Interim Results for the six months ended 28 February 2021 - Octodec
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Interim Results
for the six months ended 28 February 2021
OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
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 six months ended 28 February 2021
OCTODEC AT A GLANCE OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
OCTODEC AT A GLANCE
Octodec is a JSE-listed REIT with a diversified inner city focused property portfolio of 274 properties valued
WHO
at R11.3 billion.
We are invested in strategic nodes in the CBDs of Tshwane, the administrative capital of South Africa,
WHERE
and Johannesburg, the economic hub of South Africa – and surrounding urban areas.
32%
Our property portfolio is diversified and well balanced across all property sectors. We are specialists in
investing in mixed-use spaces.
WHAT
The position of our residential, retail, commercial and specialised spaces in relation to each other in strategic
CBD nodes delivers economies of scale and an improved offering to our current and future tenants. Johannesburg
To create and serve a thriving ecosystem of residents, small shop owners, professionals, Government
WHY employees, students and entrepreneurs, among others, who form the diverse and granular inner city
community that makes up our tenant base.
City Property’s inner city know-how and experience provide us with our competitive advantage. It constitutes
68%
our collective experience, knowledge and culture. It also includes the processes and management structures
to deliver on our business strategy.
HOW
Through City Property’s asset and property management services, we manage our resources and relationships
in the inner city market. It is therefore the City Property brand that our tenants engage with.
Tshwane
City Property is wholly owned by the Wapnick family which has a 39% interest in Octodec.
OCTODEC INVESTMENTS LIMITED
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INTERIM RESULTS for the six months ended 28 February 2021
OCTODEC AT A GLANCE continued
R0.75 R23.60 R184.3 m (8.5%) 8.6%
Funds from Net asset value Cash generated Like for like 44.2% All-in annual
Operations (NAV) per share) from operating rental decrease weighted average
(29 February (FY2020: R24.80) activities before COVID-19 Loan to value cost of borrowings
2020: R0.98)* (29 February rental discounts (FY2020: 42.5%) (FY2020: 8.7%)
2020: R287.0 m)* (29 February
2020: 2.2%)*
* Pre-COVID-19 period
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INTERIM RESULTS for the six months ended 28 February 2021
COVID-19 OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
COVID-19: DECISIVE AND PROACTIVE RESPONSE
Safety and wellbeing – Prioritised safety and wellbeing of tenants, suppliers and our teams
– COVID-19 operational plans remain active across all properties
– Hybrid working model in place for employees to navigate return to office
Engagement with – Participating in industry discussions that support industry sustainability
stakeholders – Proactive engagement with tenants, employees and suppliers
– Ongoing proactive and constructive engagements with all funders, who remain supportive
and pragmatic
Cost management – Reduced or deferred non-critical expenses and implemented cost saving initiatives where
possible
– Ongoing assessment of non-essential capital and development expenditure
Capital management and – Maintained strong unutilised and available banking facilities of R315 million at 28 February 2021
financial health – Tenant payment trends more predictable
– 97% collection as a percentage of total billings for the seven months to 31 March 2021
– Commercial at 95%
– Residential at 101%
– No interim dividend declared due to the ongoing uncertainty
– Final dividend decision to be made when the FY2021 annual results are announced
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INTERIM RESULTS for the six months ended 28 February 2021
COVID-19: DECISIVE AND PROACTIVE RESPONSE continued
Tenant support – Few unresolved commercial tenant negotiations relating to monthly billings
– Residential property tenant negotiations ongoing with a growing number of tenants unable to pay
– Total rental discounts granted to tenants for the six month period to 28 February 2021 amounted
to R26.1 million or 2.8% of rental income, determined on a case-by-case basis
– 99% of retail stores now open and trading
Customer experience – Continued acceleration of innovation, digital and data capability to improve customer experience,
cost efficiencies and driving online leasing activity
Leasing activity – Improvement in leasing activity in all sectors post reporting period, especially residential
– Increased residential vacancies a concern, particularly in properties occupied by students and
CBD office workers
– Commercial occupancy levels stabilised
Risks to manage – Negative impact on our tenants remains and is expected to continue for some time
– Entrepreneurs and small businesses choosing to work from home
– Affordability for residential tenants and future uptake by students
– Impact of reduced investor confidence and bank appetite to provide finance to potential
purchasers of property
– Uncertainty around longer-term impact on valuation metrics
– Still too early to draw final conclusions given the risk of a third wave and the timing of
the rollout of vaccinations
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INTERIM RESULTS for the six months ended 28 February 2021
OVERVIEW FOR THE PERIOD OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
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
Tough leasing environment, increased vacancies and ‒ Total and core vacancies by gross lettable area (GLA) at 24.7% and 18.2%
rising costs respectively, (FY2020 – 21.7% and 15.8%)
‒ Decrease in like for like growth in rental income of 8.5% (FY2020 at 2.2%)*
‒ Property costs-to-revenue ratio (net of recoveries) increased to 37.7%
(FY2020 – 34.1%)
‒ Greater emphasis on marketing, cost efficiencies and customer experience
Increased residential supply by competitors in ‒ Residential leasing – slow start to the year as students study online
Johannesburg CBD, tenants’ concern around affordability, ‒ Uptick of leasing activity into March and April as students return
uptake from students and NSFAS funding ‒ Innovative and value-added initiatives introduced to improve our offering
and ensure we remain relevant, including furnished apartments and shared
accommodation and the rollout of Wi-Fi
‒ Greater emphasis on digital marketing
‒ New digital tenant portal to transact successfully implemented
Council service delivery issues with rising costs ‒ Strategic focus on uplifting key Tshwane and Johannesburg CBD nodes
(utility and assessment rates) ‒ Greater efficiencies in utility management
‒ Ongoing process of objecting to valuation rolls
* Pre-COVID-19 period
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INTERIM RESULTS for the six months ended 28 February 2021OVERVIEW FOR THE PERIOD continued
Context Progress
Larger projects difficult in the weak economic environment ‒ Moratorium on larger projects, other than lease driven projects
‒ Actively focused on the disposal of some of our mothballed properties,
previously earmarked for development
‒ Continue with smaller projects and tenant installations, for example the
upgrade of Leo’s Place, a mixed-use property
Weakening property fundamentals putting pressure on ‒ Decrease in fair value of investment property by R502.0 million or 4.3%
profitability as well as property valuations ‒ Valuation process robust
‒ Internal valuations inline with external valuations
Focus on balance sheet optimisation while reducing risk ‒ LTV within expected range but well below bank covenant of 50%
‒ Active disposal of non-core assets, although proving to be more challenging
for purchasers to obtain finance
‒ Interest rate swap tenures lengthened
‒ No interim dividend
Challenging to achieve distributable income growth in ‒ Distributable income of 74.8 cents per share; decrease of 22.9%
recessionary environment with weak economic and trading ‒ Distributable income for HY2021 weighed down by COVID-19 and weak
conditions trading environment
‒ COVID-19 rental discounts of R26 million (FY2020 – R103.6 million)
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INTERIM RESULTS for the six months ended 28 February 2021OUR PORTFOLIO PERFORMANCE OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
PORTFOLIO ANALYSIS: RENTAL INCOME
Rental income by sector (%) Geographical analysis of rental income (%)
35 40
36.3
31.3
35.3
29.3
30 23.4 35
23.1
30
25
25
20.0
19.7
20
16.3
15.8
20
12.5
12.0
15
11.7
12.8
12.6
12.1
12.0
15
9.9
7.6
10
7.1
10
6.7
5.3
5.1
5.0
4.5
4.4
4.1
4.1
5 5
0 0
Residential Retail – street Retail – shopping Offices Industrial Specialised and Tshwane Tshwane Tshwane Tshwane Silverton Waverley, Johannesburg Johannesburg
shops centres other CBD other Hatfield Arcadia and surrounding Gezina, CBD and surrounding
areas Moot areas
28 February 2021 31 August 2020 28 February 2021 31 August 2020
(excl. COVID-19 discounts) (excl. COVID-19 discounts) (excl. COVID-19 discounts) (excl. COVID-19 discounts)
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INTERIM RESULTS for the six months ended 28 February 2021RESIDENTIAL
As at As at
28 Feb 2021 31 Aug 2020
Number of properties 70 71
Number of residential units 9 349 9 350
Johannesburg (%) 36 36
Tshwane (%) 64 64
GLA (m²) 420 624 420 909
Rental income (R’million)* 209 484
Rental income growth (like for like) (%)* (14.1) (2.6)
Total and core vacancies (% of GLA) 24.3 17.0
Howzit Hilda
Tshwane (excl. Hatfield) 19.3 15.7
Johannesburg and surrounding 22.6 18.5
Hatfield Tshwane 72.0 19.9
* Before COVID-19 rental discounts
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INTERIM RESULTS for the six months ended 28 February 2021RESIDENTIAL continued
Tenant profile analysis, for applications during the period
30% of applicants are Government employees
35% of occupants are students
Average net monthly salary per applicant of R19 800
Net monthly salary above R35 000 – 9.65%
Leo’s Place
The Fields is Octodec’s biggest asset and situated in Hatfield, a highly competitive
area within the student accommodation market
Offering furnished accommodation (268 beds)
1833 total beds
Enhanced product offering like cashless laundry services
Improved centre management offices to facilitate efficient leasing processes
The Fields
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INTERIM RESULTS for the six months ended 28 February 2021RESIDENTIAL continued
Slow start to the student uptake in Hatfield impacted occupancy at The Fields
Initial uncertainty around NSFAS funding
More students studying online
Much improved leasing activity in March and April reducing vacancies
Response to tough operating environment
Successful rollout of Wi-Fi to provide value-added services
Improved digital marketing campaigns, reaching an expanded audience faster
Online lease application portal to facilitate letting during COVID-19 lockdown levels
Automated customer service enquiries to improve turnaround times
Increased competition in the Johannesburg CBD
Maintaining our competitive edge by providing quality apartments and service at affordable prices
Refreshing of common areas and amenities
Collections to remain challenging in the short to medium term due to tenant affordability
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INTERIM RESULTS for the six months ended 28 February 2021RETAIL – SHOPS
As at As at
28 Feb 2021 31 Aug 2020
GLA (m2) 316 598 323 297
Rental income (R’million)* 165 361
Rental income growth (like for like) (%)* (3.3) (1.7)
Total and core vacancies (% of GLA) 19.7 14.8
* Before COVID-19 rental discounts
Retail street shops
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INTERIM RESULTS for the six months ended 28 February 2021RETAIL – SHOPS continued
Wide range of offering to attract emerging middle-class shoppers
CBD retail offers more growth opportunities than traditional shopping centres
Convenient locations with high foot traffic
Lower cost structures (common area, security, cleaning)
Affordable offering from tenants
Rental growth under pressure, more rental freezes, negative rent reversions and larger tenant installations
Renewed confidence from Nationals to sign leases for larger pockets of space
Strategic capital project
Consideration of upgrades to properties, however, not yield enhancing ahead of successful leasing
Shoprite Tshwane building – upgrading the premises in Tshwane CBD for Shoprite
Inner Court – we are currently preparing the ex-Edcon premises (ground and first floor retail only) for two new
National tenants, with work to commence shortly and expected tenant occupation by September 2021
OCTODEC INVESTMENTS LIMITED
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INTERIM RESULTS for the six months ended 28 February 2021RETAIL – SHOPPING CENTRES
As at As at
28 Feb 2021 31 Aug 2020
GLA (m2) 97 530 93 796
Rental income (R’million)* 78 154
Rental income growth (like for like) (%)* (1.7) 6.4
Total and core vacancies (% of GLA) 3.9 3.7
* Before COVID-19 rental discounts
Woodmead Value Mart
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INTERIM RESULTS for the six months ended 28 February 2021RETAIL – SHOPPING CENTRES continued
Our six high-quality neighborhood/convenience shopping
centres:
Johannesburg: Woodmead Value Mart
Close to 100% occupied at the end of the period
Continues to perform well
Strong demand from National retailers
Three new tenants have filled this space, namely
West Pack Lifestyle, Under Armour and Fila
The Park shopping centre
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INTERIM RESULTS for the six months ended 28 February 2021RETAIL – SHOPPING CENTRES continued
Johannesburg: Killarney Mall
Rental income down by 8.9%
Continued focus on improving tenant mix
Vacancies at 8%
New large-format PNA
New deal concluded with Urban Hardware for 850m² in the ex-Toyota space
Woolworths lease being finalised for a seven-year renewal
Tshwane: The Park, Waverley Plaza, Gezina and Blaauw Village (50% held JV)
Strong performance from these neighbourhood convenience and shopping centres
99% combined occupancy
3.7% combined rental income growth
Negotiations under way to build a new drive-through KFC at Waverley Plaza, planned for completion end 2021
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INTERIM RESULTS for the six months ended 28 February 2021OFFICES
As at As at
28 Feb 2021 31 Aug 2020
Let to Government (% of total rental
53.1 51.0
income from offices)
Other (% of total rental income from offices) 46.9 49.0
GLA (m2) 414 639 411 608
Office space held for development/mothballed
(opportunities to sell, develop or enter into
25.3 23.3
partnerships) (% of GLA)
Rental income (R’million)* 117 245
Rental income growth (like for like) (%)* (7.4) (0.3) Killarney Mall
Total vacancies (% of GLA) 48.5 46.3
Core vacancies (% of GLA) 23.2 23.0
* Before COVID-19 rental discounts
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INTERIM RESULTS for the six months ended 28 February 2021OFFICES continued
Offices comprise Considering contemporary alternative offerings
Government offices Continued improvement on tenant retention and
Smaller units occupied by small, medium and customer service
micro-sized enterprises (SMMEs)
Strategic capital projects
Leases with government and quasi-government departments High priority to ensure quality assets and continued
Challenging operating environment continues CAPEX spend on air conditioning and modernization
Continue to meet their payment obligations CAPEX spend of R5 million on Errand Gardens ahead
of a successful leasing of 1 600m² to quasi-government
Some leases to be renewed shortly tenant
Non-Government
Tenants under slight pressure, with stable occupancy
levels
Tenants slowly returning to offices
Positive leasing activity replacing most churn
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INTERIM RESULTS for the six months ended 28 February 2021INDUSTRIAL
As at As at
28 Feb 2021 31 Aug 2020
Total GLA (m2) 236 321 234 600
Rental income (R’million)* 55 110
Rental income growth (like for like) (%)* 0.7 2.4
Total vacancies (% of GLA) 11.8 13.2
Core vacancies (% of GLA) 11.5 12.8
* Before COVID-19 rental discounts
Motor City Strijdom Park
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INTERIM RESULTS for the six months ended 28 February 2021INDUSTRIAL continued
Small and large industrial parks with mini units catering for
start-up and small businesses
Affordable rental options
Security and controlled access to industrial parks
Rentals stabilized
Reduction in vacancies
Steyn’s Industrial
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INTERIM RESULTS for the six months ended 28 February 2021SPECIALISED AND OTHER
As at As at
28 Feb 2021 31 Aug 2020
Total GLA (m2) 147 124 149 864
Rental income (R’million)* 86 193
Rental income growth (like for like) (%)* (15.4) 2.2
Total vacancies (% of GLA) 4.1 6.6
Core vacancies (% of GLA) 3.8 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 Medical Building
occupier’s market they serve.
* Before COVID-19 rental discounts
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INTERIM RESULTS for the six months ended 28 February 2021SPECIALISED AND OTHER continued
Sector Tenants/comments GLA m2
Hotels City Lodge and Fortis Hotels (Hatfield Tshwane) 13 458
Auto dealerships Three motor dealerships (Tshwane and Johannesburg). Killarney Toyota with GLA of
11 626
4 096m2 vacated and the area repurposed and let to a hardware store
Healthcare facilities Louis Pasteur and Lister Building (Tshwane and Johannesburg CBDs respectively) 37 258
Colleges and schools (Tshwane and Johannesburg CBDs). A few colleges have vacated
Educational facilities
with rent reductions being granted to others 71 102
Places of worship Situated mainly in the Tshwane and Johannesburg CBDs 13 680
Improved control and revenue after the implementation of new parking management
Parking 1 775 leases
systems
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INTERIM RESULTS for the six months ended 28 February 2021VACANCIES BY SECTOR
Increased pressure on commercial tenants as a result Total vacancies Core vacancies*
of weaker trading environment during COVID-19 % %*
28 February 2021
Residential vacancies impacted by new supply, Offices 48.5 23.2
aggressively marketed by competitors, affordability Retail 16.0 16.0
concerns and delayed student take-up Specialised and other 4.1 3.8
Industrial 11.8 11.5
Retail shopping centres held up well in this tough Residential 24.3 24.3
environment Total 24.7 18.2
31 August 2020
Mothballed office vacancies of 104 801m2 for future Offices 46.3 23.0
redevelopment, partnerships or disposal opportunities Retail 12.3 12.3
(FY2020: 95 821m2) Specialised and other 6.6 6.3
Acquired for development purposes Industrial 13.2 12.8
Consideration of possible sale of four of these Residential 17.0 17.0
properties Total 21.7 15.8
* Core vacancies exclude lettable area of properties that are mothballed
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INTERIM RESULTS for the six months ended 28 February 2021LEASE EXPIRY PROFILE
By rental income % By GLA m² %
2026 and 2026 and Vacant
2022 2023 2024 2025 beyond 2022 2023 2024 2025 beyond %
Sector
Residential 99.9 – – – 0.01 75.5 – – – 0.2 24.3
Commercial
Retail – street shops 39.4 30.3 14.3 7.2 8.8 36.8 21.4 10.7 4.1 7.3 19.7
Retail – shopping centres 28.1 18.0 16.8 10.0 27.1 25.7 14.0 14.5 10.5 31.4 3.9
Offices 49.1 33.7 9.1 1.9 6.2 25.6 16.3 5.0 1.0 3.6 48.5
Industrial 58.8 20.1 11.7 8.4 1.0 51.8 18.0 11.9 4.5 2.0 11.8
Specialised and other
Educational facilities 37.8 30.8 9.8 13.5 8.1 37.6 34.7 10.0 7.2 10.5 –
Healthcare facilities 21.1 19.6 9.9 41.0 8.4 15.6 12.3 6.2 44.9 4.7 16.3
Places of worship 75.7 16.9 5.2 2.2 – 73.5 20.1 3.4 3.0 – –
Auto dealerships 23.4 – 76.6 – – 31.8 – 68.2 – – –
Hotels 92.5 – – – 7.5 72.8 – – – 27.2 –
Total commercial 42.5 26.4 13.4 7.9 9.8 35.3 18.4 9.5 5.0 7.1 24.7
Total residential
and commercial 59.1 18.8 9.5 5.6 7.0 45.6 13.7 7.0 3.7 5.3 24.7
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INTERIM RESULTS for the six months ended 28 February 2021LEASE EXPIRY PROFILE continued
Majority of leases provide for monthly agreement at expiry
Typical of residential and small to medium-sized
enterprise leases
Profile in line with historical trends and expectations
Non-national tenant leases typically one to five-year term
National tenant leases typically three to five-year term
Average stay of residential tenant is 15 months
Jeff’s Place
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INTERIM RESULTS for the six months ended 28 February 202110 MAJOR LEASE EXPIRIES BY GLA – FY2021/2
Building Tenant Lease expiry GLA (m²) Renewal status
The Fields City Lodge November 2020 9 709 A two-year renewal has been concluded at a reduced rental.
Premises were vacated by Jet during the business rescue process. Two deals, totaling
approximately 2 850m² currently being negotiated to occupy the entire ground floor
Inner Court Jet Eloff Street February 2021 9 688
retail space and a portion of the first floor. Anticipated occupation date September
2021.
A further lease extension has been concluded for an additional year expiring in
The Fields SEDA December 2020 6 568
December 2021.
Early renewal concluded with new operator for a lease period of five years expiring in
Protea Hotel Fortis Hotel Manor February 2021 3 841
February 2026 at a reduced rental.
CCMA Place CCMA May 2021 3 598 Tenant has agreed to extend the lease for an additional year.
Tshwane College of
COVID-19 has impacted the tenant substantially. The tenant may have to downsize
Apollo Centre Commerce & April 2021 3 275
their current premises in order to sustain the business going forward.
Computer Studies
Lasmitch
AutoZone July 2021 3 272 Three-year lease renewal finalised. Awaiting tenant’s approval.
Properties
Vacated – subdivided into three shops:
– 2 321m² let to West Pack Lifestyle
Woodmead
Flower Spot October 2020 3 227 – 372m² let to Under Armour1
Value Mart
– 113m² let to Fila
Leases are for three and five-year periods.
The Technology Lease extended for three months, while tenant considers various options on the lease
Odeon Forum February 2021 3 102
Innovation Agency extension.
Kyalami The tenant occupies 30.5% of the commercial Park. A one-year lease extension has
Le Petit Pain February 2021 2 887
Crescent been negotiated.
Total: 49 167m²
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INTERIM RESULTS for the six months ended 28 February 2021OUR RESULTS AND CAPITAL MANAGEMENT OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
DISTRIBUTABLE EARNINGS (SA REIT FFO)
SIMPLIFIED INCOME STATEMENT
Unaudited Unaudited
% 28 February 2021 29 February 2020
change R’000 R’000*
Revenue earned on contractual basis (8.2) 924 776 1 007 166 Like for like decrease in rental income of (8.5%) under pressure (Feb 2020: 2.2%)*
COVID-19 rental discounts (26 060) – Significant decrease from the prior 6 month
Revenue earned after COVID-19 rental discounts (10.8) 898 716 1 007 166 Impact as a result of COVID-19 rental relief (discount) and weaker trading
environment
Property operating costs (0.6) (473 032) (475 782) Increased efficiencies where possible, bad debts and doubtful debt provisions at
2.4% of rental income (Feb 2020: 2.5%)
Net rental income from properties (19.9) 425 684 531 384 Net property expense-to-rental income ratio increased to 37.7% (Feb 2020: 34.1%),
impacted by decrease in rental income
Administrative and corporate costs (21.1) (36 626) (46 402) Once-off VAT adjustment of R4.3 million in prior period and the impact of the
successful VAT apportionment ruling on administration expenses in current period
Net operating profit (19.8) 389 058 484 982
Share of income from joint ventures 1 509 1 776
Distributable profit before finance costs 390 567 486 758
Net – finance costs (15.0) (191 492) (225 368) Weighted average all-in cost of borrowings 8.6% (FY2020: 8.7%)
Lower interest rate environment has had an impact on reducing finance costs
Net income after finance costs 199 075 261 390
Amount attributable to Edcon rent reduction − (3 046) Non-cash component of Edcon rental
Distributable earnings attributable to shareholders (22.9) 199 075 258 344
Number of shares in issue (’000) 266 198 266 198
Distributable earnings per share (cents) 74.8 97.0
* Pre-COVID-19 period
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INTERIM RESULTS for the six months ended 28 February 2021ABRIDGED CONDENSED CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
Unaudited Audited
28 February 2021 31 August 2020
R’000 R'000
ASSETS
Non-current assets 11 170 835 11 664 307
Investment property 11 146 800 11 642 600 Fair value of 274 investment properties. Weakening property fundamentals placing pressure on profitability as well as
property valuations
Investment in joint ventures 24 035 21 707 Equity accounted joint venture – 50% held
Current assets 222 326 222 976 Includes trade and sundry receivables. Arrears and doubtful debt provisions at acceptable levels despite challenging
operating environment. Tenant arrears at 5.4% of gross revenue (FY2020: 4.2%)
Non-current assets held for sale 135 500 121 410 Properties approved for sale
TOTAL ASSETS 11 528 661 12 008 693
EQUITY AND LIABILITIES
Equity 5 963 081 6 423 928
Non-current liabilities 4 699 092 4 541 652
Interest-bearing borrowings 4 366 808 4 097 965 Bank loans, DMTN programme notes. Weighted average term to expiry of loans at 1.9 years
Derivative financial instruments 214 325 325 718 Decreased due to mark-to-market valuation of interest rate swap contracts. 93.5% of interest rate risk hedged, with swap
contacts having a weighted average term to expiry of 2.8 years
Deferred taxation 106 990 106 988 Liability for recoupment of previous capital allowances
Lease liabilities 10 969 10 981 Lease liability in terms of IFRS 16
Current liabilities 866 488 1 043 113
Interest-bearing borrowings 444 293 592 775 Bank loans, DMTN programme notes
Other 422 195 450 338 Includes municipal accruals of R150 million and tenant deposits of R86 million
TOTAL EQUITY AND LIABILITIES 11 528 661 12 008 693
Shares in issue (‘000) 266 198 266 198
Net asset value (NAV) per share (cents) 23.6 24.8 Based on SA REIT NAV
Loan to investment value (LTV) ratio (%) 44.2 42.5 Based on SA REIT LTV, well below bank covenants of 50%
OCTODEC INVESTMENTS LIMITED
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INTERIM RESULTS for the six months ended 28 February 2021INVESTMENT PROPERTY VALUATION RESULTS
Net valuation decline of R502.0 million or 4.3%
COVID-19 created unprecedented uncertainty in relation
to inputs underpinning property valuations
Rigorous review of our property valuations for the
reporting period
In terms of the JSE Listings Requirements, all the
properties are valued at least once over a rolling three-
year period by external independent valuers (Jones Lang
LaSalle, Mills Fitchet Global, Gert van Zyl Valuations)
39 properties, representing 25.1% of the portfolio, with
a carrying amount of R2.8 billion, were externally valued
All the properties were internally valued by a dedicated
team
No significant differences between internal valuations
and external valuations
We are closely monitoring market conditions on
valuations, with valuation uncertainty remaining One on Mutual
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INTERIM RESULTS for the six months ended 28 February 2021INVESTMENT PROPERTY VALUATION RESULTS continued
The following is a summary of the inputs used
2021 2020
Weighted Weighted
Weighted average Weighted Weighted average Weighted
average long-range average average Long-range average
Fair capitali- vacancy expense Fair capitali- vacancy expense
Number of value sation rate factor ratio Number of value sation rate factor ratio
Capitalisation rate properties R'000 % % % properties R’000 % % %
8.5% – 8.75% 6 2 038 700 8.7 9.9 31.2 7 2 199 500 8.5 8.6 31.0
9.00% – 10.00% 82 5 432 000 9.7 7.6 29.3 104 6 624 400 9.7 6.6 28.5
10.25% – 11.50% 156 3 214 300 10.6 8.5 25.9 136 2 328 200 10.6 8.0 26.6
Greater than 11.50% 9 201 000 12.0 21.9 27.5 11 216 700 12.0 20.9 27.1
Held for sale 2 47 100 12.2 10.0 20.3 1 2 900 12.0 10.0 15.8
Total 255 10 933 100 9.8 8.7 28.5 259 11 371 700 9.7 7.7 28.5
The balance of the portfolio, with a carrying value of R349.2 million (FY2020: R392.3 million), represents properties held for
sale, land and mothballed properties. These were valued at the net disposal consideration or at bulk rates after taking into
account the impact that the current economic climate has on valuations.
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INTERIM RESULTS for the six months ended 28 February 2021KEY DRIVERS IN MOVEMENT OF NAV*
Movement in NAV (CPS)
2 600
A continued weak trading
75
(1)
environment will put further
pressure on property valuations
2 500 2 476
and NAV
Octodec share price trading at a
substantial discount to NAV
2 400
2 361
(187)
2 300
2 200
NAV at Distributable Other Revaluation NAV at
31 August 2020 profit of investment 28 February 2021
property
* SAREIT NAV
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INTERIM RESULTS for the six months ended 28 February 2021CASH FLOW FOR THE PERIOD ENDED
28 FEBRUARY 2021
Strong cash flow generated from operations after taking finance costs into account (R’000)
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INTERIM RESULTS for the six months ended 28 February 2021CAPITAL MANAGEMENT
%*
Prudent management of debt R’million Interest rate*
LTV medium term projected range of 42% to 45% Total borrowings – banks 4 067.0 5.7
(exclusive liability for derivatives) DMTN Programme – unsecured 376.9 5.3
Interest rate hedging above minimum target DMTN Programme – secured
of 80% 367.2 5.6
(unlisted HQLA)
Addressing loan expiries with weighted term TOTAL BORROWINGS 4 811.1 5.7
of 1.9 years Cost of swaps – 2.9
Interest cover ratio (ICR) 2.07 TOTAL BORROWINGS 4 811.1 8.6
No covenants breached LTV (%) excluding derivative liability 42.3
ICR reduced by respective lenders from 2.0 to LTV (%) including derivative liability* 44.2
1.75 for 28 February 2021 measurement period Interest rate hedging – percentage of
93.5
borrowings (%)
Maximum LTV ratio – group (50%)
Weighted average term of swaps (years) 2.8
Unutilised banking facilities
Weighted average term of debt (years) 1.9
R315.4 million at end of reporting period
* Calculated in terms of SA Reit Association (Second Edition) Best Practice Recommendation (BPR)
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INTERIM RESULTS for the six months ended 28 February 2021FUNDING SPLIT
Process to further diversify funding ongoing
28 February 2021 31 August 2020
Diversification of funding sources
7.8% 8.0% 51.8%
– DCM investors reluctant to
R377 million 47.8% R377 million
R2 330 million
R2 430 million roll debt on expiry
9.3% 9.6%
R449 million R449 million – Continuously exploring
alternatives to ensure further
diversification
35.0% 30.6%
R1 685 million R1 435 million
Nedbank Standard Bank ABSA DMTN Programme issuance – listed
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INTERIM RESULTS for the six months ended 28 February 2021INTEREST-BEARING DEBT EXPIRY PROFILE
Proactively addressing loan expiries
2 000 40.2% 45%
38.3%
Debt maturing prior to 31 August 2021
1 800 127 40%
Ongoing discussions to extend
1 600 35% the commercial paper (DMTN
1 400
30% Programme) of R250 million
1 200 Refinancing of R194 million
25%
1 000 Nedbank loan recently approved
1 931
1 717 20%
800 Weighted average term of loans
12.3% 15%
600 Currently 1.9 years (FY2020:
9.2%
400 10% 2.5 years)
250 592
200 5% Intension is to extend term,
194 depending on pricing
0 0%
31 August 2021 31 August 2022 31 August 2023 31 August 2024
Commercial bank loans (R'million) Listed corporate bonds (R'million)
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INTERIM RESULTS for the six months ended 28 February 2021INTEREST RATE HEDGES EXPIRY PROFILE
Expiry profile per financial year
2 500 60%
50.0%
Lower interest rate cycle presents
50% attractive interest rate swap
2 000
opportunities to term out the expiry
40% profile at lower costs
1 500 At year end, interest rates of
27.8%
30% 93.5% of borrowings hedged
2 250
1 000
22.2% (FY2020: 95.9%)
20% Average weighted expiry of
1 250 2.8 years (FY2020: 2.7 years)
500 1 000
10%
0 0%
31 August 2023 31 August 2024 31 August 2025
R'million
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INTERIM RESULTS for the six months ended 28 February 2021OUTLOOK OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
OUTLOOK
There are early signs of an improved trading environment, and the worst of COVID-19 may be behind us.
We however remain cautious on the outlook for the second half given ongoing uncertainty around subsequent waves of infection
as well as the extent of economic and socioeconomic impacts on our tenants.
We will continue to take proactive steps to mitigate the reduction in earnings, optimise working capital and preserve cash flow
and liquidity, thereby protecting the business.
Future distributable earnings and dividend payout ratios will depend on:
The recovery of the South African economy
Octodec's capital requirements and liquidity
Overall performance
Proceeds from the sale of investment properties
We are not in a position to provide distributable income guidance for FY2021.
We believe we are well positioned to navigate these challenging times. Our simple structure and focused strategy, diversified
portfolio with exposure to certain more defensive segments and intimate knowledge and expertise of our markets will underpin
our resilience.
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INTERIM RESULTS for the six months ended 28 February 2021QUESTIONS AND ANSWERS OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
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 six months ended 28 February 2021APPENDICES OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
OUR STRATEGY
Short to medium term (next five years)
Protecting our business and maintaining our
property investments to retain tenants and ensure
sustainability.
Long term (beyond five years)
Our aim is to create a thriving inner city environment
that serves the emerging middle class. This
requires investment and growth. We aim to leverage
our inner city presence, grow our footprint, invest in
and develop properties in strategic zones.
Nzunza House
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INTERIM RESULTS for the six months ended 28 February 2021OUR STRATEGY continued
Our strategic objectives executed through a series of key performance indicators (KPIs) which are aligned to our
business scorecard.
Create sustainable value for our Optimise our portfolio Optimise our balance sheet and
stakeholders Ongoing excellence in property funding structure
Growth and value creation to provide management and focus on property Strengthen our balance sheet, ensuring
shareholders with acceptable returns and fundamentals to unlock value as well as prudent financial management in the challenging
ensure that tenant satisfaction is at high levels growing rentals and managing costs South African economic environment
How we do it How we do it How we do it
– Invest in long-term sustainable properties that offer growth
opportunities, focusing on Tshwane and Johannesburg
– Invest in our property portfolio, with emphasis on – Diversify sources of funding
CBDs and residential properties properties in our strategic nodes – Proactive management of interest rate risks
– Improve the existing portfolio by selling non-core – Maintain our position in the CBDs with an – Management of risk in refinancing of borrowings
properties emphasis on our residential offerings – Reduction in distribution to more sustainable levels
– Develop and upgrade our properties to enhance and – Maximise the potential of our property portfolio by – Strong focus on prudent cash management
extract value applying sound property fundamentals
– Deliver on tenant expectations – Focus on tenant retention initiatives across our
– Assist our tenants in difficult times with tenant retention portfolio
in mind – Enhance our tenant offering 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
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INTERIM RESULTS for the six months ended 28 February 2021TOP 10 PROPERTIES
Account for 28% of the investment property portfolio by value
Property Location Sector Size (m2)
The Fields Tshwane, Hatfield Mixed use 57 458
Killarney Mall Johannesburg, Killarney Shopping centre 47 470
Kempton Place Kempton Park Mixed use 35 352
Centre Walk Tshwane CBD Mixed use 25 744
Louis Pasteur Tshwane CBD Medical and other 24 799
Sharon's Place Tshwane CBD Mixed use 20 985
Woodmead Value Mart Johannesburg, Woodmead Shopping centre 17 913
Jeff's Place Tshwane CBD Mixed use 14 793
The Park Shopping Centre Tshwane, East Shopping centre 11 926
Waverley Plaza Tshwane, Moot Shopping centre 11 301
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INTERIM RESULTS for the six months ended 28 February 2021OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
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