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ARROWHEAD PROPERTIES LIMITED - Unaudited condensed consolidated interim results for the six months ended 31 March 2017

Release Date: 24/05/2017 07:30
Code(s): AWA     PDF:  
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Unaudited condensed consolidated interim results for the six months ended 31 March 2017

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" or "the group")

ARROWHEAD PROPERTIES INTERIM RESULTS 2017

UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2017

Full year dividend forecast on track
Successful disposal of 100 smaller non-core properties to Gemgrow
NAV growth of 23% to R11,32
Defensive and diversified South African portfolio

NATURE OF BUSINESS

Arrowhead is a Real Estate Investment Trust ("REIT") holding directly a diverse portfolio of office, retail and industrial properties valued at
R5,6 billion. In addition, as at 31 March 2017, Arrowhead held a 59,7% interest (2016: 60,1%) in Indluplace Properties Limited ("Indluplace"),
which owns a portfolio of residential properties. Arrowhead also owned 61,7% of the B-ordinary shares in Gemgrow Properties Limited
("Gemgrow"), equivalent to 55,2% of Gemgrow, which owns a diverse portfolio of office, retail and industrial properties.

Arrowhead also held an interest of 19,48% in Rebosis Property Fund Limited ("Rebosis") as well as a 11,3% interest in Dipula Income Fund
Limited ("Dipula") at 31 March 2017.

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, 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 and investments in other REITS.

CONDENSED consolidated financial results
FOR THE SIX MONTHS ENDED 31 MARCH 2017

R'000                                                                                                                        2017         2016
Revenue (excluding straight line rental income)                                                                           959 324      743 681
Listed securities income                                                                                                   95 893       20 097
Property expenses                                                                                                       (360 780)    (270 655)
Administration and corporate costs                                                                                       (23 809)     (15 333)
Finance expenses                                                                                                        (193 283)    (111 003)
Finance income                                                                                                             39 940       27 337
Pre-effective date dividend#                                                                                               19 162            -
Non-controlling interest profits elimination (net of antecedent income)                                                 (126 089)     (40 765)
Distributable income                                                                                                      410 358      353 359
Antecedent income                                                                                                               -       26 145
Antecedent income - subsidiary                                                                                                  -        2 316
Accrued dividend on listed securities                                                                                     120 926       32 220
Listed securities income recognised in previous reporting period                                                         (95 893)     (19 796)
Total dividend                                                                                                            435 391      394 244
Dividend to the Arrowhead Charitable Trust*                                                                                13 404       12 645
Total dividend after effects of Arrowhead Charitable Trust                                                                448 795      406 889
* Dividend to the Arrowhead Charitable Trust is added back as it is eliminated on consolidation
# Pre-effective date dividend is in respect of the dividend declared by Gemgrow as regards the income 
earned by Gemgrow on the Cumulative portfolio prior to the accounting effective date.
Property expenses as a percentage of revenue - gross                                                                          38%          36%
Property expenses as a percentage of revenue - net                                                                            16%          13%
Dividend for the quarter ended 31 December                                                                                222 218      198 995
Dividend for the quarter ended 31 March                                                                                   226 577      207 894
Total dividend                                                                                                            448 795      406 889
Dividend per share (cents) for the quarter ended 31 December 2016                                                           21,41        20,03
Dividend per share (cents) for the quarter ended 31 March 2017^                                                             21,83        20,76
                                                                                                                            43,24        40,79
Net asset value per share (cents)                                                                                         1132,84       923,11
^The dividend was declared on 24 May 2017

COMMENTARY
REVENUE

Revenue includes rental income and expenditure that is recoverable from tenants.

The substantial increase in revenue is due to the effect of the Gemgrow transaction concluded during the period under review as well as 
annual escalations to existing leases. In addition, Indluplace acquired R30,2 million worth of residential property.

At 30 September 2016, Arrowhead owned 153 retail, office and industrial ("commercial") properties directly and 116 residential properties 
indirectly through Indluplace. At 31 March 2017 Arrowhead owned 51 commercial properties directly, 129 commercial properties indirectly through 
Gemgrow and 117 residential properties indirectly through Indluplace.

Arrowhead's direct property portfolio comprises 53% by value of retail properties, 39% of office buildings and 8% of industrial buildings. 
The average gross monthly rental per m² per sector is R127 for retail, R116 for office and R44 for industrial. Vacancies have increased 
from 7,8% at 30 September 2016 to 10,8% at 31 March 2017 (retail 7,29%, office 15,87% and industrial 15,19%). The increased vacancies are a 
direct result of Sasol vacating the 1 Sturdee Avenue building in Rosebank (13 350 m²) as well as Kit Group (6 278 m²) vacating the Maboneng 
building. Notwithstanding the difficult economic environment we are presently operating in, we have re-let the Kit Group property to a new 
tenant with effect from 1 May 2017. We have also adopted a new strategy in sourcing tenants for the 1 Sturdee Avenue building and have recently 
completed an interior upgrade on a small section of the building, including an upgrade of the reception area, to evidence the potential that 
the space has. The result of the minimal interior upgrade has transformed the space completely and has had the desired effect. We have now received 
our first written offer for approximately a third of the space and are in advanced discussions with a second potential tenant on a significant 
portion of the building.

During the period leases in respect of 56 518m² of gross lettable area ("GLA") expired of which 52% was renewed with the 2 buildings discussed 
above being the main reason for the low rate of renewal. Average rental escalations of 3% (office 0%, retail 13,5%, industrial -31%) have been 
achieved on lease renewals across the property portfolio. A large industrial warehouse of approximately 4 616 m2 was renewed at market rental. 
The average lease profile across the portfolio is 3,84 years.

6 MONTH LETTING REPORT (EXCLUDING INDLUPLACE AND GEMGROW PORTFOLIO)

                                                                                Total (m(2))   Let (m(2))    Vacant (m(2))     Let (%)      Vacant (%)
As at 1 October 2016                                                                 905 149      835 143           70 006       92,27            7,73
Disposal to Cumulative                                                             (353 942)    (316 736)         (37 206)
Acquisitions                                                                               -            -                -
Disposals                                                                            (4 392)      (4 392)                -
Net adjustments                                                                        (761)        (348)            (413)
Adjusted totals                                                                      546 054      513 667           32 387       94,07            5,93
Net (loss)/gain                                                                            -     (26 818)           26 818
As at 31 March 2017                                                                  546 054      486 849           59 205       89,16           10,84

LISTED SECURITIES INCOME

Listed securities income comprises income received on shares held in Dipula and Rebosis. During the current financial period, Arrowhead increased its 
holding in Rebosis to 19,48%. This investment was made on a distribution enhancing basis for Arrowhead.

In this reporting period, Arrowhead has recognised the anticipated dividends receivable in respect of Dipula and Rebosis in the form of an adjustment 
in the distributable earnings reconciliation.

OPERATING COSTS
                                                                                                                             TOTAL              TOTAL
R'000                                                                                                               2017       (%)       2016     (%)
Municipal expenses                                                                                               212 968        59    166 874      62
Property management                                                                                               30 713         9     23 923       9
Security                                                                                                          18 359         5     14 730       5
Repairs and maintenance                                                                                           17 313         5     12 044       4
Letting commission                                                                                                 7 281         2      4 980       2
Cleaning                                                                                                          14 491         4      8 067       3
Insurance                                                                                                          2 163         1      3 234       1
Other                                                                                                             57 492        15     36 803      14
Total                                                                                                            360 780       100    270 655     100

Municipal expenses have increased in line with the increased revenue. The gross expense to income ratio has increased from 36,0% to 38,0%. The net 
expense to income ratio increased from 13% to 16%. This is in line with the increased portfolio and increases in the expense ratio for Indluplace 
resulting from the mix of the property portfolio.

ADMINISTRATIVE EXPENSES AND CORPORATE COSTS
                                                                                                                            TOTAL                TOTAL
R'000                                                                                                                2017     (%)      2016        (%)
Salaries                                                                                                           13 465      57    11 431         75
Professional service fees                                                                                           3 954      17     1 791         12
Other                                                                                                               6 390      26     2 111         13
Total                                                                                                              23 809     100    15 333        100

There has been an increase in headcount pursuant to the Gemgrow transaction in terms of which the additional cost in respect of the Gemgrow directorate
is included.

FINANCE INCOME
R'000                                                                                  2017            % OF TOTAL               2016         % OF TOTAL
Interest on group share purchase and option schemes                                  35 664                    89             24 428                 89
Interest on cash balances and tenants                                                 4 276                    11              2 909                 11
Total                                                                                39 940                   100             27 337                100

Interest on the group share purchase and option schemes is on outstanding balances of the loans granted to participants of the Arrowhead Share Purchase 
and Option Scheme, the Indluplace Share Purchase and Option Scheme, and the Gemgrow group loans to executives.

FINANCE CHARGES
R'000                                                                                    2017         % OF TOTAL                 2016         % OF TOTAL
Interest paid - secured financial liabilities                                         191 934                 99              109 111                 98
Amortisation of structuring fee and other interest paid                                 1 349                  1                1 892                  2
Total                                                                                 193 283                100              111 003                100

Finance charges increased from R111,0 million to R193,3 million which is in line with increased facilities in accordance with the growth of 
the portfolio, and taking current interest rate increases into consideration.

INVESTMENT PROPERTIES

The company owns a portfolio of 51 retail, industrial and office properties, and indirectly through Gemgrow has exposure to 129 retail, industrial and 
office properties. The company further indirectly has exposure to 117 residential properties through Indluplace, comprising of 5 511 units. The Arrowhead 
direct portfolio is valued at R5,6 billion, and located in all nine provinces in South Africa. The average value per property as at 31 March 2017 was 
R111 million (2016: R49,2 million).

ANALYSIS OF MOVEMENT IN INVESTMENT PROPERTY
                                                                          PROPERTY 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                                           153    7 581 276           116     2 391 762          269     9 973 038
Acquisitions, additions and fair value adjustments                               -       28 054             1        30 594            1        58 648
Disposal to Gemgrow                                                          (100)  (1 893 300)             -             -        (100)   (1 893 300)
Gemgrow transaction                                                            129    4 325 100             -             -          129     4 325 100
Disposals                                                                      (2)     (62 499)             -             -          (2)      (62 499)
Balance at the end of the period                                               180    9 978 631           117     2 422 356          297    12 400 987

ARROWHEAD DISPOSED OF THE FOLLOWING DURING THE PERIOD:
Property disposals
PROPERTY NAME                                                                         PROVINCE           SECTOR                   SOLD              R
Tyrwitt Avenue                                                                         Gauteng           Office          16 March 2017     36 000 000
Pentagraph Building                                                                    Gauteng       Commercial       20 December 2016     26 500 000
                                                                                                                                           62 500 000

NET INCOME GROWTH ON PROPERTIES OWNED AT 1 OCTOBER 2015 AND STILL OWNED ON 31 MARCH 2017
                                                                                                 1 OCTOBER 2016 TO    1 OCTOBER 2015 TO
                                                                                                     31 MARCH 2017        31 MARCH 2016
DESCRIPTION                                                                                                  R'000                R'000     GROWTH (%)
Revenue                                                                                                    409 973              392 005           4,58
Property Expenses                                                                                        (152 038)            (142 260)           6,87
Net Operating Income                                                                                       257 935              249 745           3,28

Assuming a gearing ratio on the portfolio of 25% and an annual effective interest rate of 9,2%, the total growth in distributable income for the year 
ending 30 September 2017, should be 4,30%. The core portfolio now includes all properties (except the residential properties) that were owned for a 
full two-year period from 1 October 2015 and still owned at 31 March 2017. The core portfolio represents 91% of the retail, industrial and office 
portfolios (by value).

LOANS TO PARTICIPANTS OF GROUP SHARE PURCHASE AND OPTION SCHEMES

This is in respect of loans to the participants of the Arrowhead and Indluplace share purchase and option schemes and the loans to the Gemgrow 
Group executives. The increase from R540,6 million to R652,6 million is as a result of loans issued to participants of the Arrowhead and 
Indluplace share purchase scheme and the loan to the Gemgrow Group executives to the value of R280,4 million. During the period under review the 
loan of the late Mr Leissner amounting to R168,4 million was settled through the disposal of his shares. The loans bear interest either at 
the company's effective rate of borrowings (in respect of earlier loans in Arrowhead) and bear interest at a rate equal to the dividend of the 
company (in respect of more recent loans in Arrowhead, Gemgrow and Indluplace) and are secured by a cession of the shares.

TRADE AND OTHER RECEIVABLES

Trade receivables, deposits, other receivables and payments in advance increased from R80,9 million to R165,8 million mainly as a result of growth 
in the portfolio. The increase also arises from the Gemgrow transaction where some amounts receivable are reflected in adjustment accounts. 
The balance outstanding has increased from the prior year due to the enlarged property portfolio. Bad debts amounting to R0,5 million have 
been written off during the period under review, whilst the provision for bad debt increased from R8,7 million to R10,0 million.

SECURED FINANCIAL LIABILITIES

The loans of R4,2 billion (2016: R3,1 billion) measured against investment properties of R12,4 billion (2016: R10,0 billion) represents a loan to 
value of 27,8% (2016: 27,5%). The interest rate swaps of R2,9 billion and the fixed rate loan of R717 million results in interest on R3,6 billion 
of the total R4,2 billion being fixed. This equates to 86,0% 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 31 March 2017 was 9,53% (30 September 2016: 9,35%).

                                                                                                                               CAPITAL
                                                                      1 MONTH JIBAR*    3 MONTH JIBAR*    PRIME RATE^    31 MARCH 2017
MATURITY                                               FIXED RATE %         MARGIN %          MARGIN %       MARGIN %            R'000
May 2017 (Gemgrow)                                             9,14                -                 -              -           90 000
May 2017 (Gemgrow)                                             8,36                -                 -              -          146 705
May 2017 (Gemgrow)                                                -             2,30                 -              -           28 295
May 2017 (Gemgrow)                                                -             1,65                 -              -           25 043
June 2017 (Gemgrow)                                               -                -                 -      Minus 1,5          234 990
August 2017                                                       -                -                 -      Minus 1,5          200 000
September 2017 (Gemgrow)                                          -                -                 -      Minus 1,6           50 000
March 2018                                                        -                -                 -      Minus 1,4          165 520
March 2018                                                        -                -              2,10              -          280 000
April 2018                                                        -                -                 -      Minus 1,6           91 989
October 2018 (Gemgrow)                                            -                -                 -      Minus 1,5          200 674
December 2018                                                     -                -              1,77              -          300 000
April 2019                                                        -                -              1,77              -          270 000
April 2019                                                        -                -              2,10              -           60 000
June 2019                                                         -                -                 -      Minus 1,4           51 000
September 2019 (Indluplace)                                       -                -                 -      Minus 1,3          159 000
September 2019 (Gemgrow)                                          -                -              2,35              -          139 000
September 2019 (Gemgrow)                                          -                -                 -      Minus 1,1           59 000
November 2019                                                     -                -              1,75              -          610 000
March 2020                                                     9,37                -                 -              -                -
March 2020                                                        -                -              2,08              -          480 000
August 2021                                                       -                -              2,10              -          276 679
October 2021                                                      -                -              2,10              -          159 183
December 2021                                                     -                -              2,10              -          112 450
Total exposure                                                                                                               4 189 528

                                                 ARROWHEAD               INDLUPLACE                  GEMGROW                     TOTAL
Maturity Date                       Capital Amount (R'000)   Capital Amount (R'000)   Capital Amount (R'000)    Capital Amount (R'000)
2017                                               200 000                        -                  575 033                   775 033
2018                                               837 509                        -                  200 674                 1 038 183
2019                                               991 000                  159 000                  198 000                 1 348 000
2020                                               480 000                        -                        -                   480 000
2021                                               548 312                        -                        -                   548 312
                                                 3 056 821                  159 000                  973 707                 4 189 528

The group has further entered into interest rate swaps to hedge its exposure to fluctuations in interest rates of its debt as follows:


 ARROWHEAD PROPERTIES                    GEMGROW PROPERTIES                   INDLUPLACE PROPERTIES         
  Notional Amount (R)   Maturity Date   Notional Amount (R)  Maturity Date  Notional Amount (R)   Maturity Date
          140 000 000      2017/08/15            60 000 000     2017/06/01          150 000 000      2019/09/02 
           35 000 000      2017/08/15            50 000 000     2017/06/01          150 000 000
          189 604 549      2018/03/31            50 000 000     2019/02/19 
           72 947 536      2018/05/31            40 000 000     2019/02/19 
          629 000 000      2019/03/31            40 000 000     2019/07/01 
          113 163 478      2019/06/17            40 000 000     2019/07/01 
          595 000 000      2019/09/02            80 000 000     2019/09/30 
          275 000 000      2021/08/25            50 000 000     2020/09/01 
           65 729 120      2021/10/19           410 000 000
           41 681 461      2021/10/25  
           51 772 355      2021/10/27  
          112 450 223      2021/12/15  
        2 321 348 722

BUSINESS COMBINATION

The company acquired a 55,2% interest in Gemgrow, on 25 October 2016, in exchange for a 100% shareholding in Cumulative which
had investment property of R1,9 billion at the date of the transaction. The company was consolidated into the group's result from the effective
date, being 25 October 2016. Included in the group's results is revenue of R314,9 million and profit before tax of R148,4 million. If the transaction
was concluded on 1 October 2016 the revenue would have been R335,9 million and the profit R167,8 million.

The rationale of the transaction is to establish a high yield, high growth fund with a dual-class share capital structure which will present an exciting
proposition for income-focused property investors and it is expected to result in renewed interest in and tradability of both the "A" and "B" shares.

The goodwil arose as a result of R160 618 654 paid as consideration for Vukile Asset Management Proprietory Limited which had Rnil net asset
value at the date of the transaction, for the effective internalisation of Synergy's asset management function.


                                                                                                                           AMOUNTS
DESCRIPTION                                                                                                                  R'000
Investment property                                                                                                      4 344 736
Deferred capital expenditure                                                                                                   601
Trade and other receivables                                                                                                 40 512
Current tax asset                                                                                                            2 012
Derivative financial instruments                                                                                               107
Cash and cash equivalents                                                                                                   23 738
Secured financial liabilities                                                                                            (936 900)
Derivative financial instruments                                                                                           (5 673)
Trade and other payables                                                                                                  (84 340)
NET ASSETS ACQUIRED                                                                                                      3 384 793
Non-controlling interest                                                                                               (1 491 494)
Share issue cost                                                                                                             6 627
Consideration shares issued Arrowhead                                                                                  (1 899 927)
VAM shares issued                                                                                                        (160 618)
GOODWILL RECOGNISED                                                                                                      (160 619)                                                                                                   
NET CASH ACQUIRED                                                                                                           23 738

CHANGE IN DIRECTORATE

As released on SENS on 19 December 2016, Gerald Leissner, Arrowhead co-founder and Chief Executive Officer, passed away on Friday, 16 December 2016. 
On 16 January 2017, Mark Kaplan was appointed as the new Chief Executive Officer.

PROSPECTS

South Africa has experienced a protracted term of political uncertainty which has negatively impacted economic prospects and GDP growth. Over the 
course of the last 18 months we have seen the effects of the higher cost of equity, cost of debt and a deterioration in the general economic sentiment. 
This has had the effect of impacting on the ability to fill vacant space, renew leases and has heightened competition between property owners for 
the existing pool of tenants.

The economic conditions have also impacted on the ability to implement acquisitions due to a misalignment of pricing expectation between vendors 
and purchasers. In the current year we have seen the gap between vendors and purchasers narrowing and funding costs moving in the right direction. 
This has resulted in a potential acquisition pipeline particularly in Indluplace and Gemgrow.

We have nonetheless been able to achieve a satisfactory performance from the portfolio. The company is on track to meet its dividend forecast 
for the year ending 30 September 2017.

SUMMARY OF FINANCIAL PERFORMANCE

                                                                  UNAUDITED FOR THE 6 MONTHS ENDED        UNAUDITED FOR THE 6 MONTHS ENDED
                                                                                     31 MARCH 2017                           31 MARCH 2016
Dividend per Arrowhead share (cents)                                                         43,24                                   40,79
Arrowhead ordinary shares in issue^                                                  1 037 915 775                             993 483 619

Net asset value per share at reporting date (cents)                                        1132,84                                  923,11
Loan to value ratio                                                                          27,8%                                   27,5%
^ Includes shares issued to the Arrowhead Charitable Trust.
* After the reporting period no additional shares were issued.

PAYMENT OF DIVIDEND FOR THE QUARTER ENDED 31 MARCH 2017

The board of directors ("Board") has approved a gross dividend (dividend number 22) of 21,83000 cents per share for the quarter ended 31 March 2017 
in accordance with the timetable set out below:

                                                                                                                                         2017
Last date to trade cum dividend                                                                                               Monday, 12 June
Shares trade ex dividend                                                                                                     Tuesday, 13 June
Record date                                                                                                                 Thursday, 15 June
Payment date                                                                                                                  Monday, 19 June

Share certificates may not be dematerialised or rematerialised between Tuesday, 13 June 2017 and Thursday 15 June 2017, 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 distributions 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 it is a dividend distributed by a REIT. The 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 dividend, 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 is exempt from 
income tax in terms of the general dividend exemption in section 10(1)(k)(i) of the Income Tax Act. On 22 February 2017 the dividends withholding tax 
was increased from 15% to 20% and accordingly, any dividends received by a non-resident from a REIT will be subject to dividend withholding tax at 20%, 
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 20%, the net dividend amount due to non-resident 
shareholders is 17,46400 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, broker or the company, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the
dividend 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 the dividend: 1 037 915 775

Arrowhead's income tax reference number: 9779/439/15/8

EVENTS AFTER REPORTING PERIOD

As released on SENS on 8 May 2017, Riaz Kader has been appointed as the new Chief Operating Officer of Arrowhead.

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 interim consolidated results for the six months ended 31 March 2017 have not been reviewed or reported on by the groups' auditors, Grant Thornton.

The financial statements have been prepared in accordance with the requirements of International Financial Reporting Standards, the SAICA Financial 
Reporting Guides as issued by the Accounting Practices Committee, 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 2016.

CONDENSED consolidated statement of comprehensive income
FOR THE PERIOD ENDED 31 MARCH 2017
                                                   Unaudited for 6 months ended          Unaudited for 6 months ended        Audited for year ended
R'000                                                             31 March 2017                         31 March 2016             30 September 2016
Rental income                                                           959 324                               743 681                     1 531 560
Straight line rental income accrual                                       3 837                                 8 339                      (13 665)
Listed securities income                                                 95 893                                20 097                        71 770
Total revenue                                                         1 059 054                               772 117                     1 589 665
Property expenses                                                     (360 780)                             (270 655)                     (567 968)
Administration and corporate costs                                     (23 809)                              (15 333)                      (38 093)
Net operating profit                                                    674 465                               486 129                       983 604
Changes in fair values                                                  314 834                              (84 220)                       189 257
Profit from operations                                                  989 299                               401 909                     1 172 861
Finance charges                                                       (193 283)                             (111 003)                     (237 292)
Finance income                                                           39 940                                27 337                        53 360
Profit before taxation                                                  835 956                               318 243                       988 929
Taxation                                                                      -                                     -                             -
Total comprehensive income for the period                               835 956                               318 243                       988 929
Profit for the year attributable to:        
Equity shareholders of Arrowhead                                        709 867                               277 478                       888 492
Non-controlling interest                                                126 089                                40 765                       100 437
                                                                        835 956                               318 243                       988 929
      
CONDENSED consolidated statement of financial position
AT 31 MARCH 2017
                                                       Unaudited for 6 months ended        Unaudited for 6 months ended       Audited for year ended
R'000                                                                 31 March 2017                       31 March 2016            30 September 2016
Assets
Non-current assets                                                       15 560 960                          11 253 554                   12 172 867
Investment property                                                      12 400 987                           9 532 337                    9 877 538
Fair value of property portfolio for accounting purposes                 12 322 921                           9 436 103                    9 803 309
Straight line rental income accrual                                          78 066                              96 234                       74 229
Property, plant and equipment                                                   925                                 233                          985
Loans to participants of group share purchase and option schemes            652 576                             542 914                      540 557
Goodwill                                                                    337 449                             176 830                      176 830
Financial assets                                                          2 164 138                             970 163                    1 570 696
Deferred taxation                                                             2 011                                   -                            -
Derivative instruments                                                        2 874                              31 077                        6 261
Current assets                                                              302 154                              80 040                      159 282
Trade and other receivables                                                 165 835                              80 040                       80 858
Cash and cash equivalents                                                   136 319                                   -                       78 424
Non-current assets held for sale                                                  -                                   -                       95 500
Total assets                                                             15 863 114                          11 333 594                   12 427 649
Equity and liabilities
Shareholders' interest                                                    8 648 659                           7 741 194                    8 202 208
Stated capital                                                            6 676 586                           6 142 446                    6 142 446
Reserves                                                                  1 972 073                           1 598 748                    1 598 748
Non-controlling interest                                                  2 758 108                             966 420                      981 753
Other non-current liabilities                                             3 428 213                           2 429 961                    2 900 739
Secured financial liabilities                                             3 409 159                           2 419 313                    2 890 639
Derivative instruments                                                       19 054                              10 648                       10 100
Current liabilities                                                       1 028 134                             196 019                      342 949
Trade and other payables                                                    253 101                             177 732                      142 949
Bank overdraft                                                                    -                              18 287                            -
Secured financial liabilities                                               775 033                                   -                      200 000
Total equity and liabilities                                             15 863 114                          11 333 594                   12 427 649

CONDENSED consolidated statement of changes in equity
R'000                                                                         Stated capital     Reserves     Non-controlling interest         Total
Balance at 30 September 2015                                                       5 128 005    1 642 405                      576 127     7 346 537
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
Issue of shares                                                                      280 408            -                       15 735       296 143
Business combination - at acquisition reserves                                             -            -                    1 773 568     1 773 568
Transfers between equity holders                                                           -      (1 059)                        1 059             -
Dividends paid                                                                             -    (542 765)                    (140 096)     (682 861)
Total comprehensive income for the period                                                  -      709 867                      126 089       835 956
Balance at 31 March 2017                                                           6 676 586    1 972 073                    2 758 108    11 406 767

CONDENSED consolidated statement of cash flows
                                                                Unaudited for 6 months ended  Unaudited for 6 months ended    Audited for year ended
R'000                                                                          31 March 2017                 31 March 2016         30 September 2016
Net cash utilised from operating activities                                        (131 214)                        30 393                  (33 168)
Cash generated from operations                                                       609 097                       490 091                   928 634
Finance charges paid                                                               (193 283)                     (111 003)                 (237 292)
Interest received                                                                     39 940                        27 337                    53 360
Dividends received                                                                    95 893                        20 097                    71 770
Dividends paid - non-controlling interest                                          (140 096)                      (43 370)                  (87 805)
Dividends paid                                                                     (542 765)                     (352 760)                 (761 835)
Debenture interest paid                                                                    -                             -                         -
Net cash utilised in investing activities                                           (82 474)                   (1 018 069)               (1 292 116)
Acquisition of investment property                                                  (62 081)                     (883 881)                 (904 296)
Proceeds from disposal of investment property                                         62 500                             -                    20 536
Business combinations                                                                 23 738                             -                         -
Investment and loans to subsidiaries                                               (271 833)                     (134 201)                 (409 852)
Acquisition of property, plant and equipment                                           (161)                          (14)                     (887)
Repayment of loans by participants of group share purchase and option schemes        165 363                            27                     2 383
Net cash generated from financing activities                                         271 584                       882 201                 1 316 520
Net proceeds from issue of share capital                                             (1 513)                       473 794                   149 660
Proceeds from issue of shares - non-controlling interest                              18 200                       398 377                   488 354
Proceeds from financial liabilities                                                  254 897                        10 030                   678 506
Net movement in cash and cash equivalents                                             57 896                     (105 474)                   (8 764)
Cash and cash equivalents at the beginning of the year                                78 423                        87 188                    87 188
Cash and cash equivalents at the end of the year                                     136 319                      (18 286)                    78 424

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% is 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.


31 March 2017 – R'000                           Gauteng                       Western Cape                         Other                       Total
Contractual rental income                       439 593                            121 184                       398 547                     959 324
Straight line rental income                         844                                  1                         2 992                       3 837
Listed securities income                              -                                  -                        95 893                      95 893
Operating and administration costs            (164 414)                           (41 760)                     (178 415)                   (384 589)
Net operating profit                            276 023                             79 425                       319 017                     674 465
Finance income                                      438                                 42                        39 460                      39 940
Finance charges                                   (167)                               (83)                     (193 033)                   (193 283)
Net operating income                            276 294                             79 384                       165 444                     521 122
Changes in fair values                                -                                  -                       314 834                     314 834
Reportable segmental profit before tax          276 294                             79 384                       480 278                     835 956
Taxation                                              -                                  -                             -                           -
Reportable segmental profit after tax           276 294                             79 384                       480 278                     835 956
Reportable segmental assets                   6 985 001                          1 764 094                     7 114 019                  15 863 114
Reportable segmental liabilities              (110 750)                           (27 411)                   (4 318 186)                 (4 456 347)
                                              6 874 251                          1 736 683                     2 795 833                  11 406 767

31 March 2016 – R'000                           Gauteng                       Western Cape                         Other                       Total
Contractual rental income                       486 791                             87 573                       169 317                     743 681
Straight line rental income                           -                                  -                         8 339                       8 339
Listed securities income                              -                                  -                        20 097                      20 097
Operating and administration costs            (179 862)                           (28 899)                      (77 227)                   (285 988)
Net operating profit                            306 929                             58 674                       120 526                     486 129
Finance income                                      548                                111                        26 678                      27 337
Finance charges                                   (123)                                (2)                     (110 878)                   (111 003)
Net operating income                            307 354                             58 783                        36 326                     402 463
Changes in fair values                                -                                  -                      (84 220)                    (84 220)
Reportable segmental profit before tax          307 354                             58 783                      (47 894)                     318 243
Taxation                                              -                                  -                             -                           -
Reportable segmental profit after tax           307 354                             58 783                      (47 894)                     318 243
Reportable segmental assets                   5 068 257                          1 248 316                     5 017 021                  11 333 594
Reportable segmental liabilities               (79 587)                           (17 017)                   (2 529 376)                 (2 625 980)
                                              4 988 670                          1 231 299                     2 487 645                   8 707 614

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 segmental profit before tax          679 044                            177 262                       132 623                     988 929
Taxation                                              -                                  -                             -                           -
Reportable segmental profit after tax           679 044                            177 262                       132 623                     988 929
Reportable segmental assets                   5 306 558                          1 379 593                     5 741 498                  12 427 649
Reportable segmental liabilities              (127 784)                           (21 082)                   (3 094 822)                 (3 243 688)
                                              5 178 774                          1 358 511                     2 646 676                   9 183 961

SECTORAL

31 March 2017 – R'000                             Office            Residential      Industrial            Retail        Overheads             Total
Contractual rental income                        351 025                194 992         139 582           268 874            4 851           959 324
Straight line rental income                      (2 577)                      -           2 235             4 179                -             3 837
Listed securities income                               -                      -               -                 -           95 893            95 893
Operating and administration costs             (125 218)               (74 681)        (57 241)          (95 637)         (31 812)         (384 589)
Net operating profit                             223 230                120 311          84 576           177 416           68 932           674 465
Finance income                                       263                 11 358             106               275           27 938            39 940
Finance charges                                    (237)                (8 333)            (10)                 -        (184 703)         (193 283)
Net operating income / (loss)                    223 256                123 336          84 672           177 692         (87 834)           521 122
Changes in fair values                                 -                   (18)               -                 -          314 852           314 834
Reportable segmental profit before tax           223 256                123 318          84 672           177 692          227 018           835 956
Taxation                                               -                      -               -                 -                -                 -
Reportable segmental profit after tax            223 256                123 318          84 672           177 692          227 018           835 956
Reportable segmental assets                    4 665 584              2 155 907       1 815 481         3 715 658        3 510 484        15 863 114
Reportable segmental liabilities                (72 247)               (46 111)        (23 218)         (119 208)      (4 195 563)       (4 456 347)
                                               4 593 337              2 109 796       1 792 263         3 596 450        (685 079)        11 406 767
                  
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 segmental profit / (loss) before tax  367 271                269 174         102 733           459 344        (209 593)           988 929
Taxation                                               -                      -               -                 -                -                 -
Reportable segmental profit after tax            367 271                269 174         102 733           459 344        (209 593)           988 929
Reportable segmental assets                    3 151 383              2 400 180         924 776         3 661 374        2 289 936        12 427 649
Reportable segmental 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

RECONCILIATION
RECONCILIATION OF EARNINGS TO HEADLINE EARNINGS

                                                                Unaudited for 6 months ended   Unaudited for 6 months ended   Audited for year ended
R'000                                                                          31 March 2017                  31 March 2016        30 September 2016
Profit for the period attributable to Arrowhead shareholders                         709 867                        277 478                  888 492
Earnings                                                                             709 867                        277 478                  888 492
Changes in fair value of investment property                                               -                              -                (232 524)
Changes in fair value of investment property - non-controlling interest                    -                              -                   14 263
Profit on sale of property                                                                 -                              -                  (2 336)
Headline profit attributable to shareholders                                         709 867                        277 478                  667 895

RECONCILIATION OF HEADLINE EARNINGS TO DISTRIBUTABLE EARNINGS

                                                                Unaudited for 6 months ended   Unaudited for 6 months ended   Audited for year ended
R'000                                                                          31 March 2017                  31 March 2016        30 September 2016
Headline profit attributable to shareholders                                         709 867                        277 478                  667 895
Changes in fair values of listed securities and financial instruments              (314 834)                         84 220                   45 603
Straight line rental income accrual                                                  (3 837)                        (8 339)                   13 665
Straight line rental income accrual - non-controlling interest                             -                              -                      819
Interest received on loan to the Arrowhead Charitable Trust
(eliminated on group level)                                                           13 404                         12 645                   25 620
Income from listed securities distributed in prior period                           (95 893)                       (19 796)                 (19 795)
Accrued dividend on listed securities                                                120 926                         32 220                   67 646
Antecedent interest                                                                        -                         26 145                   31 585
Pre-effective date dividend                                                           19 162                              -                        -
Antecedent interest - subsidiary                                                           -                          2 316                    2 316
Distributable earnings attributable to shareholders                                  448 795                        406 889                  835 354
Number of Arrowhead ordinary shares in issue                                       1 037 916                      1 001 419                1 025 894
Weighted average number of Arrowhead shares in issue                               1 033 332                        902 020                  970 994
Basic and diluted earnings per Arrowhead ordinary share (cents)                        68,70                          61,52                    91,50
Headline and diluted headline earnings per Arrowhead ordinary shares (cents)           68,70                          61,52                    68,78

By order of the Board
24 May 2017

DIRECTORS:              M Nell* (Chairperson), M Kaplan (CEO), I Suleman (CFO), R Kader (COO), T Adler*, S Noik*, E Stroebel*
                        * Independent non-executive
                        All directors are South African.

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



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