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Provisional consolidated audited results for the year ended 30 September 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")
Provisional Consolidated audited results for the year ended 30 September 2017
Achieved forecast with dividend growth of 6,02%
Strong balance sheet, company LTV of 28,2% and group LTV of 31,5%
Average asset size increased from R49 million to R110 million
Successful maiden year for Gemgrow
Nature of business
Arrowhead is a diversified opportunistic South African fund focused on creating long term shareholder value.
Arrowhead is a Real Estate Investment Trust ("REIT") holding a diverse portfolio of retail, office and industrial
(collectively "commercial") properties valued at R5,6 billion (held directly and through wholly owned subsidiary).
In addition, as at 30 September 2017, Arrowhead held a 66,2% interest (2016: 60,1%) in its subsidiary, Indluplace
Properties Limited ("Indluplace"), which owns a portfolio of residential properties. As at 30 September 2017 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 commercial properties. The average value per property as at 30 September 2017 was
R110 million (2016: R49,2 million).
In addition, Arrowhead held an interest of 19,5% in Rebosis Property Fund Limited ("Rebosis") as well as a 10,8%
interest in Dipula Income Fund Limited ("Dipula") at 30 September 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,
by acquiring revenue enhancing properties and investments in other REITS.
Condensed consolidated financial results
For the year ended 30 September 2017
R'000 2017 2016
Revenue (excluding straight line rental income) 1 936 179 1 531 560
Listed securities income 191 832 71 770
Property expenses (735 966) (567 968)
Administration and corporate costs (39 350) (38 094)
Finance charges (403 581) (237 292)
Finance income 80 733 53 360
Pre-effective date dividend # 19 162 -
Non-controlling interest profits elimination (net of antecedent income) (238 792) (85 355)
Distributable income 810 217 727 981
Antecedent income - 31 586
Antecedent income – subsidiary - 2 316
Underwriters fee 9 500 -
Accrued dividend on listed securities 127 505 67 646
Listed securities income recognised in previous reporting period (67 757) (19 795)
Total dividends 879 465 809 734
Dividend to the Arrowhead Charitable Trust and management fees* 28 931 25 620
Total dividends after effects of Arrowhead Charitable Trust and management fees 908 396 835 354
# Pre-effective date dividend is in respect of the dividend declared by Gemgrow as regards the income earned by Gemgrow
on the Cumulative Properties Limited ("Cumulative") portfolio prior to the accounting effective date.
* Dividend to the Arrowhead Charitable Trust and management fees is added back as it is eliminated on consolidation.
Management fees are in respect of administration costs recouped from Indluplace and Gemgrow.
Property expenses as a percentage of revenue – gross 38% 37%
Property expenses as a percentage of revenue – net 13% 15%
Dividend for the quarter ended 31 December 222 218 198 995
Dividend for the quarter ended 31 March 226 577 207 894
Dividend for the quarter ended 30 June 228 872 214 155
Dividend for the quarter ended 30 September^ 230 729 214 310
Total dividend (cents) 908 396 835 354
Dividend per share for the quarter ended 31 December 21,41 20,03
Dividend per share for the quarter ended 31 March 21,83 20,76
Dividend per share for the quarter ended 30 June 22,05 20,87
Dividend per share for the quarter ended 30 September ^ 22,23 20,89
Total dividend (cents) 87,52 82,55
Net asset value per share (cents) 1 103,91 895,22
^ The dividend was declared on 22 November 2017
Commentary
Revenue
The political and economic environment that we are currently experiencing has caused a rapid deterioration in our operating
environment. Market volatility has made investors skittish resulting in low business confidence. These factors have greatly
impacted our tenants. Tenants are delaying letting decisions where possible. This has resulted in market conditions which
translate into lower rentals, higher tenant installations and higher broker commissions. In addition, vacant pockets are
taking far longer to rent than in previous environments.
Revenue includes rental income and expenditure that is recoverable from tenants.
The substantial increase in revenue is as a result of income derived from Gemgrow during the year under review, annual escalations
to existing leases and Indluplace acquiring a portfolio of income producing residential property of R499,3 million.
At 30 September 2017 Arrowhead owned 51 commercial properties directly, 129 commercial properties indirectly through
Gemgrow and 125 residential properties indirectly through Indluplace. At 30 September 2016, Arrowhead owned 154 retail,
office and industrial properties directly and 116 residential properties indirectly through Indluplace.
Arrowhead's direct property portfolio comprises 56,6% by value of retail properties, 35,6% of office buildings and 7,8% of
industrial buildings. The average gross monthly rental per (m(2)) per sector is R131 for retail, R114 for office and R45 for industrial.
Vacancies have increased from 7,8% at 30 September 2016 to 12,10% at 30 September 2017 (retail 5,43%, office 21,65% and
industrial 8,85%). The rapid deterioration of market conditions combined with many single tenanted expiries that Arrowhead experienced
during the year led to this increase in vacancy, especially in the office market.
The major contributor to the increased vacancy were the 1 Sturdee building of which 13 350 (m(2)) went vacant (1 January 2017). Of this,
6 404 (m(2)) has been re-let (1 August 2017), and a further 1 900 (m(2)) has been re-let post year-end. Additional contributors were the
vacancy at the Hill Street building (13 347(m(2)) where a residential conversion is being explored and the Kwela Logistics building
of which 15 450 (m(2)) went vacant and of which 7 733 (m(2)) has been re-let by year- end compounded vacancies. Arrowhead has also decided
to transition out of single tenanted buildings over the medium term in order to reduce the risk associated with single tenanted buildings
which caused the large increase in vacancy.
During the period, leases in respect of 144 958 (m(2)) of gross lettable area ("GLA") expired, of which 47% were renewed and of the
remaining 76 912 (m(2)), an additional 24 490 (m(2)) was re-let within the financial period, equating to 64% of GLA expiring, being occupied.
Average rental increases of 5% (office 4%, retail 8% and industrial -46%) have been achieved on lease renewals across the property portfolio.
The average lease profile across the portfolio is 3,88 years.
12 month letting report (excluding residential portfolio)
Total Let Vacant Let Vacant
(m(2)) (m(2)) (m(2)) (%) (%)
As at 1 October 2016 905 149 835 143 70 006 92,27 7,73
Disposal of Cumulative (353 942) (316 736) (37 206)
Disposals (4 392) (4 392) -
Net adjustments 609 1 022 (413)
As at 1 October 2016 547 424 515 037 32 387 94,08 5,92
Net (loss)/gain - (33 857) 33 857
As at 30 September 2017 547 424 481 180 66 244 87,90 12,10
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 19,50%. This investment was made on a dividend enhancing basis for Arrowhead.
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 2017 (%) 2016 (%)
Municipal expenses 439 273 60 352 855 62
Property management 58 875 8 50 075 9
Security 37 193 5 31 267 6
Repairs and maintenance 34 636 5 22 738 4
Letting commission 13 504 2 11 009 2
Cleaning 22 577 3 16 419 3
Insurance 5 611 1 6 385 1
Other 124 297 16 77 220 13
Total 735 966 100 567 968 100
Municipal expenses have increased in line with the increased revenue and including Gemgrow, the enlarged portfolio. The gross expense to income
ratio has remained stable at 37,0%. The net expense to income ratio decreased from 15% to 13%.
Administration costs and corporate costs
TOTAL TOTAL
R'000 2017 (%) 2016 (%)
Salaries 25 612 65 24 434 64
Professional service fees 7 052 18 6 859 18
Other 6 685 17 6 801 18
Total 39 349 100 38 094 100
The salaries for the group increased slightly compared to the prior year, as the executive and non-executive directors of Gemgrow were only
appointed in January 2017 and as a result of annual increases.
Finance income
TOTAL TOTAL
R'000 2017 (%) 2016 (%)
Interest on group share purchase and option schemes 66 282 82 49 099 92
Interest on cash balances and tenants 14 451 18 4 261 8
Total 80 733 100 53 360 100
Interest on the group share purchase and option schemes is on outstanding balances of the loans granted to participants in the Arrowhead share
purchase and option scheme, the Indluplace share purchase and option scheme and the Gemgrow group loans to executives for the purpose of funding
the purchase of B shares in Gemgrow.
Finance charges
TOTAL TOTAL
R'000 2017 (%) 2016 (%)
Interest paid – secured financial liabilities 389 083 96 224 120 95
Interest paid – interest rate swaps 7 978 2 10 326 4
Amortisation of structuring fee and other interest paid 6 520 2 2 846 1
Total 403 581 100 237 292 100
Finance charges increased from R237,3 million to R403,6 million which is in line with increased facilities utilised in accordance with the growth
of the portfolio, and taking current interest rate increases into consideration.
Investment properties
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 - 103 442 9 556 683 9 660 125
Acquisitions – Gemgrow 29 2 431 800 - - 29 2 431 800
Disposals (2) (62 500) - - (2) (62 500)
Balance at the end of the period 180 10 054 018 125 2 948 445 305 13 002 463
* The residential portfolio is a separately listed fund on the JSE. Arrowhead's shareholding in Indluplace was 66,2% at
30 September 2017 (2016: 60,1%).
Investment property has increased from R10,0 billion at 30 September 2016 to R13,0 billion at 30 September 2017. The increase was attributable to
acquisitions and additions of R5,0 billion, fair value adjustments of R34,0 million and disposals of R2,0 billion.
Arrowhead disposed of the following during the period:
Property disposals
PROPERTY NAME PROVINCE SECTOR SOLD R'000
Tyrwhitt 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 30 September 2017
YEAR ENDED YEAR ENDED
30 SEPTEMBER 2017 30 SEPTEMBER 2016
DESCRIPTION R'000 R'000 GROWTH (%)
Revenue 783 837 782 494 0,17
Property Expenses (278 782) (284 874) (2,14)
Net Operating Income 505 055 497 620 1,49
Assuming a gearing ratio on the portfolio of 28,2% and an annual effective interest rate of 8,98%, the total growth in distributable income for
the year ending 30 September 2018, should be 2%. The core portfolio represents 51 properties 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 for the purpose of funding the purchase of B shares in Gemgrow. The increase from R540,6 million to R617,7 million is as a result
of shares issued to participants of the Arrowhead and Indluplace share purchase scheme and shares issued to the Gemgrow group executives to
the value of R282,9 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)
or 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 pledged of the shares.
Trade and other receivables
Trade receivables, deposits, other receivables and payments in advance increased from R80,9 million to R206,2 million mainly as a result of growth
in the portfolio. The increase is also as a result of the additional buildings acquired by Gemgrow 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
R3,5 million have been written off during the period under review, whilst the provision for bad debt increased from R8,7 million to R12,0 million.
Secured financial liabilities
Group loans of R4,7 billion (2016: R3,1 billion) measured against investment and financial assets of R14,9 billion (2016: R11,45 billion) represents
a loan to value ("LTV") of 31,5% (2016: 27,5%) and company LTV of 28,2%. The interest rate swaps of R3,0 billion and the fixed rate loan of
R237 million results in the interest on R3,2 billion of the total loans of R4,7 billion being fixed. This equates to 69,0% of the total borrowings
for the group and 71% for the company.
Excess funds are placed in an access facility to reduce the overall interest charge. The effective interest rate for the period ended
30 September 2017 was 9,10% (30 September 2016: 9,35%) for the group and 8,98% (30 September 2016: 8,93%) for the company. All the loans
expiring in 2017 have been extended for five years and all the loans expiring in the first half of 2018 are in the final stages
of being extended.
CAPITAL
1 MONTH JIBAR 3 MONTH JIBAR PRIME RATE 30 SEPTEMBER 2017
MATURITY FIXED RATE % MARGIN % MARGIN % MARGIN % R'000
September 2017 (Gemgrow) - - - Minus 1,60 50 000 000
December 2017 (Gemgrow) 9,14 - - - 90 000 000
December 2017 (Gemgrow) 8,36 - - - 146 705 000
December 2017 (Gemgrow) - 2,3 - - 28 295 000
December 2017 (Gemgrow) - 1,65 - - 25 042 750
January 2018 (Gemgrow) - - - Minus 1,50 234 998 317
February 2018 - - - Minus 1,45 200 000 000
March 2018 - - 2,10 - 280 000 000
March 2018 - - - Minus 1,40 220 574 301
April 2018 - - - Minus 1,55 150 000 000
November 2018 (Gemgrow) - - - Minus 1,50 200 673 612
December 2018 - - 1,77 - 300 000 000
April 2019 - - 1,77 - 60 000 000
April 2019 - - 1,77 - 270 000 000
June 2019 - - - Minus 1,40 51 000 000
August 2019 (Indluplace) - - - Minus 1,30 200 000 000
September 2019 (Gemgrow) - - 2,35 - 139 000 000
September 2019 (Gemgrow) - - - Minus 1,1 4 000 000
November 2019 - - 1,75 - 610 000 000
March 2020 - - 2,08 - 480 000 000
August 2021 - - 2,10 - 276 679 083
October 2021 - - 2,10 - 65 729 120
October 2021 - - 2,10 - 41 681 461
October 2021 - - 2,10 - 51 772 355
December 2021 - - 2,10 - 112 450 223
June 2022 - - 2,10 - 201 140 000
July 2022 - - 2,10 - 198 860 000
Total exposure 4 688 601 222
ARROWHEAD INDLUPLACE GEMGROW TOTAL
CAPITAL AMOUNT CAPITAL AMOUNT CAPITAL AMOUNT CAPITAL AMOUNT
MATURITY DATE (R'000) (R'000) (R'000) (R'000)
2017 - - 50 000 50 000
2018 850 574 - 525 041 1 375 615
2019 681 000 200 000 343 674 1 224 674
2020 1 090 000 - - 1 090 000
2021 276 679 - - 276 679
2022 671 633 - - 671 633
3 569 886 200 000 918 715 4 688 601
ARROWHEAD PROPERTIES GEMGROW PROPERTIES INDLUPLACE PROPERTIES
NOTIONAL AMOUNT R MATURITY DATE NOTIONAL AMOUNT R MATURITY DATE NOTIONAL AMOUNT R MATURITY DATE
189 604 549 2018/03/31 40 000 000 2019/02/19 150 000 000 2019/09/01
72 947 536 2018/05/31 50 000 000 2019/02/19 150 000 000
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 2021/10/20 300 000 000
41 681 460 2021/10/25
51 772 355 2021/10/27
112 450 223 2021/12/15
200 000 000 2022/06/30
200 000 000 2022/07/04
2 546 348 721
Business combination
The company acquired the 55,2% interest in Gemgrow (previously Synergy Income Fund Limited), on 25 October 2016, in exchange for a 100% shareholding
in Cumulative which had investment properties of R1,9 billion as at the date of the transaction. Gemgrow was consolidated into the group's results
from the effective date, being 25 October 2016. Included in the group's results is revenue of R666,1 million and profit before tax of R422,3 million.
If the transaction had been concluded on 1 October 2016, the revenue would have been R687,1 million and the profit R441,8 million.
The rationale for the transaction which saw Gemgrow dispose of 14 retail properties to Vukile Income Fund Limited in exchange for 29 high yielding
retail, office and industrial assets, the acquisition of the issued share capital in Cumulative, and the acquisition of the issued share capital
of Vukile Asset Management (Pty) Ltd ("VAM") was 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.
The goodwill arose as a result of R160,6 million paid by Gemgrow as consideration for VAM which had no net asset value at the date of the transaction,
for the effective internalisation of Gemgrow's asset management function.
DESCRIPTION AMOUNTS (R'000s)
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)
TOTAL ASSETS ACQUIRED 3 384 793
Non-controlling interest (1 491 494)
Share issue cost 6 627
Consideration shares issued by Arrowhead (1 899 927)
VAM shares issued (160 618)
Goodwill Recognised (160 619)
Net cash acquired 23 738
Change in directorate
Riaz Kader was appointed to the board and as Chief Operating Officer with effect from 8 May 2017.
Prospects
South Africa has experienced a protracted period of political uncertainty that has negatively impacted economic prospects and GDP growth. Over the
course of the current financial year we have experienced the impact of higher costs of equity and debt and a quicker than expected deterioration in
general economic sentiment and business confidence. In a year in which Arrowhead has faced significant lease expiries, the economic conditions have
resulted in heightened competition between property owners for a shrinking pool of tenants, impacting negatively on our ability to fill vacant space
and renew leases. The economic deterioration has also impacted on our ability to make earnings enhancing acquisitions; as vendors' pricing expectations
have not yet reacted to the changing economic conditions, compounded by the volatile cost of debt and equity.
The lower than expected reversions, longer vacancy and general difficulty in letting space (particularly large single tenanted space) that have resulted
from these factors are anticipated to have their full impact in the 2018 financial year. The impact of this negative rental growth on dividends could be
partially off-set by the payment of one-off amounts, arising mainly from listed securities acquired cum dividend and capital profits that are
collectively forecast to amount to approximately R65 million (approximately 6 cents per share) in the 2018 financial year.
We believe that in the current economic environment, the company needs to be conservative. As a result we have taken the strategic decision that with
effect from the 2018 financial year we will no longer distribute any amounts that do not reflect a sustainable income base from which the company can
deliver growth.
The effect of this decision is that Arrowhead's forecast dividends reflect the full impact of the negative rental reversions and increased vacancies.
As a result, Arrowhead is forecasting a -6,5% reduced dividend growth for the year ended 30 September 2018. The board is also considering the change
from quarterly dividends to semi-annual dividends and will communicate this to the market if the decision is taken. This proposed change to the policy
of declaring quarterly dividends has not been taken into account in the forecast.
Distribution of the available non-sustainable income would have pushed the projected dividend growth into positive territory. However, this would have
created an unsustainable base off which we could not confidently project future growth and would have weakened Arrowhead's balance sheet, at a time
when we believe its well-positioned balance sheet is of significant benefit. The retained amounts that could have been distributed will instead be
reinvested by the company, to drive sustainable growth.
We are confident that we have made the correct, although difficult, strategic decisions, in tough macro-economic circumstances, to position the
company for sustainable growth going forward that we will create long term sustainable value for our shareholders.
The forecast figures do not take into account letting of vacant space or potential future acquisitions and these could present an upside. Forecast
income is based (in the case of Arrowhead's property portfolio) on contractual escalations and market-related renewals and in the case of the
company's investments in Dipula and Rebosis on their published forecasts. The forecast which has not been reviewed or reported on by the group's
auditors assumes that there is no further material deterioration in the prevailing macro-economic conditions, that no major tenant corporate failures
will occur and that tenants will be able to absorb rising utility costs and rates recoveries.
Summary of financial performance
30 SEPTEMBER 2017 30 SEPTEMBER 2016
Dividends per Arrowhead share (cents) 87,52 82,55
Arrowhead ordinary shares in issue^ 1 037 915 775 1 025 893 790
Net asset value per share at reporting date (cents) 1 103,91 895,22
Loan to value ratio 31% 27%
^ Includes 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 2017, containing a notice of the annual general meeting and incorporating the audited
annual financial statements for the year ended 30 September 2017 will be made available in electronic form on the company's website,
www.arrowheadproperties.co.za and will be posted in due course 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 3rd Floor, Upper building, 1 Sturdee Avenue, Rosebank, Johannesburg. A further announcement
providing details of the annual general meeting will be released in due course.
Payment of dividend for the quarter ended 30 September 2017
The board of directors ("Board") has approved a gross dividend (dividend number 24) of 22,23000 cents per share for the quarter ended
30 September 2017 in accordance with the timetable set out below:
2017
Last date to trade cum dividend Tuesday, 12 December
Shares trade ex dividend Wednesday, 13 December
Record date Friday, 15 December
Payment date Monday, 18 December
Share certificates may not be dematerialised or rematerialised between Wednesday, 13 December 2017 and Friday, 15 December 2017, both days inclusive.
Payment of the dividend will be made to shareholders on Monday, 18 December 2017. In respect of dematerialised shareholders, the dividend will be
transferred to the Central Securities Depositry Partisipant ("CSDP") accounts/broker accounts on Monday, 18 December 2017. Certificated shareholders'
dividend payments will be deposited on or about Monday, 18 December 2017.
In accordance with Arrowhead's status as a REIT, shareholders are advised that the dividends meet the requirements of a "qualifying dividend" for the
purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ("Income Tax Act"). The dividends 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. These dividends are, 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 are 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, 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 17,78400 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 dividends are 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 dividends: 1 037 915 775
Arrowhead's income tax reference number: 9779/439/15/8
Events after reporting period
Gemgrow will take transfer of the properties relating to its acquisitions post year-end. The company has secured acquisitions to the value of
R580 million, at a weighted average yield of 11,85%, funded with hedged debt facilities.
As announced on SENS on 28 September 2017, Indluplace acquired 2 803 residential units and 2 970 (m(2)) of retail space, which became effective
1 October 2017. To fund this transaction, Indluplace entered into finance agreements with ABSA and Investec for an amount of R1,5 billion, combined
with issuing 28 723 404 shares post year end to the vendors and in terms of the sale agreements.
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
This summarised consolidated report is extracted from audited information, but is not itself audited. The directors take full responsibility for the
preparation of the 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.
The audited consolidated results for the year ended 30 September 2017 have been audited by the group's independent auditors, Grant Thornton
Johannesburg Partnership. Their unqualified audited opinion is available for inspection at the group's registered office at 3rd Floor, Upper Building,
1 Sturdee Avenue, Rosebank, 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 2016.
Summarised consolidated statement of
comprehensive income
For the year ended 30 September 2017
R'000/AUDITED 2017 2016
Rental income 1 936 179 1 531 560
Straight line rental income accrual 46 122 (13 665)
Listed securities income 191 832 71 770
Total revenue 2 174 133 1 589 665
Property expenses (735 966) (567 968)
Administration and corporate costs (39 349) (38 093)
Net operating profit 1 398 818 983 604
Changes in fair values 31 901 189 257
Profit from operations 1 430 719 1 172 861
Finance charges (403 581) (237 292)
Finance income 80 733 53 360
Profit before taxation 1 107 871 988 929
Taxation (61) –
Total comprehensive income for the year 1 107 810 988 929
Profit for the year attributable to:
Equity shareholders of Arrowhead 812 730 888 492
Non-controlling interest 295 080 100 437
Total comprehensive income for the year 1 107 810 988 929
Summarised consolidated statement of financial position
As at 30 September 2017
R'000/AUDITED 2017 2016
Assets
Non-current assets 15 741 164 12 172 867
Investment property 12 910 093 9 877 538
Fair value of property portfolio for accounting purposes 12 796 323 9 803 309
Straight line rental income accrual 113 770 74 229
Property, plant and equipment 1 573 985
Loans to participants of group share purchase and option schemes 617 719 540 557
Goodwill 337 449 176 830
Financial assets 1 871 464 1 570 696
Deferred taxation 2 011
Derivative instruments 855 6 261
Current assets 311 733 159 282
Trade and other receivables 206 145 80 858
Cash and cash equivalents 105 588 78 424
Non-current assets held for sale 92 370 95 500
Total assets 16 145 267 12 427 649
Equity and liabilities
Shareholders interest 8 372 540 8 202 208
Stated capital 6 497 483 6 396 178
Reserves 1 875 057 1 806 030
Non-controlling interest 2 742 921 981 753
Other non-current liabilities 3 303 907 2 900 739
Secured financial liabilities 3 257 524 2 890 639
Derivative instruments 46 383 10 100
Current liabilities 1 725 899 342 949
Trade and other payables 300 283 142 949
Secured financial liabilities 1 425 616 200 000
Total equity and liabilities 16 145 267 12 427 649
Summarised consolidated statement of changes in equity
For the year ended 30 September 2017
Non-controlling
R'000/AUDITED Stated capital Reserves 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 101 305 - 15 734 117 039
Transfers between equity holders - 121 131 (121 131) -
Business combination - at acquisition reserves - - 1 789 233 1 789 233
Dividends paid - (864 834) (217 748) (1 082 582)
Total comprehensive income for the period - 812 730 295 080 1 107 810
Balance at 30 September 2017 6 497 483 1 875 057 2 742 921 11 115 461
Summarised consolidated statement of cash flows
For the year ended 30 September 2017
R'000/AUDITED 2017 2016
Net cash utilised from operating activities (68 964) (33 168)
Cash generated from operations 1 171 825 928 634
Finance charges paid (403 580) (237 292)
Interest received 80 733 53 360
Dividends received 191 833 71 770
Dividends paid – non-controlling interest (217 748) (87 805)
Dividends paid (891 964) (761 835)
Taxation paid (62) –
Net cash utilised in investing activities (556 989) (1 292 116)
Acquisition of investment property (599 775) (904 296)
Proceeds from disposal of investment property 69 517 20 536
Investment in listed securities (271 833) (409 852)
Disposal of propert, plant and equipment 490 -
Acquisition of property, plant and equipment (1 532) (887)
Pre-effective date dividend 19 161 -
Repayment of loans by participants of group share purchase and option schemes 203 246 2 383
Business combinations 23 738 -
Net cash generated from financing activities 653 118 1 316 520
Net proceeds from issue of share capital - 149 660
Proceeds from issue of shares - non controlling interest - 488 354
Proceeds from financial liabilities 653 118 678 506
Net movement in cash and cash equivalents 27 165 (8 765)
Cash and cash equivalents at the beginning of the year 78 423 87 188
Cash and cash equivalents at the end of the year 105 588 78 423
Summary consolidated
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.
SUMMARY CONSOLIDATED SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 SEPTEMBER 2017
30 September 2017 - R'000 Gauteng Western Cape Other Total
Contractual rental income 864 628 252 376 819 176 1 936 179
Straight line rental income 21 793 5 066 19 263 46 122
Listed securities income - - 191 832 191 832
Operating and administration costs (332 869) (84 128) (358 319) (775 315)
Net operating profit 553 552 173 314 671 953 1 398 818
Finance income 1 052 127 79 554 80 733
Finance charges (430) (253) (402 898) (403 581)
Net operating income 554 174 173 188 348 609 1 075 970
Changes in fair values (138 726) 95 330 75 296 31 901
Reportable segment profit before tax 415 448 268 518 423 905 1 107 871
Taxation - - (61) (61)
Reportable segment profit after tax 415 448 268 518 423 844 1 107 810
Reportable segment assets 7 421 151 1 884 039 6 840 079 16 145 267
Reportable segment liabilities (102 954) (24 043) (4 902 810) (5 029 807)
7 318 197 1 859 996 1 937 269 11 115 461
Sectoral
SUMMARY CONSOLIDATED SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 SEPTEMBER 2017
30 September 2017 - R'000 Commercial Retail Residential Industrial Overheads Total
Contractual rental income 668 196 562 917 409 377 295 690 - 1 936 180
Straight line rental income 20 096 14 403 513 11 111 - 46 122
Listed securities income - - - - 191 833 191 833
Operating and administration costs (263 324) (187 563) (166 691) (124 389) (33 349) (775 315)
Net operating profit 424 969 389 757 243 199 182 412 158 484 1 398 819
Finance income 508 576 31 391 461 47 797 80 733
Finance charges (506) (14) (26 007) (186) (376 867) (403 581)
Net operating income / (loss) 424 970 390 319 248 583 182 686 (170 586) 1 075 970
Changes in fair values (145 382) 143 373 36 881 504 (3 475) 31 901
Reportable segment profit / (loss) before tax 279 588 533 692 285 464 183 190 (174 061) 1 107 871
Taxation - - - - (62) (61)
Reportable segment profit after tax 279 588 533 692 285 464 183 190 (174 123) 1 107 810
Reportable segment assets
Reportable segment liabilities 4 585 958 3 910 856 3 247 312 1 847 898 2 553 244 16 145 268
(85 381) (98 059) (268 520) (25 812) (4 552 035) (5 029 807)
4 500 577 3 812 797 2 978 792 1 822 086 (1 998 791) 11 115 461
Reconciliation of earnings
to distributable earnings
R'000/AUDITED 2017 2016
Headline profit attributable to shareholders 813 887 667 895
Changes in fair values of listed securities and financial instruments 7 188 45 603
Straight line rental income accrual (46 122) 13 665
Straight line rental income accrual - non-controlling interest 16 102 819
Interest received on loan to the Arrowhead Charitable Trust and management fees (eliminated on group level) 28 931 25 620
Accrued dividend on listed securities 127 505 67 646
Income from listed securities distributed in prior period (67 757) (19 795)
Antecedent income - 31 585
Antecedent income - subsidiary - 2 316
Pre-effective date dividend 19 162 -
Underwriters fee 9 500 -
Distributable earnings attributable to shareholders 908 396 835 354
Number of Arrowhead ordinary shares in issue^ 1 037 915 775 1 025 893 790
Weighted average number of Arrowhead shares in issue 980 710 772 970 994 373
Basic and diluted earnings per Arrowhead ordinary share (cents)# 82,87 91,50
Headline and diluted headline earnings per Arrowhead ordinary share (cents)#
82,99 68,78
Geographical
SUMMARY CONSOLIDATED 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
Sectoral
SUMMARY CONSOLIDATED SEGMENTAL ANALYSIS FOR THE YEAR ENDED 30 SEPTEMBER 2016
30 September 2016 – R'000 Commercial Retail Residential Industrial Overheads Total
Contractual rental income 501 580 506 500 348 987 169 696 4 797 1 531 560
Straight line rental income (12 659) (4 391) 2 052 1 333 - (13 665)
Listed securities income - - - - 71 770 71 770
Operating and administration costs (174 320) (177 145) (120 372) (76 954) (57 270) (606 061)
Net operating profit 314 601 324 964 230 667 94 075 19 297 983 604
Finance income 809 469 403 224 51 455 53 360
Finance charges (79) (13) (73) (49) (237 078) (237 292)
Net operating income/(loss) 315 331 325 420 230 997 94 250 (166 326) 799 672
Changes in fair values 51 940 133 924 38 177 8 483 (43 267) 189 257
Reportable segment profit/(loss) before tax 367 271 459 344 269 174 102 733 (209 593) 988 929
Taxation - - - - - -
Reportable segment profit/(loss) after tax 367 271 459 344 269 174 102 733 (209 593) 988 929
Reportable segment assets 3 151 383 3 661 374 2 400 180 924 776 2 289 936 12 427 649
Reportable segment liabilities (68 516) (79 110) (28 474) (15 437) (3 052 151) (3 243 688)
3 082 867 3 582 264 2 371 706 909 339 (762 215) 9 183 961
Reconciliation of earnings
to headline earnings
R'000/AUDITED 2017 2016
Profit for the period attributable to Arrowhead shareholders 812 730 888 492
Earnings 812 730 888 492
Changes in fair value of investment property (34 313) (232 524)
Fair value on post acquisition letting commission and tenant installation 1 427 -
Changes in fair value of investment property - non-controlling interest 40 246 14 263
Profit on sale of property (6 203) (2 336)
Headline profit attributable to shareholders 813 887 667 895
By order of the Board - 22 November 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 3rd Floor upper building, 1 Sturdee Avenue, Rosebank, 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: 22/11/2017 07:21:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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