Octodec Investments Limited · JSE:OCT
Octodec Investments — H1 2020 Earnings Presentation
52 slides from Octodec Investments's earnings presentation, Apr 22, 2020
Slide 1: Interim Results for the period ended 29 February 2020
Interim Results for the period ended 29 February 2020 OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
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 period ended 29 February 2020
Slide 3: Octodec at a glance
OCTODEC AT A GLANCE OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
Slide 4: Octodec at a glance
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
Slide 5: COVID-19
COVID-19 OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
Slide 6: COVID-19 response
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
Slide 7: COVID-19 response continued
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 m
Slide 8: COVID-19 impact
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 nego
Slide 9: Balance sheet and liquidity response
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 fac
Slide 10: Balance sheet and liquidity response continued
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 coven
Slide 11: Overview for the period
OVERVIEW FOR THE PERIOD OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
Slide 12: 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, with ongoing bouts of load shedding Challenging leasing environment, with cost cutting being the ‒ Prog
Slide 13: Overview for the period continued
OVERVIEW 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
Slide 14: Our portfolio performance
OUR PORTFOLIO PERFORMANCE OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
Slide 15: Our portfolio performance
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 developmen
Slide 16: Disposals
DISPOSALS 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
Slide 17: Portfolio analysis: rental income
PORTFOLIO 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 (FY20
Slide 18: Portfolio analysis: GLA
PORTFOLIO 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
Slide 19: Residential
RESIDENTIAL 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)
Slide 20: Residential continued
RESIDENTIAL 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% pe
Slide 21: Retail – shops
RETAIL – 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
Slide 22: Retail – shops continued
RETAIL – 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, secur
Slide 23: Retail – shopping centres
RETAIL – 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
Slide 24: Retail – shopping centres continued
RETAIL – 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 Occupanc
Slide 25: Offices
OFFICES 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 partne
Slide 26: Offices continued
OFFICES 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) Hi
Slide 27: Industrial
INDUSTRIAL 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, aft
Slide 28: Industrial continued
INDUSTRIAL 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
Slide 29: Specialised and other
SPECIALISED 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 portf
Slide 30: 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 4 motor dealerships (Tshwane and Johannesburg respectively) 15 722 Motor dealership with GLA of 3 692m2 let effective from November 2019 Healthcare facilities
Slide 31: Vacancies by sector
VACANCIES 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 o
Slide 32: Lease expiry profile
LEASE 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
Slide 33: Lease expiry profile continued
LEASE 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 typi
Slide 34: Major lease expiries by GLA – FY2020
10 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, p
Slide 35: Our results and capital management
OUR RESULTS AND CAPITAL MANAGEMENT OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
Slide 36: Our results and capital management
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 operat
Slide 37: Our results and capital management continued
OUR 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
Slide 38: Key drivers in movement in net asset value per share
KEY 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)
Slide 39: Cash flow for the period ended 29 February 2020
CASH 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 fin
Slide 40: Capital management
CAPITAL 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 Pro
Slide 41: Funding split as at 29 February 2020
FUNDING 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 loa
Slide 42: Interest-bearing debt expiry profile
INTEREST-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 12
Slide 43: Interest rate hedges expiry profile
INTEREST 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 25
Slide 44: Outlook
OUTLOOK OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
Slide 45: Outlook
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,
Slide 46: Questions and answers
QUESTIONS AND ANSWERS OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
Slide 47: 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 period ended 29 February 2020
Slide 48: Appendices
APPENDICES OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
Slide 49: Investment case and our strategy
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 4
Slide 50: Investment case and our strategy continued
INVESTMENT 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 exi
Slide 51: Top 10 properties
TOP 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'
Slide 52: OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020
OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the period ended 29 February 2020