Octodec Investments Limited · JSE:OCT
Octodec Investments — FY2018 Earnings Presentation
46 slides from Octodec Investments's earnings presentation, Oct 22, 2018
Slide 1: Reviewed provisional annual results 2018
Reviewed provisional annual results 2018 creating value for the 12 months ended 31 August beyond financial return
Slide 2: Agenda
agenda 1 about us 03 2 overview for the period 06 3 our portfolio performance 08 4 our results 24 5 outlook 34 6 questions and answers 38 7 contact details 39 8 appendices 40 2 Octodec Investments Limited | Reviewed provisional annual results presentation 2018
Slide 3: About us
about us annual results 1 Reviewed provisional 2018 creating value beyond financial return
Slide 4: About us
about us • Listed on the JSE in 1990: REIT status on 1 September 2013 • 306 properties (including joint ventures) in portfolio • Properties managed by City Property Administration (Pty) Ltd o Over 40 years’ property management experience o Solid track record of managing residential, retail, office a
Slide 5: Overview of Tshwane and Johannesburg
overview of Tshwane Octodec properties in: Tshwane CBD 519 513 m2 Johannesburg CBD 415 701 m2 • Concentration of investments Tshwane 1 086 497 m2 Johannesburg 557 936 m2 • Increased urbanisation • New developments improving node overview of Johannesburg • Urban renewal gaining momentum 1 086 497 m2
Slide 6: Overview for the period
overview for the period annual results 2 Reviewed provisional 2018 creating value beyond financial return
Slide 7: Overview for the period
overview for the period • Dividend of 203,4 cents per share, for the twelve month period ending 31 August 2018 Context Progress (FY17 203,1 cents) • Residential increasingly • Property fundamentals sound • Total property assets (incl. of JV’s) competitive but demand is value at R12,9 billion strong
Slide 8: Our portfolio performance
our portfolio performance annual results 3 Reviewed provisional 2018 creating value beyond financial return
Slide 9: Portfolio analysis: rental income August 2018
portfolio analysis: rental income 31 August 2018 Rental income (%) by geographical location Rental income (%) by sector 33.4 40% 35% 30% 21.2 25% 20% 12.6 12.5 15% 7.0 10% 5.0 4.2 4.1 5% 0% Waverley, Gezina, Moot surroungding areas Silverton and Tshwane, Arcadia Tshwane, Hatfield Tshwane Other surro
Slide 10: Portfolio analysis: GLA August 2018
portfolio analysis: GLA 31 August 2018 GLA (%) by sector GLA (%) by geographical location 25.2 (FY17: 40% 25.1) 31.6 35% 25.3 30% 25% 8.5 (FY17: 20% 9.1) 15% 9.0 8.7 7.1 5.9 10% 4.5 4.1 3.8 5% 23.9 0% (FY17: 23.7) 15.4 Waverley, Gezina, Moot Tshwane, Hatfield Tshwane, Arcadia Tshwane West surroundin
Slide 11: Residential
residential Portfolio sectors: Rental income (%) 12 months 12 months 2018 31 Aug 2018 31 Aug 2017 Tshwane One on Number of properties 73 74 Mutual Number of residential units 9 468 9 529 o Johannesburg 36% 36% o Tshwane 64% 64% Gross lettable area (GLA) 393 643m2 394 721 m2 Rental income R479 millio
Slide 12: Residential (continued)
residential (continued) Portfolio sectors: Rental income (%) • Tenant profile analysis, for applications during the period o Employed by government – 24,5% o Students – 32% of occupants o Churn at 43% per annum o Average gross salary per application of R27 500 o Gross salary above R35 000 – 21% • St
Slide 13: Retail – shops
retail – shops Portfolio sectors: Rental income (%) 12 months 12 months 2018 31 Aug 2018 31 Aug 2017 Tshwane Centre Walk Gross lettable area (GLA) 349 633 m2 341 943 m2 Rental income R374 Million R365 Million Rental income growth (like-for-like)* 1.6% 5.7% Total vacancies (% of GLA) 13.2% 12.6% Core
Slide 14: Retail: shopping centres
retail: shopping centres Portfolio sectors: Rental income (%) 12 months 12 months 2018 Tshwane 31 Aug 2018 31 Aug 2017 Blaauw Village Gross lettable area (GLA) 95 009 m2 95 036 m2 Rental income R155 Million R149 Million Rental income growth (like-for-like) 3.9% 6.4% Total and core vacancies (% of GL
Slide 15: Retail: shopping centres (continued)
retail: shopping centres (continued) Portfolio sectors: Rental income (%) • Elardus Park Shopping Centre 2018 o Increase in vacancies to 9.6% Johannesburg Woodmead Value Mart o In need of a major upgrade – R46 million • Woodmead Value Mart o Increase in vacancies during the period o Rental growth of
Slide 16: Offices
offices Portfolio sectors: Rental income (%) 12 months 12 months 2018 Tshwane 31 Aug 2018 31 Aug 2017 012central precinct Black Canvas Let to government (% of total rental 49.7% 53.3% income from offices) Other (% of total rental income from 50.3% 46.7% offices) Gross lettable area (GLA) 413 581 m2
Slide 17: Offices (continued)
offices (continued) Portfolio sectors: Rental income (%) • Offices comprise of 2018 o Government office space Tshwane 012central precinct o Corporates Molo Mollo o Smaller units occupied by SMEs - Occupancy levels stable • Loss of two government tenants – 7 139 m2 • Upgrading of offices o Nzunza Hou
Slide 18: Industrial
industrial Portfolio sectors: Rental income (%) 12 months 12 months 2018 Johannnesburg 31 Aug 2018 31 Aug 2017 Motor City GLA in Tshwane 211 269 m2 210 698 m2 GLA in Johannesburg 42 127 m2 53 431 m2 Total GLA 253 396 m2 264 129 m2 Rental Income R109 million R112 million Rental income growth (like-fo
Slide 19: Industrial (continued)
industrial (continued) Portfolio sectors: Rental income (%) • Successful redevelopment of properties 2018 Johannnesburg o Stronger demand after upgrades Reliance Centre o Upgrade largely tenant driven o The Tannery Industrial Park (R13,6 million) – improved occupancy achieved after year end • Our co
Slide 20: Specialised and other
specialised and other Portfolio sectors: Rental income (%) 12 months 12 months 2018 Johannesburg 31 Aug 2018 31 Aug 2017 Jeppe House Total GLA 139 171 m² 150 805 m² Rental income R175 million R164 million Rental income growth (like-for-like*) 6.0% 6.3% Total vacancies at period end 3.7% 3.2% (% of G
Slide 21: Specialised and other (continued)
specialised and other (continued) Portfolio sectors: Rental income (%) Specialised and other includes: 2018 Tshwane • Hotels – City Lodge and Protea Hotels situated in Hatfield Gerlan Pretoria with a total GLA of 13 458 m² • Auto dealerships – Three McCarthy dealerships and One Toyota dealership, si
Slide 22: Vacancies by sector as at 31 August 2018
vacancies by sector as at 31 August 2018 • Total vacancies in our portfolio as at Total vacancies Core vacancies % % 31 August 2018 were at 18.6% of our Offices 45.1 18.7 total GLA (31 August 2017: 19.0% of Retail 11.5 11.4 our total GLA) Specialised and other 3.7 3.4 • Core vacancies were at 11.6%
Slide 23: Lease expiry profile
lease expiry profile • Octodec’s portfolio features a mix of Lease expiry profile by GLA short- to long-term leases with the majority of short-term leases providing 2019 2020 2021 2022 2023 Vacant for a monthly agreement at expiry, which is typical of the residential Offices 35% 14% 3% 1% 3% 45% mar
Slide 24: Our results
our results annual results 4 Reviewed provisional 2018 creating value beyond financial return
Slide 25: Achievements
achievements • Distribution of 203.4 cents per share for the • Balance sheet: twelve-month period o Weighted average term of loans increased to 2.5 years • Distribution growth, in line with guidance o Proceeds from disposal of properties of R61.6 million • Net property expense to rental income ratio
Slide 26: Challenges
challenges • Political and policy uncertainty • Tough economic and operating environment • Like-for-like growth in rental income of 2.6%, under pressure • Rise in costs (utilities, assessment rates) • Core vacancies in portfolio (excludes properties held for redevelopment) at 11.6% (31 August 2017:
Slide 27: Distributable earnings simplified income statement
distributable earnings simplified income statement Reviewed Audited 12 months 12 months % 31 August 2018 31 August 2017 Change R’000 R’000 Revenue – earned on a contractual basis 3.1 1 893 806 1 836 251 { Like-for-like rental income growth of 2.6% Property operating costs 2.5 (864 911) (843 636) { I
Slide 28: Condensed consolidated statement of financial position
condensed consolidated statement of financial position Reviewed Audited Reviewed Audited 31 August 2018 31 August 2017 31 August 2018 31 August 2017 R'000 R'000 R'000 R'000 ASSETS EQUITY AND LIABILITIES Non-current assets 12 590 121 12 568 875 1 Equity 7 824 398 7 828 229 Investment property 12 228
Slide 29: Cash flow for the period ended 31 August 2018
29 Balance at 62 912 31 August 2018 cash flow for the period ended 31 August 2018 Increase in 20 199 interest bearing borrowings (11 343) Shares repurchased Investing (183 821) activities Proceeds from disposal of 61 608 investment property (533 051) Dividend paid Octodec Investments Limited | Revie
Slide 30: Capital management – funding at 31 August 2018
capital management – funding at 31 August 2018 • Prudent management of debt % R’Million Interest rate o LTV – at 37.4% (target of 35%) o Interest rate hedging – 74.5% Total borrowings – Banks 3 548 8.8 (target to maintain at levels of at DMTN programme - unsecured 929 8.4 least 70% – 80%) - secured
Slide 31: Funding split as at 31 August 2018
funding split as at 31 August 2018 31 August 2018 31 August 2017 Standard Bank – Standard Bank – R1229m (25%) R925m (19%) DMTN DMTN Programme Programme (unsecured) – (unsecured) – R1 116m R929m (19%) (23%) Nedbank – Nedbank – R2 689m (56%) R2 785m (58%) 31 Octodec Investments Limited | Reviewed prov
Slide 32: Interest bearing debt expiry profile
interest bearing debt expiry profile as at 31 August 2018 Expiry profile per financial year (Rm and %) Debt maturing in the next 12 months: 2500 Secured loans Commercial paper • Short term borrowings include commercial paper (DMTN programme) of R661 million 2000 • To date, R30m of the commercial pap
Slide 33: Interest rate hedges expiry profile
interest rate hedges expiry profile Expiry profile per financial year (Rm and %) Fixed rate loans – R111,4 million Swaps – total of R3,5 billion Rm 2 000 Average weighted expiry – 1.4 years Thousands 1 800 48% • At 31 August 2018, interest rates in 1 600 respect of 74.5% of borrowings hedged 1 400 3
Slide 34: Outlook
outlook annual results 5 Reviewed provisional 2018 creating value beyond financial return
Slide 35: Outlook
outlook • The economic outlook for the country remains subdued and will continue to impact business and consumer confidence • Octodec’s portfolio remains robust and management has no major concerns • Management’s focus for FY19 is on improving the existing portfolio, retaining tenants and recycling
Slide 36: Outlook (continued)
outlook (continued) 2018 Johannesburg Nzunza House • Development opportunities are under evaluation, however major new development activity will not commence unless a hurdle yield of at least 8.75% can be achieved • Demand is expected to remain strong driven by urbanisation and population growth how
Slide 37: Investment case
investment case • Tried and tested strategy • Sustainable model – urban renewal and middle-class growth • Well-balanced portfolio with significant synergies across sectors in the CBDs • Strong potential development pipeline – unlock value of current portfolio (new and redevelopments) • Proven track
Slide 38: Questions and answers
questions and answers annual results 6 Reviewed provisional 2018 creating value beyond financial return
Slide 39: Contact us
contact us www.octodec.co.za 7 Jeffrey Wapnick Anthony Stein Managing Director Financial Director Tel: +27 12 319 8708 Tel: +27 12 319 8780 e-mail: jeffw@octodec.co.za e-mail: anthony@octodec.co.za 39 Octodec Investments Limited | Reviewed provisional annual results presentation 2018
Slide 40: Appendices
appendices annual results 8 Reviewed provisional 2018 creating value beyond financial return
Slide 41: Corporate structure as at 31 August 2018
corporate structure as at 31 August 2018 39% 36% 25% Wapnick family Institutional Other & directors investors Greater than 2% Beneficial institutional shareholders 6.9% 6.8% 3.9% 4.5% 2.1% Nedbank Old Mutual Government Allan Gray Momentum Group Group Employees Pension Fund 41 Octodec Investments Lim
Slide 42: Our strategy
our strategy • Offer innovative property investment opportunities • Increase the profitability of our existing portfolio by: that create and deliver long-term sustainable o Continually improving the quality of our portfolio returns by: o Enhancing our tenant profile o Building a diversified portfoli
Slide 43: Top 10 properties
top 10 properties Account for 26.0% of the Octodec investment property portfolio by value Property Location Sector Size (m2) The Fields Hatfield, Tshwane Mixed use 53 964 Killarney Mall Killarney, Johannesburg Shopping centre 46 945 Woodmead Value Mart Woodmead, Johannesburg Shopping centre 18 049 S
Slide 44: Recent sales
recent sales In line with our strategy to dispose of non-core assets, the following properties were sold and transferred during the period under review Profit/(loss) Total consideration on disposal Transfer Exit yield Property Location R’million R’million date % Andpot Tshwane 7.5 (0,9) 24 July 2018
Slide 45: Capital expenditure greater than R20 million
capital expenditure greater than R20 million Management recognises the need to improve hurdle rates of returns and has taken a more cautious approach to development roll-outs going forward Total development cost Completion Fully let Property Location Details R’million date yield % Sharon’s Tshwane 4
Slide 46: Sharon's Place and Nzunza House
sharon’s place nzunza house Tshwane CBD mixed use development Office block with retail Development cost of: R357 m situated in Braamfontein Residential units: 399 Upgrade cost: R35 m Retail: 5 647 m² Retail: 749 m2 Parking bays: 289 Offices: 7 723 m2 • Retail completed in July 2017 • Strong demand f