Octodec Investments Limited · JSE:OCT
Octodec Investments — FY2019 Earnings Presentation
46 slides from Octodec Investments's earnings presentation, Oct 29, 2019
Slide 1: Reviewed Provisional Annual Results
Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 |1
Slide 2: Agenda
agenda 1 octodec at a glance 03 2 overview for the period 05 3 our portfolio performance 07 4 our results 29 5 outlook 38 6 questions and answers 40 7 contact details 41 8 appendices 42 Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 |2
Slide 3: Octodec at a glance
Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 |3
Slide 4: Octodec at a glance
octodec at a glance JSE-listed REIT since 1990 with 285 properties Our growth strategy is underpinned by three main objectives: We invest in properties situated mainly in the Pretoria and Johannesburg CBDs • Create sustainable Properties managed by City Property Total value of stakeholder value Admi
Slide 5: Overview for the period
Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 |5
Slide 6: Overview for the period
overview for the period Context Progress • Challenging to achieve distribution growth in an environment with weak economic and trading conditions > • Final dividend per share of 200.9 cents (FY2018: 203.4 cents) • Distribution, in line with guidance > • Local economy’s continued vulnerability to abs
Slide 7: Our portfolio performance
Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 |7
Slide 8: Our property portfolio
our property portfolio Tshwane Johannesburg • Tshwane 1 072 189m² • Johannesburg 552 509m² (FY2018: 1 086 497m²) (FY2018: 557 936m²) • Tshwane CBD 512 580m² • Johannesburg CBD 410 440m² (FY2018: 519 513m²) (FY2018: 415 701m²) • Concentration of investments in strategic nodes • Urban renewal gaining
Slide 9: Our property portfolio (continued) – Disposals
our property portfolio (continued) Disposals Application of capital to ensure sustainable value creation • Disposed of 19 properties during the year • In addition to the R83.7 million of transfers expected after year-end, a further • The total disposal consideration of R212.9 million with 5 non-core
Slide 10: Our property portfolio (continued) – Disposals after year-end
our property portfolio (continued) Disposals Properties transferred Number of Total consideration Profit/(loss) Exit yield after 31 August 2019 properties R’million on disposal R’million % Johannesburg, CBD 1 53.4 1.9 15.3 Tshwane, CBD 1 2.7 (0.1) 7.8 Tshwane, Hermanstad 2 8.1 0.2 11.7 Tshwane, Arca
Slide 11: Portfolio analysis: rental income as at August 2019
portfolio analysis: rental income as at 31 August 2019 Rental income (%) by geographical location Rental income (%) by sector 7.0 40 40 34,6 (FY18: 7.1) 35 35 30 30 11.3 25 21,3 (FY18: 11.4) 33.7 25 20 (FY18: 34.4) 15 12,5 15 11,9 10 10 6,5 3,8 4,3 5,1 55 00 15.8 (FY18: 16.0) Waverley, Gezina, Moot
Slide 12: Portfolio analysis: GLA as at August 2019
portfolio analysis: GLA as at 31 August 2019 GLA (%) by geographical location GLA (%) by sector 8.7 40 35 31,5 (FY18: 8.5) 35 30 25,3 30 25 26.5 25 20 15.2 (FY18: 27.0) 15,1 15 15 (FY18: 15.4) 10 10 8,7 6,8 55 3,8 4,3 4,5 00 Waverley, Gezina, Moot Tshwane, Hatfield Tshwane, Arcadia surrounding areas
Slide 13: Residential
residential As at As at 31 August 2019 31 August 2018 Number of properties 72 73 Number of residential units 9 413 9 468 o Johannesburg (%) 36 36 o Tshwane (%) 64 64 GLA m² 392 512 393 643 Rental income (R’million) 505 479 Rental income growth (like-for-like*)(%) 3.5 3.9 Total vacancies at period en
Slide 14: Residential (continued)
residential (continued) • Tenant profile analysis, for applications during the year o 27% of applicants are government employees o 30% of tenants are students o Churn at 43% per annum (excluding The Fields) o Average gross monthly salary per application of R27 000 o Gross monthly salary above R35 00
Slide 15: Retail – shops
retail – shops As at As at 31 August 2019 31 August 2018 GLA m2 336 435 349 633 Rental income (R’million) 370 374 Rental income growth (like-for-like*)(%) 0.3 1.6 Total vacancies (% of GLA) 14.4 13.2 Core vacancies (% of GLA) 14.4 13.1 • 70% of retail – shops are in Tshwane CBD and 30% in JHB CBD •
Slide 16: Retail – shops (continued)
retail – shops (continued) • Rental reduction of R2.5 million for the reporting period given to Edcon in terms of landlord restructuring agreement • CBD retail offers more growth opportunities than traditional shopping centres • Lower cost structures (common area, security, cleaning) • Strategic cap
Slide 17: Retail – shopping centres
retail – shopping centres As at As at 31 August 2019 31 August 2018 GLA m2 94 012 95 009 Rental income (R’million) 158 155 Rental income growth (like-for-like*)(%) 2.2 3.9 Total and core vacancies (% of GLA) 4.7 5.2 Our six high quality neighbourhood/convenience shopping centres are: • Johannesburg:
Slide 18: Retail – shopping centres (continued)
retail – shopping centres (continued) • The Park Shopping Centre o Upgrade – R44.4 million, R28.4 million spend in FY2019 o Upgrade included a fresh modern look o Increase in vacancies during upgrade, expected to be fully let in the FY2020 year o New stores include Pick n Pay Clothing, Ackermans, Ga
Slide 19: Offices
offices As at As at 31 August 31 August 2019 2018 Let to government (% of total rental income from offices) 49.4 49.7 Other (% of total rental income from offices) 50.6 50.3 GLA m2 412 627 413 581 Percentage of office space held for development/ mothballed (opportunities to sell, develop or enter in
Slide 20: Offices (continued)
offices (continued) • Government – renewal of leases by National Department of Public Works (DPW) o Challenging operating environment o 19 leases – terms recently agreed upon o Rentals at slightly less than FY2018 rentals o Total GLA of 48 000 m2 • Letting activity – non – Government o Nzunza House
Slide 21: Industrial
industrial As at As at 31 August 2019 31 August 2018 GLA in Tshwane (GLA m2) 204 401 211 269 GLA in Johannesburg (GLA m2) 41 962 42 127 Total GLA (GLA m2) 246 363 253 396 Rental income (R’million) 110 109 Rental income growth (like-for-like*)(%) 3.6 0.3 Total vacancies (% of GLA) 10.2 15.0 Core vaca
Slide 22: Specialised and other
specialised and other As at As at 31 August 2019 31 August 2018 Total GLA (GLA m²) 142 749 139 171 Rental income (R’ million) 178 175 Rental income growth (like-for-like*)(%) 2.0 6.0 Total vacancies (% of GLA) 6.6 3.7 Core vacancies (% of GLA) 6.3 3.4 In order to provide a more meaningful analysis o
Slide 23: Specialised and other (continued)
specialised and other (continued) Specialised and other includes: Sector Tenants / Comments GLA m2 Hotels City Lodge and Fortis Hotels 13 458 (Hatfield Pretoria) Auto 2 McCarthy and 1 Toyota dealership 15 722 dealerships (Tshwane and Johannesburg • Vacancy of 3 692 m2 respectively) McCarthy dealersh
Slide 24: Specialised and other (continued)
specialised and other (continued) Specialised and other includes: Sector Tenants / Comments GLA m2 Educational • Colleges and schools (Tshwane and 58 903 facilities Johannesburg CBDs) • A few colleges have vacated with rent reductions being granted to others Places of situated mainly in the Tshwane
Slide 25: Vacancies by sector
vacancies by sector Total vacancies % Core vacancies % • Total % vacancies of total GLA were 31 August 2019 17.9% (FY2018: 18.6%) Offices 43.0 18.3 • Increased focus on reducing vacancies during FY2019 Retail 12.3 12.3 • Core vacancies of total GLA were 11.5% Specialised and other 6.6 6.3 (FY2018: 1
Slide 26: Lease expiry profile
Johannesburg CBD lease expiry profile • Mix of short- to long-term leases but majority of short-term leases – monthly agreement at expiry, (mainly residential and SMEs) • Residential leases – short-term leases (12-month contracts providing for a month-to-month arrangement on expiry) • Majority of le
Slide 27: Lease expiry profile (continued)
lease expiry profile (continued) Lease expiry profile by weighed average rental income (%) By rental income (%) By GLA m2 (%) 2024 and 2024 and Sector 2020 2021 2022 2023 2020 2021 2022 2023 Vacant beyond beyond Retail Retail – shops 40.4 21.0 20.4 10.9 7.2 39.7 18.0 14.7 8.0 5.2 14.4 Retail – shopp
Slide 28: Major lease expiries by GLA – FY2020
10 major lease expiries by GLA – FY2020 Building Tenant Lease expiry GLA Renewal status Inner Court Edcon – Jet Eloff Street Jan 2020 9 688 Tenant requested to reduce size substantially Centre Walk Dept of Rural Dev. & Land Reform Feb 2020 9 528 Tenant happy – awaiting finalisation of DPW Rentmeeste
Slide 29: Our results
Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 | 29
Slide 30: Measuring performance
measuring performance Distributable earnings simplified income statement % Reviewed Audited Change 12 months 12 months 31 August 31 August 2018 2019 R’000 R’000 Revenue 5.0 1 988 381 1 893 806 Like-for-like growth in rental income of 2.0% under pressure (FY2018: 2.6%) Property operating costs 7.5 (9
Slide 31: Abridged condensed consolidated statement of financial position
abridged condensed consolidated statement of financial position Reviewed Audited 31 August 2019 31 August 2018 R'000 R'000 ASSETS Non-current assets 12 733 048 12 590 121 Investment property 12 637 240 12 378 763 Fair value of 284 investment properties. Weakening property fundamentals putting pressu
Slide 32: Key drivers of growth in net asset value per share
key drivers of growth in net asset value per share Movement in NAV (CPS) Cents 3 200 (52) (3) (34) 3 100 201 3 000 (203) 2 900 2 800 2 939 2 847 2 700 2 600 2 500 2018 NAV at 31 August Distributable profit Other property portfolio Revaluation of swaps Revaluation of Distributions paid 2019 NAV at 31
Slide 33: Cash flow for the year ended August 2019
cash flow for the year ended 31 August 2019 Distributions aligned with cash generated from operations after taking finance costs into account R'000 1 200 000 1 000 000 (452 893) 800 000 600 000 1 023 979 (117 276) 129 179 (541 446) 400 000 (22 771) 81 684 62 912 200 000 00 1 September 2018 Balance a
Slide 34: Capital management – funding at 31 August 2019
capital management – funding at 31 August 2019 % Interest R’million rate • Prudent management of debt Total borrowings – Banks 4 030.0 8.8 o LTV of 38.9% (target range: DMTN programme – unsecured 578.8 8.4 35% – 40%) – secured (unlisted HQLA) 369.3 8.8 o 85.4% interest rate hedging (target range 70%
Slide 35: Funding split as at 31 August 2019
funding split as at 31 August 2019 Process to further diversify funding ongoing 31 August 2019 31 August 2018 R’000 R’000 DMTN Programme DMTN Programme (unsecured) – R579m (12%) (unsecured) – R929m (19%) Standard Bank – Standard Bank – R1 434m (29%) R1 229m (25%) Nedbank – Nedbank – R2 965m (59%) R2
Slide 36: Interest bearing debt expiry profile
interest bearing debt expiry profile as at 31 August 2019 Proactively addressed loan expiries Debt maturing in the next 12 months: Expiry profile per financial year (Rm and %) 2 500 000 Total value of loans • Short-term borrowings include commercial paper (DMTN 41% R4.978bn programme) of R533.8 mill
Slide 37: Interest rate hedges expiry profile
interest rate hedges expiry profile Expiry profile per financial year (Rm and %) Total interest-rate swaps Local FRA curve indicating market’s 2 500 R4.25bn expectation of further rate cuts over the Thousands next 12 months and expected to continue 47% to offer attractive interest-rate swap 2 000 op
Slide 38: Outlook
Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 | 38
Slide 39: Outlook
outlook • Continued subdued economic forecast • Steady demand driven by product quality and • Proven business model – hands on approach urbanisation o Well established strategy • Ongoing recycling of non-core assets o Robust portfolio across sectors in CBDs • Balance sheet strengthening o Large tena
Slide 40: Questions & answers
questions & Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 | 40
Slide 41: Contact us
contact us Jeffrey Wapnick Anthony Stein Managing Director Financial Director Contact number Contact number +27 12 319 8708 +27 12 319 8780 E-mail E-mail jeffw@octodec.co.za anthony@octodec.co.za Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019
Slide 42: Appendices
Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 | 42
Slide 43: Corporate structure as at 31 August 2019
corporate structure as at 31 August 2019 39% Wapnick family & directors Greater than 2% Beneficial institutional shareholders 6.8% 2.4% Old Mutual Group Prudential 24% Other 6.0% 2.3% Nedbank Group Allan Gray 3.8% 2.2% 37% Government Employees Stanlib Pension Fund Institutional investors Octodec Inv
Slide 44: Our strategy
our strategy Optimise our balance sheet Create sustainable value for stakeholders Optimise our portfolio and funding structure • Invest in long-term sustainable properties that offer growth • Invest in our property • Diversify funding opportunities, focusing on Tshwane and Johannesburg CBDs portfoli
Slide 45: Top 10 properties
top 10 properties Account for 27.1% of Octodec investment property portfolio by value Property Location Sector Size (m2) The Fields Tshwane, Hatfield Mixed use 53 964 Killarney Mall Johannesburg, Killarney Shopping centre 46 945 Woodmead Mart Johannesburg, Woodmead Shopping centre 18 049 Centre Walk
Slide 46: Thank you
Thank you www.octodec.co.za Octodec Investments Limited | Reviewed Provisional Annual Results for the 12 months ended 31 August 2019 | 46