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HERIOT REIT LIMITED - Unaudited condensed consolidated financial statements for the six months ended 31 December 2018

Release Date: 18/02/2019 13:42
Code(s): HET     PDF:  
 
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Unaudited condensed consolidated financial statements for the six months ended 31 December 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

Unaudited condensed consolidated financial statements for the six months ended 31 December 2018

Highlights
- Dividend growth of 12,6%
- Net gearing of 34,4%
- New 10 year Dischem lease in Cape Town's CBD

Summarised consolidated statement of financial position

                                                                    Unaudited          Unaudited        Audited
                                                                  31 December        30 November        30 June
                                                                         2018               2017           2018
                                                                        R'000              R'000          R'000
Assets
Non-current assets                                                                       
Investment property                                                 4 509 538          4 140 242      4 451 963
Property, plant and equipment                                          24 956             26 099         25 373
Investment in associate                                                10 360             13 192         10 430
Financial assets                                                       34 864             43 456         34 788
                                                                    4 579 718          4 222 989      4 522 554
Current assets
Trade and other receivables                                            20 713             64 823         24 165
Financial assets                                                       75 156             54 455         77 760
Taxation                                                                2 903              1 901          2 918
Cash and cash equivalents                                              38 322            112 525        113 081
                                                                      137 094            233 704        217 924
Total assets                                                        4 716 812          4 456 693      4 740 478
Equity and liabilities
Equity
Stated capital                                                      2 548 624          2 551 062      2 548 624
Retained earnings                                                     412 164            235 280        410 841
                                                                    2 960 788          2 786 342      2 959 465
Non-controlling interests                                              44 613             59 851         46 400
                                                                    3 005 401          2 846 193      3 005 865
Non-current liabilities
Interest-bearing liabilities                                        1 587 992          1 507 820      1 211 036

Derivative financial instrument                                         2 415              1 536              - 
Deferred taxation                                                      62 057             54 645         59 808
                                                                    1 652 464          1 564 001      1 270 844
Current liabilities
Interest-bearing liabilities                                                -              2 865        403 886
Derivative financial instrument                                             -                  -            812
Trade and other payables                                               58 947             43 634         59 071
                                                                       58 947             46 499        463 769
Total equity and financial liabilities                              4 716 812          4 456 693      4 740 478
Net asset value per shares (cents)                                   1 159,29           1 089,96       1 158,78
Net tangible asset per share 
(excluding deferred taxation) (cents)                                1 183,59           1 111,34       1 182,19



Summarised consolidated statement of profit and loss and other comprehensive income

                                                              Unaudited          Unaudited              Audited
                                                      6 months ended 31  6 months ended 30   13 months ended 30
                                                          December 2018      November 2017            June 2018
                                                                  R'000              R'000                R'000
Rental income                                                   225 836            199 092              444 828
Contractual rental income and recoveries                        235 978            207 040              463 913
Straight line rental income                                     (10 142)            (7 948)             (19 085) 
Property expenses                                               (56 979)           (40 820)             (99 376) 
Net property income                                             168 857            158 272              345 452
Income from associate                                               (69)             3 543                  781
Other income                                                      3 821              4 577               11 074
Administrative expenses and corporate costs                     (19 290)           (14 114)             (34 481) 
Profit from operations                                          153 319            152 278              322 826
Finance income                                                    7 453              3 581               16 776
Finance charges                                                 (68 132)           (69 511)            (152 147) 
Profit before fair value adjustments                             92 640             86 348              187 455
Fair value adjustments                                           25 330            155 497              328 583
Investment properties                                            26 933            154 227              326 590
Derivative financial instrument                                  (1 603)             1 270                1 993
Profit before taxation                                          117 970            241 845              516 038
Taxation                                                         (2 756)              (535)              (6 098) 
Net profit after taxation                                       115 214            241 310              509 940
Attributable to:
Equity holders of the company                                   114 157            235 280              498 445
Non-controlling interests                                         1 057              6 030               11 495
                                                                115 214            241 310              509 940
Reconciliation of earnings and headline earnings
Profit attributable to equity holders of the
company                                                         114 157            235 280              498 445
Change in fair value of investment properties
attributable to shareholders of the company                     (27 585)          (154 227)            (318 546) 
Change in fair value of investment properties                   (26 933)          (154 227)            (326 590) 
Attributable to non-controlling shareholders                       (652)                 -                8 044
Headline earnings attributable to equity
holders                                                          86 572             81 053              179 899
Share Metrics:
Number of shares in issue at reporting date *               255 395 858        255 637 235          255 395 858
Weighted average number of shares in issue                  255 395 858        255 637 235          252 363 996
Basic and diluted earnings per share (cents) ^                    44,70              92,04               197,51
Basic and diluted headline earnings per share
(cents) ^                                                         33,90              31,71                71,29
Distribution per share (cents)                                    39,50              35,09                79,27

* Excluding 900,000 treasury
^ Refer to the prior period error note


Segmental report
For the six months ended  
31 December 2018                          GLA     Investment              Straight line     Property         Net
                                                    property    Revenue   rental income     expenses      income
                                           m2          R'000      R'000           R'000        R'000       R'000
Retail                                137 345      2 354 450    124 392          (1 907)     (34 963)     87 522
Industrial                            326 113      1 655 641     94 419          (8 703)     (18 685)     67 031
Office                                 12 445        261 650     13 758             534       (3 094)     11 198
Specialised                                 #         94 409      3 409             (65)        (238)      3 106
Property under development              9 825        143 394          -               -            -           - 
Net property income                   485 728      4 509 544    235 978         (10 142)     (56 979)    168 857
Other income                                                                                               3 821
Equity accounted profits (net
of taxation)                                                                                                 (69)
Administrative and corporate
costs                                                                                                    (19 290) 
Net finance charges                                                                                      (60 679) 
Changes in fair values                                                                                    25 330
Taxation                                                                                                    (508)
Total comprehensive income
for the year                                                                                             117 462
Distributable earnings
adjustments                                                                                              (16 580)
Straight line rental income
accrual                                                                                                   10 142
Changes in fair values                                                                                   (25 330) 
Equity accounted profits (net
of taxation)                                                                                                  69
Attributable to minorities                                                                                (1 709) 
Owner occupied depreciation                                                                                  248
Distributable earnings                                                                                   100 882


For the six months ended 
30 November 2017                          GLA     Investment              Straight line     Property         Net
                                                    property    Revenue   rental income     expenses      income
                                           m2          R'000      R'000           R'000        R'000       R'000
Retail                                150 360      2 181 853    113 206               -      (29 222)     83 984
Industrial                            331 513      1 652 193     76 739               -       (7 609)     69 130
Office                                  7 105        214 133     13 853               -       (3 948)      9 905
Specialised                                 #         92 063      3 242               -          (41)      3 201
Net property income                   488 978      4 140 242    207 040               -      (40 820)    166 220
Other income                                                                                               4 577
Equity accounted profits (net
of taxation)                                                                                               3 543
Administrative and corporate
costs                                                                                                    (14 114) 
Net finance charges                                                                                      (65 930) 
Changes in fair values                                                                                   155 497
Taxation                                                                                                    (535)
Total comprehensive income
for the year                                                                                             249 258
Distributable earnings
adjustments                                                                                             (159 555) 
Changes in fair values                                                                                  (155 497)
Equity accounted profits (net
of taxation)                                                                                              (3 543) 
Dividend from associate                                                                                    1 500
Attributable to minorities                                                                                (2 015)
Distributable earnings                                                                                    89 703

For the six months ended 
30 June 2018                              GLA     Investment              Straight line     Property         Net
                                                    property    Revenue   rental income     expenses      income
                                           m2          R'000      R'000           R'000        R'000       R'000
Retail                                137 345      2 304 450    246 679            (517)     (64 249)    181 914
Industrial                            326 113      1 680 475    180 949         (21 090)     (27 409)    132 450
Office                                 12 445        266 775     29 181           2 585       (7 373)     24 392
Specialised                                 #         93 400      7 104             (63)        (345)      6 695
Property under development              9 988        106 863          -                            -           - 
Net property income                   485 891      4 451 963    463 913         (19 085)     (99 376)    345 452
Changes in fair values                                                                                   328 583
Other income                                                                                              10 984
Profit on disposal
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
accrual                                                                                                   19 085
Changes in fair values                                                                                  (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


Summarised consolidated statement of changes in equity

                                                            Stated       Retained   Non 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                                       (5 309)              -                 -       (5 309)
Acquisition of minority interests                               -               -           (33 291)     (33 291) 
Total comprehensive income for the 6 months ended
30 November 2017                                                -         235 280             6 030      241 310
Balance at 30 November 2017                             2 551 062         235 280            59 851    2 846 193
Share issue expenses                                          (24)              -                 -          (24)
Acquisition of minority interests                           6 586           2 330           (18 916)     (10 000) 
Treasury shares acquired                                   (9 000)              -                 -       (9 000)
Total comprehensive income for the 7 months ended
30 June 2018                                                    -         263 165             5 465      268 630
Dividend distributions to owners of company
recognised directly in equity                                   -         (89 934)                -      (89 934) 
Balance at 30 June 2018                                 2 548 624         410 841            46 400    3 005 865
Total comprehensive income for the 6 months ended
31 December 2018                                                -         114 157             1 057      115 214
Dividend distributions to owners of company
recognised directly in equity                                   -        (112 834)           (2 844)    (115 678)
Balance at 30 June 2018                                  2 548 624        412 164            44 613    3 005 401


Summarised consolidated statement of cash flows

                                                              Unaudited          Unaudited               Audited
                                                      6 months ended 31  6 months ended 30    13 months ended 30
                                                          December 2018      November 2017             June 2018

Cash generated from operations                                  162 975            202 188               394 998
Net finance charges                                             (60 679)           (65 930)             (135 371) 
Taxation paid                                                      (493)               (82)               (1 596)
Cash flows from operating activities                            101 803            136 176               394 207
Acquisition and development of investment
property                                                        (40 835)          (207 681)             (343 727) 
Proceeds from disposal of investment property                         -                  -                22 890
Acquisition of property, plant and equipment                        (25)               (52)                  (97)
Cash on acquisition of businesses                                     -             13 692                13 692
Dividends received from associates                                    -              1 500                 1 500
Loan to related party repaid                                      2 604             50 022                26 717
Share scheme debt repaid                                          1 458                  -                 1 470
Cash from investing activities                                  (36 798)          (142 519)             (277 555) 
Proceeds from the issue of share capital                              -                 29                    29
Share issue expenses                                                  -             (5 309)               (5 333) 
Acquisition of non-controlling interests                              -            (33 291)              (43 291)
Dividend distributions to owners of company
recognised directly in equity                                  (112 834)                 -                (89 934) 
Interest bearing liabilities repaid                             (26 930)                 -               (202 074) 
Interest bearing borrowings raised                                                 157 439                473 208
Net cash generated from financing activities                   (139 764)           118 868                132 605
Net movement in cash and cash equivalents                       (74 759)           112 525                113 081
Cash and cash equivalents at the beginning of
the period                                                      113 081                  -                      -
Cash and cash equivalents at the end of the
period                                                           38 322            112 525                113 081


Commentary

Introduction
Heriot, a property holding and investment company listed in the "Diversified REITs" sector on the Alternative 
Exchange of the JSE Limited ("JSE"), 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
In April 2018, Heriot changed its year end from 31 May to 30 June. As a consequence, Heriot's year end results 
were for the 13 months ended 30 June 2018 and its previous interim results were for the six months ended 
30 November2017. The results for the six months ended 31 December 2018 are therefore not comparable in all 
respects to the previous interim results.

Heriot's distributable earnings for the six months ended 31 December 2018 of R100,9 million, or 39.50 cents per 
share, are 12,6% ahead of the previous interim distribution for the six months ended 30 November 2017 of 35.09 
cents per share. This growth is mainly attributable to the restructuring secured borrowings of R400 million, 
rental escalations and efficient property management.

Property portfolio
Heriot's portfolio comprises 43 properties across major sectors within South Africa. At the reporting date, 
the properties were externally valued at R4,366 billion, excluding the property under development that is 
recognised at cost.

Property under development comprises the Adderley Street property in the Cape Town CBD that is being redeveloped 
into 215 residential units with 870 m2 ground floor retailthat has been let to Dischem on a 10 year lease 
commencing in May 2019. Total costs incurred to 31 December 2018 amount to R143,4 million and 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 December 2018, vacancies amounted to 2,5% of the portfolio. Since the reporting date, 10,393 m2  of 
the 11,670 m2 GLA has been let, reducing the overall vacancies to 0,3%.

Bad debts
Trade receivables have been assessed for recoverability on a tenant by tenant basis. Bad debts of R0,6 million 
have been provided for during the period under review.

Funding
Heriot's secured borrowings of R1,588 billion as at 31 December 2018 equates to a gearing ratio of 35,2%. 
The average cost of borrowing was 8,95% for the period under review and 45% of borrowings have been fixed. 
The average remaining term of the debt is 2,9 years. After accounting for cash on hand at the reporting 
date, the Group's net gearing is 34,4%.

While the group has a facility in place to fund development costs of the Adderley Street property, development 
costs of approximately R60,0 million to date have been funded from available cash resources.


Financial assets

Financial assets comprise of:
- Non-current
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.
- Current
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. Subsequent to the reporting date, R22,7 million of this loan has 
been repaid.

Share Capital
There were no changes to the issued share capital during the reporting period.

As at 31 December 2018, the Company had 255,395,858 shares in issue, excluding the 900,000 treasury shares owned 
by the Group.

Payment of dividend
The board has approved and notice is hereby given of gross dividend number 3 of 39,50000 cents per share for 
the six months ended 31 December 2018. The dividend is payable to Heriot's shareholders in accordance with the 
timetable set out below:

                                                                                                        2019
Last date to trade cum dividend                                                             Tuesday, 5 March
Shares trade ex dividend                                                                  Wednesday, 6 March
Record date                                                                                  Friday, 8 March
Payment date                                                                                Monday, 11 March

Share certificates may not be dematerialised or rematerialised between Wednesday, 6 March 2019 and Friday, 
8 March 2019, both days inclusive. The dividend will be transferred to dematerialised shareholders' CSDP/broker 
accounts on Monday, 11 March 2019. Certificated shareholders' dividend payments will be posted or paid to 
certificated shareholders' bank accounts on or about, Monday, 11 March 2019.

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 31,60000 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 remains confident that Heriot will deliver growth of 9,0% to 11,0% in distributable income per share 
for the year ending 30 June 2019. This growth has been determined with reference to the distributable earnings 
of 73,27 cents per share for the 12 months 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
The unaudited condensed consolidated financial statements for the six months ended 31 December 2018 have been 
prepared in accordance with the requirements of the JSE Listings Requirements and the requirements of the 
Companies Act 71 of 2008 of South Africa. The JSE Listings Requirements require interim reports to be prepared 
in accordance with the framework concepts and the measurement and recognition requirements of International 
Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the Accounting 
Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, and 
to also, as a minimum, contain the information required by IAS 34, Interim Financial Reporting. The accounting 
policies applied in the preparation of these financial statements are in terms of IFRS and are consistent with 
those applied in the previous consolidated annual financial statements.

These unaudited results for the six months ended 31 December 2018, prepared under the supervision of the Chief
Financial Officer JA Finn CA(SA), have not been reviewed or reported on by the Company's auditors.

The directors are not aware of any matters or circumstances arising subsequent to the six month period ended 
31 December 2018 that require any additional disclosure or adjustment to the financial statements. The 
directors further take full responsibility for the preparation of these condensed consolidated financial 
statements.

Prior period errors
Basic and diluted earnings per share was incorrectly calculated in the comparative figures. For the six months 
ended 30 November 2017, earnings were calculated excluding the change in fair value of investment properties and 
for the 13 months ended 30 June 2018, the calculation was based on the actual number of shares in issue as 
opposed to the weighted average number of shares in issue for the period. The earnings per share has now been 
correctly calculated to comply with IAS 33 Earnings per share.

The correction of the errors results in adjustments as follows:

                    Basic and diluted                         Basic and diluted headline 
                   earnings per share                                 earnings per share
                 For six months ended     For 13 months ended       For six months ended     For 13 months ended 
                     30 November 2017            30 June 2018           30 November 2017            30 June 2018
                               (cents)                 (cents)                   (cents)                  (cents)
Reported                        31.71                  195.17                     31.71                    70.44
Restated                        92.04                  195.51                     31.71                    71.29
Difference                      60.33                    0.34                         -                     0.85


Changes to the board 
Shareholders are advised that the chairperson of the board, Mr David Friend, has resigned from the board with 
effect from Monday, 18 February 2019.  The board would like to thank Mr Friend for his valuable contribution 
to the company.  Mr Steven Herring, currently a non-executive director of Heriot, will assume the role of 
chairperson of the board with effect from Monday, 18 February 2019.

Notification in terms of section 45(5) of the Companies Act 71 of 2008
Notice is hereby given that, in terms of the provisions of section 45(5) of the Companies Act 71 of 2008 
("Companies Act"), and pursuant to the special resolution passed at the annual general meeting of Heriot held 
on 7 December 2018 authorising the board to provide direct or indirect financial assistance to, inter alia, 
subsidiaries of the Company, the board has adopted a resolution on 15 February 2019 in terms  of section 45(2) 
of the Companies Act authorising the Company to provide financial assistance to Moditouch Proprietary Limited
by way of the Company providing a guarantee in the amount of R35.5 million to Moditouch Proprietary Limited.


By order of the Board

15 February 2019


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 as at the date of approval of the interim results by the Board: 
SD Friend (Chairperson) *, RL Herring (CEO), JA Finn (CFO), SJ Blieden *#, T Cohen *#, 
SB Herring*^, N Ngale *#
*Non-executive # Independent ^ British

Transfer Secretaries: Computershare Investor Services Proprietary Limited

Designated Advisor: Java Capital

Release date: 18 February 2019

Date: 18/02/2019 01:42:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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