Octodec Investments Limited · JSE:OCT
Octodec Investments — H1 2023 Earnings Presentation
38 slides from Octodec Investments's earnings presentation, May 16, 2023
Slide 1: Interim Results: six months ended 28 February 2023
INTERIM RESULTS Unaudited interim results for the six months ended 28 February 2023
Slide 2: HY2023 Performance highlights and contents
Contents HY2023 Performance highlights 2 Commentary 2 Introduction Cash generated 2 Distributable income Rental income Like-for-like from operating (R’million) rental growth activities before dividend 3 Dividend payment (R’million) 3 Performance review 974.2 4.1% 239.8 4 Sector review (1H2022: 944.4
Slide 3: Rental income by sector and location
Rental income by sector Rental income by location Tshwane versus Johannesburg rental income 28 February 2023 28 February 2023 28 February 2023 4.3% 4.5% 4.5 7.3% % 5. 0 % 31% 6.0% 32.8% 36.7% 19.0% 12.2% 69% 12.3% 12.7% 24.1% 18.6% Residential: 32.8% Tshwane CBD: 36.7% Tshwane: 69% (1HFY2022: 30.6%)
Slide 4: Commentary: Introduction and distributable income
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 Limited (JSE) with a diversified portfolio of 240 residential, retail, office and industrial properties situate
Slide 5: Dividend and performance review
Dividend Unaudited Unaudited 28 February 28 February 2023 2022 Cents per share Cents per share Distributable income per share 88.1 79.6 Distribution per share 60.0 50.0 Growth in distribution HY2023 20.0% The board has declared an interim dividend of 60.0 cents per share for the six months ended 28
Slide 6: Sector review: retail shops and shopping centres
Property costs, both on a gross and net basis, have improved marginally when compared to the prior period. This is attributable to improved occupancy, which translates into higher revenue, and the reversal of certain provisions due to the successful outcome of assessment rate appeals and utility dis
Slide 7: Offices, Industrial, Parking
Offices The office sector remains under pressure. Although core vacancies improved slightly, this was achieved at lower rentals, resulting in the decrease in office rental income of 5.4%. Given the oversupply in the office sector, we are actively looking at disposing or converting and repurposing so
Slide 8: Receivables and expected credit loss
Receivables and expected credit loss Tenant arrears are currently at 3.9% of rental income (FY2022: 3.3%). Tenant arrears and the expected credit loss were as follows: Commercial Residential tenants tenants Total R’000 R’000 R’000 February 2023 (unaudited) Amount owing 64 914 19 017 83 931 Expected
Slide 9: Investment property
Investment property Octodec has a diversified portfolio of 240 residential, retail, office, industrial properties with a gross lettable area (GLA) of 1 536 315m2, valued at R11.1 billion. Reconciliation of GLA m2 GLA at the beginning of the period 1 557 460 Disposal of five properties (20 383) Addit
Slide 10: Commitments, disposals, investment property valuations
Commitments As at 28 February 2023, the group had commitments of R15.9 million (FY2022: R78.7 million) in respect of approved and committed capital expenditure relating to refurbishment of properties, committed tenant installations and property contracts. Since period-end, a contract for the refurbi
Slide 11: Borrowings and cash flow management
Borrowings and cash flow management Weighted Weighted Unaudited average Audited average 28 February interest rate 31 August interest rate 2023 per annum 2022 per annum R’billion % R’billion % Bank loans 3 659 9.6 3 677 7.9 Domestic Medium Term Note (DMTN) Programme – Unsecured 330 9.5 330 7.8 – Secu
Slide 12: Loan and interest rate derivatives expiry profile
Loan expiry profile (R’billion and %) Interest rate derivatives expiry profile (R’billion and %) R1.522 R1.393 R2 500 R0.970 R1 000 R0.274 R0.200 32.0% 34.8% 22.3% 28.6% 71.4% 6.3% 4.6% 2024 2025 2026 2027 2028 2024 2025 Octodec participates in a DMTN Programme through its subsidiary, Premium Proper
Slide 13: Vacancies
Vacancies Vacancies as a percentage of gross lettable area (GLA) in the Octodec portfolio, including properties held for redevelopment, have remained unchanged at 19.5% (FY2022: 19.5%). The group’s core vacancies, which exclude the GLA relating to properties held for redevelopment or disposal, also
Slide 14: Mothballed space and lease expiry profile
Mothballed space Octodec owns office properties with 78 948m2 (FY2022: 78 948m2) of mothballed space. The mothballed space consists of three properties, which are fully mothballed with a carrying value of R94.3 million. There are a further three partially mothballed properties with a carrying value
Slide 15: Lease expiry profile and dividend declaration
31 August 2022 By rental income (%) By GLA m2 (%) August August August August August August 2027 and August August August August 2027 and 2023 2024 2025 2026 beyond 2023 2024 2025 2026 beyond Vacant Total Sector* Residential 99.9 0.1 – – – 92.7 0.1 – 0.2 – 7.0 100.0 Commercial Retail – street shops
Slide 16: REIT qualifying distribution tax information
In accordance with Octodec’s status as a REIT, shareholders are advised that the interim dividend of 60.00000 cents per share meets the requirements of a “qualifying distribution” for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 (the Income Tax Act) with the result that: • divi
Slide 17: Prospects
Prospects During the period under review Octodec has experienced an increase in leasing activity and rental in all sectors, with the exception of the office sector. This has translated into the positive results for 1HFY2023. We continue to roll out the value added measures introduced at some of our
Slide 18: Consolidated statement of financial position
Consolidated statement of financial position Unaudited Unaudited Audited 28 February 28 February 31 August 2023 2022 2022 R’000 R’000 R’000 ASSETS Non-current assets 11 034 667 10 794 636 10 848 512 Investment property 10 819 879 10 656 230 10 633 189 Straight-line rental income accrual 88 257 88 52
Slide 19: Consolidated statement of profit and loss and other comprehensive income
Consolidated statement of profit and loss and other comprehensive income Unaudited Unaudited Audited 28 February 29 February 31 August 2023 2022 2022 R’000 R’000 R’000 Revenue 961 099 939 699 1 939 072 earned on contractual basis 974 226 944 866 1 931 091 COVID-19 rental discount – (516) (571) strai
Slide 20: Consolidated statement of changes in equity
Consolidated statement of changes in equity Non-distributable Retained Stated capital reserve earnings 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 income for the period – – 239 361 239 361 Dividends paid – – (133 099) (1
Slide 21: Consolidated statement of cash flows
Consolidated statement of cash flows Unaudited Unaudited Audited 28 February 29 February 31 August 2023 2022 2022 R’000 R’000 R’000 Cash flows from operating activities Profit before taxation 371 499 257 825 621 097 Adjusted for: Straight-line rental income accrual 13 127 4 651 (8 552) Fair value ch
Slide 22: Reconciliation to headline earnings
Reconciliation of profit and loss and other comprehensive income to headline earnings Unaudited Unaudited Audited 28 February 28 February 31 August 2023 2022 2022 R’000 R’000 R’000 Total comprehensive income attributable to shareholders 360 138 239 361 605 127 Headline earnings adjustments Securitie
Slide 23: Rental income by sector
Rental income by sector Unaudited Unaudited** Audited** 28 February 28 February 31 August 2023 2022 2022 R’000 % R’000 % R’000 % Retail – street shops 177 610 24.3% 175 473 24.8% 359 197 24.8% Retail – shopping centres 83 329 11.4% 80 538 11.4% 160 963 11.1% Offices 140 222 19.2% 148 565 21.0% 296 1
Slide 24: Reconciliation of income to distributable income
Reconciliation of income to distributable income Unaudited Unaudited Audited 28 February 28 February 31 August 2023 2022 2022 R’000 R’000 R’000 Total comprehensive income attributable to shareholders 360 138 239 361 605 127 Securities transfer tax on restructure of subsidiary – – 1 250 Fair value ch
Slide 25: Notes to the condensed consolidated interim financial statements
Notes to the condensed consolidated interim financial statements Basis of preparation The unaudited condensed consolidated interim financial statements are prepared in accordance with the JSE Listings Requirements and the requirements of the Companies Act, No 71 of 2008. The condensed consolidated i
Slide 26: Fair value measurement
Fair value measurement The group measures investment property as well as interest rate swaps at fair value at each reporting date. The fair values of financial instruments measured at amortised cost are disclosed when the carrying value of these instruments does not reasonably approximate their fair
Slide 27: Financial instruments
Financial instruments Financial instruments include interest rate swaps which are measured at fair value through profit and loss. The fair values of the interest rate swaps are determined on a mark-to-market valuation by discounting the estimated future cash flows based on the terms and maturity of
Slide 28: Investment property valuers
Investment property Investment properties are valued biannually by the internal finance valuations team at City Property, and the portfolio valuation is reviewed and approved by the board. In terms of the JSE Listings Requirements, all the properties are valued by external independent valuers at lea
Slide 29: Unobservable valuation inputs, February 2023
The following unobservable inputs were used by the group at 28 February 2023: Weighted Weighted average Weighted average long-range average capitalisation vacancy expense Number of Fair value rate factor ratio properties R’000 % % % 28 February 2023 (unaudited) Capitalisation rate 8.25% – 8.75% 6 2
Slide 30: Unobservable valuation inputs, August 2022
Weighted Weighted average Weighted average long-range average capitalisation vacancy expense Number of Fair value rate factor ratio properties R’000 % % % 31 August 2022 (audited) Capitalisation rate 8.25% – 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
Slide 31: Sensitivity to changes in valuation inputs
Sensitivity to changes in valuation inputs The significant unobservable inputs used in the fair value measurement of the group’s investment properties are the capitalisation rate, the expense ratio, and the long-range vacancy factor. Significant increases/decreases in any of the above inputs in isol
Slide 32: Related-party transactions
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 have beneficial interests in both companies. Total payments made to City Property in terms of the asset a
Slide 33: SA REIT ratios: FFO per share
SA REIT ratios 28 February 28 February 31 August 2023 2022 2022 R’000 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 360 138 239 361 605 127 Adjusted for: Accounting/specific adjustments: (
Slide 34: SA REIT NAV and cost-to-income ratio
28 February 28 February 31 August 2023 2022 2022 R’000 R’000 R’000 SA REIT NET ASSET VALUE (SA REIT NAV) Reported NAV attributable to the parent 6 469 020 6 089 173 6 321 840 Adjustments: Dividend to be declared (159 718) (133 098) (212 958) Fair value of certain derivative financial instruments (66
Slide 35: SA REIT administrative cost-to-income, vacancy rate, cost of debt
28 February 28 February 31 August 2023 2022 2022 R’000 R’000 R’000 SA REIT ADMINISTRATIVE COST-TO-INCOME RATIO Expenses Administrative expenses as per IFRS income statement 46 826 38 612 84 614 Administrative costs 46 826 38 612 84 614 Contractual rental income per IFRS income statement (excluding s
Slide 36: SA REIT loan to value
28 February 28 February 31 August 2023 2022 2022 R’000 R’000 R’000 SA REIT LOAN TO VALUE Gross debt 4 359 100 4 564 194 4 375 197 Less: Cash and bank balances (65 545) (136 063) (38 960) Cash and bank balances per statement of financial position (93 980) (159 025) (66 554) Less: Bank balance held in
Slide 37: Company information
Company information Octodec Investments Limited Transfer secretaries Incorporated in the Republic of South Africa Computershare Investor Services (Pty) Limited Registration number: 1956/002868/06 Contact person: Leon Naidoo JSE share code: OCT Rosebank Towers, 15 Biermann Avenue, Rosebank 2196 ISIN:
Slide 38: octodec.co.za
octodec.co.za OCTODEC INVESTMENTS LIMITED 36 Unaudited interim results for the six months ended 28 February 2023