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ARROWHEAD PROPERTIES LIMITED - Unaudited condensed consolidated interim results for the six months ended 31 March 2019

Release Date: 29/05/2019 07:05
Code(s): AWA     PDF:  
 
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Unaudited condensed consolidated interim results for the six months ended 31 March 2019

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")

UNAUDITED CONDENSED
CONSOLIDATED INTERIM RESULTS
for the six months ended 31 March 2019

- Solid property performance in tough environment

- Core direct property portfolio growth of 2.75% before gearing

- Escalations on expiry were 2.5% positive overall

- Announced the intention to merge Arrowhead and Gemgrow

NATURE OF BUSINESS
Arrowhead is a diversified South African Real Estate Investment Trust ("REIT") focused on creating long-term shareholder value.

Arrowhead holds a diverse portfolio of retail, office and industrial (collectively "commercial") properties valued at R5.7 billion (held directly and through a wholly-owned
subsidiary). As at 31 March 2019, Arrowhead held a 59.6% interest (2018: 60.1%) in its subsidiary, Indluplace Properties Limited ("Indluplace"), which owns a portfolio of
residential properties. As at 31 March 2019 Arrowhead also owned 61.5% (2018: 61.9%) of the B-ordinary shares in Gemgrow Properties Limited ("Gemgrow"), equivalent
to 53.3% (2018: 55.5%) of Gemgrow, which owns a diverse portfolio of commercial properties.

The average value per direct property held as at 31 March 2019 was R115.5 million (2018: R112.1 million).

In addition, Arrowhead held an interest of 16.4% (2018: 16.4%) in Rebosis Property Fund Limited ("Rebosis") as well as a 8.6% interest (2018: 8.6%) in Dipula Income Fund
Limited ("Dipula") at 31 March 2019.

CONDENSED CONSOLIDATED
FINANCIAL RESULTS
for the six months ended 31 March 2019


R'000                                                                                                       2019                   2018
Revenue (excluding straight line rental income)                                                        1 182 597              1 112 580
Listed securities dividend                                                                                62 402                109 980
Property expenses                                                                                      (471 511)              (408 359)
Administration and corporate costs                                                                      (35 525)               (28 319)
Finance charges                                                                                        (316 941)              (273 936)
Finance income                                                                                            40 158                 47 336
Pre-effective date dividend - subsidiary                                                                   6 090                      -
Non-controlling interest profits elimination (net of antecedent dividend)                              (142 856)              (146 348)
Distributable income                                                                                     324 414                412 934
Antecedent dividend - subsidiary                                                                           1 403                      -
Accrued dividend on listed securities                                                                     16 702                107 749
Listed securities dividend recognised in previous reporting period                                      (62 402)              (109 980)
Total dividend                                                                                           280 117                410 703
Dividend to the Arrowhead Charitable Trust and corporate fees*                                            11 138                 13 793
Total dividend after effects of Arrowhead Charitable Trust                                               291 255                424 496
* Dividend to the Arrowhead Charitable Trust and corporate fees are 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                                                         40%                    38%
Property expenses as a percentage of revenue ? net                                                           18%                    16%
Total dividend^                                                                                          291 255                424 496
Total dividend (cents)^                                                                                    27.80                  40.43
Net asset value per share (cents)                                                                         690.44                 823.83
^ The dividend was declared on 29 May 2019

COMMENTARY

MARKET CONDITIONS

The South African economy has experienced a period of protracted uncertainty. Our tenants continued to feel the effects of the challenging environment and this is
reflected in higher vacancies and lower rental rates. Notwithstanding the challenging environment and the pressure that certain of our listed holdings have come under,
Arrowhead is pleased with the performance of its direct property portfolio which has been in line with expectation.

In May 2019 South Africa held a general election which resulted in a fairly comfortable victory for the governing party. As a consequence some economic recovery is
expected, the timing of which still remains uncertain. We remain focused in South Africa and believe that even if it takes a couple of years, South Africa will see an
economic revival and we are positioning our business to benefit when this occurs.

REVENUE

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

At 31 March 2019 Arrowhead owned 49 commercial properties directly, 163 commercial properties indirectly through Gemgrow and 176 residential properties indirectly
through Indluplace. At 30 September 2018, Arrowhead owned 49 commercial properties directly, 135 commercial properties indirectly through Gemgrow and
176 residential properties indirectly through Indluplace.

The increase in revenue is mainly as a result of income derived from acquisitions implemented during the period at Gemgrow and Indluplace.

As at 31 March 2019 Arrowhead's direct property portfolio comprised of 61% by value of retail properties, 31% of office buildings and 8% of industrial buildings. The average
gross monthly rental per m? per sector is R141 for retail, R113 for office and R47 for industrial. Gross rental includes parking, operational cost recoveries and rates
recoveries. The average net monthly rental per m? per sector is R124 for retail, R84 for office and R44 for industrial. Escalations on expiry were 2.5% positive overall,
0.3% retail, 4.2% office and industrial was negative (15.3%). Average lease escalation was 7.15% for retail, 7.69% for office and 7.94% for industrial. Average lease expiry
was 3.85 years. In the first six months 28 493m2 came up for renewal, of which 19 849m2 was renewed, representing 70%. Of the remaining 8 644m2, 2 681m2 was re-let.
In aggregate 79% of the GLA expiring was retained in the period.

In what has been a very challenging economic environment we have experienced positive letting activity and performance from the direct portfolio. Vacancies have
increased from 7.9% at 30 September 2018 to 8.6% at 31 March 2019 (retail 6.6%, office 13.2% and industrial 5.0%), in line with expectations.

6 MONTH LETTING REPORT (Excluding Indluplace and Gemgrow portfolio)

                       TOTAL (m(2))   LET (m(2))   VACANT (m(2))    LET (%)   VACANT (%)
As at 1 October 2018        525 719      484 114          41 605      92.09         7.91
Net adjustments               (284)            -           (284)          -            -
Adjusted totals             525 435      484 114          41 321      92.14         7.86
Net (loss) / gain                 -      (3 979)           3 979 
As at 31 March 2019         525 435      480 135          45 300      91.38         8.62

CORE DIRECT PORTFOLIO
NET INCOME GROWTH ON PROPERTIES OWNED AT 1 OCTOBER 2017 AND STILL OWNED ON 31 MARCH 2019

                                  1 OCTOBER 2018 TO    1 OCTOBER 2017 TO
                                      31 MARCH 2019        31 MARCH 2018
DESCRIPTION                                   R'000                R'000      GROWTH (%)
Revenue                                     431 737              409 319            5.48
Property Expenses                         (171 321)            (155 873)            9.91
Net Operating Income                        260 416              253 446            2.75

LISTED SECURITIES DIVIDEND
Listed securities dividend comprises dividend received on shares held in Dipula and Rebosis. During the current financial period, Arrowhead's holding in Rebosis shares
(16.4%) and Dipula (8.6%) remained in line with 30 September 2018. We have not disposed of any Dipula or Rebosis shares in this period.

Rebosis has not declared a dividend for the interim period ended February 2019 and has communicated that it will declare a dividend for the full year ending 31 August 2019.
We were mindful of the challenges that Rebosis faced and in November 2018 communicated what our dividend forecast for the 2019 financial year would be excluding any
contribution from our Rebosis stake.

OPERATING COSTS
R'000                                      31 MARCH 2019   TOTAL (%)    31 MARCH 2018   TOTAL (%)
Municipal expenses                               308 919          65          252 727          62
Property management                               35 936           8           28 963           7
Security                                          18 563           4           17 029           4
Repairs and maintenance                           18 016           4           17 380           4
Letting commission                                12 543           3            9 334           2
Cleaning                                          12 991           3           12 340           3
Insurance                                          6 010           1            4 347           1
Other                                             58 533          12           66 239          17
Total                                            471 511         100          408 359         100

Operating costs have increased in line with expectations mainly due to the acquisitions implemented by Gemgrow and Indluplace during the period. The gross expense to
income ratio has increased to 40% due to higher than inflationary increases for services from municipal councils. The net expense to income ratio increased to 18%.

ADMINISTRATIVE EXPENSES AND CORPORATE COSTS
R'000                                      31 MARCH 2019   TOTAL (%)    31 MARCH 2018   TOTAL (%)
Salaries                                          20 374          57           13 512          47
Professional service fees                          7 863          22            3 894          14
Other                                              7 288          21           10 913          39
Total                                             35 525         100           28 319         100

The salaries for the group grew mainly due to an increased headcount. Staff incentives relating to Gemgrow were previously provided for at the end of the year, whereas
during this six-month period Gemgrow has forecast for this cost to be spread proportionately throughout the current financial year. There has been an increase in
professional fees as we had engaged advisors regarding Arrowhead's holding of listed securities, obtaining advice on the implementation of the employee incentive
scheme and other advisory services.

FINANCE CHARGES
R'000                                                     31 MARCH 2019   TOTAL (%)    31 MARCH 2018   TOTAL (%)
Interest paid - secured financial liabilities                   315 178          99          273 024         100
Amortisation of structuring fee and other interest paid           1 763           1              912           -
Total                                                           316 941         100          273 936         100

Finance charges increased from R273.9 million to R316.9 million resulting from increased facilities to facilitate the growth of the Indluplace and Gemgrow portfolios.

FINANCE INCOME
R'000                                                     31 MARCH 2019   TOTAL (%)    31 MARCH 2018   TOTAL (%)
Interest on group share purchase and option schemes              36 475          91           37 476          79
Interest on cash balances and arrear tenants                      3 683           9            9 860          21
Total                                                            40 158         100           47 336         100

Interest on the group share purchase and option schemes is calculated based 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.

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                         184        10 476 958           176       4 270 426          360      14 747 384
Acquisitions, additions and fair value adjustments            36           868 825             -          74 029           36         942 854
Disposals                                                    (8)         (102 572)             -               -          (8)       (102 572)
Balance at the end of the period#                            212        11 243 211           176       4 344 455          388      15 587 666

* The residential portfolio is a separately listed fund on the JSE. Arrowhead's shareholding in Indluplace was 59.6% at 31 March 2019 (2018: 60.1%).
# The above includes non-current assets held for sale.

Investment property has increased from R14.7 billion at 30 September 2018 to R15.6 billion at 31 March 2019. The movement was attributable to acquisitions and additions
of R942.9 million, and disposals of R102.6 million.

PROPERTY HELD FOR SALE        
PROPERTY NAME                                   PROVINCE             SECTOR           R'000
Business Centre                                  Gauteng             Office          26 040
North End                                   Eastern Cape         Commercial          25 010
Non-current assets held for sale*                                                    51 050

* Amounts disclosed at book value

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 R736.8 million to R778.3 million is as a result of shares issued to
participants of the Indluplace share purchase schemes and the shares to the Gemgrow executives to the value of R38.8 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 of the company (in respect of more
recent loans in Arrowhead, Gemgrow and Indluplace) and are secured by a pledge of the shares.

On 6 February 2019, the company announced that the special resolution approving the extension of certain of the loans advanced to the CEO and CFO in order to acquire
1 002 064 shares (the "funded shares") had been withdrawn, due to a lack of shareholder support. At the time the company was involved in preliminary discussions
in relation to the potential merger with Gemgrow and, in the circumstances, the board was not comfortable granting the CEO and CFO clearance to deal in the funded
shares in order to settle the loans. Having taken advice on how best to deal with the situation, the company resolved and confirmed with the executives that (i) the
company would exercise its rights (under the loan agreement) to dispose of the shares in question as soon as circumstances permitted; (ii) until the shares were disposed
of, the shares would remain under the company's control and at its disposal; and (iii) to provide certainty between the parties as to the value to be placed on the funded
shares for the purposes of the repayment of the loan, it was determined (as between the parties) that the prevailing price of R4.75 per share (being the price per share
at close of business on the date concerned) would apply. The difference between the loan and the designated value of the funded shares was repaid by the CEO and
CFO in cash. As the company remains in a closed period it has not yet been in a position to deal in the funded shares. If and when it does so the necessary dealings
announcements will be published on SENS. The company has reserved the right to, subject to all necessary approvals, elect to buy back the funded shares and cancel
them as opposed to disposing of them through the market.

TRADE AND OTHER RECEIVABLES
For the six months ended 31 March 2019, trade receivables, deposits, other receivables and payments in advance decreased from R334.3 million to R317.5 million mainly
as a result of stricter debt collection procedures put in place. The provision for doubtful debts increased from R21.6 million to R24.4 million.

SECURED FINANCIAL LIABILITIES
Group loans of R7.0 billion (2018: R6.1 billion) reduced by cash and cash equivalents, measured against investment and financial assets of R16.2 billion (2018: R16.6 billion)
represent a group loan to value ("LTV") of 41.4% (2018: 38.05%) and company LTV of 35.0% (2018: 33.2%). The increase in the LTV is mainly as a result of downward
fair value adjustments on the company's listed holdings, Rebosis and Dipula, to the value of R600 million and the addition of the Moolgem transaction which was
implemented by Gemgrow. The interest rate swaps of R5.2 billion results in 74.3% of the total loans being fixed. The LTV at year end is expected to reduce to around 39%
with the sale of investment properties to the value of R471 million by Arrowhead and Gemgrow.

Excess funds are placed in an access facility to reduce the overall interest charge. The weighted average interest rate for the period ended 31 March 2019 was 9.78%
(30 September 2018: 9.79%) for the group and 9.69% for the company (30 September 2018: 9.64%).

MATURITY                          3 MONTH JIBAR# MARGIN %   PRIME RATE MARGIN %   CAPITAL 31 MARCH 2019 R'000   
April 2019 (renewed April 2019)                      1.77                     -                        60 000   
April 2019 (renewed April 2019)                      1.77                     -                       270 000   
June 2019 (renewed April 2019)                          -            Minus 1.40                        51 000   
September 2019 (Indluplace)                             -            Minus 1.26                       150 000   
September 2019 (Indluplace)                             -            Minus 1.26                        27 000   
September 2019 (Gemgrow)                             2.35                     -                       139 000   
November 2019*                                       1.75                     -                       610 000   
March 2020                                              -            Minus 1.30                        25 700   
March 2020                                           2.08                     -                       480 000   
October 2020 (Indluplace)                               -            Minus 1.35                        22 854   
October 2020 (Indluplace)                               -            Minus 1.35                        22 854   
October 2020 (Indluplace)                            2.05                     -                       342 802   
October 2020 (Indluplace)                            2.05                     -                       342 802   
August 2021                                          2.10                     -                       204 675   
October 2021                                         2.10                     -                        65 729   
October 2021                                         2.10                     -                        41 681   
October 2021                                         2.10                     -                        51 772   
December 2021                                        1.85                     -                       300 000   
December 2021                                        2.10                     -                       112 450   
June 2022                                            2.10                     -                       177 091   
July 2022                                            2.10                     -                       175 083   
September 2022 (Gemgrow)                                -            Minus 1.60                        50 000   
October 2022 (Gemgrow)                               2.15                     -                       525 000   
October 2022 (Indluplace)                            2.20                     -                       257 092   
October 2022 (Indluplace)                            2.20                     -                       257 092   
November 2022 (Gemgrow)                              2.20                     -                       480 000   
November 2022 (Gemgrow)                              2.20                     -                        75 519   
November 2022                                        2.05                     -                       280 000   
November 2022                                        2.05                     -                       200 000   
December 2022                                           -            Minus 1.15                       283 924   
November 2023                                           -            Minus 1.15                       146 899   
December 2023 (Gemgrow)                              2.25                     -                       200 000   
December 2023 (Gemgrow)                              2.35                     -                       500 000   
December 2023 (Gemgrow)                                 -            Minus 0.85                        31 508   
Total exposure                                                                                      6 959 527   

* Terms on renewal have been agreed and agreements are being drafted.
# 3 month Jibar as at 31 March 2019 was 7.16%

MATURITY DATE                                   ARROWHEAD                  GEMGROW                INDLUPLACE              OUTSTANDING
                                   CAPITAL AMOUNT (R'000)   CAPITAL AMOUNT (R'000)    CAPITAL AMOUNT (R'000)   CAPITAL AMOUNT (R'000)
2019                                              381 000                  139 000                   177 000                  697 000
2020                                            1 115 700                        -                         -                1 115 700
2021                                              204 675                        -                   731 311                  935 986
2022                                              923 807                   50 000                         -                  973 807
2023                                              763 924                1 080 519                   514 184                2 358 627
2024                                              146 899                  731 508                         -                  878 407
                                                3 536 005                2 001 027                 1 422 495                6 959 527

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

                ARROWHEAD                                    GEMGROW                                    INDLUPLACE
NOTIONAL AMOUNT (R'000)      MATURITY DATE   NOTIONAL AMOUNT (R'000)     MATURITY DATE   NOTIONAL AMOUNT (R'000)        MATURITY DATE
                595 000         2019/09/02                    40 000        2019/07/01                   150 000           2019/09/01
                275 000         2021/08/25                    40 000        2019/07/01                   275 025           2020/10/05
                 65 729         2021/10/20                    80 000        2019/09/30                   275 025           2020/10/05
                 41 681         2021/10/25                    50 000        2020/09/01                   144 979           2020/10/05
                 51 772         2021/10/27                   525 000        2022/10/31                    28 485           2020/10/05
                300 000         2021/11/09                   600 000        2022/11/15                    28 485           2020/10/05
                112 450         2021/12/15                   200 000        2022/12/04                   144 979           2022/10/05
                742 163         2021/12/31                 1 535 000                                   1 046 978
                200 000         2022/06/30
                200 000         2022/07/04
              2 583 795

STRATEGY AND PROSPECTS

We continue to position Arrowhead to create long term sustainable value for shareholders by focusing on direct physical property and, over time, divesting of listed
investments that are not part of the Arrowhead group; and by strengthening Arrowhead's balance sheet by reducing gearing, with a short-term target of bringing group
LTV below 35%, without materially impacting earnings.

During the 6 months, Arrowhead's core property portfolio of 49 commercial properties performed well, achieving rental growth of 2.75% (over the six months) before
gearing. This performance, in a difficult environment, highlights the sustainable nature of the income generated by Arrowhead's property portfolio and the benefits of
controlling the performance of one's assets.

This focus on owning physical assets directly and simplifying the group structure, will be further enhanced should the proposed merger with Gemgrow go ahead.
Arrowhead is a long-term holder of Indluplace, which remains a core part of its strategy going forward.

The company intends to reduce, and ultimately, dispose of its holdings in Rebosis and Dipula in the longer term. Although not a seller at current levels, the impact of the
company's holdings in Dipula and Rebosis on distributions is significantly reduced.

No contribution from Rebosis has been included in Arrowhead's distribution guidance and the Rebosis shares are ungeared. As a result, the Rebosis shareholding
represents upside only for Arrowhead.

While income from the company's Dipula shareholding is included in Arrowhead's dividend's guidance, movements in Dipula's dividends have a negligible impact on
Arrowhead ? with every 1 cent (or 1.2%) change in Dipula's dividend per share impacting Arrowhead's distribution by approximately 0.04 cents (or 0.1%).

The company will continue to explore opportunities to unlock value from its holdings in Rebosis and Dipula.

As a 100% South African focused fund, the environment in which Arrowhead operates remains very difficult, but the company has seen an uptick in leads recently and
there is cautious optimism that, with strong leadership and increased policy certainty, economic conditions can improve over time. As a company, we are confident that
we have made the correct, although difficult, strategic decisions, in tough macro-economic circumstances to position the company for sustainable growth going forward
that will create long-term sustainable value for our shareholders.

As stated in the announcement released on 22 May 2019 Arrowhead anticipates that its dividend per share for the year ending 30 September 2019 will be approximately
56 cents per share. The information on which this forecast has been based has not been reviewed or reported on by the Company's auditors.

SUMMARY OF FINANCIAL PERFORMANCE
                                                                                             UNAUDITED FOR THE      UNAUDITED FOR THE
                                                                                              SIX MONTHS ENDED       SIX MONTHS ENDED
                                                                                                 31 MARCH 2019          31 MARCH 2018
Dividend per Arrowhead share (cents)                                                                     27.80                  40.43
Arrowhead ordinary shares in issue^                                                              1 047 678 485          1 049 953 742
Net asset value per share at reporting date (cents) - excluding Non-controlling interest                690.44                 823.83
Loan to value ratio - Group                                                                              41.4%                  36.8%
Loan to value ratio - Company                                                                            35.0%                  31.3%

^ Includes 31 000 000 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 2019

The board of directors ("Board") has approved a gross dividend (dividend number 27) of 27.80000 cents per share for the six months ended 31 March 2019 in accordance
with the timetable set out below:
    
                                                     2019
Declaration date                        Wednesday, 29 May
Last date to trade cum dividend          Tuesday, 18 June
Shares trade ex-dividend               Wednesday, 19 June
Record date                               Friday, 21 June
Payment date                              Monday, 24 June

Share certificates may not be dematerialised or rematerialised between Wednesday, 19 June 2019 and Friday, 21 June 2019, both days inclusive. Payment of the dividend will
be made to shareholders on Monday, 24 June 2019. In respect of dematerialised shareholders, the dividend will be transferred to the Central Securities Depositary Participant
("CSDP") accounts/broker accounts on Monday, 24 June 2019. Certificated shareholders' dividend payments will be deposited on or about Monday, 24 June 2019.

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

The dividend received by or accrued to South African tax residents must be included in the gross income of such shareholders and will not be exempt from income
tax (in terms of the exclusion to the general dividend exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act) because they are dividends
distributed by a REIT. These dividends are, however, exempt from dividend withholding tax in the hands of South African tax resident shareholders, provided that the
South African resident shareholders provided the following forms to their Central Securities Depository Participant ("CSDP") or broker, as the case may be, in respect of
uncertificated shares, or the company, in respect of certificated shares:

a) a declaration that the dividend is exempt from dividends tax; and

b) a written undertaking to inform the CSDP, broker or the company, as the case may be, should the circumstances affecting the exemption change or the beneficial
   owner cease to be the beneficial owner,

both in the form prescribed by the Commissioner for the South African Revenue Service. Shareholders are advised to contact their CSDP, broker or the company, as the
case may be, to arrange for the 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. On 22 February 2017, dividends withholding tax was increased from 15% to
20% and accordingly, any dividends received by a non-resident from a REIT will be subject to dividend withholding tax at 20%, unless the rate is reduced in terms of
any applicable agreement for the avoidance of double taxation ("DTA") between South Africa and the country of residence of the shareholders. Assuming dividend
withholding tax will be withheld at a rate of 20%, the net dividend amount due to non-resident shareholders is 22,24000 cents per share. A reduced dividend
withholding rate in terms of the applicable DTA, may only be relied on if the non-resident shareholder has provided the following forms to their CSDP or broker, as the
case may be, in respect of uncertificated shares, or the company, in respect of certificated shares:

a) a declaration that the dividends are subject to a reduced rate as a result of the application of a DTA; and

b) a written undertaking to inform their CSDP, broker or the company, as the case may be, should the circumstances affecting the reduced rate change or the beneficial
    owner cease to be the beneficial owner,

both in the form prescribed by the Commissioner for the South African Revenue Service. Non-resident shareholders are advised to contact their CSDP, broker or the
company, as the case may be, to arrange for the 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 dividends: 1 047 678 485
Arrowhead's income tax reference number: 9779/439/15/8

EVENTS AFTER REPORTING PERIOD
The company announced a potential merger with its subsidiary, Gemgrow on 10 April 2019.

DIVIDEND DECLARATION AFTER REPORTING DATE
In line with IAS 10 Events after the Reporting Period, the declaration of the dividend occurred after the end of the reporting period, resulting in a non-adjusting event
which is not recognised in the financial statements.

LITIGATION STATEMENT
There are no legal or arbitration proceedings, including any proceedings that are pending or threatened, of which Arrowhead is aware, that may have or have had in the
recent past, being the previous 12 months, a material effect on the group's financial position.

BASIS OF PREPARATION
The interim consolidated results for the six months ended 31 March 2019 have not been reviewed or reported on by the group's auditors, BDO South Africa Incorporated.

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 audited financial statements for the year ended 30 September 2018 except for the
first time adoption of IFRS 9 and IFRS 15, which had no material impact on the financial results.

SUMMARISED CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 March 2019

                                                                     UNAUDITED FOR THE      UNAUDITED FOR THE       AUDITED FOR THE
                                                                      SIX MONTHS ENDED       SIX MONTHS ENDED            YEAR ENDED
R'000                                                                    31 MARCH 2019          31 MARCH 2018     30 SEPTEMBER 2018
Rental income                                                                1 182 597              1 112 580             2 283 158
Straight line rental income accrual                                              4 901                 10 653                16 466
Listed securities dividend                                                      62 402                109 980               210 018
Total income                                                                 1 249 900              1 233 213             2 509 642
Property expenses                                                            (471 511)              (408 359)             (851 812)
Administration and corporate costs                                            (35 525)               (28 319)              (59 760)
Net operating profit                                                           742 864                796 535             1 598 070
Changes in fair values                                                       (621 573)              (311 897)             (844 036)
Profit from operations                                                         121 291                484 638               754 034
Finance charges                                                              (316 941)              (273 936)             (560 156)
Finance income                                                                  40 158                 47 336                84 262
(Loss) / profit after net finance cost and before capital items              (155 492)                258 038               278 140
Impairments - Goodwill                                                               -                      -             (337 448)
(Loss) / profit before taxation                                              (155 492)                258 038              (59 308)
Taxation                                                                             -                      -               (2 011)
Total comprehensive (loss) / income for the year                             (155 492)                258 038              (61 319)

(Loss) / profit for the year attributable to:
Equity shareholders of Arrowhead                                             (299 146)                117 471             (193 594)
Non-controlling interest                                                       143 654                140 567               132 275
Total comprehensive (loss) / profit for the year                             (155 492)                258 038              (61 319)

CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
at 31 March 2019

                                                                     UNAUDITED FOR THE      UNAUDITED FOR THE       AUDITED FOR THE
                                                                      SIX MONTHS ENDED       SIX MONTHS ENDED            YEAR ENDED
R'000                                                                    31 MARCH 2019          31 MARCH 2018     30 SEPTEMBER 2018
Assets 
Non-current assets                                                          16 577 829             17 698 905            16 371 038
Investment property                                                         15 207 306             15 036 213            14 420 046
  Fair value of property portfolio for accounting purposes                  15 072 410             14 912 089            14 290 024
  Straight line rental income accrual                                          134 896                124 124               130 022
Property, plant and equipment                                                    1 129                  1 486                 1 403
Loans to participants of group share purchase and option schemes               778 261                736 874               732 501
Goodwill                                                                             -                337 449                     -
Financial assets                                                               585 655              1 584 800             1 185 204
Deferred taxation                                                                    -                  2 011                     -
Derivative instruments                                                           5 478                     72                31 884
Current assets                                                                 576 689                377 713               378 191
Trade and other receivables                                                    317 464                253 539               334 330
Loans to participants of group share purchase and option schemes                     -                      -                 3 717
Cash and cash equivalents                                                      259 225                124 174                40 144
Non-current assets held for sale                                               380 360                      -               327 337
Total assets                                                                17 534 878             18 076 618            17 076 566
   
Equity and liabilities   
Shareholders' interest                                                       7 019 573              8 394 444             7 661 742
Stated capital                                                               6 558 758              6 572 398             6 556 986
Reserves                                                                       460 815              1 822 046             1 104 756
Non-controlling interest                                                     3 156 311              3 055 312             2 934 758
Other non-current liabilities                                                6 289 567              5 602 954             5 010 383
Secured financial liabilities                                                6 258 674              5 532 120             5 005 229
Derivative instruments                                                          30 893                 70 834                 5 154
Current liabilities                                                          1 069 427              1 023 908             1 469 683
Trade and other payables                                                       370 006                323 235               369 407
Secured financial liabilities                                                  697 000                700 673             1 096 707
Derivative instruments                                                           2 421                      -                 3 569
Total equity and liabilities                                                17 534 878             18 076 618            17 076 566

SUMMARISED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
For the period ended 31 March 2019

                                                                                                     NON-CONTROLLING
R'000                                                                STATED CAPITAL     RESERVES            INTEREST          TOTAL
Balance at 30 September 2017                                              6 497 483    1 875 057           2 742 921     11 115 461
Issue of shares                                                              74 878            -             322 062        396 940
Transfers between equity holders                                                  -       55 548            (55 548)              -
Share buyback                                                               (15 375)           -             (8 725)       (24 100)
Share based payments                                                              -            -              19 972         19 972
Dividends paid                                                                    -    (632 254)           (218 199)      (850 453)
Total comprehensive income for the period                                         -    (193 594)             132 275       (61 319)
Balance at 30 September 2018                                              6 556 986    1 104 756           2 934 758     10 596 500
Issue of shares                                                               1 772            -             229 167        230 939
Transfers between equity holders                                                  -        (787)                 787              -
Dividends paid                                                                    -    (344 008)           (152 055)      (496 063)
Total comprehensive income for the period                                         -    (299 146)             143 654      (155 492)
Balance at 31 March 2019                                                  6 558 758      460 815           3 156 311     10 175 884

SUMMARISED CONSOLIDATED
STATEMENT OF CASH FLOWS
For the period ended 31 March 2019
        
                                                                     UNAUDITED FOR THE      UNAUDITED FOR THE       AUDITED FOR THE
                                                                      SIX MONTHS ENDED       SIX MONTHS ENDED            YEAR ENDED
R'000                                                                    31 MARCH 2019          31 MARCH 2018     30 SEPTEMBER 2018
Net cash utilised from operating activities                                     27 866                215 965               219 375
Cash generated from operations                                                 738 310                665 200             1 335 704
Finance charges paid                                                         (316 941)              (273 936)             (560 156)
Interest received                                                               40 158                 47 336                84 262
Dividends received                                                              62 402                109 980               210 018
Dividends paid ? non-controlling interest                                    (152 055)              (114 420)             (218 199)
Dividends paid                                                               (344 008)              (218 195)             (632 254)
        
Net cash utilised in investing activities                                    (693 805)            (1 877 544)           (1 814 549)
Acquisition of investment property                                           (791 755)            (1 904 329)           (1 998 738)
Proceeds from disposal of investment property                                   98 029                 27 000               175 701
Investment in listed securities                                                      -                      -                 8 958
Disposal of property, plant and equipment                                            -                      -                     7
Acquisition of property, plant and equipment                                      (79)                  (215)                 (477)
        
Net cash generated from financing activities                                   885 020              1 680 165             1 529 730
Cost incurred in buy back of share capital                                       (706)                  (359)              (15 770)
Proceeds from issue of shares ? non controlling interest                        33 642                133 354               130 005
Proceeds from financial liabilities                                            852 084              1 547 170             1 415 495
         
Net movement in cash and cash equivalents                                      219 081                 18 586              (65 444)
Cash and cash equivalents at the beginning of the year                          40 144                105 588               105 588
Cash and cash equivalents at the end of the year                               259 225                124 174                40 144
        
RECONCILIATION OF
EARNINGS TO HEADLINE EARNINGS
For the period ended 31 March 2019

                                                                        UNAUDITED FOR THE    UNAUDITED FOR THE      AUDITED FOR THE
                                                                         SIX MONTHS ENDED     SIX MONTHS ENDED           YEAR ENDED
R'000                                                                       31 MARCH 2019        31 MARCH 2018    30 SEPTEMBER 2018
(Loss) / profit for the period attributable to Arrowhead shareholders           (299 146)              117 471            (193 594)
Earnings                                                                        (299 146)              117 471            (193 594)
Changes in fair value of investment property                                     (38 430)                    -              198 458
Changes in fair value of investment property ? non-controlling interest             1 936                    -            (116 999)
Profit on sale of property                                                          4 544                    -               36 879
Impairment of goodwill                                                                  -                    -              337 449
Impairment of goodwill ? non-controlling interest                                       -                    -             (71 446)
Profit on sale of investment property ? non-controlling interest                        -                    -                6 872
Headline (loss) / profit attributable to shareholders                           (331 096)              117 471              197 619

SUMMARY 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
                                                                 WESTERN      KWAZULU-      EASTERN
31 MARCH 2019 - R'000                               GAUTENG         CAPE         NATAL         CAPE         OTHER          TOTAL
Contractual rental income                           753 991      133 562        95 538       74 681       124 825      1 182 597
Straight line rental income                           3 408      (3 106)          (57)        (301)         4 957          4 901
Listed securities dividend                                -            -            -            -         62 402         62 402
Operating and administration costs                (324 567)     (45 340)      (39 895)     (28 454)      (68 780)      (507 036)
Net operating profit                                432 832       85 116        55 586       45 926       123 404        742 864
Finance income                                        1 026          156            81           59        38 836         40 158
Finance charges                                       (266)            -           (5)         (31)     (316 639)      (316 941)
Net operating income / (loss)                       433 592       85 272        55 662       45 954     (154 399)        466 081
Changes in fair values                                    -            -             -            -     (621 573)      (621 573)
Reportable segment profit / (loss) before tax       433 592       85 272        55 662       45 954     (775 972)      (155 492)
Taxation                                                  -            -             -            -             -              -
Reportable segment profit / (loss) after tax        433 592       85 272        55 662       45 954     (775 972)      (155 492)
 
Reportable segment assets                        11 033 630    2 276 250     1 692 095    1 417 305     1 115 598     17 534 878
Reportable segment liabilities                    (194 558)     (35 340)      (50 038)     (24 114)   (7 054 944)    (7 358 994)
                                                 10 839 072    2 240 910     1 642 057    1 393 191   (5 939 346)     10 175 884

SECTORAL
31 MARCH 2019 - R'000                            COMMERCIAL       RETAIL   RESIDENTIAL   INDUSTRIAL     OVERHEADS          TOTAL
Contractual rental income                           333 720      402 638       318 333      149 904      (21 998)      1 182 597
Straight line rental income                         (1 539)        6 156             -          257            27          4 901
Listed securities dividend                                -            -             -            -        62 402         62 402
Operating and administration costs                (134 679)    (142 541)     (148 730)     (61 044)      (20 042)      (507 036)
Net operating profit                                197 502      266 253       169 603       89 117        20 389        742 864
Finance income                                          491          567         9 840          433        28 827         40 158
Finance charges                                         (9)         (80)      (58 965)        (215)     (257 672)      (316 941)
Net operating income / (loss)                       197 984      266 740       120 478       89 335     (208 456)        466 081
Changes in fair values                                7 865       27 514       (8 219)        3 343     (652 076)      (621 573)
Reportable segment profit / (loss) before tax       205 849      294 254       112 259       92 678     (860 532)      (155 492)
Taxation                                                  -            -             -            -             -             -
Reportable segment profit / (loss) after tax        205 849      294 254       112 259       92 678     (860 532)      (155 492)

Reportable segment assets                         4 207 994    5 452 491     4 689 627    1 977 982     1 206 784     17 534 878
Reportable segment liabilities                    (130 088)    (135 348)   (1 499 549)     (49 356)   (5 544 653)    (7 358 994)
                                                  4 077 906    5 317 143     3 190 078    1 928 626   (4 337 869)     10 175 884

GEOGRAPHICAL 
                                                                 WESTERN      KWAZULU-      EASTERN
31 MARCH 2018 - R'000                               GAUTENG         CAPE         NATAL         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 dividend                                             -             -            -       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 / (loss) before tax       241 994       85 841        59 221       47 161     (176 178)        258 038
Taxation                                                  -            -             -            -             -              -
Reportable segment profit / (loss) 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                            COMMERCIAL       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 dividend                                -            -             -            -       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       102 722        796 535
Finance income                                          519          295        14 605          286        31 631         47 336
Finance charges                                        (43)         (11)      (57 906)        (134)     (215 842)      (273 939)
Net operating income / (loss)                       209 963      199 902       154 227       87 332      (81 489)        569 935
Changes in fair values                                    -            -      (10 827)            -     (301 070)      (311 897)
Reportable segment profit / (loss) before tax       209 963      199 902       143 400       87 332     (382 559)        258 038
Taxation                                                  -            -             -            -             -              -
Reportable segment profit / (loss) after tax        209 963      199 902       143 400       87 332     (382 559)        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
                                                                 WESTERN      KWAZULU-      EASTERN
30 SEPTEMBER 2018 - R'000                           GAUTENG         CAPE         NATAL         CAPE         OTHER          TOTAL
Contractual rental income                         1 502 616      258 745       191 500      145 780       184 517      2 283 158
Straight line rental income                          14 877      (7 634)           595        2 560         6 068         16 466
Listed securities dividend                                -            -             -            -       210 018        210 018
Operating and administration costs                (601 250)     (85 023)      (73 652)     (52 670)      (98 977)      (911 572)
Net operating profit                                916 243      166 088       118 443       95 670       301 626      1 598 070
Finance income                                        1 729          183           172           99        82 079         84 262
Finance charges                                       (443)         (19)           (3)            -     (559 691)      (560 156)
Net operating income / (loss)                       917 529      166 252       118 612       95 769     (175 986)      1 122 176
Changes in fair values                            (323 859)      159 410      (29 084)       38 961     (689 464)      (844 036)
Profit / (loss) before capital items and tax        593 670      325 662        89 528      134 730     (865 450)        278 140
Impairments                                               -            -             -            -     (337 448)      (337 448)
Reportable segment profit / (loss) before tax       593 670      325 662        89 528      134 730   (1 202 898)       (59 308)
Taxation                                                  -            -             -            -       (2 011)        (2 011)
Reportable segment profit / (loss) after tax        593 670      325 662        89 528      134 730   (1 204 909)       (61 319)

Reportable segment assets                        10 780 288    2 254 674     1 652 762    1 372 232     1 016 610     17 076 566
Reportable segment liabilities                    (144 821)     (27 408)      (38 096)     (20 986)   (6 248 755)    (6 480 066)
                                                 10 635 467    2 227 266     1 614 666    1 351 246   (5 232 145)     10 596 500

SECTORAL
30 SEPTEMBER 2018 - R'000                       RESIDENTIAL   COMMERCIAL        RETAIL   INDUSTRIAL     OVERHEADS          TOTAL
Contractual rental income                           669 775      658 363       652 712      302 308             -      2 283 158
Straight line rental income                           2 774      (6 115)        16 187        3 620             -         16 466
Listed securities dividend                                -            -             -            -       210 018        210 018
Operating and administration costs                (268 975)    (251 757)     (228 046)    (126 483)      (36 311)      (911 572)
Net operating profit                                403 574      400 491       440 853      179 445       173 707      1 598 070
Finance income                                       27 344        1 023           685          632        54 578         84 262
Finance charges                                   (117 171)        (202)          (45)        (220)     (442 518)      (560 156)
Net operating income / (loss)                       313 747      401 312       441 493      179 857     (214 233)      1 122 176
Changes in fair values                            (141 851)    (301 531)       297 927     (44 722)     (653 859)      (844 036)
Profit / (loss) before capital items and tax        171 896       99 781       739 420      135 135     (868 092)        278 140
Impairments                                               -            -             -            -     (337 448)      (337 448)
Reportable segment profit / (loss) before tax       171 896       99 781       739 420      135 135   (1 205 540)       (59 308)
Taxation                                                  -            -             -            -       (2 011)        (2 011)
Reportable segment profit / (loss) after tax        171 896       99 781       739 420      135 135   (1 207 551)       (61 319)
 
Reportable segment assets                         4 581 928    4 225 099     4 770 825    1 873 208     1 625 506     17 076 566
Reportable segment liabilities                  (1 365 829)     (90 528)     (105 781)     (30 698)   (4 887 230)    (6 480 066)
                                                  3 216 099    4 134 571     4 665 044    1 842 510   (3 261 724)     10 596 500

RECONCILIATION OF
PROFIT BEFORE TAX TO DISTRIBUTABLE EARNINGS
                                                                              UNAUDITED FOR THE      UNAUDITED FOR THE       AUDITED FOR THE
                                                                               SIX MONTHS ENDED       SIX MONTHS ENDED            YEAR ENDED
R'000                                                                             31 MARCH 2019          31 MARCH 2018     30 SEPTEMBER 2018
(Loss) / Profit before tax attributable to shareholders                               (155 492)                258 038              (59 308)
Changes in fair values of investment property                                          (36 494)                      -               198 458
Changes in fair values of listed securities and financial instruments                   653 523                301 551               608 697
Loss on sale of investment properties                                                     4 544                      -                36 879
Straight line rental income accrual                                                     (4 901)                (6 088)              (16 252)
Dividend to the Arrowhead Charitable Trust and corporate fees                            11 138                 13 793                25 491
Accrued distribution of financial assets                                                 16 702                107 749                55 903
Accrued distribution of financial assets recognised in prior financial year            (62 402)              (109 980)             (109 980)
NCI earnings net of fair value adjustments                                            (142 856)              (140 567)             (300 292)
Pre-effective date distribution                                                           6 090                      -                     -
Goodwill                                                                                      -                      -               337 449
Antecedent dividend - subsidiaries                                                        1 403                      -                   306
Distributable earnings attributable to shareholders                                     291 255                424 496               777 351

Number of Arrowhead ordinary shares in issue                                      1 047 678 485          1 049 953 742         1 047 346 954
Weighted average number of Arrowhead shares in issue*                             1 016 408 346          1 014 629 528         1 014 629 528
Basic and diluted earnings per Arrowhead ordinary share (cents)                         (29.43)                  11.58               (19.08)
Headline and diluted headline earnings per Arrowhead ordinary shares (cents)            (32.60)                  11.58                 19.48
* Excludes shares issued to the Arrowhead Charitable Trust.

By order of the Board - 29 May 2019

DIRECTORS:                        M Nell* (Chairperson), M Kaplan (CEO), I Suleman (CFO), R Kader (COO), T Adler*, S Noik*, S Mokorosi*, E Stroebel* (resigned 12 November 2018)
                                  * 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                           Investec Bank Limited

COMPANY SECRETARY                 Vicki Turner

WEBSITE                           www.arrowheadproperties.co.za
Date: 29/05/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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