Octodec Investments Limited · JSE:OCT
Octodec Investments — FY2021 Earnings Presentation
49 slides from Octodec Investments's earnings presentation, Nov 2, 2021
Slide 1: Reviewed Provisional Annual Results
Reviewed Provisional Annual Results for the year ended 31 August 2021 OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 2: Agenda
Agenda 1 Octodec at a glance 2 COVID-19 3 Overview for the period 4 Our portfolio performance 5 Our results and capital management 6 Outlook 7 Questions and answers 8 Contact details 9 Appendices OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021 2
Slide 3: Octodec at a Glance
OCTODEC AT A GLANCE OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 4: Octodec at a glance
Octodec at a glance . Octodec is a JSE-listed REIT with a diversified inner To create and serve a thriving ecosystem of residents, Who city focused property portfolio of 267 properties Why small shop owners, professionals, Government valued at R11.2 billion. employees, students and entrepreneurs, am
Slide 5: Octodec at a glance continued
Octodec at a glance continued R401.1m (4.6%) R358.4m (14.1%) Distributable income Decrease in Distributable income Decrease in before tax distributable income after tax distributable income (FY2020: R420.4m) before tax (FY2020: R417.4m) after tax (FY2021: Tax: R42.7m) 50 cents (7.3%) 43.2% R23.2 Div
Slide 6: COVID-19
COVID-19 OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 7: COVID-19: Decisive and proactive response
COVID-19: Decisive and proactive response • Prioritised safety and wellbeing of tenants, suppliers and our teams Safety and wellbeing • COVID-19 operational plans remain active across all properties • Hybrid working model in place for employees to navigate return to office • Participating in industr
Slide 8: COVID-19: Decisive and proactive response continued
COVID-19: Decisive and proactive response continued • No major unresolved commercial tenant negotiations relating to monthly billings Tenant support • Residential property tenant negotiations ongoing with fewer tenants unable to pay • Total rental discounts granted to tenants for the FY2021 amounted
Slide 9: Overview for the Period
OVERVIEW FOR THE PERIOD OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 10: 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 Tough leasing environment, increased vacancies and • Total and core vacancies by gross lettable area (GL
Slide 11: Overview for the period continued
Overview for the period continued Context Progress Larger projects difficult in the weak economic environment • Moratorium on larger projects, other than lease driven projects and maintenance of common areas (residential) • Actively focused on the disposal of some of our mothballed properties, previ
Slide 12: Our Portfolio Performance
OUR PORTFOLIO PERFORMANCE OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 13: Portfolio analysis: rental income
Portfolio analysis: rental income Rental income by sector Geographical analysis of rental income 31 August 2021 (excl. COVID-19 discounts) 31 August 2021 (excl. COVID-19 discounts) 36.4% 6.0% Tshwane CBD Tshwane Hatfield 30.3% 16.3% (2020: 35.3%) (2020: 6.7%) Residential Offices (2020: 31.3%) (2020:
Slide 14: Residential
Residential As at As at 31 Aug 2021 31 Aug 2020 GLA (m²) 419 094 420 909 Number of properties 68 71 Number of tenants 8 258 7 993 Number of residential units 9 304 9 333 Johannesburg (%) 36 36 Tshwane (%) 64 64 Rental income (R’million)* 432 484 Rental income reduction (like for like) (%)* (10.6) (2
Slide 15: Residential continued
Residential continued Tenant profile analysis, for applications during the period • 27% of applicants are Government employees • 27% of occupants are students • Average net monthly salary per applicant of R18 913 • Net monthly salary above R35 000 – 12.0% The Fields is Octodec’s biggest asset and si
Slide 16: Residential continued
Residential continued Response to tough operating environment • Successful rollout of Wi-Fi to provide value-added services • Improved digital marketing campaigns, reaching an expanded audience faster • Online lease application portal to facilitate letting during COVID-19 lockdown levels • Automated
Slide 17: Retail – shops
Retail – shops As at As at 31 Aug 2021 31 Aug 2020 GLA (m2) 310 818 323 297 Rental income (R’million)* 329 347 Rental income reduction (like for like) (%)* (4.9) (2.2) Total and core vacancies (% of GLA) 18.4 14.8 * Before COVID-19 rental discounts OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL AN
Slide 18: Retail – shops continued
Retail – shops continued Various lockdowns over the period have impacted trading conditions, with prime CBD properties well let CBD retail offers more growth opportunities than traditional shopping centres • Convenient locations with high foot traffic • Lower cost structures (common area, security,
Slide 19: Retail – shopping centres
Retail – shopping centres As at As at 31 Aug 2021 31 Aug 2020 GLA (m2) 97 530 93 796 Rental income (R’million)* 167 169 Rental income reduction / growth (1.3) 6.8 (like for like) (%)* Total vacancies (% of GLA) 7.6 3.7 Core vacancies (% of GLA) 7.3 3.7 * Before COVID-19 rental discounts The Park sho
Slide 20: Retail – shopping centres continued
Retail – shopping centres continued Tshwane: The Park, Waverley Plaza, Gezina and Blaauw Village (50% held JV) • Strong performance from these neighbourhood convenience and shopping centres • 96.6% combined occupancy • 3.2% combined rental income growth • A new drive-through KFC at Waverley Plaza, p
Slide 21: Offices
Offices As at As at 31 Aug 2021 31 Aug 2020 GLA (m2) 420 192 411 608 Number of tenants 1 458 1 475 Let to Government (% of total rental 53.7 51.0 income from offices) Other (% of total rental income from offices) 46.3 49.0 Office space held for development/ mothballed (opportunities to sell, develop
Slide 22: Offices continued
Offices continued Offices comprise • Government offices • Smaller units occupied by small, medium and micro-sized enterprises (SMMEs) Leases with government and quasi-government departments • Challenging operating environment continues • Continue to meet their payment obligations • 1 600m² let to CA
Slide 23: Industrial
Industrial As at As at 31 Aug 2021 31 Aug 2020 Total GLA (m2) 235 204 234 600 Number of tenants 415 407 Rental income (R’million)* 107 110 Rental income (reduction)/growth (like for like) (%)* (1.0) 2.4 Total vacancies (% of GLA) 12.0 13.2 Core vacancies (% of GLA) 11.7 12.8 * Before COVID-19 rental
Slide 24: Industrial continued
Industrial continued Small and large industrial parks with mini units catering for start-up and small businesses • Affordable rental options • Security and controlled access to industrial parks • Rentals stabilised • Slight reduction in vacancies OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNU
Slide 25: Specialised and other
Specialised and other As at As at 31 Aug 2021 31 Aug 2020 Number of tenants 243 268 Total GLA (m2) 138 726 149 864 Rental income (R’million)* 164 193 Rental income (reduction)/growth (like for like) (%)* (15.4) 2.2 Total vacancies (% of GLA) 4.4 6.6 Core vacancies (% of GLA) 4.1 6.3 In order to prov
Slide 26: Specialised and other continued
Specialised and other continued Sector Tenants/comments GLA m2 Hotels City Lodge and Anew (Hatfield Tshwane) 13 458 Auto dealerships Three motor dealerships (Tshwane and Midrand) 11 707 Louis Pasteur and Lister Building (Tshwane and Johannesburg CBDs Healthcare facilities 36 885 respectively) Colleg
Slide 27: Vacancies by sector
Vacancies by sector Increased pressure on commercial tenants as a result Total Core* of weaker trading environment during COVID-19 vacancies vacancies* % %* Residential vacancies impacted by continuous supply 31 August 2021 of accommodation by competitors, affordability Offices 48.8 23.7 concerns an
Slide 28: Lease expiry profile
Lease expiry profile By rental income % By GLA m² % 2026 and 2026 and Vacant 2022 2023 2024 2025 beyond 2022 2023 2024 2025 beyond % Sector Residential 100.0 – – – – 83.9 – – – 0.2 15.9 Commercial Retail Retail – street shops 43.7 25.9 16.9 5.8 7.7 37.2 20.5 12.8 4.5 6.6 18.4 Retail – shopping centr
Slide 29: Lease expiry profile continued
Lease expiry profile continued • Majority of leases provide for monthly agreement at expiry • Typical of residential and small to medium-sized enterprise leases • Profile in line with historical trends and expectations • Non-national tenant leases typically one to five-year term • National tenant le
Slide 30: Expiry profile: leases above 3 000m² (FY2021/22)
Expiry profile: leases above 3 000m² (FY2021/22) Building Tenant Lease expiry GLA (m²) Renewal status Capitol Towers CoT Metropolitan Municipality November 2020 12 219 A renewal offer was submitted to the City of Tshwane on North 27 September 2021. Awaiting response from the City Centre Walk Departm
Slide 31: Our Results and Capital Management
OUR RESULTS AND CAPITAL MANAGEMENT OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 32: Distributable earnings (SA REIT FFO)
Distributable earnings (SA REIT FFO) Simplified income statement Reviewed Reviewed % 31 August 2021 31 August 2020 change R’000 R’000 Revenue earned on contractual basis (6.0) 1 869 511 1 989 630 Like for like decrease in rental income of (7.3%) under pressure (FY2020: 0.3%)* COVID-19 rental discoun
Slide 33: Abridged condensed consolidated statement of financial position
Abridged condensed consolidated statement of financial position Reviewed Reviewed 31 August 2021 31 August 2020 R’000 R’000 ASSETS Non-current assets Investment property 11 133 100 11 764 010 Fair value of 267 investment properties. Weakening property fundamentals placing pressure on profitability a
Slide 34: Investment property valuation results
Investment property valuation results Net valuation decline of R641.1 million or 5.4% • The weak economic climate impacted by COVID-19, has negatively impacted property fundamentals – reduced rental, increased costs, higher vacancies and increased capitalisation rates – all impacting the valuation •
Slide 35: Investment property valuation results continued
Investment property valuation results continued The unobservable inputs used in the valuations are the estimated rental income, property expenditure, vacancies and the capitalisation rate. The table below reflects the number of buildings and the weighted average of the inputs used in the calculation
Slide 36: Cash flow for the year ended 31 August 2021
Cash flow for the year ended 31 August 2021 Strong cash flow generated from operations after taking finance costs into account (R’000) OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021 36
Slide 37: Capital management
Capital management Prudent management of debt %* • LTV medium term projected at 40% R’million Interest rate* Interest rate hedging of between 70% – 80% • Addressing loan expiries with weighted term Total borrowings – banks 4 007.4 5.7 of 1.6 years – subsequently refinanced R745 DMTN Programme – unse
Slide 38: Funding split
Funding split Process to further diversify funding ongoing 31 August 2021 31 August 2020 48.3% 51.8% Diversification of funding R2 260 million R2 430 million sources Nedbank Nedbank • DCM investors rolling debt, 35.5% 30.6% but at higher rates R1 665 million R1 435 million Standard Bank Standard Ban
Slide 39: Borrowings and cash flow management
Borrowings and cash flow management Lower interest rate cycle presents attractive interest rate swap opportunities to term out Interest rate derivatives expiry profile Loan expiry profile the expiry profile at lower costs (R’000 and %) (R’000 and %) • At year end, interest rates of 96.1% of borrowin
Slide 40: Outlook
OUTLOOK OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 41: Outlook
Outlook There are early signs of an improved trading environment, and renewed tenant interest across all our sectors Residential expected to improve off the rebased rental levels as seen in FY2021: • online applications portal bearing fruit – increased applications • diversified offering catering to
Slide 42: Outlook continued
Outlook continued Going forward, we will continue to take proactive steps to mitigate the reduction in earnings, optimise working capital and preserve cash flow to improve liquidity Future distributable earnings and dividend pay out ratios will depend on • a macroeconomic recovery • our capital requ
Slide 43: Questions and Answers
QUESTIONS AND ANSWERS OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 44: Contact details
Contact details Anabel Vieira Financial director Tel: 012 319 8863 Email: Anabel.Vieira@Octodec.co.za Jeffrey Wapnick Managing director Tel: 012 319 8709 Email: JeffW@Octodec.co.za www.octodec.co.za OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 202
Slide 45: Appendices
APPENDICES OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021
Slide 46: Our strategy
Our strategy Short to medium term (next five years) Protecting our business and maintaining our property investments to retain tenants and ensure sustainability. Long term (beyond five years) Our aim is to create a thriving inner city environment that serves the emerging middle class. This requires
Slide 47: Our strategy continued
Our strategy continued Our strategic objectives executed through a series of key performance indicators (KPIs) which are aligned to our business scorecard. Create sustainable value for our Optimise our portfolio Optimise our balance sheet and funding stakeholders structure Growth and value creation
Slide 48: Top 10 properties
Top 10 properties Account for 28% of the investment property portfolio by value Property Location Sector Size (m2) The Fields Tshwane, Hatfield Mixed use 57 458 Killarney Mall Johannesburg, Killarney Shopping centre 47 470 Kempton Place Kempton Park Mixed use 35 352 Centre Walk Tshwane CBD Mixed use
Slide 49: octodec.co.za
” octodec.co.za The strength of our business is underpinned by our belief in quality and ” the application of sound property fundamentals OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2021