Octodec Investments Limited · JSE:OCT
Octodec Investments — H1 2018 Earnings Presentation
48 slides from Octodec Investments's earnings presentation, Apr 23, 2018
Slide 1: Interim financial results 2018
interim financial results 2018 for the 6 months ended creating value beyond financial return 28 February 2018
Slide 2: Agenda
agenda 1 about us 03 2 overview for the period 07 3 our portfolio performance 09 4 our results 25 5 outlook 35 6 questions and answers 39 7 contact details 40 8 appendices 41 2 Octodec Investments Limited | Interim results presentation 2018
Slide 3: About us
about us 1 Interim financial 2018 results creating value beyond financial return
Slide 4: About us
about us • Listed on the JSE in 1990: REIT status on 1 September 2013 • 309 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
overview of Tshwane • Concentration of investments • Increased urbanisation • New developments improving node • New Tshwane House o GLA of 37 000 m2 o Housing in excess of 1 500 staff Sustaining city life: TWO decades of building 1 094 219 m2 a city bears fruit Octodec properties in Tshwane CBD 520
Slide 6: Overview of Johannesburg
overview of Johannesburg • Urban renewal gaining momentum • Increasing private sector investment • Higher demand for property • Local council support 557 631 m2 Sustaining city life: TWO decades of building a city bears fruit Octodec properties in Johannesburg CBD 415 574 m2 Octodec properties in Jo
Slide 7: Overview for the period
overview for the period 2 Interim financial 2018 results creating value beyond financial return
Slide 8: Overview for the period
overview for the period • Dividend of 101.7 cents per share, for the six month Context Progress period ending • Residential increasingly • Property fundamentals sound 28 February 2018, competitive but demand is strong • Strategic greenfield compared to the prior • Tough economic, political and devel
Slide 9: Our portfolio performance
our portfolio performance 3 Interim financial 2018 results creating value beyond financial return
Slide 10: Portfolio analysis: rental income
portfolio analysis: rental income 28 February 2018 Rental income (%) by geographical location Rental income (%) by sector % of total portfolio 36.9 % FY2017: 37.1% % 10.6% shopping 30.5 % 33.2 centres 35 FY2017: 10.0% 26.3% Retail – FY2017: 29.5% 30 shops FY2016: 27.1% Residential 21.2 25 Retail 20
Slide 11: Portfolio analysis: GLA
portfolio analysis: GLA 28 February 2018 GLA (%) by geographical location GLA (%) by sector 40% 30.8 31.5 (FY17: 35% 30.6) 5.6 25.2 30% (FY17: 25% 5.5) 20% 15% 9.2 8.6 7.1 5.9 10% 4.6 4.2 3.7 5% 15.9 (FY17: 0% 16.3) Waverley, Gezina, Moot Tshwane, Hatfield Tshwane, Arcadia Tshwane West surrounding a
Slide 12: Residential
residential Portfolio sectors: Rental income (%) 6 months 12 months 2018 Tshwane 28 Feb 2018 31 Aug 2017 Sharon’s Place Number of properties 73 74 Number of residential units 9 481 9 483 o Johannesburg 36% 36% o Tshwane 64% 64% Gross lettable area (GLA) 396 962 m2 394 721 m2 Rental income R230 milli
Slide 13: Residential (continued)
residential (continued) Portfolio sectors: Rental income (%) • Tenant profile analysis, for applications during the period 2018 Tshwane o Employed by government – 29% of occupants Sharon’s Place o Students – 38% of occupants o Churn at 45% per annum o Average gross salary per application of R28 000
Slide 14: Retail – shops
retail – shops Portfolio sectors: Rental income (%) 6 months 12 months 2018 Tshwane 28 Feb 2018 31 Aug 2017 CBD Gross lettable area (GLA) 390 556 m2 398 105 m2 Rental income R198 Million R385 Million Rental income growth (like-for-like)* 4.3% 5.7% Total vacancies (% of GLA) 9.2% 10.8% Core vacancies
Slide 15: Retail – shops (continued)
retail – shops (continued) Portfolio sectors: Rental income (%) Top 10 retailers by rental 2018 Top 10 retailers by Tshwane (September 2017 to CentreWalk lettable area February 2018) (R’000) Lessee GLA Lessee Rental Shoprite Checkers 43 333 Pepkor 15 313 Pepkor 16 841 Shoprite Checkers 15 294 Edcon
Slide 16: Retail: shopping centres
retail: shopping centres Portfolio sectors: Rental income (%) 6 months 12 months 2017 Tshwane 28 Feb 2018 31 Aug 2017 Waverley Plaza Gross lettable area (GLA) 92 198 m2 91 867 m2 Rental income R80 Million R153 Million Rental income growth (like-for-like) 7.0% 6.4% Total and core vacancies (% of GLA)
Slide 17: Retail: shopping centres (continued)
retail: shopping centres (continued) Portfolio sectors: Rental income (%) • Elardus Park Shopping Centre 2017 Woodmead o Increase in vacancies to 9% Value Mart o In need of an upgrade • Woodmead Value Mart o Increase in vacancies o Rental growth of 10% • Killarney Mall o Occupancy levels stable o Fo
Slide 18: Offices
offices Portfolio sectors: Rental income (%) 6 months 12 months 2018 Johannesburg 28 Feb 2018 31 Aug 2017 Killarney Mall Let to government (% of total rental income 41.3% 42.2% from offices) Other (% of total rental income from offices) 58.7% 57.8% Gross lettable area (GLA) 509 084 m2 509 848 m2 Per
Slide 19: Offices (continued)
offices (continued) Portfolio sectors: Rental income (%) • Offices comprise of 2018 Johannesburg o Government office space Killarney Mall o Corporates o Smaller units occupied by SME’s Ø Occupancy levels stable • Upgrading of offices o North City – Braamfontein – upgrade amounting to R35 million o L
Slide 20: Industrial
industrial Portfolio sectors: Rental income (%) 6 months 12 months 2017 Transpharm, 28 Feb 2018 31 Aug 2017 a division of Shoprite GLA in Tshwane 217 669 m2 217 090 m2 GLA in Johannesburg 45 381 m2 53 431 m2 Total GLA 263 050 m2 270 521 m2 Rental Income R56 million R115 million Growth in core rental
Slide 21: Industrial (continued)
industrial (continued) Portfolio sectors: Rental income (%) • Successful redevelopment of properties – demand for upgraded 2017 properties Transpharm, a division of o Achieving higher rentals after upgrades Shoprite o Upgrade largely tenant driven o The Tannery Industrial Park (R14m) – improved occu
Slide 22: Parking
parking Portfolio sectors: Rental income (%) 6 months 12 months 2018 Tshwane 28 Feb 2018 31 Aug 2017 Parking Average monthly residential rentals R395 R380 (per bay) Average monthly commercial rentals R675 R650 (per bay) Rental income R33 million R62 million Growth in core rental income like-for- 9.6
Slide 23: Vacancies by sector as at 28 February 2018
vacancies by sector as at 28 February 2018 • Total vacancies in our portfolio Total vacancies Core vacancies % % as at 28 February 2018 were at Offices 37.5 15.3 18.5% of our total GLA Retail – shops 9.2 9.2 (31 August 2017: 19.0% of our Retail – shopping centres 6.2 6.2 total GLA) Industrial 14.5 1
Slide 24: Lease expiry profile
lease expiry profile • Octodec’s portfolio features a Gross Monthly mix of short- to long-term leases lettable contract Rental with the majority of short-term area GLA ual rent income m² (%) R’000 (%) leases providing for a monthly agreement at expiry, which is Residential 362 573 21.9 36 175 29.4 (
Slide 25: Our results
our results 4 Interim financial 2018 results creating value beyond financial return
Slide 26: Achievements
achievements • Distribution of 101.7 cents per share for the • Balance sheet: six-month period o Loan to value ratio of 37.1% • On track to achieve flat distribution growth per share (31 August 2017: 37.1%) for the twelve month period, in line with guidance o Proceeds from disposal of properties of
Slide 27: Challenges
challenges • Tough economic and operating environment • Like-for-like growth in rental income of 3.2%, under pressure • Rise in costs (finance cost, utilities, assessment rates) • Higher interest rates (all-in weighted average cost of funding at 9.2% at 28 February 2018) • Core vacancies in portfoli
Slide 28: Distributable earnings simplified income statement
distributable earnings simplified income statement 6 months 6 months % 28 February 2018 28 February 2017 Change R’000 R’000 Revenue – earned on contractual basis 3.5 929 656 897 813 Like-for-like rental income growth of 3.2% Property operating costs 2.2 (410 790) (402 130) Increased efficiencies Net
Slide 29: Condensed consolidated statement of financial position
condensed consolidated statement of financial position Unaudited Audited 28 February 2018 31 August 2017 R’000 R’000 ASSETS Non-current assets 12 739 824 12 568 875 Investment properties 12 331 263 12 153 834 305 properties 2018 – 311 properties 2017 Plant and equipment 4 530 5 300 Straight-line ren
Slide 30: Cash flow for the period ended 28 February 2018
30 78 123 Balance end of period cash flow for the period ended 28 February 2018 Increase in interest bearing 6 353 borrowings (11 343) Shares repurchased Improvements to (109 293) investment property Proceeds from disposal of 42 491 investment property Net cash inflow from 19 159 operating activitie
Slide 31: Capital management – funding at 28 February 2018
capital management – funding at 28 February 2018 R’ Million Interest • Prudent management of debt R’ Million rate o LTV – at 37.1% (target of 35%) Total borrowings – Banks 3 705.5 9.2% o Interest rate hedging – 97.5% maintain at levels of at least 70% – DMTN programme 1 127.2 8.4% 80% TOTAL BORROWIN
Slide 32: Funding as at 28 February 2018
funding as at 28 February 2018 28 February 2018 31 August 2017 Standard Bank – R925m (19%) Standard Bank – DMTN R1 327m Programme – DMTN (28%) R1 127m (23%) Programme – R1 116m (23%) Nedbank – Nedbank – R2 379m (49%) R2 785m (58%) 32 Octodec Investments Limited | Interim results presentation 2018
Slide 33: Interest bearing debt expiry profile
interest bearing debt expiry profile as at 28 February 2018 Expiry profile per financial year (Rm and %) Rm Secured loans Debt maturing in the Corporate paper 2500 next 12 months: Thousands • Short term borrowings are commercial paper 2000 (DMTN programme) of R739m To be updated • To date, R260m of
Slide 34: Interest rate hedges expiry profile
interest rate hedges expiry profile Expiry profile per financial year (Rm and %) Rm Fixed rate loans – 2 000 R412 million Thousands 1 800 Swaps – total of 1 600 R4.3 billion 1 400 Average weighted expiry – 1 200 1 000 1.6 years 1 750 800 • At 31 August 2018, interest rates in respect 1 361 of 97.5%
Slide 35: Outlook
outlook 5 Interim financial 2018 results creating value beyond financial return
Slide 36: Outlook
outlook • Improvement in business and consumer confidence • Increasing competition – CBD Johannesburg and Hatfield (residential) • Strong operational focus to continue • Well-positioned to continue to take advantage of opportunities in the CBDs o CBD retail continues to generate strong demand from n
Slide 37: Outlook (continued)
outlook (continued) • Continue to unlock value – future development opportunities under discussion • Hurdle yield required of above 8.5% • Disposal of non-core or non-performing properties will remain a focus area • New five-year management contract concluded with City Property o Circular to be sent
Slide 38: Investment case
investment case • Strategy to remain the same • 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 trac
Slide 39: Questions and answers
questions and answers 6 Interim financial 2018 results creating value beyond financial return
Slide 40: 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 40 Octodec Investments Limited | Interim results presentation 2018
Slide 41: Appendices
appendices 8 Interim financial 2018 results creating value beyond financial return
Slide 42: Corporate structure as at 28 February 2018
corporate structure as at 28 February 2018 39% 37% 24% Wapnick family Institutional Other & directors investors Top 5 Beneficial institutional shareholders 6.0% 5.6% 3.9% 2.8% 2.3% Nedbank Old Mutual Government Allan Gray Momentum Group Group Employees Pension Fund 42 Octodec Investments Limited | I
Slide 43: 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 44: Top 10 properties
top 10 properties Account for 25.0% of the Octodec investment property portfolio by value Property Location Sector Size (m2) The Fields Hatfield, Tshwane Mixed use 53 888 Killarney Mall Killarney, Johannesburg Shopping centre 46 945 Centre Walk Tshwane CBD Mixed use 25 407 Woodmead Value Mart Woodme
Slide 45: 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 Total Profit / (loss) Transfer date / Exit consideration on disposal expected yield Property Location R’million R’million transfer date % Pretboy Ts
Slide 46: 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 develop- ment cost Completion Fully let Property Location Details R’million date yield % Sharon’s Tshwane
Slide 47: Sharon's Place
sharon’s place Tshwane CBD mixed use development Development cost of: R356m Residential units: 400 Retail: 5 660m² Parking bays: 289 • Retail completed in July 2017 • Retail leasing progressing well and is almost 100% let with anchor tenants including Shoprite and Clicks • Residential Blocks A and C
Slide 48: North City
north city Office block with retail situated in Braamfontein Upgrade cost: R35m Retail: 749m2 Offices: 7 723m2 • Strong demand for offices • Office rental of R110m2 – R115m2 after upgrade • Completion of upgrade in June 2018 2018 North City Street view 48 Octodec Investments Limited | Interim result