Interim Results for the period ended 29 February 2020 - Octodec
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Interim Results
for the period ended 29 February 2020
OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
AGENDA 1 Octodec at a glance 2 COVID-19 3 Overview for the period 4 Our portfolio performance 7 Questions and answers 5 Our results and capital management 8 Contact details 6 Outlook 9 Appendices OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
OCTODEC AT A GLANCE OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
OCTODEC AT A GLANCE
JSE-listed REIT since 1990 with 280 properties, total value of R12.6 billion
Our growth strategy is underpinned by three main objectives:
Create sustainable stakeholder value
Optimise our portfolio
Optimise our balance sheet and funding structure
We invest in properties situated mainly in the Tshwane and Johannesburg CBDs
Properties managed by City Property Administration (City Property):
Operational excellence with over 50 years’ property and asset management experience in industrial, office,
retail, residential and specialised property
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INTERIM RESULTS for the period ended 29 February 2020
COVID-19 OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
COVID-19 RESPONSE
This unprecedented event is expected to continue to impact our business, with the future outlook being
highly uncertain
Swiftly adjusted to the operational impact of the global pandemic ahead of lockdown
A COVID-19 task team is in place and monitoring the situation on a daily basis:
Jeffrey Wapnick (MD), Anthony Stein (FD), City Property exco and support function representatives
Implement hygiene, safety measures and Government directives across the portfolio
Active risk management and implementation of mitigating actions
Proactive engagements with tenants, staff, funders and other stakeholders
Cash flows and costs management in line with changing operational requirements
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INTERIM RESULTS for the period ended 29 February 2020
COVID-19 RESPONSE continued
Business continuity and safety measures delivering as planned:
Increased use of electronic channels to service clients
Essential services to tenants maintained
Administrative functions carried out successfully remotely
Strategic objectives refocused around balance sheet management and liquidity planning
Strategic stakeholders’ engagements to mitigate effects on the broader value chain
Participating in industry discussions that support industry sustainability
Broadly supportive of the Property Interest Group’s rental relief guidelines for retail tenants
Commitment to staff members and suppliers, within established parameters
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INTERIM RESULTS for the period ended 29 February 2020
COVID-19 IMPACT
No new leasing activity taking place
Rate of collections affected by short-term uncertainty during the lockdown:
Government tenant collections unaffected
Residential tenants holding on to cash, despite being willing payers. Many tenants moved back “home” ahead
of lockdown
Retail negotiations ongoing; support required for smaller tenants
Providing relief to tenants on a case-by-case basis, within reason
Risks to manage:
Businesses downsizing or vacating premises altogether
Entrepreneurs and small businesses choosing to work from home
Corporate failures, administration and/or liquidation
Impact of reduced investor confidence and bank appetite to provide finance on disposals
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INTERIM RESULTS for the period ended 29 February 2020
BALANCE SHEET AND LIQUIDITY RESPONSE
Clearly going to continue to impact our business, with the outlook being highly uncertain
Active steps taken to enhance our financial position:
Certain repairs, maintenance costs and capex curtailed or deferred
Sources of funding further diversified; new loan facilities totalling R450 million secured with Absa
Good progress made on proactively addressing short-term loan expiries
Distributable earnings retained; no interim dividend declared
Following the recent unprecedented reductions in the South African repo rate, opportunity to take advantage of
the lower interest rate cycle
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INTERIM RESULTS for the period ended 29 February 2020
BALANCE SHEET AND LIQUIDITY RESPONSE continued
Tenant payment trends highly uncertain
Closely monitoring and trying to predict trends and impact on liquidity
Significant decline in collections for April
Continuous proactive engagements with all funders
Closely monitoring the impact on our debt covenants
Actively managing headroom and flexibility within bank debt covenants
Material uncertainty around valuation metrics
Continued and objective evaluation of impact on property valuations required
Continuous modelling across various scenarios, including impact on LTV and interest cover ratios
Stress tested our liquidity under these scenarios and are comfortable there is sufficient liquidity
Existing cash resources and unutilised banking facilities total R600 million
Supported by non-payment or flexibility in pay out of future dividends
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INTERIM RESULTS for the period ended 29 February 2020OVERVIEW FOR THE PERIOD OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
OVERVIEW FOR THE PERIOD
Context Progress
Local economy’s continued vulnerability to absence of ‒ Operational excellence to mitigate risks
structural reforms in a challenging operating environment, with
ongoing bouts of load shedding
Challenging leasing environment, with cost cutting being the ‒ Progress made in reducing overall commercial vacancies
main tenant driver ‒ Total and core vacancies by GLA similar at 17.9% and 11.7% respectively
‒ Improved like-for-like growth in rental income of 2.2%
‒ Arrears and doubtful debt provisions kept at acceptable levels
‒ Property costs-to-revenue ratio (net of recoveries) increased to 37.7%
Increased new residential supply by competitors in ‒ Innovative and value-added initiatives introduced to improve our offering
Johannesburg CBD and ensure we remain relevant
‒ Greater emphasis on marketing during the period
Council service delivery issues with rising costs (utility and ‒ Strategic focus on uplifting key Tshwane and Johannesburg CBD nodes
assessment rates) ‒ Greater efficiencies in utility management
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INTERIM RESULTS for the period ended 29 February 2020OVERVIEW FOR THE PERIOD continued
Context Progress
Challenging construction environment ‒ Completion of projects at acceptable yields is challenging
‒ “Construction mafia” increase risk of delayed completion
‒ Uncertainty regarding commencement of larger projects
‒ Actively focusing on the disposal of some of our mothballed properties,
previously earmarked for development
Weakening property fundamentals putting pressure on ‒ Decrease in fair value of investment property by R213.9 million
profitability as well as property valuations
Focus on balance sheet optimisation while reducing risk ‒ Interest rate swaps and loans tenures lengthened
‒ Active disposal of non-core and underperforming assets, although proving
to be more challenging
‒ Diversification of funding sources
Challenging to achieve distributable income growth in ‒ Interim distributable income of 97.0 cents per share
recessionary environment with weak economic and ‒ Distributable income for FY2020 to be weighed down by COVID-19
trading conditions
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INTERIM RESULTS for the period ended 29 February 2020OUR PORTFOLIO PERFORMANCE OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
OUR PORTFOLIO PERFORMANCE
Urbanisation underpinning sustainability of our existing portfolio and future growth potential
Tshwane (66.5% of portfolio)
Tshwane 1 091 604m² (FY2019: 1 094 163m²)
Tshwane CBD 525 727 m² (FY2019: 526 792m²)
Concentration of investments in strategic nodes
Recent developments and upgrades improving nodes
Johannesburg (33.5% of portfolio)
Johannesburg 550 435m² (FY2019: 566 268m²)
Johannesburg CBD 408 519m² (FY2019: 420 839m²)
Urban renewal gaining momentum
Increasing private sector investment
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INTERIM RESULTS for the period ended 29 February 2020DISPOSALS
Recycling of capital to ensure sustainable value creation
Strategy is to dispose of non-core and underperforming properties
This includes mothballed properties previously earmarked for development
Disposed of 9 properties during the period at an average exit yield of 12.4% and at a profit of R1.6 million
At the date of this report:
5 properties already transferred for a total consideration of R78.2 million
Transfer of 4 properties for a total consideration of R66.3 million is expected to take place during the H2 of FY2020
Proceeds used to repay debt and to fund smaller upgrades of properties
Increasingly becoming more difficult to dispose of our properties, with banks reluctant to provide finance
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INTERIM RESULTS for the period ended 29 February 2020PORTFOLIO ANALYSIS: RENTAL INCOME
Rental income by sector (%) Rental income by geographical area (%)
4.3 4.1
12.4 (FY2019: 4.0)
(FY2019: 11.3) (FY2019: 4.3)
22.9
(FY2019: 23.6) 5.0
(FY2019: 5.0)
7.4
35.1
(FY2019: 7.0) 6.2 (FY2019: 34.7)
(FY2019: 6.5)
12.1
9.7 (FY2019: 11.8)
(FY2019: 10.1)
31.8
(FY2019: 32.2) 15.8 12.8
20.4
(FY2019: 15.8) (FY2019: 12.4)
(FY2019: 21.3)
Tshwane CBD Johannesburg CBD
Tshwane Other Johannesburg and surrounding areas
Retail – shops Retail – shopping centres
Offices Residential Tshwane – Hatfield Tshwane – Arcadia
Industrial Specialised and other Silverton and surrounding areas Waverley, Gezina, Moot
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INTERIM RESULTS for the period ended 29 February 2020PORTFOLIO ANALYSIS: GLA
GLA by sector (%) GLA by geographical area (%)
9.5 4.3 3.7
(FY2019: 8.6) (FY2019: 4.2) (FY2019: 3.7)
19.9 4.7
(FY2019: 20.3) (FY2019: 4.6)
14.7 32.0
6.8
(FY2019: 14.8) (FY2019: 31.8)
(FY2019: 6.7)
5.7
(FY2019: 5.7) 8.6
(FY2019: 8.6)
15.0
25.6 24.6 (FY2019: 14.8)
(FY2019: 25.7) (FY2019: 24.9) 24.9
(FY2019: 25.6)
Tshwane CBD Johannesburg CBD
Retail – shops Retail – shopping centres Tshwane Other Johannesburg and surrounding areas
Offices Residential Silverton and surrounding areas Tshwane – Arcadia
Industrial Specialised and other Tshwane – Hatfield Waverley, Gezina, Moot
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INTERIM RESULTS for the period ended 29 February 2020RESIDENTIAL
As at As at
29 Feb 2020 31 Aug 2019
Number of properties 71 72
Number of residential units 9 332 9 413
Johannesburg (%) 36 36
Tshwane (%) 64 64
GLA (m²) 420 673 428 244
Rental income (R’million) 244 505
Rental income growth (like-for-like*) (%) 0.0 3.5
Total and core vacancies (% of GLA) 11.0 6.7
Jeff’s Place
Average monthly rentals (excluding Hatfield)
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
Bachelor R3 500 – R4 100
1 Bedroom R4 200 – R4 800
2 Bedroom R5 400 – R6 000
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INTERIM RESULTS for the period ended 29 February 2020RESIDENTIAL continued
Tenant profile analysis, for applications during the period The Fields is Octodec’s biggest asset and situated in
24% of applicants are government employees Hatfield, a highly competitive area within the student
39% of occupants are students accommodation market
Churn at 40% per annum Decreased vacancies from FY2019
Average gross monthly salary per application of R30 767 Offering furnished accommodation on a trial basis
Gross monthly salary above R35 000 – 12%
Response to tough operating environment
Affordability and uncertainty remains a concern for Roll out of WiFi to enhance our product offering
our tenants Innovative and value-adding marketing campaigns
Maintaining our competitive edge by providing quality
Increased competition in the Johannesburg CBD apartments and service at affordable rentals
with new residential buildings being released into Refreshing of common areas and amenities
the market
Temporary imbalance between supply and demand
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INTERIM RESULTS for the period ended 29 February 2020RETAIL – SHOPS
As at As at
29 Feb 2020 31 Aug 2019
GLA (m2) 326 428 336 435
Rental income (R’million) 176 370
Rental income growth (like-for-like*) (%) 0.9 0.3
Total and core vacancies (% of GLA) 14.0 14.4
Retail Street Shops
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
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INTERIM RESULTS for the period ended 29 February 2020RETAIL – SHOPS continued
Offer shoppers a selection of brands, services and
food outlets
CBD retail offers more growth opportunities than
traditional shopping centres
Strong demand for well-located CBD retail node
with most vacancies situated outside of this
Lower cost structures (common area, security,
cleaning)
Rental growth under pressure, more rental freezes,
negative rent reversions and larger tenant installations
Strategic capital project:
Shoprite Tshwane and Shoprite Eloff Street –
consideration of upgrades to these properties, Centre Walk
however, not yield enhancing
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INTERIM RESULTS for the period ended 29 February 2020RETAIL – SHOPPING CENTRES
As at As at
29 Feb 2020 31 Aug 2019
GLA (m2) 93 796 94 012
Rental income (R’million) 85 158
Rental income growth (like-for-like*) (%) 6.6 2.2
Total and core vacancies (% of GLA) 3.0 4.7
Killarney Mall
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
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INTERIM RESULTS for the period ended 29 February 2020RETAIL – SHOPPING CENTRES continued
Our six high quality neighbourhood/convenience Killarney Mall
shopping centres: Rental income growth of 3.8%
Johannesburg: Killarney Mall and Woodmead Value Mart Continued focus on improving tenant mix
Tshwane: The Park (previously Elardus Park), Waverley Occupancy levels improved
Plaza, Gezina City and Blaauw Village (50% held JV) New leases concluded with Tourvest (warehouse space –
previously vacant), Tammy Taylor and Ubik Home
The Park Shopping Centre PNA lease signed post period end
Upgrade to fresh modern look – R42.7 million
Significant reduction in vacancies, target 100% let in FY2020 Waverley Plaza, Gezina and Blaauw Village
New Pick n Pay Clothing, Ackermans, Gadgets Galore and No vacancies
an improved food offering
5.1% combined rental income growth
New Pick n Pay Clothing at Waverley Plaza
Woodmead Value Mart
100% occupied during the period
Continues to outperform with strong rental growth of 11.1%
New G Star, ASCO, Replay and Levinsons
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INTERIM RESULTS for the period ended 29 February 2020OFFICES
As at As at
29 Feb 2020 31 Aug 2019
Let to government (% of total rental income
53.2 49.4
from offices)
Other (% of total rental income from offices) 46.8 50.6
GLA (m2) 403 999 412 627
Office space held for development/mothballed
(opportunities to sell, develop or enter into 24.8 24.7
partnerships) (% of GLA)
Rental income (R’million) 127 247
Rental income growth (like-for-like*) (%) 4.5 0.6 Bank Towers
Total vacancies (% of GLA) 42.4 43.0 * Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
Core vacancies (% of GLA) 17.6 18.3
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INTERIM RESULTS for the period ended 29 February 2020OFFICES continued
Offices comprise Considering contemporary alternative offerings:
Government offices Shared office space model suitable for CBD market
Smaller units occupied by SMEs Improved tenant offering
Renewal of leases by National Department of Public Strategic capital projects
Works (DPW) High priority to ensure quality assets
Challenging operating environment Air conditioning and modernisation cost of R25 million for
FY2020 already committed
Sustainability of revenue strengthened by successful renewal
of 18 leases Considering the upgrade of vacant Ina Building situated in
Tshwane CBD to medical suites
Renewal of 3 leases expected to be signed shortly
Next door to Louis Pasteur Hospital
Tenure of leases of 3 – 5 years
Cost of R40 million and 14% marginal yield
Rentals at slightly less than FY2019 rentals
Possible commencement after certainty returns to market
Non-government
Rentals stable
New tenants at Killarney Mall – Tourvest and Exclusive Books
with a total GLA of 1 801m2
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INTERIM RESULTS for the period ended 29 February 2020INDUSTRIAL
As at As at
29 Feb 2020 31 Aug 2019
Total GLA (m2) 241 298 246 363
Rental income (R’million) 57 110
Rental income growth (like-for-like*) (%) 5.5 3.6
Total vacancies (% of GLA) 8.8 10.2
Core vacancies (% of GLA) 8.3 9.3
The Tannery Industrial Park
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
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INTERIM RESULTS for the period ended 29 February 2020INDUSTRIAL continued
Successful redevelopment of properties has yielded
improved returns
Upgrade largely tenant driven
Stronger demand experienced
The Tannery and Sildale industrial parks
showing strong growth in rental income of 8.5%
and 4.7% respectively
Our competitive advantage
Units situated in desirable industrial properties
and areas
Affordable selection of units available
Steyn’s Industrial Park
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INTERIM RESULTS for the period ended 29 February 2020SPECIALISED AND OTHER
As at As at
29 Feb 2020 31 Aug 2019
Total GLA (m2) 155 845 142 749
Rental income (R’million) 95 178
Rental income growth (like-for-like*) (%) 2.3 2.0
Total vacancies (% of GLA) 3.7 6.6
Core vacancies (% of GLA) 3.5 6.3
In order to provide a more meaningful analysis of our portfolio, the group’s properties
were aggregated into segments with similar economic characteristics reflecting the Louis Pasteur
occupier’s market it serves
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
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INTERIM RESULTS for the period ended 29 February 2020SPECIALISED AND OTHER continued
Sector Tenants/Comments GLA m2
Hotels City Lodge and Fortis Hotels (Hatfield Tshwane) 13 458
Auto dealerships 4 motor dealerships (Tshwane and Johannesburg respectively) 15 722
Motor dealership with GLA of 3 692m2 let effective from November 2019
Healthcare facilities Louis Pasteur and Lister Building (Tshwane and Johannesburg CBDs 36 744
respectively)
Louis Pasteur Hospital – lease term of 5 years remaining
Educational facilities Colleges and schools (Tshwane and Johannesburg CBDs) 72 303
A few colleges have vacated with rent reductions being granted to others
Places of worship Situated mainly in the Tshwane and Johannesburg CBDs 17 618
Parking Improved control and revenue after the implementation of new parking 1 982 leases
management system
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INTERIM RESULTS for the period ended 29 February 2020VACANCIES BY SECTOR
Increased focus on reducing vacancies Total vacancies Core vacancies
during FY2020 % %
Successful decrease in commercial sector 29 February 2020
Residential vacancies impacted by new supply, Offices 42.4 17.6
aggressively marketed by competitors Retail 11.6 11.6
Specialised and other 3.7 3.5
Mothballed office vacancies of 100 166m2 Industrial 8.8 8.3
for future redevelopment, partnerships or Residential 11.0 11.0
disposal opportunities (FY2019: 101 859m2): Total 17.9 11.7
31 August 2019
Acquired for development purposes
Offices 43.0 18.3
Consideration of possible sale of some of Retail 12.3 12.3
these properties Specialised and other 6.6 6.3
Industrial 10.2 9.3
Residential 6.7 6.7
Total 17.7 11.4
* Core vacancies exclude lettable area of properties that are mothballed.
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INTERIM RESULTS for the period ended 29 February 2020LEASE EXPIRY PROFILE
Lease expiry profile by weighted average rental income (%)
By rental income % By GLA m² %
2025 and 2025 and
Sector 2021 2022 2023 2024 2021 2022 2023 2024 Vacant
beyond beyond
Commercial
Retail – shops 36.4 24.9 22.6 7.3 8.8 35.9 21.8 15.4 5.6 7.2 14.0
Retail – shopping centres 43.1 17.3 14.4 10.1 15.0 44.6 14.3 11.8 11.2 15.1 3.0
Offices 75.7 9.5 9.6 2.9 2.3 42.4 6.1 5.2 2.0 1.9 42.4
Industrial 61.7 17.1 7.4 5.8 8.0 55.6 17.1 7.2 5.6 5.7 8.8
Specialised and other
Educational facilities 40.4 25.2 12.7 9.1 12.7 47.1 22.8 10.9 12.6 6.5 –
Healthcare facilities 24.8 13.7 10.9 1.9 48.7 17.5 8.7 6.5 1.5 49.9 15.9
Places of worship 76.5 14.0 7.9 – 1.6 74.9 16.6 6.2 – 2.3 –
Auto dealerships 43.8 14.7 – 41.6 – 43.6 23.5 – 32.9 – –
Hotels 100.0 – – – – 100.0 – – – – –
Subtotal 52.9 17.1 14.0 6.9 9.1 44.1 14.5 9.1 5.4 6.8 20.2
Residential 100.0 0.0 – – – 89.0 0.0 – – – 11.0
Total 67.5 11.8 9.7 4.7 6.3 55.6 10.8 6.8 4.0 5.0 17.9
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INTERIM RESULTS for the period ended 29 February 2020LEASE EXPIRY PROFILE continued
Majority of leases provide for monthly agreement at expiry
On expiry effort is made to conclude longer term leases
Typical of residential and small-to-medium sized
enterprise leases
Profile in line with historical trends and expectations
Non-national tenant leases typically 1 – 5 year term.
National tenant leases typically 3 – 5 year term
Average stay of residential tenant is 21 months
18 Government leases renewed, 3 expected to be signed shortly
Represents 31% of revenue from offices
Molo Mollo
Reflects improved office lease expiry in next reporting period
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INTERIM RESULTS for the period ended 29 February 202010 MAJOR LEASE EXPIRIES BY GLA – FY2020
Building Tenant Lease expiry GLA (m²) Renewal Comments
Pre-COVID-19: Tenant made an offer for 1 100m² on ground floor
Inner Court Edcon – Jet Eloff Street January 2020 9 688
portion only – tenant on 40.9% rent reduction until March 2021
5-year lease renewal, plus an additional 771m² of office space,
Rentmeester Park Special Investigating Unit March 2020 9 317
although at lower rentals
Submitted tender for renewal on existing premises plus an additional
3 085 m² of office space: SEDA advised that they are awaiting
The Fields SEDA May 2020 6 568
approval for a lease extension until 31 December 2020, while we
await outcome of the tender
Unitrans Automotive – Notice given for 31 May 2020. Leasing team is proactively seeking a
Killarney September 2019 4 096
Killarney Toyota replacement tenant and different alternatives are under consideration
Lease renewed for a further year; meanwhile, we await the outcome
CCMA Place CCMA May 2020 3 598
of a tender process for a 5-year lease
Lenchen Park Voltex May 2020 985 Pre-COVID-19: Tenant confirmed that they will be renewing
Nedbank Plaza Nedbank August 2020 871 Tenant has requested reduced size
Anderson Place Standard Bank February 2020 848 Rent freeze for a 1-year lease renewal
Killarney Truworths August 2020 845 2-year lease under negotiation
Department of Economic Renewal offer sent at 6% escalation for 1 year - Tenant generally
Central Towers March 2020 764
Development renews for 1-year lease term
Total: 37 580m²
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INTERIM RESULTS for the period ended 29 February 2020OUR RESULTS AND CAPITAL MANAGEMENT OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
OUR RESULTS AND CAPITAL MANAGEMENT
Distributable earnings simplified income statement
Unaudited Unaudited
6 months 6 months
% 29 February 2020 28 February 2019
Change R’000 R’000
Revenue 3.0 1 007 166 977 603 Like-for-like growth in rental income of 2.2% under pressure (FY2019: 2.0%)
Property operating costs 5.7 (475 782) (450 300) Increased efficiencies where possible, bad debts and movements in doubtful
debt provisions at 1.7% of rental income (FY2019: 1.3%)
Significant increase in repairs and maintenance costs (expected to normalise
in the second half)
Net rental income from properties 0.8 531 384 527 303 Net property expense-to-rental income ratio increased to 31.7%
(FY2019: 30.9%). Margin squeeze a concern
Administrative costs 17.1 (46 402) (39 625) Once-off VAT adjustment of R4.3 million, due to change in VAT apportioning
methodology
Operating profit (0.6) 484 982 487 678
Share of income from joint ventures 1 776 2 468 Prior period included interest received on shareholder loans
Distributable profit before finance costs 486 758 490 146
Net – finance costs 4.0 (225 368) (216 688) Weighted average all-in cost of borrowings 9.3% (FY2019: 9.3%)
Lower interest rate environment has not had a material impact on reducing
finance costs as we have hedged most of our debt
Net income after finance costs 261 390 273 458
Amount attributable to Edcon rent reduction (3 046) −
Distributable earnings attributable to shareholders (5.5) 258 344 273 458
Number of shares in issue (’000) 266 198 266 198
Distributable earnings per share (cents) (5.5) 97.0 102.7
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INTERIM RESULTS for the period ended 29 February 2020OUR RESULTS AND CAPITAL MANAGEMENT continued
Abridged condensed consolidated statement of financial position
Unaudited Audited
29 February 2020 31 August 2019
R’000 R'000
ASSETS
Non-current assets 12 565 863 12 733 048
Investment property 12 637 240 Fair value of 280 investment properties. Weakening property fundamentals placing pressure on profitability as
12 467 501 well as property valuations
Other financial assets 74 751 74 764 Loan to joint operation (partner)
Derivative financial instruments 850 −
Investment in joint ventures 22 761 21 044 Equity accounted JV – 50% held
Current assets 184 232 201 633 Includes trade and sundry receivables. Arrears and doubtful debt provisions at acceptable levels despite
challenging operating environment. Tenant arrears at 3.5% of gross revenue (FY2019: 3.4%)
Non-current assets held for sale 133 250 209 300 Properties approved for sale
TOTAL ASSETS 12 883 345 13 143 981
EQUITY AND LIABILITIES
Equity 7 350 209 7 578 599
Non-current liabilities 4 633 603 4 220 988
Interest-bearing borrowings 4 417 722 4 027 644 Bank loans, DMTN programme notes. Weighted average term of loans up to 2.6 years
Derivative financial instruments 111 217 99 694 Increased due to mark-to-market valuation of interest rate swap contract liabilities. 91.7% of interest rate risk
hedged, with swap contacts having a weighted average term of 2.6 years
Deferred taxation 93 650 93 650 Liability for recoupment of previous capital allowances
Lease liabilities 11 014 −
Current liabilities 899 533 1 344 394
Interest-bearing borrowings 488 213 950 435 Bank loans, DMTN programme notes. Weighted average term of loans up to 2.6 years
Other 411 320 393 959
TOTAL EQUITY AND LIABILITIES 12 883 345 13 143 981
Shares in issue ('000) 266 198 266 198
Net asset value (NAV) per share (cents) 27.61 28.47
Loan to investment value (LTV) ratio (%) 39.3 38.9
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INTERIM RESULTS for the period ended 29 February 2020KEY DRIVERS IN MOVEMENT IN NET ASSET VALUE PER SHARE
Movement in NAV (CPS)
3 200
Current weak trading environment
3 100 with a medium-term anticipation
of significantly subdued trade will
3 000
97 0.7 put further pressure on valuations
and NAV
2 900
2 847
Octodec share price trading at a
(80.4) (4)
2 800 2 761 substantial discount to NAV
(99.2)
2 700
2 600
2 500
NAV at Distributable Other Revaluation Revaluation Distribution NAV at
31 August 2019 profit of investment of interest paid 29 February 2020
property rate swaps November
2019
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INTERIM RESULTS for the period ended 29 February 2020CASH FLOW FOR THE PERIOD ENDED 29 FEBRUARY 2020
Strong cash flow generated from operations after taking finance costs into account (R’000)
800 000
700 000
519 316
600 000
500 000
400 000
(232 324)
300 000
200 000 78 177
1 675
100 000 (42 893)
(264 068)
(72 346) (12 463)
0
Cash generated from Net finance costs Dividends paid Proceeds from disposal Investing activities Repayment Decrease in Movement for
operations (November 2019) of investment property of loans interest-bearing the period
borrowings
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INTERIM RESULTS for the period ended 29 February 2020CAPITAL MANAGEMENT
Prudent management of debt %
LTV within target range of 35% – 40% R’million Interest rate
Rigorous review of our property valuations Total borrowings – Banks 4 001.6 8.6
for the reporting period
DMTN Programme – unsecured 538.8 8.2
Interest rate hedging well above minimum
DMTN Programme – secured
target of 70% 365.5 8.5
(unlisted HQLA)
Proactively addressed loan expiries with
TOTAL BORROWINGS 4 905.9 8.5
weighted term of 2.6 years (target of at least
2.5 years) Cost of swaps – 0.8
Continue to pay down debt with proceeds TOTAL BORROWINGS 4 905.9 9.3
from disposals LTV (%) 39.3
Unutilised banking facilities R245.3 million Interest rate hedging – percentage of
91.7
at end of reporting period borrowings (%)
Weighted average term of swaps (years) 2.6
Weighted average term of debt (years) 2.6
OCTODEC INVESTMENTS LIMITED
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INTERIM RESULTS for the period ended 29 February 2020FUNDING SPLIT AS AT 29 FEBRUARY 2020
Process to further diversify funding ongoing
29 February 2020 31 August 2019 Diversification of funding sources
11%
R539 million
12% ‒ Reduced Nedbank facility by
R579 million 59%
54%
R2 965 million
repayment of R210 million
R2 672 million
during period
‒ New loan facilities secured
from ABSA amounting to
R225 million each for a 3 and
35% 29% 4-year tenure subsequent to
R1 695 million R1 435 million
period end
Nedbank Standard Bank DMTN Programme
OCTODEC INVESTMENTS LIMITED
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INTERIM RESULTS for the period ended 29 February 2020INTEREST-BEARING DEBT EXPIRY PROFILE AS AT 29 FEBRUARY 2020
Proactively addressed loan expiries
2 000 40%
37% Debt maturing prior to 31 August 2020
1 800
35%
1 600
Commenced process to extend
30% the short-term debt
1 400
24%
Commercial paper (DMTN
25%
1 200 Programme) of R161.4 million
21%
1 000
127
20% Refinancing of R326.8 million
1 797
800 Nedbank loan recently approved
15%
600 1 200 Weighted average term of loans:
10%
8% 10%
400 161 895 Currently 2.6 years
250 5% (FY2019: 2.9 years)
200 327
149 Maintain at similar levels
0 0%
31 August 2020 31 August 2021 31 August 2022 31 August 2023 31 August 2024
Secured loans R'000 Commercial paper R'000
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INTERIM RESULTS for the period ended 29 February 2020INTEREST RATE HEDGES EXPIRY PROFILE
Expiry profile per financial year
2 500 60%
50% Lower interest rate cycle presents
50% opportunity to increase hedging
2 000
and offers attractive interest rate
40% swap opportunities to term out the
1 500 expiry profile
28%
30% At year end, interest rates of
2 250
1 000
91.7% of borrowings hedged
20% (FY2019: 85.4%)
11% 1 250 11% Average weighted expiry of
500
10% 2.6 years (FY2019: 3.0 years)
500 500
0 0%
31 August 2021 31 August 2022 31 August 2023 31 August 2024
Amount R'000
OCTODEC INVESTMENTS LIMITED
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INTERIM RESULTS for the period ended 29 February 2020OUTLOOK OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
OUTLOOK
The ongoing uncertainty, economic and socioeconomic impacts will weigh down on performance for the remainder of the year
We will continue to take proactive steps to protect the business during this time
We remain committed and determined in our efforts to mitigate the reduction in earnings, optimise working capital and preserve
cash flow and liquidity
It is difficult to quantify the impact of COVID-19 on future earnings
Future guidance to shareholders of distributable earnings and dividend payout ratios will depend on:
Octodec's capital requirements
Performance in this weak economy
Proceeds from the sale of investment properties
The impact of COVID-19
While there remains significant uncertainty around the extent and duration of the impact of COVID-19, we believe we are well
positioned as a business to navigate the challenges
OCTODEC INVESTMENTS LIMITED
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INTERIM RESULTS for the period ended 29 February 2020QUESTIONS AND ANSWERS OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
CONTACT DETAILS www.octodec.co.za
Jeffrey Wapnick Anthony Stein
Managing Director Financial Director
Tel: 082 900 1172 Tel: 082 895 5205
Email: jeffw@octodec.co.za Email: anthony@octodec.co.za
OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020APPENDICES OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
INVESTMENT CASE AND OUR STRATEGY
Investment case
Proven business model
Well-established strategy
High-quality assets and services
Sound operating fundamentals
Robust portfolio across sectors
Large diversified tenant base
Steady demand driven by urbanisation
Nzunza House
OCTODEC INVESTMENTS LIMITED
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INTERIM RESULTS for the period ended 29 February 2020INVESTMENT CASE AND OUR STRATEGY continued
Our strategy
Strategic objectives How we do it
Create sustainable value for ‒ Invest in long-term sustainable properties that offer growth opportunities, focusing on Tshwane
our stakeholders and Johannesburg CBDs and residential properties
‒ Improve the existing portfolio by selling non-core and non-profitable assets
‒ Develop and upgrade our properties to enhance and extract value
‒ Deliver on tenant expectations
‒ Assist our tenants in difficult times to avoid eviction, where possible
‒ Focus on tight control of property expenses
‒ Reduce our vacancies through active asset management
‒ Explore, create and take advantage of opportunities to generate rental streams from non-
traditional sources
Optimise our portfolio ‒ Invest in our property portfolio, with emphasis on assets in our strategic nodes
‒ Maintain our focus in the CBDs and residential
Optimise our balance sheet and ‒ Diversity funding
funding structure ‒ Proactive management of interest rate risks
‒ Management of risk in refinancing of borrowings
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INTERIM RESULTS for the period ended 29 February 2020TOP 10 PROPERTIES
Account for 28% of Octodec investment property portfolio by value
Property Location Sector Size (m2)
The Fields Tshwane, Hatfield Mixed use 57 426
Killarney Mall Johannesburg, Killarney Shopping centre 47 470
Woodmead Value Mart Johannesburg, Woodmead Shopping centre 17 913
Sharon's Place Tshwane CBD Mixed use 20 985
Centre Walk Tshwane CBD Mixed use 25 744
Louis Pasteur Tshwane CBD Medical and other 24 799
Kempton Place Kempton Park Mixed use 35 381
Jeff's Place Tshwane CBD Mixed use 14 793
The Park Shopping Centre Tshwane, East Shopping centre 11 926
Silver Place Tshwane, Silverton Mixed use 26 142
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INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
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