ARROWHEAD PROPERTIES LIMITED - Unaudited condensed consolidated interim results for the six months ended 31 March 2018

Release Date: 23/05/2018 07:22
Code(s): AWA
 
Wrap Text
Unaudited condensed consolidated interim results for the six months ended 31 March 2018

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 2018

SUMMARISED

Unaudited condensed consolidated interim results
for the six months ended 31 March 2018

Implemented sustainable dividend strategy
On track to meet full year guidance
Solid operational performance reducing vacancies in tough environment, setting base for property growth in 2019

Nature of business
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 a wholly-owned subsidiary. In addition, as at 31 March 2018, Arrowhead held a 
60.1% interest (2017: 66.2%) in its subsidiary, Indluplace Properties Limited ("Indluplace"), which owns a portfolio of residential properties. 
As at 31 March 2018 Arrowhead also owned 62.0% (2017: 61.7%) of the B-ordinary shares in Gemgrow Properties Limited ("Gemgrow"), equivalent to
55.5% (2017: 55.2%) of Gemgrow, which owns a diverse portfolio of commercial properties.

In addition, Arrowhead held an interest of 18.6% (2017: 19.5%) in Rebosis Property Fund Limited ("Rebosis") as well as a 10.6% interest 
(2017: 10.8%) in Dipula Income Fund Limited ("Dipula") at 31 March 2018.

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 2018

R'000                                                                                                                         2018        2017
Revenue (excluding straight line rental income)                                                                          1 112 580     959 324
Listed securities income                                                                                                   109 980      95 893
Property expenses                                                                                                        (408 359)   (360 780)
Administration and corporate costs                                                                                        (28 319)    (23 809)
Finance charges                                                                                                          (273 936)   (193 283)
Finance income                                                                                                              47 336      39 940
Pre-effective date dividend#                                                                                                     -      19 162
Non-controlling interest profits elimination (net of antecedent income)                                                  (146 348)   (126 089)
Distributable income                                                                                                       412 934     410 358
Accrued dividend on listed securities                                                                                      107 749     120 926
Listed securities income recognised in previous reporting period                                                         (109 980)    (95 893)
Total dividends                                                                                                            410 703     435 391
Dividend to the Arrowhead Charitable Trust and corporate fees*                                                              13 793      13 404
Total dividend after effects of Arrowhead Charitable Trust                                                                 424 496     448 795
#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 corporate fees is added back as it is eliminated on consolidation. 
 Corporate fees are in respect of administration costs recouped from Indluplace and Gemgrow.
Property expenses as a percentage of revenue – gross                                                                           38%         38%
Property expenses as a percentage of revenue – net                                                                           16.1%       16.0%
Dividend for the quarter ended 31 December**                                                                                     -     222 218
Dividend for the 6 months/quarter ended 31 March^                                                                          424 496     226 577
Total dividend (cents)                                                                                                     424 496     448 795
Dividend per share for the quarter ended 31 December**                                                                           -       21.41
Dividend per share for the 6 months/quarter ended 31 March^                                                                  40.43       21.83
Total dividend (cents)                                                                                                       40.43       43.24
Net asset value per share (cents) - including non-controlling interest                                                     1123.68     1132.84
Net asset value per share (cents) - excluding non-controlling interest                                                      823.83      858.93

** As announced on SENS on 22 January 2018, dividends are declared bi-annually, compared to quarterly as in the prior financial year.
^  The dividend was declared on 23 May 2018

Commentary
Arrowhead is pleased to report that it has had a positive 6 month period and is on track to meet guidance for the full year, in what 
remains a difficult environment. The property performance has been particularly pleasing, with letting activity exceeding expectations 
(and vacancies reducing from 12.10% to 10.63%). We have also been successful in selling a number of our non-core properties. These successes 
are reflective of a strong focus on property and asset management; and a general improvement in tenant and investor sentiment since December. 
Tenants remain under pressure and the letting market remains competitive, with larger tenant installations and commissions being incurred on 
new lettings as a result, the benefits of this period's letting activity are only expected to start reflecting in the 2019 financial year. 
Considering the strength of the portfolio performance over the period, and the generally improving sentiment, Arrowhead believes it is well 
positioned to achieve on its objective of delivering sustainable property growth into 2019 and beyond.

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

At 31 March 2018 Arrowhead owned 50 commercial properties directly, 139 commercial properties indirectly through Gemgrow and 171 residential 
properties comprising 9 662 units, indirectly through Indluplace. At 30 September 2017, Arrowhead owned 51 commercial properties directly, 
129 commercial properties indirectly through Gemgrow and 125 residential properties indirectly through Indluplace.

The increase in revenue is mainly as a result of income derived from acquisitions implemented during the period by Gemgrow and Indluplace as 
well as annual escalations to existing leases.

Arrowhead's direct property portfolio comprises 56.7% by value of retail properties, 35.4% of office buildings and 7.9% of industrial buildings. 
The average gross monthly rental per m(2) per sector is R134 for retail, R107 for office and R45 for industrial. Escalations on expiry were 5% 
positive overall, 4% for retail and 7% for office. There were no industrial lease expiries during the period under review. Average lease 
escalation is 7.83% for retail, 8.18% for office and 8.14% for industrial. Average lease expiry is 3.87 years.

Notwithstanding the very challenging economic environment, Arrowhead has experienced increased letting activity, particularly in the last quarter. 
Vacancies have decreased from 12.10% at 30 September 2017 to 10.63% at 31 March 2018 (retail 5%, office 21% and industrial 3%). The vacant 
Hill Street building (13 347m(2)) in Randburg has also been sold to a student housing developer post period-end, for R60 million (inclusive of VAT), 
which will further reduce vacancy rates. We anticipate realising the benefits of this increased letting activity in the 2019 financial year.

Some letting successes include the take up of 11 343m(2) of 13 350m(2) at the 1 Sturdee building in Rosebank and we are in negotiations pertaining to 
the letting of additional space at this building. Kwela Logistics went completely vacant during the 2017 financial year and occupancy is now sitting 
at 14 484m(2) of 15 450m(2), split amongst three tenants. We have also let 3 000m(2) in Owl Street and have interest in the remaining space.

Included in our lease expiry profile was exposure to two single tenanted buildings, the 7 143m(2) RCS building in Goodwood Cape Town in respect of 
which the lease expires in June 2018 and the 23 000m(2) SARS building in Durban, expiring in October 2018. RCS has been renewed for three years 
expiring in June 2021 and are in advanced discussions to conclude a four year extension on the SARS lease.

At period-end Edcon made up 2.64% by revenue and 3.16% by GLA. Post period-end this reduced to 2.16% by revenue and 2.70% by GLA as Edgars exited 
Cleary Park shopping centre in Port Elizabeth. This space has been let to a national retailer. Edgars makes up 53% and Jet the other 47% of our 
Edcon exposure.

6 month letting report
                                                                                                   Total         Let     Vacant       Let   Vacant
                                                                                                  (m(2))      (m(2))     (m(2))       (%)      (%)
As at 1 October 2017                                                                             547 424     481 180     66 244     87.90    12.10
Disposals                                                                                        (7 517)     (4 378)    (3 139)
Net adjustments                                                                                    (814)                  (814)
Adjusted totals                                                                                  539 093     476 802     62 291     88.45    11.55
Net gain/(loss)                                                                                        -       5 004    (5 004)
As at 31 March 2018                                                                              539 093     481 806     57 287     89.37    10.63

Listed securities income
Listed securities income comprises income received on shares held in Rebosis and Dipula. During the current financial period, Arrowhead's holding 
in Rebosis decreased to 18.6% and Dipula to 10.6% due to additional shares having being issued by these companies in which Arrowhead did not 
participate. Arrowhead has not disposed of any Rebosis or Dipula shares to date whilst still looking for opportunities to responsibly recycle its 
shareholding in Dipula and to extract value from its Rebosis stake.

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.

Property expenses
                                                                                                           31 MARCH     % OF    31 MARCH      % OF
R'000                                                                                                          2018    TOTAL        2017     TOTAL
Municipal expenses                                                                                          252 727       62     212 968        59
Property management                                                                                          28 963        7      30 713         9
Security                                                                                                     17 029        4      18 359         5
Repairs and maintenance                                                                                      17 380        4      17 313         5
Letting commission                                                                                            9 334        2       7 281         2
Cleaning                                                                                                     12 340        3      14 491         4
Insurance                                                                                                     4 347        1       2 163         1
Other                                                                                                        66 239       17      57 492        15
Total                                                                                                       408 359      100     360 780       100

Property expenses have increased in line with expectations mainly due to the large acquisitions implemented by Gemgrow and Indluplace during the 
period. Cost cutting measures have been implemented throughout the portfolio. The gross expense to income ratio has remained stable at 38%. The net 
expense to income ratio remained at 16% year-on-year.

Administration expenses and corporate costs                                  
                                                                                                              31 MARCH     % OF   31 MARCH     % OF
R'000                                                                                                             2018    TOTAL       2017    TOTAL
Salaries                                                                                                        13 512       47     13 465       57
Professional service fees                                                                                        3 894       14      3 954       17
Other                                                                                                           10 913       39      6 390       26
Total                                                                                                           28 319      100     23 809      100

The salaries for the group increased slightly compared to the prior year.

Finance income
                                                                                                              31 MARCH     % OF   31 MARCH     % OF
R'000                                                                                                             2018    TOTAL       2017    TOTAL
Interest on group share purchase and option schemes                                                             37 476       79     35 664       89
Interest on cash balances and tenants                                                                            9 860       21      4 276       11
Total                                                                                                           47 336      100     39 940      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, as well as the Gemgrow Share Purchase and Option Scheme.

The Arrowhead board is exploring the implementation of a new remuneration policy that would replace the Share Purchase and Option Scheme 
and will engage with shareholders at the appropriate time.

Finance charges
                                                                                                              31 MARCH     % OF    31 MARCH    % OF
R'000                                                                                                             2018    TOTAL        2017   TOTAL
Interest paid – secured financial liabilities                                                                  273 024      100     191 934      99
Amortisation of structuring fee and other interest paid                                                            912        -       1 349       1
Total                                                                                                          273 936      100     193 283     100

Finance charges increased from R193.3 million to R273.9 million which is in line with increased facilities in accordance with the 
growth of the Indluplace and Gemgrow portfolios.

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                                       180        10 054 018         125  2 948 445          305     13 002 463
Acquisitions and additions                                                  12           614 603          46  1 458 147           58      2 072 750
Disposals                                                                  (3)          (39 000)           -          -          (3)       (39 000)
Balance at the end of the period                                           189        10 629 621         171  4 406 592          360     15 036 213

* The residential portfolio is a separately listed fund on the JSE. Arrowhead's shareholding in Indluplace was 60.1% at 31 March 2018 (2017: 66.2%).

Investment property has increased from R13.0 billion at 30 September 2017 to R15.0 billion at 31 March 2018. The increase was attributable to 
acquisitions and additions of R2.0 billion. The core portfolio represents all Arrowheads' properties, including properties held for sale. 
The core portfolio declined by 8% and is in line with Arrowhead's forecast and expectations.

Arrowhead disposed of the following properties during the period:


Property disposals
PROPERTY NAME                                                                                 PROVINCE       SECTOR               SOLD            R
Fidelity Centre                                                                           Eastern Cape   Commercial   14 November 2017   33 000 000
Town Talk Nelspruit                                                                         Mpumalanga       Retail    29 January 2018    6 000 000
                                                                                                                                         39 000 000

Loans to participants of group share purchase and option schemes
This is in respect of loans to the participants of the Arrowhead, Indluplace and Gemgrow 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 R617.7 million to R736.8 million 
is as a result of shares issued to participants of the Arrowhead and Indluplace Share Purchase Schemes and the shares to the Gemgrow group 
executives to the value of R119.1 million. 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 declared by the company (in respect of more recent loans in Arrowhead, 
Indluplace and Gemgrow) and are secured by a pledge of the shares and by limited suretyship in respect of the most recent share issue.

Trade and other receivables
Trade receivables, deposits, other receivables and payments in advance increased from R206.1 million to R253.5 million mainly as a result of growth 
in the portfolio. The provision for bad debts increased from R12.0 million to R19.0 million, the majority relates to Indluplace.

Secured financial liabilities
Group loans of R6.2 billion (2017: R4.7 billion), reduced by cash and cash equivalents, measured against investment and financial assets of 
R16.6 billion (2017: R14.9 billion) represents a loan to value ("LTV") of 36.8% (2017: 31.5%) and company LTV of 31.3% (2017: 28.1%). The interest 
rate swaps of R5.3 billion results in 80.4% of the total loans being fixed.

Excess funds are placed in an access facility to reduce the overall interest charge. The effective interest rate for the period ended 31 March 2018 
was 9.40% (30 September 2017: 9.10%) for the group and 9.35% for the company (30 September 2017: 8.98%).

                                                                                                                                            CAPITAL
                                                                                                    3 MONTH JIBAR     PRIME RATE      31 MARCH 2018
MATURITY                                                                                                 MARGIN %       MARGIN %              R'000
April 2018                                                                                                      -     Minus 1.45            200 000
November 2018 (Gemgrow)                                                                                         -     Minus 1.50            200 674
December 2018                                                                                                1.77              -            300 000
April 2019                                                                                                   1.77              -             60 000
April 2019                                                                                                   1.77              -            270 000
June 2019                                                                                                       -     Minus 1.40             51 000
September 2019 (Indluplace)                                                                                     -     Minus 1.30            150 000
September 2019 (Gemgrow)                                                                                      2.3              -            139 000
November 2019                                                                                                1.75              -            610 000
March 2020                                                                                                      -     Minus 1.30             56 530
March 2020                                                                                                   2.08              -            480 000
October 2020 (Indluplace)                                                                                    2.05              -            275 025
October 2020 (Indluplace)                                                                                    2.05              -             28 485
October 2020 (Indluplace)                                                                                    2.05              -            275 025
October 2020 (Indluplace)                                                                                    2.05              -             28 485
October 2020 (Indluplace)                                                                                       -     Minus 1.35              7 000
October 2020 (Indluplace)                                                                                    2.05              -             78 694
August 2021                                                                                                  2.10              -            276 679
October 2021                                                                                                 2.10              -             65 729
October 2021                                                                                                 2.10              -             41 681
October 2021                                                                                                 2.10              -             51 772
December 2021                                                                                                2.10              -            112 450
June 2022                                                                                                    2.10              -            201 140
July 2022                                                                                                    2.10              -            198 860
September 2022 (Gemgrow)                                                                                        -     Minus 1.60             50 000
October 2022 (Gemgrow)                                                                                       2.15              -            525 000
October 2022 (Indluplace)                                                                                    2.20              -            144 979
October 2022 (Indluplace)                                                                                    2.20              -            144 979
October 2022 (Indluplace)                                                                                     2.2              -            163 275
November 2022 (Gemgrow)                                                                                      2.50              -            548 842
November 2022                                                                                                2.05              -            280 000
December 2022                                                                                                   -     Minus 1.15            226 911
Total exposure                                                                                                                            6 242 219

                                                                              ARROWHEAD             GEMGROW          INDLUPLACE               TOTAL
                                                                         CAPITAL AMOUNT      CAPITAL AMOUNT      CAPITAL AMOUNT      CAPITAL AMOUNT
MATURITY DATE                                                                   (R'000)             (R'000)             (R'000)             (R'000)
2019                                                                            500 000             200 674                   -             700 674
2020                                                                          1 527 533             139 000             150 000           1 816 533
2021                                                                                  -                   -             837 694             837 694
2022                                                                            548 312                   -                   -             548 312
2023                                                                            906 911           1 123 841             308 254           2 339 006
                                                                              3 482 756           1 463 515           1 295 948           6 242 219

                                  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           50 000 000            2019/02/19          150 000 000         2019/09/01
                                    72 947 536        2018/05/31           40 000 000            2019/02/19          550 050 042         2020/10/01
                                   595 000 000        2019/09/02           40 000 000            2019/07/01           56 969 975         2020/10/01
                                   275 000 000        2021/08/25           40 000 000            2019/07/01          289 958 763         2022/10/01
                                    65 729 120        2021/10/20           80 000 000            2019/09/30        1 046 978 780
                                    41 681 460        2021/10/25           50 000 000            2020/09/01
                                    51 772 355        2021/10/27          525 000 000            2022/10/31
                                   112 450 223        2021/12/15          600 000 000            2022/11/15
                                   742 163 478        2021/12/31        1 425 000 000
                                   200 000 000        2022/06/30
                                   200 000 000        2022/07/04
                                 2 546 348 721

Prospects
Arrowhead continues to focus only on the South African market and believes it is well positioned to benefit from a South African upswing in 
the economy.

As highlighted earlier, Arrowhead has had a strong operational performance over the past six months. While the environment remains challenging 
and the general market is under pressure, the positive political changes experienced have led to increased business confidence. This increased 
optimism, together with a strong focus on property and asset management, have translated into strong letting over the period and the sale of a 
number of non-core properties.

Vacancies have been reduced to 10.63% (from 12.10%) and Arrowhead expects it's vacancy to be under 9% by the end of the financial year. 
Tenants remain under pressure and the letting market remains competitive, with larger tenant installations and commissions being incurred on 
new lettings. As a result, the benefits of this period's letting activity are only expected to have an impact in the 2019 financial year.

We are confident that we have made the correct strategic decisions, in tough macro-economic circumstances, to position the company for sustainable 
growth going forward, that we believe will create long term sustainable value for our shareholders.

Arrowhead remains on track to deliver its forecast communicated to the market in its annual results announcement released on Sens on 
22 November 2017, and is well positioned for sustainable property growth into the 2019 financial year and beyond.

The forecast figures do not take into account letting of vacant space or 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 was not reviewed or reported on by the group's auditors - assumed that 
there would be no further material deterioration in the prevailing macro-economic conditions, that no major corporate failures would occur 
and that tenants would be able to absorb rising utility costs and rates recoveries.

Summary of financial performance
                                                                                                             UNAUDITED FOR THE    UNAUDITED FOR THE
                                                                                                              SIX MONTHS ENDED     SIX MONTHS ENDED
                                                                                                                 31 MARCH 2018        31 MARCH 2017
Dividend per Arrowhead share (cents)                                                                                     40.43                43.24
Arrowhead ordinary shares in issue^*                                                                             1 049 953 742        1 037 915 775
Net asset value per share at reporting date (cents) - including non-controlling interest                              1 123.68             1 132.84
Net asset value per share at reporting date (cents) - excluding non-controlling interest                                823.83               858.93
Loan to value ratio - Group                                                                                              36.8%                27.8%
Loan to value ratio - Company                                                                                            31.3%                28.1%

^ Includes shares issued to the Arrowhead Charitable Trust.
* After the reporting period no additional shares were issued.

Payment of dividend for the six months ended 31 March 2018
The board of directors ("Board") has approved a gross dividend (dividend number 25) of 40.43000 cents per share for the six months ended 
31 March 2018 in accordance with the timetable set out below:

                                                                                                                                    2018
Last date to trade cum distribution                                                                                     Tuesday, 19 June
Shares trade ex distribution                                                                                          Wednesday, 20 June
Record date                                                                                                              Friday, 22 June
Payment date                                                                                                             Monday, 25 June

Share certificates may not be dematerialised or rematerialised between Wednesday, 20 June 2018 and Friday, 22 June 2018, both days inclusive. 
Payment of the dividend will be made to shareholders on Monday, 25 June 2018. In respect of dematerialised shareholders, the dividend will 
be transferred to the Central Securities Depositary Participant ("CSDP") accounts/broker accounts on Monday, 25 June 2018. Certificated shareholders' 
dividend payments will be deposited on or about Monday, 25 June 2018.

In accordance with Arrowhead's status as a REIT, shareholders are advised that the dividend meets the requirements of a "qualifying distribution" 
for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ("Income Tax Act"). The distribution on the shares will be deemed to be 
a dividend, for South African tax purposes, in terms of section 25BB of the Income Tax Act.

The dividend received by or accrued to South African tax residents must be included in the gross income of such shareholders and will not be exempt 
from income tax (in terms of the exclusion to the general dividend exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the 
Income Tax Act) because it is a dividend distributed by a REIT.

This dividend is, however, exempt from dividend withholding tax in the hands of South African tax resident shareholders, provided that the 
South African resident shareholders provided the following forms to their Central Securities Depository Participant ("CSDP") or broker, 
as the case may be, in respect of uncertificated shares, or the company, in respect of certificated shares:

a)  a declaration that the dividend is exempt from dividends tax; and
b)  a written undertaking to inform the CSDP, broker or the company, as the case may be, should the circumstances affecting the exemption 
    change or the beneficial owner cease to be the beneficial owner,

both in the form prescribed by the Commissioner for the South African Revenue Service. Shareholders are advised to contact their CSDP, 
broker or the company, as the case may be, to arrange for the above-mentioned 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. From 22 February 2017, any 
dividend 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 32.34400 
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 above-mentioned 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 dividend: 1 049 953 742
Arrowhead's income tax reference number: 9779/439/15/8

Events after reporting period
The Hill Street building was disposed of for R60 million (inclusive of VAT) on 24 April 2018.

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 major 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 2018 have not been reviewed or reported on by the group's auditors, 
Grant Thornton Johannesburg Partnership.

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 2017.

Summarised consolidated statement of comprehensive income
For the 6 months ended 31 March 2018

                                                                                    Unaudited for the    Unaudited for the          Audited for
                                                                                       6 months ended       6 months ended       the year ended
R'000                                                                                   31 March 2018        31 March 2017    30 September 2017
Rental income                                                                               1 112 580              959 324            1 936 179
Straight line rental income accrual                                                            10 653                3 837               46 122
Listed securities income                                                                      109 980               95 893              191 832
Total revenue                                                                               1 233 213            1 059 054            2 174 133
Property expenses                                                                           (408 359)            (360 780)            (735 966)
Administration and corporate costs                                                           (28 319)             (23 809)             (39 349)
Net operating profit                                                                          796 535              674 465            1 398 818
Changes in fair values                                                                      (311 897)              314 834               31 901
Profit from operations                                                                        484 638              989 299            1 430 719
Finance charges                                                                             (273 936)            (193 283)            (403 581)
Finance income                                                                                 47 336               39 940               80 733
Profit before taxation                                                                        258 038              835 956            1 107 871
Taxation                                                                                            -                    -                 (61)
Total comprehensive income for the period                                                     258 038              835 956            1 107 810
Profit for the year attributable to:
Equity shareholders of Arrowhead                                                              117 471              709 867              812 730
Non-controlling interest                                                                      140 567              126 089              295 080
Total comprehensive income for the period                                                     258 038              835 956            1 107 810

Summarised consolidated statement of financial position
At 31 March 2018 
                                                                                   Unaudited for the   Unaudited for the            Audited for
                                                                                      6 months ended      6 months ended         the year ended
R'000                                                                                  31 March 2018       31 March 2017      30 September 2017
Assets                
Non-current assets                                                                        17 698 905          15 560 960             15 741 164
Investment property                                                                       15 036 213          12 400 987             12 910 093
Fair value of property portfolio for accounting purposes                                  14 912 089          12 322 921             12 796 323
Straight line rental income accrual                                                          124 124              78 066                113 770
Property, plant and equipment                                                                  1 486                 925                  1 573
Loans to participants of group share purchase and option schemes                             736 874             652 576                617 719
Goodwill                                                                                     337 449             337 449                337 449
Financial assets                                                                           1 584 800           2 164 138              1 871 464
Deferred taxation                                                                              2 011               2 011                  2 011
Derivative instruments                                                                            72               2 874                    855
Current assets                                                                               377 713             302 154                311 733
Trade and other receivables                                                                  253 539             165 835                206 145
Cash and cash equivalents                                                                    124 174             136 319                105 588
Non-current assets held for sale                                                                   -                   -                 92 370
Total assets                                                                              18 076 618          15 863 114             16 145 267
Equity and liabilities                
Shareholders interest                                                                      8 394 444           8 648 659              8 372 540
Stated capital                                                                             6 572 398           6 676 586              6 497 483
Reserves                                                                                   1 822 046           1 972 073              1 875 057
Non-controlling interest                                                                   3 055 312           2 758 108              2 742 921
Other non-current liabilities                                                              5 602 954           3 428 213              3 303 907
Secured financial liabilities                                                              5 532 120           3 409 159              3 257 524
Derivative instruments                                                                        70 834              19 054                 46 383
Current liabilities                                                                        1 023 908           1 028 134              1 725 899
Trade and other payables                                                                     323 235             253 101                300 283
Secured financial liabilities                                                                700 673             775 033              1 425 616
                 
Total equity and liabilities                                                              18 076 618           15 863 114            16 145 267

Summarised consolidated statement of changes in equity
For the period ended 31 March 2018

                                                                                                                Non-controlling
R'000                                                                          Stated capital      Reserves            interest           Total
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
Issue of shares                                                                        74 915             -             322 711         397 626
Transfers between equity holders                                                            -        47 713            (47 713)               -
Share buyback                                                                               -             -             (8 726)         (8 726)
Share based payments                                                                        -             -              19 972          19 972
Dividends paid                                                                              -     (218 195)           (114 420)       (332 615)
Total comprehensive income for the period                                                   -       117 471             140 567         258 038
Balance at 31 March 2018                                                            6 572 398     1 822 046           3 055 312      11 449 756

Summarised consolidated statement of cash flows
For the period ended 31 March 2018
                                                                                    Unaudited for the    Unaudited for the          Audited for
                                                                                       6 months ended       6 months ended       the year ended
R'000                                                                                   31 March 2018        31 March 2017    30 September 2017
Net cash generated from / (utilised in) operating activities                                  215 965            (131 214)             (68 964)
Cash generated from operations                                                                665 200              609 097            1 171 825
Finance charges paid                                                                        (273 936)            (193 283)            (403 581)
Interest received                                                                              47 336               39 940               80 733
Dividends received                                                                            109 980               95 893              191 833
Dividends paid – non-controlling interest                                                   (114 420)            (140 096)            (217 748)
Dividends paid                                                                              (218 195)            (542 765)            (891 964)
Taxation paid                                                                                       -                    -                 (62)
Net cash utilised in investing activities                                                 (1 877 544)             (82 474)            (556 988)
Acquisition of investment property                                                        (1 904 329)             (62 081)            (599 776)
Proceeds from disposal of investment property                                                  27 000               62 500               69 517
Investment and loans to subsidiaries                                                                -            (271 833)                    -
Investment in listed securities                                                                     -                    -            (271 833)
Disposal of property, plant and equipment                                                           -                    -                  490
Acquisition of property, plant and equipment                                                    (215)                (161)              (1 532)
Pre-effective date distribution                                                                     -                    -               19 161
Repayment of loans by participants of group share purchase and option schemes                       -              165 363              203 246
Business combinations                                                                               -               23 738               23 738
Net cash generated from financing activities                                                1 680 165              271 584              653 118
Net proceeds from issue of share capital                                                        (359)              (1 513)                    -
Proceeds from issue of shares - non controlling interest                                      133 354               18 200                    -
Proceeds from financial liabilities                                                         1 547 170              254 897              653 118
Net movement in cash and cash equivalents                                                      18 586               57 896               27 165
Cash and cash equivalents at the beginning of the year                                        105 588               78 423               78 423
Cash and cash equivalents at the end of the year                                              124 174              136 319              105 588

Reconciliation of
earnings to headline earnings

                                                                                   Unaudited for the   Unaudited for the            Audited for
                                                                                      6 months ended      6 months ended         the year ended
R'000                                                                                  31 March 2018       31 March 2017      30 September 2017
Profit for the period attributable to Arrowhead shareholders                                 117 471             709 867                812 730
Earnings                                                                                     117 471             709 867                812 730
Changes in fair value of investment property                                                       -                   -               (34 313)
Fair value on post acquisition letting commission and tenant installation                          -                   -                  1 427
Changes in fair value of investment property - non-controlling interest                            -                   -                 40 246
Profit on sale of property                                                                         -                   -                (6 203)
Headline profit attributable to shareholders                                                 117 471             709 867                813 887
       
Summarised consolidated segmental analysis

The entity has five 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.

Geographical
31 March 2018 - R'000                                    Gauteng      Western Cape     KwaZulu-Natal    Eastern Cape           Other         Total
Contractual rental income                                406 084           125 875            91 708          72 357         416 556     1 112 580
Straight line rental income                                6 687             1 001               783             425           1 757        10 653
Listed securities income                                                         -                 -               -         109 980       109 980
Operating and administration costs                     (171 383)          (41 108)          (33 371)        (25 675)       (165 141)     (436 678)
Net operating profit                                     241 388            85 768            59 120          47 107         363 152       796 535
Finance income                                               782                81               104              54          46 315        47 336
Finance charges                                            (176)               (8)               (3)               -       (273 749)     (273 936)
Net operating income                                     241 994            85 841            59 221          47 161         135 719       569 935
Changes in fair values                                         -                 -                 -               -       (311 897)     (311 897)
Reportable segment profit before tax                     241 994            85 841            59 221          47 161       (176 178)       258 038
Taxation                                                       -                 -                 -                               -             -
Reportable segment profit after tax                      241 994            85 841            59 221          47 161       (176 178)       258 038
Reportable segment assets                              9 120 962         1 888 558         1 171 132         963 142       4 932 824    18 076 618
Reportable segment liabilities                         (107 588)          (26 370)          (37 559)        (18 899)     (6 436 448)   (6 626 862)
                                                       9 013 374         1 862 188         1 133 573         944 243     (1 503 624)    11 449 756

Sectoral 
31 March 2018 - R'000                                             Office        Retail     Residential     Industrial     Overheads          Total
Contractual rental income                                        322 512       304 857         334 720        147 299         3 192      1 112 580
Straight line rental income                                        6 150         2 794               -          1 709             -         10 653
Listed securities income                                               -             -               -              -       109 980        109 980
Operating and administration costs                             (119 175)     (108 033)       (137 192)       (61 828)      (10 450)      (436 678)
Net operating profit                                             209 487       199 618         197 528         87 180       102 723        796 535
Finance income                                                       519           295          14 605            286        31 631         47 336
Finance charges                                                     (43)          (11)        (57 906)          (134)     (215 842)      (273 936)
Net operating income                                             209 963       199 902         154 227         87 332      (81 488)        569 935
Changes in fair values                                                 -             -        (10 827)              -     (301 070)      (311 897)
Reportable segment profit before tax                             209 963       199 902         143 400         87 332     (382 558)        258 038
Taxation                                                               -             -               -              -             -              -
Reportable segment profit after tax                              209 963       199 902         143 400         87 332     (382 558)        258 038
Reportable segment assets                                      4 592 141     4 466 102       4 754 009      1 869 064     2 395 302     18 076 618
Reportable segment liabilities                                  (84 471)     (100 557)     (1 411 567)       (28 221)   (5 002 046)    (6 626 862)
                                                               4 507 670     4 365 545       3 342 442      1 840 843   (2 606 744)     11 449 756
 
Geographical 
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 segment profit before tax                                                       276 294            79 384       480 278         835 956
Taxation                                                                                         -                 -             -               -
Reportable segment profit after tax                                                        276 294            79 384       480 278         835 956
Reportable segment assets                                                                6 985 001         1 764 094     7 114 019      15 863 114
Reportable segment liabilities                                                           (110 750)          (27 411)   (4 318 186)     (4 456 347)
                                                                                         6 874 251         1 736 683     2 795 833      11 406 767
 
Sectoral 
31 March 2017 - R'000                                                Office        Retail    Residential    Industrial     Overheads         Total
Contractual rental income                                           351 025       268 874        194 992       139 582         4 851       959 324
Straight line rental income                                         (2 577)         4 179              -         2 235             -         3 837
Listed securities income                                                  -             -              -             -        95 893        95 893
Operating and administration costs                                (125 218)      (95 637)       (74 681)      (57 241)      (31 812)     (384 589)
Net operating profit                                                223 230       177 416        120 311        84 576        68 932       674 465
Finance income                                                          263           275         11 358           106        27 938        39 940
Finance charges                                                       (237)             -        (8 333)          (10)     (184 703)     (193 283)
Net operating income                                                223 256       177 692        123 336        84 672      (87 834)       521 122
Changes in fair values                                                    -             -           (18)             -       314 852       314 834
Reportable segment profit before tax                                223 256       177 692        123 318        84 672       227 018       835 956
Taxation                                                                  -             -              -             -             -             -
Reportable segment profit after tax                                 223 256       177 692        123 318        84 672       227 018       835 956
Reportable segment assets                                         4 665 584     3 715 658      2 155 907     1 815 481     3 510 484    15 863 114
Reportable segment liabilities                                     (72 247)     (119 208)       (46 111)      (23 218)   (4 195 563)   (4 456 347)
                                                                  4 593 337     3 596 450      2 109 796     1 792 263     (685 079)    11 406 767
 
Geographical                                                    
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       671 952      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       348 608      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)   (4 902 809)    (5 029 806)
                                                                                           7 318 197        1 859 996     1 937 270     11 115 461
 
Sectoral 
30 September 2017 - R'000                                             Office       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                                                 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 before tax                                 279 588      533 692        285 464       183 190    (174 061)      1 107 871
Taxation                                                                   -            -              -             -         (61)           (61)
Reportable segment profit after tax                                  279 588      533 692        285 464       183 190    (174 122)      1 107 810
Reportable segment assets                                          4 585 958    3 910 856      3 247 312     1 847 898    2 553 244     16 145 267
Reportable segment liabilities                                      (85 381)     (98 059)      (268 520)      (25 812)  (4 552 035)    (5 029 806)
                                                                   4 500 577    3 812 797      2 978 792     1 822 086  (1 998 791)     11 115 461

Reconciliation of earnings to distributable earnings

                                                                                         Unaudited for the   Unaudited for the        Audited for
                                                                                            6 months ended      6 months ended     the year ended
R'000                                                                                        31 March 2018       31 March 2017  30 September 2017
Headline profit attributable to shareholders                                                       117 471             709 867            813 887
Changes in fair values of listed securities and financial instruments                              311 897           (314 834)              7 188
Straight line rental income accrual                                                               (10 653)             (3 837)           (46 122)
Straight line rental income accrual - non-controlling interest                                       4 565                   -             16 102
Changes in fair values of listed securities and financial instruments - non-controlling interest  (10 346)                   -                  -
Dividend to the Arrowhead Charitable Trust and corporate fees                                       13 793              13 404             28 931
Income from listed securities distributed in prior period                                        (109 980)            (95 893)           (67 757)
Accrued distribution on listed securities                                                          107 749             120 926            127 505
Pre-effective date dividend                                                                              -              19 162             19 162
Underwriters fee                                                                                         -                   -              9 500
Distributable earnings attributable to shareholders                                                424 496             448 795            908 396
Number of Arrowhead ordinary shares in issue                                                     1 049 954           1 037 916          1 037 916
Weighted average number of Arrowhead shares in issue                                             1 014 630           1 002 332            980 710
Basic and diluted earnings per Arrowhead ordinary share (cents)                                      11.58               68.70              82.87
Headline and diluted headline earnings per Arrowhead ordinary shares (cents)                         11.58               68.70              82.99

By order of the Board - 23 May 2018

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

Thank you



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