Octodec Investments Limited · JSE:OCT
Octodec Investments — H1 2021 Earnings Presentation
51 slides from Octodec Investments's earnings presentation, Apr 20, 2021
Slide 1: Interim Results
Interim Results for the six months ended 28 February 2021 OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 2: Agenda
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
Slide 3: Octodec at a Glance
OCTODEC AT A GLANCE OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 4: Octodec at a Glance
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
Slide 5: Octodec at a Glance continued
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 borro
Slide 6: COVID-19
COVID-19 OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 7: COVID-19: Decisive and Proactive Response
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 – Particip
Slide 8: COVID-19: Decisive and Proactive Response continued
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 mo
Slide 9: Overview for the Period
OVERVIEW FOR THE PERIOD OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 10: Overview for the Period
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 (GL
Slide 11: Overview for the Period continued
OVERVIEW 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 wit
Slide 12: Our Portfolio Performance
OUR PORTFOLIO PERFORMANCE OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 13: Portfolio Analysis: Rental Income
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
Slide 14: Residential
RESIDENTIAL 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 (% o
Slide 15: Residential continued
RESIDENTIAL 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 an
Slide 16: Residential continued
RESIDENTIAL 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 o
Slide 17: Retail – Shops
RETAIL – 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 OCTODEC INVESTMENTS LIMITED 17 INT
Slide 18: Retail – Shops continued
RETAIL – 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
Slide 19: Retail – Shopping Centres
RETAIL – 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 OCTODEC INVESTMENTS LIMITED 19
Slide 20: Retail – Shopping Centres continued
RETAIL – 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
Slide 21: Retail – Shopping Centres continued
RETAIL – 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 T
Slide 22: Offices
OFFICES 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 partne
Slide 23: Offices continued
OFFICES 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-
Slide 24: Industrial
INDUSTRIAL 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 OCTOD
Slide 25: Industrial continued
INDUSTRIAL 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 OCTODEC INVESTMENTS LIMITED 25 INTERIM RESULTS fo
Slide 26: Specialised and Other
SPECIALISED 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 p
Slide 27: Specialised and Other continued
SPECIALISED 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 He
Slide 28: Vacancies by Sector
VACANCIES 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
Slide 29: Lease Expiry Profile
LEASE 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
Slide 30: Lease Expiry Profile continued
LEASE 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 typic
Slide 31: Major Lease Expiries by GLA – FY2021/2
10 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 2 850
Slide 32: Our Results and Capital Management
OUR RESULTS AND CAPITAL MANAGEMENT OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 33: Distributable Earnings (SA REIT FFO) Simplified Income Statement
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
Slide 34: Abridged Condensed Consolidated Statement of Financial Position
ABRIDGED 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 pre
Slide 35: Investment Property Valuation Results
INVESTMENT 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 t
Slide 36: Investment Property Valuation Results continued
INVESTMENT 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
Slide 37: Key Drivers in Movement of NAV
KEY 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 Revaluati
Slide 38: Cash Flow for the Period Ended 28 February 2021
CASH FLOW FOR THE PERIOD ENDED 28 FEBRUARY 2021 Strong cash flow generated from operations after taking finance costs into account (R’000) OCTODEC INVESTMENTS LIMITED 38 INTERIM RESULTS for the six months ended 28 February 2021
Slide 39: Capital Management
CAPITAL 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
Slide 40: Funding Split
FUNDING 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 – Continuou
Slide 41: Interest-Bearing Debt Expiry Profile
INTEREST-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 Nedb
Slide 42: Interest Rate Hedges Expiry Profile
INTEREST 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
Slide 43: Outlook
OUTLOOK OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 44: Outlook
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 ou
Slide 45: Questions and Answers
QUESTIONS AND ANSWERS OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 46: Contact Details
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 2021
Slide 47: Appendices
APPENDICES OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
Slide 48: Our Strategy
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
Slide 49: Our Strategy continued
OUR 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 struc
Slide 50: Top 10 Properties
TOP 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
Slide 51: OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021
OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2021