of group share purchase and option schemes 540 557 433 886
Goodwill 176 830 176 830
Financial assets 1 570 696 482 420
Derivative instruments 6 261 18 469
Current assets 159 282 148 307
Trade and other receivables 80 858 61 119
Cash and cash equivalents 78 424 87 188
Non-current assets held for sale 95 500 108 200
Total assets 12 427 649 9 906 503
Equity and liabilities
Shareholders' interest 8 202 208 6 770 410
Stated capital 6 396 178 5 128 005
Reserves 1 806 030 1 642 405
Non-controlling interest 981 753 576 127
Other non-current liabilities 2 900 739 2 426 048
Secured financial liabilities 2 890 639 2 408 033
Derivative instruments 10 100 18 015
Current liabilities 342 949 133 918
Trade and other payables 142 949 133 918
Secured financial liabilities 200 000 -
Total equity and liabilities 12 427 649 9 906 503
ABRIDGED consolidated statement of changes in equity
FOR THE YEAR ENDED 30 SEPTEMBER 2016
Non-controlling
R'000/AUDITED Stated capital Reserves interest Total
Balance at 30 September 2014 - 828 693 - 828 693
Issue of shares - - 564 110 564 110
Transfers between equity holders - 28 194 (28 194) -
REIT conversion 5 128 005 - - 5 128 005
Dividends paid - (159 600) (3 574) (163 174)
Total comprehensive income for the year - 945 118 43 785 988 903
Balance at 30 September 2015 5 128 005 1 642 405 576 127 7 436 537
Issue of shares 1 299 759 - 398 377 1 698 136
Transfers between equity holders - 5 382 (5 382) -
Antecedent income (31 586) 31 586 - -
Dividends paid - (761 835) (87 806) (849 641)
Total comprehensive income for the period - 888 492 100 437 988 929
Balance at 30 September 2016 6 396 178 1 806 030 981 753 9 183 961
ABRIDGED consolidated statement of cash flows
FOR THE YEAR ENDED 30 SEPTEMBER 2016
R'000/AUDITED 2016 2015
Net cash utilised from operating activities (33 168) (34 690)
Cash generated from operations 928 634 727 377
Finance charges paid (237 292) (219 679)
Interest received 53 360 32 650
Dividends received 71 770 19 115
Dividends paid - non-controlling interest (87 805) (3 575)
Dividends paid (761 835) (159 600)
Debenture interest paid - (430 978)
Net cash utilised in investing activities (1 292 116) (1 101 324)
Acquisition of investment property (904 296) (1 174 578)
Proceeds from disposal of investment property 20 536 61 174
Investments in listed securities (409 852) -
Acquisition of property, plant and equipment (887) (228)
Repayment of loans to participants of group share purchase and option schemes 2 383 12 308
Net cash generated from financing activities 1 316 520 1 140 127
Proceeds from issue of share capital 149 660 570 095
Proceeds from realisation of Arrowhead Charitable Trust units - 134 010
Proceeds from issue of shares - non-controlling interest 488 354 385 101
Proceeds from financial liabilities 678 506 50 921
Net movement in cash and cash equivalents (8 764) 4 113
Cash and cash equivalents at the beginning of the year 87 188 83 075
Cash and cash equivalents at the end of the year 78 424 87 188
ABRIDGED consolidated condensed segmental analysis
GEOGRAPHICAL
The entity has three reportable segments based on the geographic split of the country which are the entity's strategic business segments. The entity's
executive directors review internal management reports on a monthly basis and all segments greater than 10% are considered strategic. All segments are
located in South Africa. There are no single major tenants. The following summary describes the operations in each of the entity's reportable segments.
CONDENSED SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 SEPTEMBER 2016
30 September 2016 - R'000 Gauteng Western Cape Other Total
Contractual rental income 1 005 676 175 813 350 071 1 531 560
Straight-line rental income (5 760) (7 405) (500) (13 665)
Listed securities income - - 71 770 71 770
Operating and administration costs (385 419) (53 430) (167 212) (606 061)
Net operating profit 614 497 114 978 254 129 983 604
Finance income 1 511 138 51 711 53 360
Finance charges (194) (8) (237 090) (237 292)
Net operating income 615 814 115 108 68 750 799 672
Changes in fair values 63 230 62 154 63 873 189 257
Reportable segment profit before tax 679 044 177 262 132 623 988 929
Taxation - - - -
Reportable segment profit after tax 679 044 177 262 132 623 988 929
Reportable segment assets 5 306 558 1 379 593 5 741 498 12 427 649
Reportable segment liabilities (127 784) (21 082) (3 094 822) (3 243 688)
5 178 774 1 358 511 2 646 676 9 183 961
CONDENSED SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 SEPTEMBER 2016
30 September 2015 - R'000 Gauteng KwaZulu-Natal Eastern Cape Other Total
Contractual rental income 893 760 126 487 57 941 139 725 1 217 913
Straight-line rental income - - - 19 341 19 341
Listed securities income - - - 19 115 19 115
Operating and administration costs (311 392) (48 191) (17 296) (66 134) (443 013)
Net operating profit 582 368 78 296 40 645 112 047 813 356
Finance income 1 063 78 19 31 490 32 650
Finance charges (13) - (1) (219 665) (219 679)
Net operating income/(loss) 583 418 78 374 40 663 (76 128) 626 327
Changes in fair values - - - 640 713 640 713
Reportable segment profit before debenture interest and tax 583 418 78 374 40 663 564 585 1 267 040
Debenture interest - - - (278 137) (278 137)
Taxation - - - - -
Reportable segment profit after debenture interest and tax 583 418 78 374 40 663 286 448 988 903
Reportable segment assets 4 490 347 829 676 374 610 4 211 870 9 906 503
Reportable segment liabilities (73 383) (14 040) (5 034) (2 467 509) (2 559 966)
4 416 964 815 636 369 576 1 744 361 7 346 537
SECTORAL
CONDENSED SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 SEPTEMBER 2016
30 September 2016 - R'000 Office Residential Industrial Retail Overheads Total
Contractual rental income 501 580 348 987 169 696 506 500 4 797 1 531 560
Straight-line rental income (12 659) 2 052 1 333 (4 391) - (13 665)
Listed securities income - - - - 71 770 71 770
Operating and administration costs (174 320) (120 372) (76 954) (177 145) (57 270) (606 061)
Net operating profit 314 601 230 667 94 075 324 964 19 297 983 604
Finance income 809 403 224 469 51 455 53 360
Finance charges (79) (73) (49) (13) (237 078) (237 292)
Net operating income/(loss) 315 331 230 997 94 250 325 420 (166 326) 799 672
Changes in fair values 51 940 38 177 8 483 133 924 (43 267) 189 257
Reportable segment profit/(loss) before tax 367 271 269 174 102 733 459 344 (209 593) 988 929
Taxation - - - - - -
Reportable segment profit/(loss) after tax 367 271 269 174 102 733 459 344 (209 593) 988 929
Reportable segment assets 3 151 383 2 400 180 924 776 3 661 374 2 289 936 12 427 649
Reportable segment liabilities (68 516) (28 474) (15 437) (79 110) (3 052 151) (3 243 688)
3 082 867 2 371 706 909 339 3 582 264 (762 215) 9 183 961
By order of the Board
16 November 2016
DIRECTORS: M Nell * (Chairperson), G Leissner (CEO), I Suleman (CFO), M Kaplan (COO), T Adler*, S Noik*, E Stroebel*
* Independent non-executive
All directors are South African.
There were no changes to the Board during this period.
REGISTERED OFFICE 2nd Floor, 18 Melrose Boulevard, Melrose Arch, Melrose, Johannesburg, 2196
PO Box 685, Melrose Arch, 2076
TRANSFER SECRETARIES Computershare Investor Services Proprietary Limited
SPONSOR Java Capital
COMPANY SECRETARY CIS Company Secretaries Proprietary Limited
WEBSITE www.arrowheadproperties.co.za
Date: 16/11/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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