Wrap Text
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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