Octodec Investments Limited · JSE:OCT
Octodec Investments — FY2023 Earnings Presentation
40 slides from Octodec Investments's earnings presentation, Nov 1, 2023
Slide 1: Reviewed condensed annual results for the year ended 31 August 2023
Reviewed condensed annual results for the year ended 31 August 2023
Slide 2: Contents and 2023 performance highlights
CONTENTS 2023 PERFORMANCE HIGHLIGHTS COMMENTARY 1 Review of results 2 Cost-to-income ratios 3 Dividend policy 4 Distributable income Performance review 4 Rental income Profit for the year after tax (REIT funds from Reversions by sector 6 (R’million) (R’million) operations R’million) Collections 6 Ar
Slide 3: Commentary: Introduction
COMMENTARY Introduction Octodec Investments Limited (Octodec or the company), its subsidiaries and associated company (the group) is a real estate investment trust (REIT) listed on the JSE Ltd (JSE) and A2X, with a diversified portfolio of 238 residential, retail, office and industrial properties si
Slide 4: Review of results
CBD versus non-CBD rental income Tshwane versus Johannesburg rental income CBD Tshwane and surrounds (2022: 54.9%) (2022: 69.3%) Non-CBD 30.3% Johannesburg and surrounds (2022: 45.1%) (2022: 30.7%) 45.4% 54.6% 69.7% Review of results 31 August 31 August % 2023 2022 change R’000 R’000 Revenue 3.3 1 9
Slide 5: Cost-to-income ratios
Group revenue Group revenue increased by 3.3% from R1 930.5 million to R1 995.1 million, mainly due to improved occupancy in our residential portfolio as well as rental lease escalations. This was achieved under difficult operating conditions, underpinned by a weak economy, high inflation and intere
Slide 6: Dividend policy, performance review and sector review
Property costs, both on a gross and net basis, have increased when compared to the prior year. This is largely attributable to inflationary pressure and increases in administered costs, which despite the credits received from Council in the current year, still reflect an increase in these expenses.
Slide 7: Retail shops and shopping centres, offices, industrial
At The Fields, we reduced the rent charged on the units available to NSFAS students to R4 500 per month in line with the allowance. As this situation had unfolded over a period of time, the reduction in rental was not sufficient to reduce the vacancies, as many students had already found alternative
Slide 8: Reversions by sector and collections
Reversions by sector Renewal New lease reversion Sector Area m 2 reversion % Area m 2 % Commercial Retail – street shops 19 313 (4.5) 72 608 (10.0) Retail – shopping centres 1 648 1.1 15 901 1.8 Offices 7 818 (2.4) 77 828 (2.6) Industrial 14 575 6.4 63 909 5.4 Total commercial (GLA) 43 354 (1.7) 230
Slide 9: Arrears and investment property
Arrears Tenant arrears have increased from August 2022 and are currently at 4.2% of rental income (FY2022: 3.3%) or 15.5 days (FY2022: 11.9 days). Tenant arrears and the expected credit loss are as follows: Commercial Residential tenants tenants Total August 2023 R’000 R’000 R’000 Amount owing 74 51
Slide 10: Residential, commercial and commitments
Octodec has retained a portion of its distributable income since 2022 in order to fund capital projects and tenant installations. In the current year the group has invested R155.9 million in developments, improvements as well as larger tenant installations, which will contribute to increased earning
Slide 11: Disposals and investment property valuations
Disposals Octodec remains committed to the disposal of non-core properties, including the disposal of mothballed office buildings, in order to apply this capital to yield enhancing developments. However, the current environment of high interest rates and a hardened approach by financiers has slowed
Slide 12: Borrowings and cash flow management
Borrowings and cash flow management Weighted Weighted average average 31 August interest rate 31 August interest rate 2023 per annum 2022 per annum R’000 % R’000 % Bank loans 4 015.6 10.4 3 676.6 7.9 Domestic Medium Term Note (DMTN) Programme Secured – – 368.3 7.7 Unsecured 330.4 10.4 330.3 7.8 Tota
Slide 13: Loan covenants
As at 31 August 2023 Octodec participated in a DMTN Programme through its subsidiary, Premium Properties Ltd (Premium). The total unsecured listed issuance was at R330.4 million or 7.6% (FY2022: R330.3 million or 7.6%) of the group’s borrowings. Subsequent to the financial year end, following the ap
Slide 14: Vacancy profile by location and mothballed space
Properties held for redevelopment or disposal Core Total including Core Core vacancies Vacancies vacancies mothballed vacancies vacancies as % of 31 August 2022 Total GLA m2 GLA m2 % space m2 GLA m2 % lettable GLA Residential 415 490 29 245 7.0% – 29 245 7.0% 7.0% Commercial Retail Street shops 356
Slide 15: Lease expiry profile
Lease expiry profile The leases concluded with a large percentage of our tenants are typically of a short-term nature, where lease periods are generally for a period of 12 months. This has been a consistent characteristic of our portfolio since inception and forms part of our strategy. This is typic
Slide 16: CSI initiatives and dividends
CSI Initiatives This year we undertook a wide range of important social initiatives that talk to our purpose of creating a thriving environment of diversity and inclusion for our communities. We are in the process of establishing an Early Childhood Development (ECD) Centre in partnership with our lo
Slide 17: Tax implications for shareholders and prospects
A reduced dividend tax in terms of the applicable DTA may only be relied on if the non-resident shareholder has submitted the following forms to his/her CSDP or broker, as the case may be, in respect of uncertificated shares, or the transfer secretaries, in respect of certificated shares: • A declar
Slide 18: Prospects and forecast assumptions
At the same time, we are cognisant of the impact that rising inflation, increasing energy and fuel costs and high interest rates will have on our tenants and on Octodec. The failure of municipalities to deliver services, combined with the ongoing power outages, will undoubtedly have a negative impac
Slide 19: Independent auditor's review report
INDEPENDENT AUDITOR’S REVIEW REPORT ON THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS To the shareholders of Octodec Investments Limited We have reviewed the condensed consolidated financial statements of Octodec Investments Limited, contained in the accompanying report, which comprise the condense
Slide 20: Condensed consolidated statement of financial position
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Reviewed Audited 31 August 31 August 2023 2022 R’000 R’000 ASSETS Non-current assets 11 096 877 10 848 512 Investment property 10 905 950 10 633 189 Straight-line rental income accrual 88 584 100 879 Unamortised tenant installations and lease co
Slide 21: Condensed consolidated statement of profit or loss and OCI
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Reviewed Audited 31 August 31 August 2023 2022 R’000 R’000 Revenue 1 982 537 1 939 072 revenue 1 995 095 1 931 091 straight-line rental income accrual (12 558) 8 552 COVID-19 rental discount – (571) Sundry income 12 32
Slide 22: Condensed consolidated statement of changes in equity
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Non- distributable Retained Stated capital reserve income Total R’000 R’000 R’000 R’000 Balance at 31 August 2021 (audited) 4 210 134 1 194 706 578 071 5 982 911 Total comprehensive profit for the year – – 605 127 605 127 Dividends paid – – (266
Slide 23: Condensed consolidated statement of cash flows
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Reviewed Audited 31 August 31 August 2023 2022 R’000 R’000 Cash generated from operations 862 578 792 454 Interest received 13 256 12 397 Finance costs paid (428 369) (388 892) Tax paid (287) (24 894) Dividends paid (372 677) (266 198) Net cash flows fr
Slide 24: Reconciliation of profit to headline earnings
RECONCILIATION OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME TO HEADLINE EARNINGS Reviewed Audited 31 August 31 August 2023 2022 R’000 R’000 Total comprehensive income attributable to shareholders 610 463 605 127 Headline earnings adjustments Security transfer tax paid on restructure of subsidiar
Slide 25: Notes to the condensed consolidated annual financial statements
NOTES TO THE CONDENSED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS Basis of preparation The reviewed condensed consolidated financial statements are prepared in accordance with the JSE Listings Requirements and the requirements of the Companies Act, No 71 of 2008 (Companies Act). The condensed consolid
Slide 26: Fair value measurement and transfers between levels
The different levels have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: Input other than quoted prices included within Level 1 that is observable for the asset or liability, either directly (i.e. as prices) or indirectly (
Slide 27: Classification of financial instruments
Classification of financial instruments Fair value At through profit amortised Outside scope or loss cost of IFRS 9 Total R’000 R’000 R’000 R’000 FINANCIAL ASSETS 31 August 2023 (Reviewed) Loan to joint venture – 19 936 – 19 936 Derivative financial instruments 61 652 – – 61 652 Cash and bank balanc
Slide 28: Property valuers
The portfolio was valued by the following valuers who are all registered valuers in terms of section 19 of the Property Valuers Profession Act, No 47 of 2000 and have extensive experience in property valuations. Entity Valuer Qualifications Mills Fitchet Global William Hewitt NDPV, MIEA, FIVSA, RICS
Slide 29: Capitalisation rates
Audited 31 August 2022 Weighted Weighted Weighted average average long- average Number of Fair value capitalisation range vacancy expense ratio properties R’000 rate % factor % % Capitalisation rates 8.50% – 8.75% 6 2 204 700 8.7 7.6 31.3 9.00% – 10.00% 75 5 197 700 9.7 6.1 30.9 10.25% –11.50% 145 3
Slide 30: Sensitivity to changes in valuation inputs
Sensitivity to changes in valuation inputs Significant increases/decreases in any of the above inputs in isolation will result in a lower/higher fair value measurement. The effect of changes in these inputs is set out below: Reviewed Audited 31 August 31 August 2023 2022 R’000 R’000 1% increase in c
Slide 31: Cash generated from operations
Cash generated from operations Reviewed Audited 31 August 31 August 2023 2022 R’000 R’000 Profit before taxation 629 528 621 097 Adjusted for: Straight-line rental income accrual 12 558 (8 552) Fair value changes to investment property (179 055) 82 386 Fair value changes on interest rate derivatives
Slide 32: Related-party transactions and events after reporting date
Related-party transactions Octodec and City Property, are related parties in that Jeffrey Wapnick and Sharon Wapnick are directors of Octodec and City Property, and members of the Wapnick family are shareholders of both companies. Sharon Wapnick is also a partner of Tugendhaft Wapnick Banchetti and
Slide 33: Rental income by sector
RENTAL INCOME BY SECTOR Restated** Reviewed Audited 31 August 31 August 2023 2022 R’000 % R’000 % Residential 510 120 34.3 462 808 32.0 Retail – street shops 352 038 23.7 359 197 24.8 Retail – shopping centres 169 080 11.4 160 963 11.1 Offices 280 386 18.9 296 178 20.5 Industrial 105 941 7.1 102 057
Slide 34: Reconciliation of profit to distributable income
RECONCILIATION OF PROFIT TO DISTRIBUTABLE INCOME Reviewed Audited 31 August 31 August 2023 2022 R’000 R’000 Total comprehensive income attributable to shareholders 610 463 605 127 Fair value changes Investment property (179 055) 82 386 Investment property – joint venture 4 236 (6 286) Disposal of in
Slide 35: SA REIT ratios
SA REIT RATIOS 31 August 31 August 2023 2022 R’000 R’000 SA REIT Funds from Operations (SA REIT FFO) per share Profit or loss per IFRS Statement of Comprehensive Income (SOCI) attributable to the parent 610 463 605 127 Adjusted for: Accounting/specific adjustments: (162 005) (144 848) Fair value adj
Slide 36: SA REIT cost-to-income ratios
31 August 31 August 2023 2022 R’000 R’000 SA REIT cost-to-income ratio Expenses Operating expenses per IFRS income statement (includes municipal expenses) 1 030 480 980 047 Administrative expenses per IFRS income statement 102 664 84 614 Other expenses, if directly related to property operations, wi
Slide 37: Cost of debt and SA REIT loan to value
31 August 31 August 2023 2022 R’000 R’000 Cost of debt Variable interest-rate borrowings Floating reference rate plus weighted average margin 10.4% 7.9% Pre-adjusted weighted average cost of debt 10.4% 7.9% Adjustments: Impact of interest rate derivatives (1.2%) 0.8% Amortised transaction costs impu
Slide 38: Company information
COMPANY INFORMATION Octodec Investments Limited Transfer secretaries Incorporated in the Republic of South Africa Computershare Investor Services (Pty) Ltd Registration number: 1956/002868/06 Contact person: Leon Naidoo JSE share code: OCT Rosebank Towers, 15 Biermann Avenue, Rosebank 2196 JSE alpha
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Slide 40: octodec.co.za
octodec.co.za OCTODEC INVESTMENTS LIMITED 38 Reviewed condensed annual results for the year ended 31 August 2023