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Unaudited condensed consolidated financial statements for the six months ended 31 December 2018
HERIOT REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2017/167697/06)
JSE share code: HET ISIN: ZAE000246740
(Approved as a REIT by JSE)
("Heriot" or "the Company" or "the Group")
www.heriotreit.com
Unaudited condensed consolidated financial statements for the six months ended 31 December 2018
Highlights
- Dividend growth of 12,6%
- Net gearing of 34,4%
- New 10 year Dischem lease in Cape Town's CBD
Summarised consolidated statement of financial position
Unaudited Unaudited Audited
31 December 30 November 30 June
2018 2017 2018
R'000 R'000 R'000
Assets
Non-current assets
Investment property 4 509 538 4 140 242 4 451 963
Property, plant and equipment 24 956 26 099 25 373
Investment in associate 10 360 13 192 10 430
Financial assets 34 864 43 456 34 788
4 579 718 4 222 989 4 522 554
Current assets
Trade and other receivables 20 713 64 823 24 165
Financial assets 75 156 54 455 77 760
Taxation 2 903 1 901 2 918
Cash and cash equivalents 38 322 112 525 113 081
137 094 233 704 217 924
Total assets 4 716 812 4 456 693 4 740 478
Equity and liabilities
Equity
Stated capital 2 548 624 2 551 062 2 548 624
Retained earnings 412 164 235 280 410 841
2 960 788 2 786 342 2 959 465
Non-controlling interests 44 613 59 851 46 400
3 005 401 2 846 193 3 005 865
Non-current liabilities
Interest-bearing liabilities 1 587 992 1 507 820 1 211 036
Derivative financial instrument 2 415 1 536 -
Deferred taxation 62 057 54 645 59 808
1 652 464 1 564 001 1 270 844
Current liabilities
Interest-bearing liabilities - 2 865 403 886
Derivative financial instrument - - 812
Trade and other payables 58 947 43 634 59 071
58 947 46 499 463 769
Total equity and financial liabilities 4 716 812 4 456 693 4 740 478
Net asset value per shares (cents) 1 159,29 1 089,96 1 158,78
Net tangible asset per share
(excluding deferred taxation) (cents) 1 183,59 1 111,34 1 182,19
Summarised consolidated statement of profit and loss and other comprehensive income
Unaudited Unaudited Audited
6 months ended 31 6 months ended 30 13 months ended 30
December 2018 November 2017 June 2018
R'000 R'000 R'000
Rental income 225 836 199 092 444 828
Contractual rental income and recoveries 235 978 207 040 463 913
Straight line rental income (10 142) (7 948) (19 085)
Property expenses (56 979) (40 820) (99 376)
Net property income 168 857 158 272 345 452
Income from associate (69) 3 543 781
Other income 3 821 4 577 11 074
Administrative expenses and corporate costs (19 290) (14 114) (34 481)
Profit from operations 153 319 152 278 322 826
Finance income 7 453 3 581 16 776
Finance charges (68 132) (69 511) (152 147)
Profit before fair value adjustments 92 640 86 348 187 455
Fair value adjustments 25 330 155 497 328 583
Investment properties 26 933 154 227 326 590
Derivative financial instrument (1 603) 1 270 1 993
Profit before taxation 117 970 241 845 516 038
Taxation (2 756) (535) (6 098)
Net profit after taxation 115 214 241 310 509 940
Attributable to:
Equity holders of the company 114 157 235 280 498 445
Non-controlling interests 1 057 6 030 11 495
115 214 241 310 509 940
Reconciliation of earnings and headline earnings
Profit attributable to equity holders of the
company 114 157 235 280 498 445
Change in fair value of investment properties
attributable to shareholders of the company (27 585) (154 227) (318 546)
Change in fair value of investment properties (26 933) (154 227) (326 590)
Attributable to non-controlling shareholders (652) - 8 044
Headline earnings attributable to equity
holders 86 572 81 053 179 899
Share Metrics:
Number of shares in issue at reporting date * 255 395 858 255 637 235 255 395 858
Weighted average number of shares in issue 255 395 858 255 637 235 252 363 996
Basic and diluted earnings per share (cents) ^ 44,70 92,04 197,51
Basic and diluted headline earnings per share
(cents) ^ 33,90 31,71 71,29
Distribution per share (cents) 39,50 35,09 79,27
* Excluding 900,000 treasury
^ Refer to the prior period error note
Segmental report
For the six months ended
31 December 2018 GLA Investment Straight line Property Net
property Revenue rental income expenses income
m2 R'000 R'000 R'000 R'000 R'000
Retail 137 345 2 354 450 124 392 (1 907) (34 963) 87 522
Industrial 326 113 1 655 641 94 419 (8 703) (18 685) 67 031
Office 12 445 261 650 13 758 534 (3 094) 11 198
Specialised # 94 409 3 409 (65) (238) 3 106
Property under development 9 825 143 394 - - - -
Net property income 485 728 4 509 544 235 978 (10 142) (56 979) 168 857
Other income 3 821
Equity accounted profits (net
of taxation) (69)
Administrative and corporate
costs (19 290)
Net finance charges (60 679)
Changes in fair values 25 330
Taxation (508)
Total comprehensive income
for the year 117 462
Distributable earnings
adjustments (16 580)
Straight line rental income
accrual 10 142
Changes in fair values (25 330)
Equity accounted profits (net
of taxation) 69
Attributable to minorities (1 709)
Owner occupied depreciation 248
Distributable earnings 100 882
For the six months ended
30 November 2017 GLA Investment Straight line Property Net
property Revenue rental income expenses income
m2 R'000 R'000 R'000 R'000 R'000
Retail 150 360 2 181 853 113 206 - (29 222) 83 984
Industrial 331 513 1 652 193 76 739 - (7 609) 69 130
Office 7 105 214 133 13 853 - (3 948) 9 905
Specialised # 92 063 3 242 - (41) 3 201
Net property income 488 978 4 140 242 207 040 - (40 820) 166 220
Other income 4 577
Equity accounted profits (net
of taxation) 3 543
Administrative and corporate
costs (14 114)
Net finance charges (65 930)
Changes in fair values 155 497
Taxation (535)
Total comprehensive income
for the year 249 258
Distributable earnings
adjustments (159 555)
Changes in fair values (155 497)
Equity accounted profits (net
of taxation) (3 543)
Dividend from associate 1 500
Attributable to minorities (2 015)
Distributable earnings 89 703
For the six months ended
30 June 2018 GLA Investment Straight line Property Net
property Revenue rental income expenses income
m2 R'000 R'000 R'000 R'000 R'000
Retail 137 345 2 304 450 246 679 (517) (64 249) 181 914
Industrial 326 113 1 680 475 180 949 (21 090) (27 409) 132 450
Office 12 445 266 775 29 181 2 585 (7 373) 24 392
Specialised # 93 400 7 104 (63) (345) 6 695
Property under development 9 988 106 863 - - -
Net property income 485 891 4 451 963 463 913 (19 085) (99 376) 345 452
Changes in fair values 328 583
Other income 10 984
Profit on disposal
investment property 90
Equity accounted profits (net
of taxation) 781
Administrative and corporate
costs (34 481)
Net finance charges (135 371)
Taxation (6 098)
Total comprehensive income
for the year 509 940
Distributable earnings
adjustments (307 007)
Straight line rental income
accrual 19 085
Changes in fair values (328 584)
Profit on disposal of
investment property (90)
Equity accounted profits (net
of taxation) (781)
Dividend from associate 1 500
Antecedent interest
adjustment 249
Attributable to minorities (3 451)
Deferred taxation 5 065
Distributable earnings 202 933
# The specialised property comprises of 8 382ha2 of industrial farms and the inclusion of this, measured by
hectare, in the analysis by GLA would not provide meaningful analysis of the portfolio as a whole
Summarised consolidated statement of changes in equity
Stated Retained Non controlling Total
capital earnings interests equity
R'000 R'000 R'000 R'000
Issue of shares 2 556 371 - 87 112 2 643 483
Share issue expenses (5 309) - - (5 309)
Acquisition of minority interests - - (33 291) (33 291)
Total comprehensive income for the 6 months ended
30 November 2017 - 235 280 6 030 241 310
Balance at 30 November 2017 2 551 062 235 280 59 851 2 846 193
Share issue expenses (24) - - (24)
Acquisition of minority interests 6 586 2 330 (18 916) (10 000)
Treasury shares acquired (9 000) - - (9 000)
Total comprehensive income for the 7 months ended
30 June 2018 - 263 165 5 465 268 630
Dividend distributions to owners of company
recognised directly in equity - (89 934) - (89 934)
Balance at 30 June 2018 2 548 624 410 841 46 400 3 005 865
Total comprehensive income for the 6 months ended
31 December 2018 - 114 157 1 057 115 214
Dividend distributions to owners of company
recognised directly in equity - (112 834) (2 844) (115 678)
Balance at 30 June 2018 2 548 624 412 164 44 613 3 005 401
Summarised consolidated statement of cash flows
Unaudited Unaudited Audited
6 months ended 31 6 months ended 30 13 months ended 30
December 2018 November 2017 June 2018
Cash generated from operations 162 975 202 188 394 998
Net finance charges (60 679) (65 930) (135 371)
Taxation paid (493) (82) (1 596)
Cash flows from operating activities 101 803 136 176 394 207
Acquisition and development of investment
property (40 835) (207 681) (343 727)
Proceeds from disposal of investment property - - 22 890
Acquisition of property, plant and equipment (25) (52) (97)
Cash on acquisition of businesses - 13 692 13 692
Dividends received from associates - 1 500 1 500
Loan to related party repaid 2 604 50 022 26 717
Share scheme debt repaid 1 458 - 1 470
Cash from investing activities (36 798) (142 519) (277 555)
Proceeds from the issue of share capital - 29 29
Share issue expenses - (5 309) (5 333)
Acquisition of non-controlling interests - (33 291) (43 291)
Dividend distributions to owners of company
recognised directly in equity (112 834) - (89 934)
Interest bearing liabilities repaid (26 930) - (202 074)
Interest bearing borrowings raised 157 439 473 208
Net cash generated from financing activities (139 764) 118 868 132 605
Net movement in cash and cash equivalents (74 759) 112 525 113 081
Cash and cash equivalents at the beginning of
the period 113 081 - -
Cash and cash equivalents at the end of the
period 38 322 112 525 113 081
Commentary
Introduction
Heriot, a property holding and investment company listed in the "Diversified REITs" sector on the Alternative
Exchange of the JSE Limited ("JSE"), is invested in industrial, retail, office and specialised properties
situated in areas with high growth potential. The Group's primary objective is to develop or acquire
yield-enhancing assets within South Africa to create a stable and diverse portfolio of assets for the purposes
of generating secure and escalating net rental income.
Financial results
In April 2018, Heriot changed its year end from 31 May to 30 June. As a consequence, Heriot's year end results
were for the 13 months ended 30 June 2018 and its previous interim results were for the six months ended
30 November2017. The results for the six months ended 31 December 2018 are therefore not comparable in all
respects to the previous interim results.
Heriot's distributable earnings for the six months ended 31 December 2018 of R100,9 million, or 39.50 cents per
share, are 12,6% ahead of the previous interim distribution for the six months ended 30 November 2017 of 35.09
cents per share. This growth is mainly attributable to the restructuring secured borrowings of R400 million,
rental escalations and efficient property management.
Property portfolio
Heriot's portfolio comprises 43 properties across major sectors within South Africa. At the reporting date,
the properties were externally valued at R4,366 billion, excluding the property under development that is
recognised at cost.
Property under development comprises the Adderley Street property in the Cape Town CBD that is being redeveloped
into 215 residential units with 870 m2 ground floor retailthat has been let to Dischem on a 10 year lease
commencing in May 2019. Total costs incurred to 31 December 2018 amount to R143,4 million and the project is
expected to be completed in May 2019.
Over and above Heriot's investment property portfolio, Heriot owns the Group's head office, comprising 717 m2
A Grade office space in Melrose Arch. This property has been accounted for as property, plant and equipment in
terms of the accounting standard relating to owner occupied property.
Vacancies
As at 31 December 2018, vacancies amounted to 2,5% of the portfolio. Since the reporting date, 10,393 m2 of
the 11,670 m2 GLA has been let, reducing the overall vacancies to 0,3%.
Bad debts
Trade receivables have been assessed for recoverability on a tenant by tenant basis. Bad debts of R0,6 million
have been provided for during the period under review.
Funding
Heriot's secured borrowings of R1,588 billion as at 31 December 2018 equates to a gearing ratio of 35,2%.
The average cost of borrowing was 8,95% for the period under review and 45% of borrowings have been fixed.
The average remaining term of the debt is 2,9 years. After accounting for cash on hand at the reporting
date, the Group's net gearing is 34,4%.
While the group has a facility in place to fund development costs of the Adderley Street property, development
costs of approximately R60,0 million to date have been funded from available cash resources.
Financial assets
Financial assets comprise of:
- Non-current
Loans to participants of the employee share purchase scheme. The share scheme loan bears interest at Heriot's
average cost of borrowings and the Company is entitled to claim repayment of the loans at any time after the
expiration of 10 years from the advance date.
- Current
Loan to a related party, being a company owned by SB Herring, which loan bears interest at the average cost
of borrowings and is repayable on demand. Subsequent to the reporting date, R22,7 million of this loan has
been repaid.
Share Capital
There were no changes to the issued share capital during the reporting period.
As at 31 December 2018, the Company had 255,395,858 shares in issue, excluding the 900,000 treasury shares owned
by the Group.
Payment of dividend
The board has approved and notice is hereby given of gross dividend number 3 of 39,50000 cents per share for
the six months ended 31 December 2018. The dividend is payable to Heriot's shareholders in accordance with the
timetable set out below:
2019
Last date to trade cum dividend Tuesday, 5 March
Shares trade ex dividend Wednesday, 6 March
Record date Friday, 8 March
Payment date Monday, 11 March
Share certificates may not be dematerialised or rematerialised between Wednesday, 6 March 2019 and Friday,
8 March 2019, both days inclusive. The dividend will be transferred to dematerialised shareholders' CSDP/broker
accounts on Monday, 11 March 2019. Certificated shareholders' dividend payments will be posted or paid to
certificated shareholders' bank accounts on or about, Monday, 11 March 2019.
In accordance with Heriot's status as a REIT, shareholders are advised that the dividend meets the requirements
of a "qualifying distribution" for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962
("Income Tax Act"). The dividend on the shares will be deemed to be a dividend, for South African tax purposes,
in terms of section 25BB of the Income Tax Act.
The dividend received by or accrued to South African tax residents must be included in the gross income of such
shareholders and will not be exempt from income tax (in terms of the exclusion to the general dividend exemption,
contained in paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act) because it is a dividend distributed
by a REIT. This dividend is, however, exempt from dividend withholding tax in the hands of South African tax
resident shareholders, provided that such shareholders provide the following forms to their Central Securities
Depository
Participant ("CSDP") or broker, as the case may be, in respect of uncertificated shares, or the Company,
in respect of certificated shares:
a) a declaration that the dividend is exempt from dividends tax; and
b) a written undertaking to inform the CSDP, broker or the Company, as the case may be, should the circumstances
affecting the exemption change or the beneficial owner cease to be the beneficial owner, both in the form
prescribed by the Commissioner for the South African Revenue Service. Shareholders are advised to contact their
CSDP, broker or the Company, as the case may be, to arrange for the abovementioned documents to be submitted
prior to payment of the dividend, if such documents have not already been submitted.
Dividends received by non-resident shareholders will not be taxable as income and instead will be treated as
an ordinary dividend which is exempt from income tax in terms of the general dividend exemption in section
10(1)(k)(i) of the Income Tax Act. Any distribution received by a non-resident from a REIT will be subject to
dividend withholding tax at 20%, unless the rate is reduced in terms of any applicable agreement for the
avoidance of double taxation ("DTA") between South Africa and the country of residence of the shareholder.
Assuming dividend withholding tax will be withheld at a rate of 20%, the net dividend amount due to non-resident
shareholders is 31,60000 cents per share. A reduced dividend withholding rate in terms of the applicable DTA may
only be relied on if the non-resident shareholder has provided the following forms to their CSDP or broker,
as the case may be, in respect of uncertificated shares, or the Company, in respect of certificated shares:
a) declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and
b) a written undertaking to inform their CSDP, broker or the Company, as the case may be, should the
circumstances affecting the reduced rate change or the beneficial owner cease to be the beneficial owner,
both in the form prescribed by the Commissioner for the South African Revenue Service. Non-resident
shareholders are advised to contact their CSDP, broker or the Company, as the case may be, to arrange for
the abovementioned documents to be submitted prior to payment of the dividend if such documents have not
already been submitted, if applicable.
Shares in issue at the date of the dividend: 255,395,858 (excluding 900,000 treasury shares)
Heriot's income tax reference number: 9541295185
Prospects
The board remains confident that Heriot will deliver growth of 9,0% to 11,0% in distributable income per share
for the year ending 30 June 2019. This growth has been determined with reference to the distributable earnings
of 73,27 cents per share for the 12 months ended 31 May 2018.
This forecast is based on the assumption that there will be no change in the current trading conditions of the
existing portfolio, a stable macro-economic environment will prevail, tenants will be able to absorb rising
utility cost and that there will be no major corporate failures. This forecast has not been audited or reviewed
by the Company's auditors.
Basis of preparation
The unaudited condensed consolidated financial statements for the six months ended 31 December 2018 have been
prepared in accordance with the requirements of the JSE Listings Requirements and the requirements of the
Companies Act 71 of 2008 of South Africa. The JSE Listings Requirements require interim reports to be prepared
in accordance with the framework concepts and the measurement and recognition requirements of International
Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, and
to also, as a minimum, contain the information required by IAS 34, Interim Financial Reporting. The accounting
policies applied in the preparation of these financial statements are in terms of IFRS and are consistent with
those applied in the previous consolidated annual financial statements.
These unaudited results for the six months ended 31 December 2018, prepared under the supervision of the Chief
Financial Officer JA Finn CA(SA), have not been reviewed or reported on by the Company's auditors.
The directors are not aware of any matters or circumstances arising subsequent to the six month period ended
31 December 2018 that require any additional disclosure or adjustment to the financial statements. The
directors further take full responsibility for the preparation of these condensed consolidated financial
statements.
Prior period errors
Basic and diluted earnings per share was incorrectly calculated in the comparative figures. For the six months
ended 30 November 2017, earnings were calculated excluding the change in fair value of investment properties and
for the 13 months ended 30 June 2018, the calculation was based on the actual number of shares in issue as
opposed to the weighted average number of shares in issue for the period. The earnings per share has now been
correctly calculated to comply with IAS 33 Earnings per share.
The correction of the errors results in adjustments as follows:
Basic and diluted Basic and diluted headline
earnings per share earnings per share
For six months ended For 13 months ended For six months ended For 13 months ended
30 November 2017 30 June 2018 30 November 2017 30 June 2018
(cents) (cents) (cents) (cents)
Reported 31.71 195.17 31.71 70.44
Restated 92.04 195.51 31.71 71.29
Difference 60.33 0.34 - 0.85
Changes to the board
Shareholders are advised that the chairperson of the board, Mr David Friend, has resigned from the board with
effect from Monday, 18 February 2019. The board would like to thank Mr Friend for his valuable contribution
to the company. Mr Steven Herring, currently a non-executive director of Heriot, will assume the role of
chairperson of the board with effect from Monday, 18 February 2019.
Notification in terms of section 45(5) of the Companies Act 71 of 2008
Notice is hereby given that, in terms of the provisions of section 45(5) of the Companies Act 71 of 2008
("Companies Act"), and pursuant to the special resolution passed at the annual general meeting of Heriot held
on 7 December 2018 authorising the board to provide direct or indirect financial assistance to, inter alia,
subsidiaries of the Company, the board has adopted a resolution on 15 February 2019 in terms of section 45(2)
of the Companies Act authorising the Company to provide financial assistance to Moditouch Proprietary Limited
by way of the Company providing a guarantee in the amount of R35.5 million to Moditouch Proprietary Limited.
By order of the Board
15 February 2019
Company Secretary: CIS Company Secretaries Proprietary Limited (G Prestwich)
Registered office: Suite 1, Ground Floor, 3 Melrose Boulevard, Melrose Arch, Johannesburg, 2196
PO Box 652737, Benmore, 2010
Directors as at the date of approval of the interim results by the Board:
SD Friend (Chairperson) *, RL Herring (CEO), JA Finn (CFO), SJ Blieden *#, T Cohen *#,
SB Herring*^, N Ngale *#
*Non-executive # Independent ^ British
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Designated Advisor: Java Capital
Release date: 18 February 2019
Date: 18/02/2019 01:42:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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