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GEMGROW PROPERTIES LIMITED - Provisional summarised audited consolidated results for the year ended 30 September 2018 and change to the board

Release Date: 21/11/2018 07:05
Code(s): GPA GPB     PDF:  
 
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Provisional summarised audited consolidated results
for the year ended 30 September 2018 and change to the board

Gemgrow Properties Limited
Incorporated in the Republic of South Africa
Registration number 2007/032604/06
JSE share code: GPA ISIN: ZAE0000223269
JSE share code: GPB ISIN: ZAE0000223277
Granted REIT status with the JSE
"Gemgrow" or "the company" or "the group"

Provisional summarised audited consolidated results
for the year ended 30 September 2018 and change to the board

Highlights for the year
106,91 cents dividend per A share for the year.
78,70 cents dividend per B share for the year.
26,81% loan to value strong balance sheet.
R549 million of concluded acquisitions transferred in the 
current year.

Two property acquisitions totalling R728,5 million concluded 
during the current year, both will have transferred in the 
next financial period.

Nature of business
Gemgrow is a specialist Real Estate Investment Trust ("REIT") 
holding a diverse portfolio of office, retail and industrial 
properties. As at 30 September 2018 the portfolio comprised 
135 properties, located in all nine provinces of South Africa 
and valued in excess of R4,8 billion.

The company's medium-term financial focus is on paying income 
returns to its investors on a sustainable basis. This is 
achieved through escalating rentals, satisfactory renewal of 
leases with existing tenants, renting of vacant space within 
the property portfolio, managing and reducing, where possible, 
costs associated with the property portfolio and by acquiring 
revenue enhancing properties.

Operating environment
The company is operating in an environment of weak property 
fundamentals - tenants are under pressure and there is an 
over-supply of office space in most regions. This has resulted 
in a more competitive rental environment where rental reversions 
and higher vacancies have prevailed. We have addressed these 
challenges by taking action across a broad front, such as:
* Strengthening our asset management resources and leasing 
  execution capability;
* Disposing of non-core assets with non-sustainable income 
  streams;
* Bolstering the company's balance sheet to be in a strong 
  position to take advantage of opportunities in a tough, 
  cash-strapped environment.

We are well under way with our strategy of defensively 
repositioning our portfolio to produce improved sustainable 
income with stronger lease covenants, an improved weighted average 
lease expiry profile and tenant demand. This has resulted in the 
satisfactory performance achieved in the current year, and will 
hopefully help us to deal as effectively as possible with the 
market-related challenges ahead of us.

Summarised consolidated financial results
For the year ended 30 September 2018

R'000                                                      2018       2017
Revenue (excluding straight line rental income)         768 916    666 066
Property expenses                                      (286 703)  (263 056) 
Administration and corporate costs                      (13 361)    (8 531)
Finance charges                                        (122 827)   (91 577) 
Finance income                                           23 369     20 468
Distributable income                                    369 394    323 370
Pre-effective date distribution#                              -     19 432
Total dividend                                          369 394    342 802
Property expenses as a percentage of revenue -
gross (%)                                                    37         39
Property expenses as a percentage of revenue - 
net (%)                                                      14         17
A share - dividend for the quarter ended 31
December                                                 12 353     11 764
B share - dividend for the quarter ended 31
December                                                 77 687     71 495
A share - dividend for the quarter ended 31 March        12 353     11 764
B share - dividend for the quarter ended 31 March        78 329     72 724
A share - dividend for the quarter ended 30 June*             -     12 353
B share - dividend for the quarter ended 30 June*             -     74 212
A share - Dividend for the six months/quarter
ended 30 September^                                      25 942     12 353
B share - Dividend for the six months/quarter
ended 30 September^                                     162 730     76 137
Total dividend                                          369 394    342 802
Dividend per A share (cents) for the quarter ended
31 December                                               26,09      24,85
Dividend per B share (cents) for the quarter ended
31 December                                               19,18      17,84
Dividend per A share (cents) for the quarter ended
31 March                                                  26,09      24,85
Dividend per B share (cents) for the quarter ended
31 March                                                  19,34      18,15
Dividend per A share (cents) for the quarter ended
30 June*                                                      -      26,09
Dividend per B share (cents) for the quarter ended
30 June*                                                      -      18,52
Dividend per A share (cents) for the six
months/quarter ended 30 September^                        54,73      26,09
Dividend per B share (cents) for the six
months/quarter ended 30 September^                        40,18      19,00
                                                         185,61     175,39
^ The dividend was declared on 21 November 2018
# Pre-effective dividend income was the income earned for the period
  between the legal date of the acquisition by Gemgrow of the entire 
  issued share capital of Cumulative Properties Limited and the IFRS 
  effective date.
* The company changed its dividend payment cycle from quarterly to 
  bi-annually.

Commentary
Revenue
Revenue includes rental income and expenditure that is recoverable from 
tenants.
* For the year ended 30 September 2018, the portfolio comprised 22% retail,
  33% office and 45% industrial based on gross lettable area ("GLA"). In 
  revenue terms, it comprised retail at 23%, office 50% and industrial 27%. 
  The average gross monthly rental per m2 per sector was R92 for retail, 
  R118 for office and R44 for industrial.
* Vacancies decreased from 7,7% to 7,6%. At a sector level, retail vacancies
  were 8,7%, office vacancies 11,3% and industrial vacancies 4,4%.
* The total GLA of the portfolio increased from 690 263m2 to 751 981m2 as a
  result of acquisitions concluded last year and transferred in the current 
  year. During the period, contracted leases in respect of 156 833m2 expired 
  and 112 412m2 (72%) of this GLA was renewed. Of the remaining 44 421m2, a 
  further 14 857m2 (33%) was re-let to new tenants. In total 81% of the GLA 
  of leases that expired during the period, were renewed to existing tenants 
  or re-let to new tenants during the period.
* The weighted average of the lease rental escalation was 8,09%, 8,14% and
  8,15% for retail, office and industrial properties respectively.
* The step-up escalations on renewed leases over the entire portfolio was
  2,9%, of which retail comprised 2,2%, office 3,5% and industrial 2,3%.
* The step-up escalations/reversions on new leases over the entire portfolio 
  was -14%, of which retail comprised 10%, office -17% and industrial -21%.

12-month letting report


                              Total       Let    Vacant     Let   Vacant
                                (m2)      (m2)       (%)    (m2)      (%) 
As at 1 October 2017        690 263   637 025    53 238   92,29     7,71
Acquisitions                 72 103    63 737     8 366   88,40    11,60
Disposals                    (9 795)   (8 093)   (1 702)  82,62    17,38
Net adjustments                (590)      597    (1 187)
Adjusted totals             751 981   693 266    58 715   92,19     7,81
Net gain/(loss)                   -     1 703    (1 703)
As at 30 September 2018     751 981   694 969    57 012   92,42     7,58

Income Statement
Operating costs

                                                  % of              % of
R'000                                    2018    total     2017    total
Municipal expenses                    207 111       72  173 770       67
Property management                    21 227        8   18 843        8
Security                               19 099        7   19 700        7
Repairs and maintenance                 9 350        3   13 743        5
Cleaning                                9 519        3    8 818        3
Insurance                               3 806        1    3 212        1
Other                                  16 591        6   24 970        9
Total                                 286 703      100  263 056      100

Municipal expenses have increased primarily due to the acquisitions 
concluded in the previous year that transferred in the current year. 
Municipal rates revaluations also contributed to the increase in municipal 
costs. The higher property management fees were in line with increases in 
rental income and the new properties that transferred during the year. 
Management implemented cost containment measures across the portfolio 
which also resulted in a reduction of repairs and maintenance costs 
for the year.

Administrative expenses and corporate costs
                                                  % of              % of 
R'000                                    2018    total     2017    total 
Salaries                                7 478       55    5 491       64
Professional service fees               1 671       13    1 690       20
Other                                   4 212       32    1 350       16
Total                                  13 361      100    8 531      100

The higher expense in respect of salaries is due to the growth in the staff 
complement during the 2018 financial year. The other expenses relate to 
audit fees, management fees payable to Gemgrow's holding company, Arrowhead 
Properties Limited ("Arrowhead") for services rendered, bank charges and 
miscellaneous expenses.

Finance income
                                                  % of              % of
R'000                                    2018    total     2017    total
Interest received on bank balances
and debtors                             5 775       25    5 078       25
Interest received on loans to
executives                             17 594       75   15 390       75
Total                                  23 369      100   20 468      100

Interest on the loans to executives has increased due to additional shares 
issued to the company's executive directors during the year.

Finance charges
                                                  % of              % of
R'000                                    2018    total     2017    total
Interest paid on loans                115 381       95   86 860       94
Interest paid on interest rate swaps
                                        6 678        5    3 262        4
Amortisation of loan raising costs        446        0      777        1
Other interest paid                       322        0      678        1
Total                                 122 827      100   91 577      100

The increased interest expense is in relation to additional debt funding 
used to finance the acquisitions that transferred during the period. The 
higher interest expense on swaps is further due to the company fully 
hedging its debt in the current year in comparison to the 58% of debt 
hedged in the prior year.

Statement of financial position
Investment properties

The 135 retail, industrial and office properties valued in excess of R4,8
billion had an average property value of R35,9 million.


                              Gemgrow        Cumulative    
                             portfolio       portfolio*              Total
                          No. of           No. of             No. of 
                           build-           build-             build-
                             ings     R'000   ings     R'000     ings     R'000
Balance at the beginning 
of the period                  29  2 510 319    100  1 937 289    129 4 447 608
Acquisitions,
additions and fair              6    404 456      6     80 751     12   485 207
value adjustments
Disposals                       -          -     (6)   (88 074)    (6)  (88 074) 
Balance at the end
of the period^                 35  2 914 775    100  1 929 966    135  4 844 741

* Gemgrow's shareholding in Cumulative Properties Limited ("Cumulative") was
  100% at 30 September 2018.
^ The above includes non-current assets held for sale.

The value of investment property has increased from R4,5 billion at 
30 September 2017 to R4,8 billion at 30 September 2018. The increase was 
attributable to the acquisition of 12 investment properties valued at
R549 million, 6 property disposals valued at R88 million, capital additions 
of R45 million and a downward fair value adjustment of R130 million.

Loans to executives pursuant to the Gemgrow Share Purchase and Option
Scheme ("the Scheme")
During the period under review, in accordance with the Gemgrow Share 
Purchase and Option Scheme, loans of R26,4 million were made to the company's 
executives to fund the purchase of shares in the company. These loans bear 
interest at a rate equal to the dividend of the company for the period ended 
30 September 2018. The shares have been pledged as security to the company for 
the outstanding loans and the company has recourse against individual executives
under the Scheme.

Further loans will be made for the financial period ended 30 September 2018 
in respect of the Scheme. Post these loans, the Scheme will be discontinued, 
and no further loans will be issued to executives to fund the purchase of 
shares in the company.

Goodwill
Goodwill of R160 million originally arose when Gemgrow Asset Management 
("GAM") (formerly Vukile Asset Management), which previously performed the 
asset management for Gemgrow (formerly Synergy Income Fund), was acquired 
by Gemgrow on 1 October 2016 (when the company was reconstituted and 
repositioned as a specialist REIT). The asset management function was 
there upon internalised within the Group with a saving on the annual asset
management fees previously incurred. The goodwill was tested for impairment 
by reviewing the present value of the future discounted cash flows of the 
portfolio ("net present value") against the carrying value of the assets of 
the company. Taking into account the effect of the deterioration in market 
conditions resulting in reversions and expiries on lease renewals towards 
the latter part of the current financial period, a premium of the net 
present value over the carrying value no longer exists and therefore the 
goodwill has been impaired in full.

Trade and other receivables
The material items comprise of trade debtors of R17 million; R48 million 
relates to municipal recovery accruals; R16 million in relation to amounts 
due in respect of adjustment accounts in respect of acquisitions and disposals;
R11 million relating to municipal deposits; R4,2 million in respect of interest
due on directors' loans; and R2,5 million for prepaid expenses.

Share Capital
The company issued 5 102 021 Gemgrow A shares at the end of the current 
financial period to fund a purchase of investment property transferred in 
the next financial period. As these shares were not beneficially allocated 
to the new shareholder at year end, this resulted in a difference between 
the stated capital and shares in issue.

Secured financial liabilities
The loan to value of the group was 26,81%. The interest rate swaps resulted
in the interest payable being over hedged by 10% because of excess cash being 
retained in loan access facilities. The effective interest rate for the year 
ended 30 September 2018 was approximately 10%.

                              Three-month    Prime rate    Capital 2018
Maturity                   Jibar margin %      margin %           R'000
December 2018#                          -     minus 1,5         126 707
September 2019                       2,35             -         139 000
September 2022                          -     minus 1,6          50 000
October 2022                         2,15             -         525 000
November 2022                        2,20             -         460 842
Total exposure                                                1 301 549

(Excluding loan initiation fees and fair value adjustments on swaps.)
# The loan facility of R201 million has been reduced with excess cash 
  deposited into an access facility.

Gemgrow has further entered into interest rate swaps to hedge its exposure 
to fluctuations in the interest rates of its debt as follows:
* an interest rate swap over R50 million until 19 February 2019;
* an interest rate swap over R40 million until 19 February 2019;
* an interest rate swap over R40 million until 1 July 2019;
* an interest rate swap over R40 million until 1 July 2019;
* an interest rate swap over R80 million until 30 September 2019;
* an interest rate swap over R50 million until 1 September 2020;
* an interest rate swap over R600 million until 31 October 2022; and
* an interest rate swap over R525 million until 15 November 2022.

During the 12-month period, the company refinanced loans of R50 million and 
R525 million for 5-year terms expiring in September 2022 and October 2022 
respectively. In addition, the company finalised a further 5-year loan to 
fund acquisitions that transferred during the year to the value of R549 
million. The company also implemented swap arrangements to hedge the R525 
million loan refinance and the additional funding for the acquisitions.
The company has a loan facility of R201 million that expires on 3 December
2018. Post year-end, the company concluded a 5-year renewal, in respect of
such facility.

Trade and other payables
The material items comprising trade creditors are tenant deposits of 
R48 million; trade creditors of R5,9 million; VAT payable of R5 million; 
R64 million of municipal and other accruals and R5,8 million relating to
income received in advance.

Status of Chief Executive Officer ("CEO")
Mark Kaplan has been fulfilling the CEO role of both Gemgrow and its
holding company Arrowhead. Mark intends to step down as the CEO of Gemgrow
in the coming year, by no later than 30 June 2019. It was always intended 
that Mark would only steer Gemgrow during its initial years and we are now 
confident that the business is well placed to move ahead with the solid 
management capability that has been established.

A board sub-committee under the guidance of the remuneration and nomination 
committee, consisting of all the non-executive directors of Gemgrow, has 
been formed to conduct a process to appoint a successor to Mark, with both 
internal and external candidates to be considered, and a further
announcement on the appointment of the new CEO will be released in due course.

Gemgrow is confident that it will be able to achieve this transition without 
any disruption or risk to the business model and operations, and that Mark 
will be available to ensure a smooth handover of responsibilities.

Prospects
In the paragraph above addressing the current operating environment, we 
referred to the steps being taken to respond to the current and anticipated 
market conditions. The company has noted a weakening in lease renewals in 
the latter part of the 2018 financial year, which appears set to continue
in the next financial year. In instances where tenants have elected to renew 
their lease agreements, this has often come at a cost with rental reversions 
and higher tenant installation costs. Given the uncertain economic outlook, 
it is difficult to accurately forecast income, which is further impacted by 
the fact that 36% of the company's rental income is linked to leases that 
will be up for renewal in 2019.

In assessing the lease renewals for the year ended 30 September 2019, where 
tenants have communicated that they will be renewing leases, the company has 
forecast these renewals at market rental rates, which in many cases will be 
less than those that currently apply. This forecast could be negatively 
impacted if any tenants for which the company has forecast renewals, do not 
renew their leases upon expiry. In contrast, however, management has not 
forecast any income for the letting of current and upcoming vacancies, which 
management believes to be conservative. Any material potential change (positive 
or negative) in the political landscape and its impact on the economy has not 
been considered in our forecast.

In light of the above, the company forecasts an increase of 5% in the A share 
dividend to 112,25 cents per share for the year ended 30 September 2019 (though 
the actual dividend will be the lower of 5% or CPI, as set out in the company's 
Memorandum of Incorporation). The dividend on the B shares is consequentially 
forecast to decline by 10% to 70,83 cents per share. This forecast has not been 
reviewed or reported on by the group's auditors.

Summary of financial performance

                                                 30 Sep 2018    30 Sep 2017
Dividend per Gemgrow A share (cents)                  106,91         101,87
Dividend per Gemgrow B share (cents)                   78,70          73,51
Gemgrow A shares in issue#                        47 352 203     47 352 203
Gemgrow B shares in issue                        405 042 105    400 710 459
Net asset value per A share at 30 September
2018 (cents)*                                            962            972
Net asset value per B share at 30 September              
2018 (cents)                                             805            845

# A Shares (5 102 021) were issued during the year not yet taken up by new 
  shareholder resulting in the difference between the stated capital and 
  shares in issue.
* The net asset value per Gemgrow A share has been calculated on the 60-day
  volume weighted average trading price as at 30 September 2018 limited to 
  the combined net asset value in accordance with the provisions of Gemgrow`s 
  Memorandum of Incorporation.

Payment of dividend for the six months ended 30 September 2018
The board of directors ("Board") has approved a gross dividend (dividend
number 7) of 54,73244 cents per A share and 40,18191 cents per B share for 
the six months ended 30 September 2018 in accordance with the timetable 
set out below:

                                                                       2018
Last day to trade                                      Tuesday, 11 December 
Shares trade ex-distribution                         Wednesday, 12 December 
Record date                                             Friday, 14 December 
Payment date                                           Tuesday, 18 December

Share certificates may not be dematerialised or rematerialised between 
Wednesday, 12 December 2018 and Friday, 14 December 2018, both days 
inclusive.

The dividend will be transferred to dematerialised shareholders' Central
Securities Depository Participant ("CSDP") broker accounts on Tuesday, 
18 December 2018. Certificated shareholders' dividend payments will be 
paid to certificated shareholders' bank accounts on or about Tuesday, 
18 December 2018.

In accordance with Gemgrow'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 dividends on the shares will be deemed to be 
dividends, for South African tax purposes, in terms of section 25BB of 
the Income Tax Act.

Dividends 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 
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 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 dividends, 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. 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 43,78595 cents per A share and 32,14553 per B 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 abovementioned 
documents to be submitted prior to payment of the distribution 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.
A ordinary shares in issue at the date of declaration of this dividend: 
52 454 224;*
B ordinary shares in issue at the date of declaration of this dividend: 
405 042 105.

Gemgrow's income tax reference number: 9068/723/17/1

* The company issued 5 102 021 Gemgrow A shares at the end of the current 
  financial period to fund a purchase of investment property transferred in 
  the next financial period. As these shares were not beneficially allocated 
  to the new shareholder at year end, this resulted in a difference between 
  the stated capital of 47 352 203 and issued share capital of 52 454 224.

Events after reporting period
The group concluded property acquisitions to the value of R728,5 million in
the year, of which R100 million transferred in October 2018. The remaining 
R628,5 million is in respect of a joint venture with the Moolman Group, 
which is subject to the fulfilment of certain conditions precedent. The 
yield on the combined value of the acquisitions is 11,60%. The two 
transactions will be funded with R578,5 million of debt and the issue of 
additional Gemgrow A shares to the value of R150 million. The combined cost
of funding the debt and the additional Gemgrow A shares is approximately
10,3%. The company therefore expects to record a margin of 1,3% on the 
combined value of the transactions for the 11-month period ending 
30 September 2019.

The company had a loan facility of R201 million expiring on 3 December
2018, which it has renewed for a term of 5 years.

Dividend declaration after reporting date
In line with IAS 10 Events after the Reporting Period, the declaration of
the dividends 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 Gemgrow is aware, that may have or have 
had in the recent past, being the previous six months, a material effect on 
the group's financial position.

Basis of preparation
The financial information has 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 except for paragraph 16(A)(j) of IAS 34, 
the JSE Listings Requirements and the requirements of the South African 
Companies Act, 2008. These results have been prepared under the supervision 
of J Limalia, CA (SA), Gemgrow's Chief Financial Officer.

The accounting policies adopted are consistent with those applied in the 
preparation of the annual financial statements for the year ended 
30 September 2017.

This summarised consolidated report is extracted from audited information
but is not in itself audited. The directors take full responsibility for the
preparation of the summarised report and for ensuring that the financial 
information has been correctly extracted from the underlying audited annual 
financial statements. This announcement does not include the information 
required pursuant to paragraph 16A(j) of IAS 34. The full consolidated 
audited financial statements, including the auditor's unqualified audit 
opinion is available for inspection at the company's registered offices at
3rd Floor Upper Building, 1 Sturdee Avenue, Rosebank, Johannesburg. The 
auditor's report does not necessarily report on all of the information 
contained in this announcement of the financial results. Shareholders 
are therefore advised that in order to obtain a full understanding of 
the nature of the auditor's engagement they should obtain a copy of the 
auditor's audit report together with the accompanying financial information 
from the company's registered office.

By order of the Board
21 November 2018

Condensed consolidated statement of comprehensive income

                                               Audited for     Audited for
                                              the year end  the year ended
R'000/Audited                                  30 Sep 2018     30 Sep 2017
Rental income                                      768 916         666 066
Straight line rental income accrual                 (1 154)         35 569
Total revenue                                      767 762         701 635
Property expenses                                 (286 703)       (263 056) 
Administration and corporate costs                 (13 361)         (8 531) 
Net operating profit                               467 698         430 048
Changes in fair values                             (93 643)         63 407
Profit from operations                             374 055         493 455
Finance charges                                   (122 827)        (91 577)
Finance income                                      23 396          20 468
Profit before capital items                        274 597         422 346
Impairment of Goodwill                            (160 619)              - 
Profit before taxation                             113 978         422 346 
Taxation                                            (2 011)              - 
Total comprehensive income for the year            111 967         422 346

Condensed consolidated statement of financial position

                                               Audited for     Audited for 
                                            the year ended  the year ended
R'000/Audited                                  30 Sep 2018     30 Sep 2017
Assets
Non-current assets                               4 938 077       4 723 204
Investment property                              4 772 341       4 438 238
Fair value of property portfolio for
accounting purposes                              4 737 927       4 402 669
Straight line rental income accrual                 34 414          35 569
Property, plant and equipment                          181             164
Loans to executives                                148 596         122 173
Goodwill                                                 -         160 618
Derivative financial assets                         16 959               - 
Deferred tax asset                                       -           2 011
Current assets                                     135 639         211 096
Trade and other receivables                        102 224          74 598
Loan to holding company                                  -          80 002
Cash and cash equivalents                           33 415          56 496
Non-current assets held for sale                    72 400           9 370
Total assets                                     5 146 116       4 943 670
Equity and liabilities
Shareholders' interest                           3 714 528       3 846 010
Stated capital                                   3 209 802       3 184 041
Reserves                                           504 726         661 969
Other-non current liabilities                    1 034 565         350 831
Secured financial liabilities                    1 033 343         343 390
Derivative instruments                               1 222           7 441
Current liabilities                                397 023         746 829
Trade and other payables                           129 159         126 788
Secured financial liabilities                      265 707         575 041
Derivative instruments                               2 157               - 
Loan from holding company                                -          45 000
Total equity and liabilities                     5 146 116       4 943 670

Condensed consolidated statement of changes in equity

                                                        Other
                                Stated   Retained  components
                               capital     income   of equity      Total
Balance at 30 September
2016                           942 473     55 085     493 936  1 491 493
Issue of shares              2 241 568          -           -  2 241 568
Transfer from other
components of equity                 -    493 936    (493 936)         -
Dividends paid                       -   (309 397)          -   (309 397) 
Total comprehensive income
for the period                       -    422 346           -    422 346
Balance at 30 September
2017                         3 184 041    661 969           -  3 846 010
Issue of shares                 25 761          -           -     25 761
Dividends paid                       -   (269 210)          -   (269 210) 
Total comprehensive income
for the period                       -    111 967           -    111 967
Balance at 30 September
2018                         3 209 802    504 726           -  3 714 528

Condensed consolidated statement of cash flows

                                              Audited for      Audited for
                                           the year ended   the year ended
R'000/Audited                                 30 Sep 2018      30 Sep 2017
Net cash utilised from operating
activities                                         79 121           25 928
Cash generated from operations                    447 789          406 434
Finance charges paid                             (122 827)         (91 578) 
Interest received                                  23 369           20 469
Dividends paid                                   (269 210)        (309 397) 
Net cash utilised in investing activities        (514 659)          56 158
Acquisition of investment property               (602 672)         (30 472)
Proceeds from disposal of investment
property                                           88 074           26 652
Acquisition of property, plant and
equipment                                             (61)            (179) 
Pre-acquisition income                                  -           19 433
Repayment of loans to executives                        -           40 724
Net cash generated from financing
activities                                        412 459          (49 328) 
(Outflow)/proceeds from issue of share
capital                                             (662)            4 425
Repayment/(proceeds) to/from loans to
holding company                                    35 002          (35 002) 
Proceeds/(repayment) of financial
liabilities                                       378 117          (18 751)
Net movement in cash and cash equivalents         (23 080)          32 758
Cash and cash equivalents at the
beginning of the period                            56 496           23 738
Cash and cash equivalents at the end of
the period                                         33 415           56 496

Reconciliation of earnings to headline earnings

                                              Audited for      Audited for
                                           the year ended   the year ended
R'000/Audited                                 30 Sep 2018      30 Sep 2017
Profit for the period attributable to
Gemgrow shareholders                              111 967          422 346
Earnings                                          111 967          422 346
Changes in fair value of investment               130 111          (58 265)
property
Profit on sale of investment property             (15 448)          (7 017) 
Impairment of goodwill                            160 618                - 
Headline earnings attributable to
shareholders                                      387 248          357 064
Number of A shares in issue*                   47 352 203       47 352 203
Number of B shares in issue                   405 042 105      400 710 459
Weighted average number of Arrowhead
shares in issue                                                 970 994,00
Weighted average number of A shares in
issue                                          47 352 203       47 352 203
Weighted average number of B shares in
issue                                         404 199 511      400 710 459
Basic and diluted earnings per share 
(A share) (cents)                                   24,80            94,26
Basic and diluted earnings per share 
(B share) (cents)                                   24,80            94,26
Headline and diluted headline earnings
per share (A share) (cents)                         85,76            79,69
Headline and diluted headline earnings
per share (B share) (cents)                         85,76            79,69

* The company issued 5 102 021 Gemgrow A shares at the end of the current 
  financial period to fund a purchase of investment property transferred in 
  the next financial period. As these shares were not beneficially allocated 
  to the new shareholder at year end, this resulted in a difference between 
  the stated capital and shares in issue.

The company's authorised but unissued shares were placed under the director's 
control by shareholders at the company's annual general meeting held on 
23 March 2017.

Consolidated condensed segmental analysis
For the year ended 30 September 2018

Geographical
The entity has four reportable segments based on the geographic locations of 
the properties, which are the entity's strategic business segments. The 
company's executive directors review internal management reports monthly and 
all segments greater than 10% are considered strategic. All segments are in 
South Africa. There are no single major tenants. The following summary 
describes the operations in each of the company's reportable segments.

                                                     Western   KwaZulu- 
R'000/Audited                             Gauteng       Cape      Natal
30 September 2018
Contractual rental income                 451 893     98 980     77 040
Straight line rental income                 4 716    (11 867)     1 213
Operating and administration costs       (184 012)   (35 566)   (28 749) 
Net operating profit                      272 597     51 547     49 504
Finance income                              1 114        113        136
Finance charges                              (373)        (9)        (3) 
Net operating income/(loss)               273 338     51 651     49 636
Changes in fair values                   (135 281)    (8 061)   (40 688)
Impairment of goodwill                          -          -          - 
Reportable segment profit before tax      138 057     43 590      8 948
Current taxation                                -          -          - 
Deferred taxation                               -          -          - 
Reportable segment profit after tax       138 057     43 590      8 948
Reportable segment assets               3 110 677    671 001    533 329
Reportable segment liabilities            (56 246)   (13 109)   (25 309)
                                        3 054 431    657 892    508 020

R'000/Audited                           Limpopo       Other       Total
30 September 2018
Contractual rental income                31 925     109 077     768 916
Straight line rental income               2 941       1 844      (1 154) 
Operating and administration costs       (7 956)    (43 781)   (300 064) 
Net operating profit                     26 910      67 140     467 698
Finance income                               16      21 990      23 369
Finance charges                              (1)   (122 441)   (122 827) 
Net operating income/(loss)              26 925     (33 311)    368 240
Changes in fair values                   42 919      47 468     (93 643) 
Impairment of goodwill                        -    (160 619)   (160 619) 
Reportable segment profit before tax     69 844    (146 462)    113 978
Current taxation                              -           -           - 
Deferred taxation                             -      (2 011)     (2 011) 
Reportable segment profit after tax      69 846       2 011     111 967
Reportable segment assets               636 805     194 304   5 146 115
Reportable segment liabilities           (2 161) (1 334 763) (1 431 588)
                                        634 644 (1 140 459)   3 714 528

Sectoral
R'000/Audited                         Commercial  Industrial     Retail
30 September 2018
Contractual rental income                373 906     213 822    181 188
Straight line rental income               (8 006)     (1 090)     7 942
Operating and administration costs      (139 212)    (82 972)   (66 420) 
Net operating profit                     226 688     129 760    122 710
Finance income                               661         478        365
Finance charges                             (197)       (171)       (17) 
Net operating income/(loss)              227 152     130 067    123 058
Changes in fair values                  (157 411)    (43 037)    70 337
Impairment of goodwill                         -           -          - 
Reportable segment profit before tax      69 741      87 030    193 395
Current taxation                               -           -          -
Deferred taxation                              -           -          - 
Reportable segment profit after tax       69 741      87 030    193 395
Reportable segment assets              2 375 588   1 379 563  1 276 390
Reportable segment liabilities           (46 049)    (26 840)   (41 638)
                                       2 329 539   1 352 723  1 234 752

R'000/Audited                                      Overheads       Total
30 September 2018
Contractual rental income                                  -     768 916
Straight line rental income                                -      (1 154) 
Operating and administration costs                   (11 460)   (300 064) 
Net operating profit                                 (11 460)    467 698
Finance income                                        21 865      23 369
Finance charges                                     (122 442)   (122 827)
Net operating income/(loss)                         (112 037)    368 240
Changes in fair values                                36 468     (93 643) 
Impairment of goodwill                              (160 619)   (160 619) 
Reportable segment profit before tax                (236 188)    113 978
Current taxation                                           -           - 
Deferred taxation                                     (2 011)     (2 011) 
Reportable segment profit after tax                 (238 198)    111 967
Reportable segment assets                            114 575   5 146 115
Reportable segment liabilities                    (1 317 061) (1 431 588) 
                                                  (1 202 486)  3 714 528

Consolidated condensed segmental analysis
For the year ended 30 September 2018
Geographical

                                                     Western   KwaZulu-
R'000/Audited                            Gauteng        Cape      Natal
30 September 2017
Contractual rental income                421 238      94 998     70 967
Straight line rental income               18 738       3 506      2 933
Operating and administration costs      (160 144)    (35 386)   (24 385) 
Net operating profit                     279 833      63 117     49 515
Finance income                               605          48        100
Finance charges                             (405)       (251)       (17) 
Net operating income/(loss)              280 033      62 914     49 598
Changes in fair values                     1 060      28 098     (4 744) 
Reportable segment profit before tax     281 093      91 012     44 854
Taxation                                       -           -          - 
Reportable segment profit after tax      281 093      91 012     44 854
Reportable segment assets              2 856 785     655 643    536 329
Reportable segment liabilities           (41 672)    (13 531)   (26 216)
                                       2 815 113     642 112    510 114

R'000/Audited                                         Other        Total
30 September 2017
Contractual rental income                            78 863      666 066
Straight line rental income                          10 392       35 569
Operating and administration costs                  (51 671)    (271 587) 
Net operating profit                                 37 583      430 048
Finance income                                       19 714       20 468
Finance charges                                     (90 904)     (91 577) 
Net operating income/(loss)                         (33 607)     358 939
Changes in fair values                               38 993       63 407
Reportable segment profit before tax                  5 387      422 346
Taxation                                                  -            - 
Reportable segment profit after tax                   5 387      422 346
Reportable segment assets                           894 913    4 943 670
Reportable segment liabilities                   (1 016 242)  (1 097 660) 
                                                   (121 329)   3 846 010

                                                    Western     KwaZulu- 
R'000/Audited - Restated (*)          Gauteng          Cape        Natal
30 September 2017
Contractual rental income             421 238        94 997       70 967
Straight line rental income            18 738         3 505        2 932
Operating and administration costs   (160 143)      (35 386)     (24 385) 
Net operating profit                  279 833        63 116       49 514
Finance income                            605            47          100
Finance charges                          (405)         (251)         (17) 
Net operating income/(loss)           280 033        62 912       49 597
Changes in fair values                  1 060        28 097       (4 744)
Reportable segment profit before
tax                                   281 093        91 009       44 853
Current taxation                            -             -            - 
Deferred taxation                           -             -            - 
Reportable segment profit after
tax                                   281 093        91 009       44 853
Reportable segment assets           2 856 785       655 642      536 329
Reportable segment liabilities        (41 672)      (13 530)     (26 215)
                                    2 815 113       642 112      510 114

R'000/Audited - Restated (*)           Limpopo       Other        Total
30 September 2017
Contractual rental income               26 459      52 405      666 066
Straight line rental income              1 403       8 991       35 569
Operating and administration costs      (7 176)    (44 497)    (271 587) 
Net operating profit                    20 686      16 899      430 048
Finance income                              11      19 705       20 468
Finance charges                             (1)    (90 903)     (91 577) 
Net operating income/(loss)             20 696    (54 299)      358 939
Changes in fair values                  15 159      23 835       63 407
Reportable segment profit before
tax                                     35 855     (30 464)     422 346
Current taxation                             -           -            - 
Deferred taxation                            -           -            - 
Reportable segment profit after
tax                                     35 855     (30 464)     422 346
Reportable segment assets              202 128     692 786    4 943 670
Reportable segment liabilities          (2 014) (1 014 229)  (1 097 660)
                                       200 114    (321 443)   3 846 010

* The segmental report was restated to reflect the Limpopo region in the 
  prior year, when it was not considered to be a strategic node.

Consolidated condensed segmental analysis
For the year ended 30 September 2018

Sectoral
R'000/Audited      Commercial  Industrial   Retail Overheads       Total
30 September 2017
Contractual
rental income         359 066     194 343  112 657         -     666 066
Straight line
rental income          24 008       7 024    4 537         -      35 569
Operating and 
administration
costs                (134 088)    (74 533) (41 497)  (21 468)   (271 587) 
Net operating
profit                248 986     126 833   75 697   (21 468)    430 048
Finance income            331         339      166    19 632      20 468
Finance charges          (486)       (183)     (10)  (90 898)    (91 577) 
Net operating
income/(loss)         248 831     126 989   75 852   (92 734)    358 939
Changes in fair
values                 39 748      14 158    4 359     5 142      63 407
Reportable segment 
profit/(loss)
before tax            288 579     141 147   80 211   (87 592)    422 346
Taxation                    -           -        -         -           - 
Reportable
segment profit
after tax             288 579     141 147   80 211   (87 592)    422 346
Reportable
segment assets      2 511 992   1 374 418  676 343   380 917   4 943 670
Reportable segment
liabilities           (29 326)    (26 248) (55 950) (986 136) (1 097 660)
                    2 482 666   1 348 170  620 393  (605 219)  3 846 010

Reconciliation of headline earnings to distributable earnings
                                                 Audited for   Audited for
                                              the year ended the year ended
R'000/Audited                                    30 Sep 2018    30 Sep 2017
Headline profit attributable to shareholders         387 248        357 064
Changes in fair values of financial
instruments                                          (21 020)         1 875
Straight line rental income accrual                    1 154        (35 569) 
Amortisation of loan raising costs                         -              - 
Deferred tax                                           2 011              - 
Pre-effective date distribution                            -         19 432
Distributable earnings attributable to
shareholders                                         369 394        342 802
Number of A shares in issue                       47 352 203     47 352 203
Number of B shares in issue                      405 042 105    400 710 459
Weighted average number of A shares in issue      47 352 203     47 352 203
Weighted average number of B shares in issue     404 199 511    400 710 459
Basic and diluted earnings per share (A and B
combined) (cents)                                      24,80          94,26
Headline and diluted headline earnings per
share (A and B combined) (cents)                       85,76          79,69

Directors
Gemgrow Properties Limited 
Gregory Kinross* (Chairperson) 
M Kaplan (CEO)
A Kirkel (COO)
J Limalia (CFO)
C Abrams*
A Basserabie* 
A Rehman*
* Independent non-executive.
All directors are South African.

Registered office
Gemgrow Properties Limited
1 Sturdee Avenue
3rd Floor
Upper Building
Rosebank, 2196
(PO Box 685, Melrose Arch, 2076)

Transfer secretaries
Link Market Services South Africa Proprietary Limited
(Registration number 2000/007239/07)
13th Floor, 19 Ameshoff Street
Braamfontein, 2001
(PO Box 4844, Johannesburg, 2000)

Sponsor
Java Capital Trustees and Sponsors Proprietary Limited
(Registration number 2006/005780/07)
6A Sandown Valley Crescent
Sandton, 2196
(PO Box 2087, Parklands, 2121)

Company secretary
Gillian Prestwich
CIS Company Secretaries Proprietary Limited
(Registration number 2006/024994/07) Rosebank Towers, 15 Biermann Avenue Rosebank, 2001
(PO Box 61051, Marshalltown, 2107)

Website www.gemgrow.co.za
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