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Summarised audited financial statements for the year ended 31 May 2018 and for the 13 months ended 30 June 2018
Heriot Reit Limited
(Incorporated in the Republic of South Africa)
(Registration number 2017/167697/06)
JSE share code: HET
ISIN: ZAE000246740
(Approved as a REIT by JSE)
("Heriot" or "the Company" or "the Group")
www.heriotreit.com
Summarised audited condensed consolidated financial statements
for the year ended 31 May 2018 and
for the 13 months ended 30 June 2018
Highlights
30 June 2018 31 May 2018
Property portfolio valuation R4,452 billion R4,374 billion
Number of properties 43 43
Net asset value (per share) R11,59 R11,35
Increase in net asset value
since listing 16,0% 13,6%
Distributable earnings
(cents per share) 79,27 73,27
Distributable earnings ahead of
listing forecast (cents per share) 1,60
Summarised consolidated statement of financial position
Audited Audited
30 June 31 May
2018 2018
R'000 R'000
Assets
Non-current assets
Investment property 4 451 963 4 374 199
Property, plant and equipment 25 373 25 447
Investment in associate 10 430 10 430
Financial assets 34 788 34 530
4 522 554 4 444 606
Current assets
Trade and other receivables 24 165 33 553
Financial assets 77 760 76 803
Taxation 2 918 2 475
Cash and cash equivalents 113 081 90 081
217 924 202 912
Total assets 4 740 478 4 647 518
Equity and liabilities
Equity
Stated capital 2 548 624 2 548 624
Retained earnings 410 841 350 919
2 959 465 2 899 543
Non-controlling interests 46 400 45 655
3 005 865 2 945 198
Non-current liabilities
Interest-bearing liabilities 1 211 036 1 184 078
Deferred taxation 59 808 59 808
1 270 844 1 243 886
Current liabilities
Interest-bearing liabilities 403 886 403 772
Derivative financial instrument 812 1 110
Trade and other payables 59 071 53 552
463 769 458 434
Total equity and financial liabilities 4 740 478 4 647 518
Net asset value per shares (cents) 1 158,78 1 135,31
Net tangible asset per share
(excluding deferred taxation) (cents) 1 182,19 1 158,73
Summarised consolidated statement of profit and loss and other
comprehensive income
Audited Audited Forecast
13 months Year Year
ended ended ended
30 June 31 May 31 May
2018 2018 2018
R'000 R'000 R'000
Rental income 444 828 409 701 400 307
Contractual rental income
and recoveries 463 913 427 069 417 802
Straight line rental income (19 085) (17 368) (17 495)
Property expenses (99 376) (89 885) (74 997)
Net property income 345 452 319 816 325 310
Income from associate 781 781 275
Other income 11 074 10 145 7 373
Administrative expenses
and corporate costs (34 481) (32 478) (28 965)
Profit from operations 322 826 298 264 303 993
Finance income 16 776 15 810 5 659
Finance charges (152 147) (140 630) (137 207)
Profit before fair value
adjustments 187 455 173 444 172 445
Fair value adjustment 328 583 281 821 17 495
Investment properties 326 590 280 125 17 495
Derivative financial
instrument 1 993 1 696 –
Profit before taxation 516 038 455 265 189 940
Taxation (6 098) (5 992) (1 553)
Net profit after taxation 509 940 449 273 188 387
Attributable to:
Equity holders of the company 498 445 438 523 183 210
Non-controlling interests 11 495 10 750 5 177
509 940 449 273 188 387
Reconciliation of earnings
and headline earnings
Profit attributable to
equity holders of the company 498 445 438 523 183 210
Change in fair value of
investment properties
attributable to equity
holders of the company (318 546) (272 593) (17 495)
Change in fair value of
investment properties (326 590) (280 125) (17 495)
Attributable to non-
controlling shareholders 8 044 7 532
Headline earnings
attributable to equity
holders 179 899 165 930 165 715
Number of shares in issue
at reporting date* 255 395 858 255 395 858 255 637 235
Weighted average number of
shares in issue 252 363 996 252 114 801 255 637 235
Basic and diluted earnings
per share (cents) 195,17 171,70 71,67
Basic and diluted headline
earnings per share (cents) 70,44 64,97 64,82
Distribution per share
(cents) 79,27 73,27 71,67
* Excluding 900,000 treasury shares.
Summarised consolidated statement of changes in equity
Non-
Stated Retained controlling Total
capital earnings interests equity
R'000 R'000 R'000 R'000
Issue of shares 2 556 371 87 112 2 643 483
Share issue expenses (5 333) (5 333)
Acquisition of
non-controlling
interests 6 586 2 330 (52 207) (43 291)
Treasury shares
acquired (9 000) (9 000)
Profit for the year
ended 31 May 2018 438 523 10 750 449 273
Dividend distributions
to owners of company
recognised directly
in equity (89 934) (89 934)
Balance at
31 May 2018 2 548 624 350 919 45 655 2 945 198
Profit for the
period 1 June to
30 June 2018 59 922 745 60 667
Balance at
30 June 2018 2 548 624 410 841 46 400 3 005 865
Summarised consolidated statement of cash flows
Audited
13 months Audited
ended Year ended
30 June 31 May
2018 2018
R'000 R'000
Cash generated from operations 394 998 353 988
Net finance charges (135 371) (124 820)
Taxation paid (1 596) (1 046)
Cash flows from operating activities 258 031 228 122
Acquisition and development of
investment property (343 727) (310 703)
Proceeds from disposal of
investment property 22 890 22 890
Acquisition of property, plant and
equipment (97) (97)
Cash on acquisition of businesses 13 692 13 692
Dividends received from associates 1 500 1 500
Loan to related party repaid 26 717 27 674
Share scheme debt repaid 1 470 1 470
Cash from investing activities (277 555) (243 574)
Proceeds from the issue of share capital 29 29
Share issue expenses (5 333) (5 333)
Acquisition of non-controlling interests (43 291) (43 291)
Dividend distributions to owners of
company recognised directly in equity (89 934) (89 934)
Interest bearing liabilities
repaid (202 074) (224 387)
Interest bearing borrowings raised 473 208 468 449
Net cash generated from financing
activities 132 605 105 533
Net movement in cash and cash equivalents 113 081 90 081
Cash and cash equivalents at the
beginning of the period - -
Cash and cash equivalents at the
end of the period 113 081 90 081
Commentary
Introduction
Heriot, a property holding and investment company, listed in the
"Diversified REITs" sector on the Alternative Exchange ("AltX") of the
JSE Limited ("JSE") on 24 July 2017. Heriot is invested in industrial,
retail, office and specialised properties situated in areas with high
growth potential. The Group's primary objective is to develop or acquire
yield-enhancing assets within South Africa to create a stable and diverse
portfolio of assets for the purposes of generating secure and escalating
net rental income.
Financial results
Subsequent to listing, Heriot changed its year end from 31 May to 30 June
and in compliance with the JSE Listings Requirements, is required to publish
reviewed results for the Group for the year ended 31 May 2018 and audited
results for the Group for the 13 months ended 30 June 2018.
Heriot's total distributable earnings for the year ended 31 May 2018 of
R187,5 million exceeds the forecast distributable income of R183,2 million,
as reflected in the pre-listing statement issued on 17 July 2017 ("PLS"),
by R4,3 million mainly due to the refinancing of secured borrowings at
more attractive interest rates and improved cash management. Total
distributable earnings for the 13 months ended 30 June 2018 amounted
to R202,9 million.
Heriot's distributable earnings for the year ended 31 May 2018 of 73,27 cents
per share exceeds the forecast distribution of 71,67 cents per share by
1,60 cents per share or 2,2% and the net asset value at 31 May 2018 was
R11,35 per share, an increase of 135 cents per share over the listing price
of R10,00 per share. At 30 June 2018, the net asset value per share
increased by 24 cents per share to R11,59 per share and the distributable
earnings increased by 6,00 cents per share to 79,27 cents per share for
the 13 months then ended.
The board has declared a final dividend of 44,18 cents per share which together
with the interim dividend of 35,09 cents per share equates to a total
dividend of 79,27 cents for the 13 months ended 30 June 2018.
No comparative figures have been presented as the Company was incorporated on
18 April 2017 and only commenced trading on 5 June 2017.
Property portfolio
Heriot's portfolio comprises 43 properties across major sectors within South
Africa. The properties were externally valued at R4,275 billion at 31 May 2018,
excluding the property under development that is recognised at cost. This
represents an increase of R280,1 million, or 6,4%, on the cost of the assets
acquired pursuant to the listing.
After accounting for an increase in fair value in the investment properties
of R46,5 million for June 2018 and for the acquisition of the non-controlling
shareholder's 50% interest in the Shoprite Seapoint property for
R24,0 million on 18 June 2018, the fair value of investment properties
had increased to R4,345 billion at 30 June 2018.
Property under development comprises the Adderley Street property in the
Cape Town CBD that is currently being redeveloped into 212 residential units
with 870 m2 ground floor retail. The project is expected to be completed in
May 2019.
Over and above Heriot's investment property portfolio, Heriot owns the
Group's head office, comprising 717 m2 A Grade office space in Melrose
Arch. This property has been accounted for as property, plant and equipment
in terms of the accounting standard relating to owner occupied property.
Vacancies
As at 31 May and 30 June 2018, 0,6% of the portfolio was vacant. Subsequent
to the reporting date, the vacancy reduced to 0,4% with the take-up of
796 m2 office space at an average rental of R200/m2.
Bad debts
Trade receivables have been assessed for recoverability on a tenant by
tenant basis. Bad debts of R0,37 million have been written off during
the review period and a further provision of R0,23 million for doubtful
debts has been raised.
Sectoral analysis
For the 13 months ended 30 June 2018
Fair
Investment value
GLA Property Revenue adjustments
m2 R'000 R'000 R'000
Retail 150 360 2 304 450 246 679 186 908
Industrial 326 113 1 680 475 180 949 128 690
Office 12 445 266 775 29 181 6 989
Specialised # 93 400 7 104 4 003
Property under
development 9 825 106 863 -
Net property income 498 743 4 451 963 463 913 326 590
Fair value adjustments
- derivative financial
instrument
Other income
Profit on disposal
of investment property
Equity accounted
profits (net of taxation)
Administrative and
corporate costs
Net finance charges
Taxation
Total comprehensive
income for the year
Distributable earnings
adjustments
Straight line rental
income
Fair value adjustments
Profit on disposal of
investment property
Equity accounted profits
(net of taxation)
Dividend from associate
Antecedent interest
adjustment
Attributable to minorities
Deferred taxation
Distributable earnings
Straight
line
rental Property Net
income expenses income
R'000 R'000 R'000
Retail (517) (64 249) 368 821
Industrial (18 797) (27 409) 263 433
Office 292 (7 373) 29 089
Specialised (63) (345) 10 699
Property under development - -
Net property income (19 085) (99 376) 672 042
Fair value adjustments -
derivative financial instrument 1 993
Other income 10 984
Profit on disposal of
investment property 90
Equity accounted profits
(net of taxation) 781
Administrative and
corporate costs (34 481)
Net finance charges (135 371)
Taxation (6 098)
Total comprehensive
income for the year 509 940
Distributable earnings adjustments (307 007)
Straight line rental income 19 085
Fair value adjustments (328 584)
Profit on disposal of
investment property (90)
Equity accounted profits
(net of taxation) (781)
Dividend from associate 1 500
Antecedent interest adjustment 249
Attributable to minorities (3 451)
Deferred taxation 5 065
Distributable earnings 202 933
# The specialised property comprises of 8 382ha2 of industrial farms and
the inclusion of this, measured by hectare, in the analysis by GLA would
not provide meaningful analysis of the portfolio as a whole.
For the year ended 31 May 2018
Fair
Investment value
GLA Property Revenue adjustments
m2 R'000 R'000 R'000
Retail 150 360 2 261 250 228 195 168 940
Industrial 326 113 1 659 500 165 170 105 682
Office 12 445 261 700 27 163 2 059
Specialised # 92 760 6 541 3 444
Property under
development 9 825 98 989 - -
Net property income 498 743 4 374 199 427 069 280 125
Fair value adjustments
- derivative financial
instrument
Other income
Profit on disposal of
investment property
Equity accounted profits
(net of taxation)
Administrative and
corporate costs
Net finance charges
Taxation
Total comprehensive
income for the year
Distributable earnings
adjustments
Straight line rental
income
Fair value adjustments
Profit on disposal of
investment property
Equity accounted profits
(net of taxation)
Dividend from associate
Antecedent interest
adjustment
Attributable to
minorities
Deferred taxation
Distributable earnings
Straight
line
rental Property Net
income expenses income
R'000 R'000 R'000
Retail (594) (58 524) 338 017
Industrial (16 854) (24 449) 229 549
Office 134 (6 599) 22 757
Specialised (54) (313) 9 618
Property under development - - -
Net property income (17 368) (89 885) 599 941
Fair value adjustments -
derivative financial instrument 1 696
Other income 10 055
Profit on disposal of
investment property 90
Equity accounted profits (net
of taxation) 780
Administrative and corporate
costs (32 478)
Net finance charges (124 820)
Taxation (5 991)
Total comprehensive income for
the year 449 273
Distributable earnings adjustments (261 727)
Straight line rental income 17 368
Fair value adjustments (281 821)
Profit on disposal of
investment property (90)
Equity accounted profits (net
of taxation) (780)
Dividend from associate 1 500
Antecedent interest adjustment 249
Attributable to minorities (3 218)
Deferred taxation 5 065
Distributable earnings 187 546
Funding
Heriot's secured borrowings of R1,588 billion as at 31 May 2018 equates
to a gearing ratio of 36,3%. The average cost of borrowing was 9,07% for
the period under review and 45% of borrowings have been fixed. The average
remaining term of the debt is 1,8 years. The increase of R27,1 million in
secured borrowings to R1,615 billion at 30 June 2018 relates to the
acquisition of the non-controlling shareholder's interest in the Shoprite
Seapoint property. Net of cash, the gearing ratio was 34,6% at 30 June 2018.
In July 2018, R460 million of secured borrowings was refinanced, reducing
the average cost of debt to 8,85% and increasing the average term of debt
to 3,2 years.
Financial assets
Financial assets comprise of:
- Loans to participants of the employee share purchase scheme. The share
scheme loan bears interest at Heriot's average cost of borrowings and the
Company is entitled to claim repayment of the loans at any time after the
expiration of 10 years from the advance date; and
- A loan to a related party, being a company owned by SB Herring, which
loan bears interest at the average cost of borrowings and is repayable
on demand.
Share capital
Pursuant to its listing, the Company issued 251 437 235 shares at
R10 each for the acquisition of the Group's assets together with
4 200 000 shares in respect of the Company's share purchase scheme.
These shares, issued to employees at R10 per share, were funded by
Heriot. Effective 1 December 2017, 900 000 shares were acquired by a
subsidiary from employees who had resigned from the Company. These
shares are now held as treasury shares by the Group.
On 14 December 2017, 658 623 shares were issued at R10 per share as
part settlement for the acquisition of a non-controlling interest in a
portfolio of three retail assets based in the Western Cape. The balance
of the purchase price of R16,6 million was settled in cash.
As at 31 May and 30 June 2018, the Company had 255 395 858 shares in
issue, excluding the treasury shares.
Distribution declaration
Distribution number 2 of 44,18000 cents per share for the seven months
ended 30 June 2018 will be paid to shareholders in accordance with the
timetable set out below:
2018
Last date to trade cum dividend: Tuesday, 18 September
Shares trade ex dividend: Wednesday, 19 September
Record date: Friday, 21 September
Payment date: Tuesday, 25 September
Share certificates may not be dematerialised or rematerialised between
Wednesday, 19 September 2018 and Friday, 21 September 2018, both days
inclusive. The dividend will be transferred to dematerialised
shareholders' CSDP/broker accounts on Tuesday, 25 September 2018.
Certificated shareholders' dividend payments will be posted or paid
to certificated shareholders' bank accounts on or about, Tuesday,
25 September 2018.
In accordance with Heriot's status as a REIT, shareholders are advised
that the dividend meets the requirements of a "qualifying distribution"
for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962
("Income Tax Act"). The dividend on the shares will be deemed to be
a dividend, for South African tax purposes, in terms of section 25BB
of the Income Tax Act.
The dividend received by or accrued to South African tax residents must
be included in the gross income of such shareholders and will not be
exempt from income tax (in terms of the exclusion to the general
dividend exemption, contained in paragraph (aa) of section
10(1)(k)(i) of the Income Tax Act) because it is a dividend distributed
by a REIT. This dividend is, however, exempt from dividend withholding
tax in the hands of South African tax resident shareholders, provided
that such shareholders provide the following forms to their Central
Securities Depository Participant ("CSDP") or broker, as the case may
be, in respect of uncertificated shares, or the Company, in respect of
certificated shares:
a) a declaration that the dividend is exempt from dividends tax;
and
b) a written undertaking to inform the CSDP, broker or the Company,
as the case may be, should the circumstances affecting the exemption
change or the beneficial owner cease to be the beneficial owner,
both in the form prescribed by the Commissioner for the South African
Revenue Service. Shareholders are advised to contact their CSDP, broker
or the Company, as the case may be, to arrange for the abovementioned
documents to be submitted prior to payment of the dividend, if such
documents have not already been submitted.
Dividends received by non-resident shareholders will not be taxable as
income and instead will be treated as an ordinary dividend which is
exempt from income tax in terms of the general dividend exemption in
section 10(1)(k)(i) of the Income Tax Act. Any distribution received by
a non-resident from a REIT will be subject to dividend withholding tax
at 20%, unless the rate is reduced in terms of any applicable agreement
for the avoidance of double taxation ("DTA") between South Africa and
the country of residence of the shareholder. Assuming dividend withholding
tax will be withheld at a rate of 20%, the net dividend amount due to
non-resident shareholders is 35,344000 cents per share. A reduced dividend
withholding rate in terms of the applicable DTA may only be relied on if
the non-resident shareholder has provided the following forms to their
CSDP or broker, as the case may be, in respect of uncertificated shares,
or the Company, in respect of certificated shares:
a) declaration that the dividend is subject to a reduced rate as a
result of the application of a DTA; and
b) a written undertaking to inform their CSDP, broker or the Company,
as the case may be, should the circumstances affecting the reduced rate
change or the beneficial owner cease to be the beneficial owner,
both in the form prescribed by the Commissioner for the South African
Revenue Service. Non-resident shareholders are advised to contact their
CSDP, broker or the Company, as the case may be, to arrange for the
abovementioned documents to be submitted prior to payment of the
dividend if such documents have not already been submitted, if
applicable.
Shares in issue at the date of the dividend: 255 395 858 (excluding
900 000 treasury shares).
Heriot's income tax reference number: 9541295185.
Prospects
The Board is of the view that the dividend per share will grow at
between 9% and 11% per share for the financial year ending 30 June
2019. This growth has been determined with reference to the
distributable earnings of 73,27 cents per share for the year ended
31 May 2018.
This forecast is based on the assumption that there will be no change in
the current trading conditions of the existing portfolio, a stable macro-
economic environment will prevail, tenants will be able to absorb rising
utility cost and that there will be no major corporate failures. This
forecast has not been audited or reviewed by the Company's auditors.
Basis of preparation
These results have been prepared in accordance with International Financial
Reporting Standards ("IFRS"), IAS 34, Interim Financial Reporting, the
SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Reporting Pronouncements as issued by the Financial
Reporting Standards Council, JSE Listings Requirements and the requirements
of the Companies Act of South Africa. These financial results have been
prepared under the supervision of the Chief Financial Officer,
JA Finn, CA(SA). The results for the year ended 31 May 2018 and for
the 13 months ended 30 June 2018 have been audited by the Company's
independent auditors, Grant Thornton Johannesburg Partnership. The
accounting policies applied in the preparation of the consolidated financial
statements, from which the summarised consolidated financial statements
were derived, are in terms of IFRS and are consistent with the accounting
policies applied in the preparation of the financial statements included in
the PLS.
This summarised report is extracted from audited information but is not
itself audited. The auditors, Grant Thornton, has expressed an unmodified
opinion on the consolidated financial statements from which these summarised
financial statements were derived. A copy of the auditor's report on the annual
financial statements is available at the Company's registered office, together
with the financial statements identified in the auditor’s report.
The directors are not aware of any matters or circumstances arising subsequent
to 30 June 2018 that require any additional disclosure or adjustment to the
financial statements, other than as disclosed in this announcement. The
directors further take full responsibility for the preparation of these
summarised consolidated financials statements and for ensuring that the
financial information has been correctly extracted from the underlying
audited financial statements.
By order of the Board
31 August 2018
Company secretary
CIS Company Secretaries Proprietary Limited (G Prestwich)
Registered office
Suite 1, Ground Floor, 3 Melrose Boulevard, Melrose Arch, Johannesburg, 2196
PO Box 652737, Benmore, 2010
Directors
SD Friend (Chairperson)*, RL Herring (CEO), JA Finn (CFO), SJ Blieden*†,
T Cohen*†, SB Herring*, N Ngale*†
*Non-executive †Independent
Transfer secretaries
Computershare Investor Services Proprietary Limited
Designated advisor
Java Capital
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