HERIOT REIT LIMITED - Summarised audited financial statements for the year ended 31 May 2018 and for the 13 months ended 30 June 2018

Release Date: 31/08/2018 16:47
Code(s): HET
 
Wrap Text
Summarised audited financial statements for the year ended 31 May 2018 and for the 13 months ended 30 June 2018

Heriot Reit Limited
(Incorporated in the Republic of South Africa) 
(Registration number 2017/167697/06)
JSE share code: HET 
ISIN: ZAE000246740
(Approved as a REIT by JSE)
("Heriot" or "the Company" or "the Group")

www.heriotreit.com

Summarised audited condensed consolidated financial statements 
for the year ended 31 May 2018 and
for the 13 months ended 30 June 2018

Highlights


                                           30 June 2018       31 May 2018
Property portfolio valuation             R4,452 billion    R4,374 billion
Number of properties                                 43                43
Net asset value (per share)                      R11,59            R11,35
Increase in net asset value
since listing                                     16,0%             13,6% 
Distributable earnings
(cents per share)                                 79,27             73,27
Distributable earnings ahead of 
listing forecast (cents per share)                                   1,60


Summarised consolidated statement of financial position
                                               Audited          Audited
                                               30 June           31 May
                                                  2018             2018
                                                 R'000            R'000
Assets
Non-current assets
Investment property                          4 451 963        4 374 199
Property, plant and equipment                   25 373           25 447
Investment in associate                         10 430           10 430
Financial assets                                34 788           34 530
                                             4 522 554        4 444 606
Current assets
Trade and other receivables                     24 165           33 553
Financial assets                                77 760           76 803
Taxation                                         2 918            2 475
Cash and cash equivalents                      113 081           90 081
                                               217 924          202 912
Total assets                                 4 740 478        4 647 518
Equity and liabilities
Equity
Stated capital                               2 548 624        2 548 624
Retained earnings                              410 841          350 919
                                             2 959 465        2 899 543
Non-controlling interests                       46 400           45 655
                                             3 005 865        2 945 198
Non-current liabilities
Interest-bearing liabilities                 1 211 036        1 184 078
Deferred taxation                               59 808           59 808
                                             1 270 844        1 243 886
Current liabilities
Interest-bearing liabilities                   403 886          403 772
Derivative financial instrument                    812            1 110
Trade and other payables                        59 071           53 552
                                               463 769          458 434
Total equity and financial liabilities       4 740 478        4 647 518
Net asset value per shares (cents)            1 158,78         1 135,31
Net tangible asset per share
(excluding deferred taxation) (cents)         1 182,19         1 158,73


Summarised consolidated statement of profit and loss and other 
comprehensive income
                                  Audited        Audited       Forecast
                                13 months           Year           Year 
                                    ended          ended          ended
                                  30 June         31 May         31 May
                                     2018           2018           2018
                                    R'000          R'000          R'000
Rental income                     444 828        409 701        400 307
Contractual rental income
and recoveries                    463 913        427 069        417 802
Straight line rental income       (19 085)       (17 368)       (17 495) 
Property expenses                 (99 376)       (89 885)       (74 997) 
Net property income               345 452        319 816        325 310
Income from associate                 781            781            275
Other income                       11 074         10 145          7 373
Administrative expenses
and corporate costs               (34 481)       (32 478)       (28 965) 
Profit from operations            322 826        298 264        303 993
Finance income                     16 776         15 810          5 659
Finance charges                  (152 147)      (140 630)      (137 207) 
Profit before fair value  
adjustments                       187 455        173 444        172 445
Fair value adjustment            328 583        281 821         17 495
Investment properties             326 590        280 125         17 495
Derivative financial
instrument                         1 993          1 696              – 
Profit before taxation            516 038        455 265        189 940
Taxation                           (6 098)        (5 992)        (1 553)
Net profit after taxation         509 940        449 273        188 387
Attributable to:
Equity holders of the company     498 445        438 523        183 210
Non-controlling interests          11 495         10 750          5 177
                                  509 940        449 273        188 387

Reconciliation of earnings 
and headline earnings
Profit attributable to
equity holders of the company     498 445        438 523        183 210
Change in fair value of 
investment properties 
attributable to equity
holders of the company           (318 546)      (272 593)       (17 495)
Change in fair value of
investment properties            (326 590)      (280 125)       (17 495)
Attributable to non-
controlling shareholders            8 044          7 532
Headline earnings 
attributable to equity
holders                           179 899        165 930        165 715
Number of shares in issue
at reporting date*            255 395 858    255 395 858    255 637 235
Weighted average number of
shares in issue               252 363 996    252 114 801    255 637 235
Basic and diluted earnings
per share (cents)                  195,17         171,70          71,67
Basic and diluted headline
earnings per share (cents)         70,44           64,97          64,82
Distribution per share
(cents)                             79,27          73,27          71,67

* Excluding 900,000 treasury shares.


Summarised consolidated statement of changes in equity
                                                       Non-
                         Stated     Retained    controlling       Total
                        capital     earnings      interests      equity
                          R'000        R'000          R'000       R'000
Issue of shares       2 556 371                      87 112   2 643 483
Share issue expenses     (5 333)                                 (5 333) 
Acquisition of
non-controlling 
interests                 6 586        2 330        (52 207)    (43 291)
Treasury shares
acquired                 (9 000)                                 (9 000)
Profit for the year
ended 31 May 2018                    438 523         10 750     449 273
Dividend distributions 
to owners of company 
recognised directly
in equity                            (89 934)                   (89 934) 
Balance at
31 May 2018            2 548 624     350 919         45 655   2 945 198
Profit for the 
period 1 June to
30 June 2018                          59 922            745      60 667
Balance at 
30 June 2018           2 548 624     410 841         46 400   3 005 865


Summarised consolidated statement of cash flows
                                               Audited      
                                             13 months          Audited
                                                 ended       Year ended
                                               30 June           31 May
                                                  2018             2018
                                                 R'000            R'000

Cash generated from operations                 394 998          353 988
Net finance charges                           (135 371)        (124 820) 
Taxation paid                                   (1 596)          (1 046)
Cash flows from operating activities           258 031          228 122
Acquisition and development of
investment property                           (343 727)        (310 703)
Proceeds from disposal of
investment property                             22 890           22 890
Acquisition of property, plant and
equipment                                          (97)             (97) 
Cash on acquisition of businesses               13 692           13 692
Dividends received from associates               1 500            1 500
Loan to related party repaid                    26 717           27 674
Share scheme debt repaid                         1 470            1 470
Cash from investing activities                (277 555)        (243 574)
Proceeds from the issue of share capital            29               29
Share issue expenses                            (5 333)          (5 333)
Acquisition of non-controlling interests       (43 291)         (43 291)
Dividend distributions to owners of 
company recognised directly in equity          (89 934)         (89 934)
Interest bearing liabilities
repaid                                        (202 074)        (224 387) 
Interest bearing borrowings raised             473 208          468 449
Net cash generated from financing 
activities                                     132 605          105 533
Net movement in cash and cash equivalents      113 081           90 081
Cash and cash equivalents at the
beginning of the period                              -                - 
Cash and cash equivalents at the
end of the period                              113 081           90 081

Commentary

Introduction
Heriot, a property holding and investment company, listed in the 
"Diversified REITs" sector on the Alternative Exchange ("AltX") of the 
JSE Limited ("JSE") on 24 July 2017. Heriot is invested in industrial, 
retail, office and specialised properties situated in areas with high 
growth potential. The Group's primary objective is to develop or acquire 
yield-enhancing assets within South Africa to create a stable and diverse 
portfolio of assets for the purposes of generating secure and escalating 
net rental income.

Financial results
Subsequent to listing, Heriot changed its year end from 31 May to 30 June 
and in compliance with the JSE Listings Requirements, is required to publish 
reviewed results for the Group for the year ended 31 May 2018 and audited 
results for the Group for the 13 months ended 30 June 2018.

Heriot's total distributable earnings for the year ended 31 May 2018 of 
R187,5 million exceeds the forecast distributable income of R183,2 million, 
as reflected in the pre-listing statement issued on 17 July 2017 ("PLS"), 
by R4,3 million mainly due to the refinancing of secured borrowings at 
more attractive interest rates and improved cash management. Total 
distributable earnings for the 13 months ended 30 June 2018 amounted 
to R202,9 million.

Heriot's distributable earnings for the year ended 31 May 2018 of 73,27 cents 
per share exceeds the forecast distribution of 71,67 cents per share by 
1,60 cents per share or 2,2% and the net asset value at 31 May 2018 was 
R11,35 per share, an increase of 135 cents per share over the listing price 
of R10,00 per share. At 30 June 2018, the net asset value per share 
increased by 24 cents per share to R11,59 per share and the distributable 
earnings increased by 6,00 cents per share to 79,27 cents per share for 
the 13 months then ended.

The board has declared a final dividend of 44,18 cents per share which together 
with the interim dividend of 35,09 cents per share equates to a total 
dividend of 79,27 cents for the 13 months ended 30 June 2018.

No comparative figures have been presented as the Company was incorporated on 
18 April 2017 and only commenced trading on 5 June 2017.

Property portfolio
Heriot's portfolio comprises 43 properties across major sectors within South 
Africa. The properties were externally valued at R4,275 billion at 31 May 2018, 
excluding the property under development that is recognised at cost. This 
represents an increase of R280,1 million, or 6,4%, on the cost of the assets 
acquired pursuant to the listing.

After accounting for an increase in fair value in the investment properties 
of R46,5 million for June 2018 and for the acquisition of the non-controlling 
shareholder's 50% interest in the Shoprite Seapoint property for 
R24,0 million on 18 June 2018, the fair value of investment properties 
had increased to R4,345 billion at 30 June 2018.

Property under development comprises the Adderley Street property in the 
Cape Town CBD that is currently being redeveloped into 212 residential units 
with 870 m2 ground floor retail. The project is expected to be completed in 
May 2019.

Over and above Heriot's investment property portfolio, Heriot owns the 
Group's head office, comprising 717 m2 A Grade office space in Melrose 
Arch. This property has been accounted for as property, plant and equipment 
in terms of the accounting standard relating to owner occupied property.

Vacancies
As at 31 May and 30 June 2018, 0,6% of the portfolio was vacant. Subsequent 
to the reporting date, the vacancy reduced to 0,4% with the take-up of 
796 m2 office space at an average rental of R200/m2.

Bad debts
Trade receivables have been assessed for recoverability on a tenant by 
tenant basis. Bad debts of R0,37 million have been written off during 
the review period and a further provision of R0,23 million for doubtful 
debts has been raised.

Sectoral analysis
For the 13 months ended 30 June 2018
                                                                   Fair 
                                  Investment                      value
                            GLA     Property        Revenue adjustments
                             m2        R'000          R'000       R'000
Retail                  150 360    2 304 450        246 679     186 908
Industrial              326 113    1 680 475        180 949     128 690
Office                   12 445      266 775         29 181       6 989
Specialised                   #       93 400          7 104       4 003
Property under
development               9 825      106 863              -
Net property income     498 743    4 451 963        463 913     326 590
Fair value adjustments
- derivative financial 
instrument
Other income
Profit on disposal 
of investment property
Equity accounted 
profits (net of taxation)
Administrative and 
corporate costs
Net finance charges
Taxation
Total comprehensive 
income for the year
Distributable earnings 
adjustments                             
Straight line rental 
income                            
Fair value adjustments                                 
Profit on disposal of
investment property                           
Equity accounted profits
(net of taxation)                          
Dividend from associate                      
Antecedent interest 
adjustment               
Attributable to minorities                
Deferred taxation                           
Distributable earnings                    

                                    Straight
                                        line
                                      rental       Property         Net
                                      income       expenses      income
                                       R'000          R'000       R'000
Retail                                  (517)       (64 249)    368 821
Industrial                           (18 797)       (27 409)    263 433
Office                                   292         (7 373)     29 089
Specialised                              (63)          (345)     10 699
Property under development                                -           - 
Net property income                  (19 085)       (99 376)    672 042
Fair value adjustments -
derivative financial instrument                                   1 993
Other income                                                     10 984
Profit on disposal of 
investment property                                                  90
Equity accounted profits
(net of taxation)                                                   781
Administrative and
corporate costs                                                 (34 481) 
Net finance charges                                            (135 371) 
Taxation                                                         (6 098) 
Total comprehensive
income for the year                                             509 940
Distributable earnings adjustments                             (307 007)
Straight line rental income                                      19 085
Fair value adjustments                                         (328 584) 
Profit on disposal of
investment property                                                 (90)
Equity accounted profits
(net of taxation)                                                  (781) 
Dividend from associate                                           1 500
Antecedent interest adjustment                                      249
Attributable to minorities                                       (3 451)
Deferred taxation                                                 5 065
Distributable earnings                                          202 933

# The specialised property comprises of 8 382ha2 of industrial farms and 
the inclusion of this, measured by hectare, in the analysis by GLA would 
not provide meaningful analysis of the portfolio as a whole.

For the year ended 31 May 2018
                                                                   Fair 
                                  Investment                      value
                            GLA     Property        Revenue adjustments
                             m2        R'000          R'000       R'000
Retail                  150 360    2 261 250        228 195     168 940
Industrial              326 113    1 659 500        165 170     105 682
Office                   12 445      261 700         27 163       2 059
Specialised                   #       92 760          6 541       3 444
Property under
development               9 825       98 989              -           - 
Net property income     498 743    4 374 199        427 069     280 125
Fair value adjustments
- derivative financial 
instrument
Other income
Profit on disposal of 
investment property
Equity accounted profits 
(net of taxation)
Administrative and 
corporate costs
Net finance charges
Taxation
Total comprehensive 
income for the year
Distributable earnings 
adjustments
Straight line rental 
income 
Fair value adjustments
Profit on disposal of 
investment property
Equity accounted profits 
(net of taxation)
Dividend from associate
Antecedent interest 
adjustment
Attributable to 
minorities
Deferred taxation
Distributable earnings


                                    Straight
                                        line
                                      rental       Property         Net
                                      income       expenses      income
                                       R'000          R'000       R'000
Retail                                  (594)       (58 524)    338 017
Industrial                           (16 854)       (24 449)    229 549
Office                                   134         (6 599)     22 757
Specialised                              (54)          (313)      9 618
Property under development                 -              -           - 
Net property income                  (17 368)       (89 885)    599 941
Fair value adjustments -
derivative financial instrument                                   1 696
Other income                                                     10 055
Profit on disposal of
investment property                                                  90
Equity accounted profits (net
of taxation)                                                        780
Administrative and corporate
costs                                                           (32 478) 
Net finance charges                                            (124 820) 
Taxation                                                         (5 991) 
Total comprehensive income for
the year                                                        449 273
Distributable earnings adjustments                             (261 727) 
Straight line rental income                                      17 368
Fair value adjustments                                         (281 821) 
Profit on disposal of
investment property                                                 (90)
Equity accounted profits (net
of taxation)                                                       (780) 
Dividend from associate                                           1 500
Antecedent interest adjustment                                      249
Attributable to minorities                                       (3 218) 
Deferred taxation                                                 5 065
Distributable earnings                                          187 546

Funding
Heriot's secured borrowings of R1,588 billion as at 31 May 2018 equates 
to a gearing ratio of 36,3%. The average cost of borrowing was 9,07% for 
the period under review and 45% of borrowings have been fixed. The average 
remaining term of the debt is 1,8 years. The increase of R27,1 million in 
secured borrowings to R1,615 billion at 30 June 2018 relates to the 
acquisition of the non-controlling shareholder's interest in the Shoprite 
Seapoint property. Net of cash, the gearing ratio was 34,6% at 30 June 2018.

In July 2018, R460 million of secured borrowings was refinanced, reducing 
the average cost of debt to 8,85% and increasing the average term of debt 
to 3,2 years.

Financial assets
Financial assets comprise of:
- Loans to participants of the employee share purchase scheme. The share 
scheme loan bears interest at Heriot's average cost of borrowings and the 
Company is entitled to claim repayment of the loans at any time after the 
expiration of 10 years from the advance date; and
- A loan to a related party, being a company owned by SB Herring, which 
loan bears interest at the average cost of borrowings and is repayable 
on demand.

Share capital
Pursuant to its listing, the Company issued 251 437 235 shares at
R10 each for the acquisition of the Group's assets together with
4 200 000 shares in respect of the Company's share purchase scheme. 
These shares, issued to employees at R10 per share, were funded by 
Heriot. Effective 1 December 2017, 900 000 shares were acquired by a 
subsidiary from employees who had resigned from the Company. These 
shares are now held as treasury shares by the Group.

On 14 December 2017, 658 623 shares were issued at R10 per share as 
part settlement for the acquisition of a non-controlling interest in a 
portfolio of three retail assets based in the Western Cape. The balance 
of the purchase price of R16,6 million was settled in cash.

As at 31 May and 30 June 2018, the Company had 255 395 858 shares in 
issue, excluding the treasury shares.

Distribution declaration
Distribution number 2 of 44,18000 cents per share for the seven months 
ended 30 June 2018 will be paid to shareholders in accordance with the 
timetable set out below:

                                                                 2018

Last date to trade cum dividend:                Tuesday, 18 September 
Shares trade ex dividend:                     Wednesday, 19 September
Record date:                                     Friday, 21 September
Payment date:                                   Tuesday, 25 September

Share certificates may not be dematerialised or rematerialised between 
Wednesday, 19 September 2018 and Friday, 21 September 2018, both days 
inclusive. The dividend will be transferred to dematerialised 
shareholders' CSDP/broker accounts on Tuesday, 25 September 2018.
Certificated shareholders' dividend payments will be posted or paid 
to certificated shareholders' bank accounts on or about, Tuesday, 
25 September 2018.

In accordance with Heriot'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 dividend 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 such shareholders provide 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 an ordinary dividend which is 
exempt from income tax in terms of the general dividend exemption in 
section 10(1)(k)(i) of the Income Tax Act. Any distribution 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 shareholder. Assuming dividend withholding 
tax will be withheld at a rate of 20%, the net dividend amount due to 
non-resident shareholders is 35,344000 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)  declaration that the dividend is subject to a reduced rate as a 
result of the application of a DTA; and
b)  a written undertaking to inform their CSDP, broker or the Company, 
as the case may be, should the circumstances affecting the reduced rate 
change or the beneficial owner cease to be the beneficial owner,

both in the form prescribed by the Commissioner for the South African 
Revenue Service. Non-resident shareholders are advised to contact their 
CSDP, broker or the Company, as the case may be, to arrange for the 
abovementioned documents to be submitted prior to payment of the 
dividend if such documents have not already been submitted, if 
applicable.

Shares in issue at the date of the dividend: 255 395 858 (excluding
900 000 treasury shares).

Heriot's income tax reference number: 9541295185. 

Prospects
The Board is of the view that the dividend per share will grow at 
between 9% and 11% per share for the financial year ending 30 June
2019. This growth has been determined with reference to the
distributable earnings of 73,27 cents per share for the year ended
31 May 2018.

This forecast is based on the assumption that there will be no change in 
the current trading conditions of the existing portfolio, a stable macro-
economic environment will prevail, tenants will be able to absorb rising 
utility cost and that there will be no major corporate failures. This 
forecast has not been audited or reviewed by the Company's auditors.

Basis of preparation
These results have been prepared in accordance with International Financial 
Reporting Standards ("IFRS"), IAS 34, Interim Financial Reporting, the 
SAICA Financial Reporting Guides as issued by the Accounting Practices 
Committee and Financial Reporting Pronouncements as issued by the Financial 
Reporting Standards Council, JSE Listings Requirements and the requirements 
of the Companies Act of South Africa. These financial results have been 
prepared under the supervision of the Chief Financial Officer,
JA Finn, CA(SA). The results for the year ended 31 May 2018 and for
the 13 months ended 30 June 2018 have been audited by the Company's 
independent auditors, Grant Thornton Johannesburg Partnership. The 
accounting policies applied in the preparation of the consolidated financial
statements, from which the summarised consolidated financial statements 
were derived, are in terms of IFRS and are consistent with the accounting 
policies applied in the preparation of the financial statements included in 
the PLS.

This summarised report is extracted from audited information but is not 
itself audited. The auditors, Grant Thornton, has expressed an unmodified 
opinion on the consolidated financial statements from which these summarised 
financial statements were derived. A copy of the auditor's report on the annual 
financial statements is available at the Company's registered office, together
with the financial statements identified in the auditor’s report.

The directors are not aware of any matters or circumstances arising subsequent 
to 30 June 2018 that require any additional disclosure or adjustment to the 
financial statements, other than as disclosed in this announcement. The 
directors further take full responsibility for the preparation of these 
summarised consolidated financials statements and for ensuring that the 
financial information has been correctly extracted from the underlying 
audited financial statements.

By order of the Board

31 August 2018

Company secretary
CIS Company Secretaries Proprietary Limited (G Prestwich)

Registered office
Suite 1, Ground Floor, 3 Melrose Boulevard, Melrose Arch, Johannesburg, 2196
PO Box 652737, Benmore, 2010

Directors
SD Friend (Chairperson)*, RL Herring (CEO), JA Finn (CFO), SJ Blieden*†, 
T Cohen*†, SB Herring*, N Ngale*†
*Non-executive †Independent

Transfer secretaries
Computershare Investor Services Proprietary Limited

Designated advisor
Java Capital

Date: 31/08/2018 04:47:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Email this JSE Sens Item to a Friend.

Share This Story