Octodec Investments Limited · JSE:OCT
Octodec Investments — H1 2022 Earnings Presentation
51 slides from Octodec Investments's earnings presentation, May 10, 2022
Slide 1: Interim results for the six months ended 28 February 2022
Interim results for the six months ended 28 February OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022
Slide 2: Agenda
Agenda 1 Octodec at a glance 2 Overview for the period 3 Our portfolio performance 4 Our results and capital management 5 Outlook 6 Questions and answers 7 Contact details 8 Appendices One on Mutual OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022 2
Slide 3: Octodec at a glance
OCTODEC AT A GLANCE One on Mutual OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022
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 254 properties Why small shop owners, professionals, Government valued at R11.0 billion. employees, students and entrepreneurs, amon
Slide 5: Octodec at a glance continued
Octodec at a glance continued R708.6m 1.2% 50 cents Rental income excluding Like-for-like rental income Dividend per share recoveries growth (HY2021: nil) (HY2021: R684.0m) (HY2021: (8.5%)) R23.10 41.0% 8.3% Net asset value (NAV) Loan to value All-in annual weighted per share (FY2021: 43.2%) average
Slide 6: Overview for the period
OVERVIEW FOR THE PERIOD Nzunza OCTODEC House INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022
Slide 7: Overview for the period
Overview for the period Context Response Weak economic environment and the absence of • Operational excellence to mitigate risks structural reforms • Greater emphasis on digital marketing, cost efficiencies and customer experience Easing of lockdown regulations and the return of students to • Total
Slide 8: Overview for the period continued
Overview for the period continued Context Response Failing infrastructure – Eskom unable to keep the • Buildings equipped to receive mobile generators during times of longer lights on power outages Rising construction costs prohibiting the conversion or • Focus on yield enhancing lease driven projec
Slide 9: Our portfolio performance
OUR PORTFOLIO PERFORMANCE Semi-furnished apartment OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022
Slide 10: Portfolio analysis: rental income
Portfolio analysis: rental income Rental income by sector Geographical analysis of rental income 28 February 2022 (net of COVID-19 discounts) 28 February 2022 (net of COVID-19 discounts) 35.9% 6.3% Tshwane CBD Tshwane Hatfield 30.6% 16.1% (2021: 35.7%) (2021: 5.1%) Residential Offices (2021: 30.0%)
Slide 11: Environmental, social and governance (ESG) reporting
Environmental, social and governance (ESG) reporting Octodec continues to place increasing focus on ESG considerations, and with environmental sustainability being a key area, our solar initiatives have gained further traction Progress to date • Installed solar power at Waverley Plaza (convenience s
Slide 12: Environmental, social and governance (ESG) reporting continued
Environmental, social and governance (ESG) reporting continued The board acknowledges the importance of incorporating ESG-led criteria into our business strategy From a societal perspective we play a role in making affordable residential accommodation and office space as well as retail space accessi
Slide 13: Residential
Residential As at As at 28 Feb 2022 28 Feb 2021 GLA (m²) 415 536 420 624 Number of properties 65 70 Number of residential units 9 243 9 349 Johannesburg (%) 36 36 Tshwane (%) 64 64 Rental income (R’million)* 218 209 Rental income increase (like for like) (%)* 5.6 (14.1) Total and core vacancies (% o
Slide 14: Residential continued
Residential continued Tenant profile analysis, for applications during the period • 25% of residential applications are Government employees • 38% of occupants are students • Average net monthly salary per applicant of R20 157 • Net monthly salary above R35 000 – 14.13% The Fields is Octodec’s bigge
Slide 15: Residential continued
Residential continued Material decrease in vacancies at Kempton Place, due to improvement of activity at OR Tambo International Airport and its surrounds, largely due to increased local and international travel • Significant improvement in vacancies from 29% during 2021 to 11% at the end of March 20
Slide 16: Retail – shops
Retail – shops As at As at 28 Feb 2022 28 Feb 2021 GLA (m2) 304 195 316 598 Rental income (R’million)* 161 165 Rental income decrease (like for like) (%)* (0.1) (3.3) Total and core vacancies (% of GLA) 18.5 19.7 * Before COVID-19 rental discounts OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the
Slide 17: Retail – shops continued
Retail – shops continued Prime CBD properties still in demand and well let CBD retail offers more growth opportunities than traditional shopping centres • Convenient locations with high foot traffic • Lower cost structures (common area, security, cleaning) • Rental growth under pressure, more rental
Slide 18: Retail – shopping centres
Retail – shopping centres As at As at 28 Feb 2022 28 Feb 2021 GLA (m2) 97 440 97 530 Rental income (R’million)* 87 78 Rental income growth (like for like) (%) 4.0 (1.7) Total and core vacancies (% of GLA) 6.3 3.9 * Before COVID-19 rental discounts Waverley Plaza OCTODEC INVESTMENTS LIMITED INTERIM R
Slide 19: 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 shopping centres • 99.3% combined occupancy • 7.9% combined rental income growth • A new drive-through KFC at Waverley Plaza, compl
Slide 20: Offices
Offices As at As at 28 Feb 2022 28 Feb 2021 GLA (m2) 418 061 414 639 Let to Government (% of total rental income from offices) 55.8 53.1 Other (% of total rental income from offices) 44.2 46.9 Office space held for development/ mothballed (opportunities to sell, develop or enter into partnerships) (
Slide 21: Offices continued
Offices continued Offices comprise • Government • Smaller units occupied by small, medium and micro-sized enterprises (SMMEs) Non-parastatals • Tenants under pressure, but occupancy levels stable • Tenants slowly returning to offices Continued improvement on tenant retention and customer service Str
Slide 22: Offices continued
Offices continued Leases with government • Government employees are slowly returning to work with occupancy levels between 50% and 70% • Challenging operating environment continues • They continue to meet their payment obligations • SAPO remains a challenge with non-payment of account, with exposure
Slide 23: Industrial
Industrial As at As at 28 Feb 2022 28 Feb 2021 Total GLA (m2) 214 201 236 321 Rental income (R’million)* 49 55 Rental income (reduction)/growth (like for like) (%)* (4.5) 0.7 Total vacancies (% of GLA) 10.4 11.8 Core vacancies (% of GLA) 9.9 11.5 * Before COVID-19 rental discounts Motor City Capital
Slide 24: Industrial continued
Industrial continued Reduced GLA due to disposal of several industrial buildings outside of our industrial zones 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 were
Slide 25: Specialised and other
Specialised and other As at As at 28 Feb 2022 28 Feb 2021 Total GLA (m2) 142 240 147 124 Rental income (R’million)* 81 86 Rental income decrease (like for like) (%)* (2.9) (15.4) Total vacancies (% of GLA) 4.3 4.1 Core vacancies (% of GLA) 4.0 3.8 In order to provide a more meaningful analysis of ou
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) 12 624 Louis Pasteur and Lister Building (Tshwane and Johannesburg CBDs Healthcare facilities 36 446 respectively) Colleg
Slide 27: Vacancies by sector
Vacancies by sector Core* Total vacancies* vacancies %* % Stable vacancies despite a tough economic trading 28 February 2022 environment Offices 23.6 48.8 Retail 15.5 15.6 Residential vacancies stable with further Specialised and other 4.0 4.3 improvement experienced since February Industrial 9.9 10
Slide 28: Lease expiry profile at February 2022
Lease expiry profile at February 2022 By rental income % By GLA m² % Feb 2027 Feb 2027 Feb Feb Feb Feb and Feb Feb Feb Feb and Vacant 2023 2024 2025 2026 beyond 2023 2024 2025 2026 beyond % Residential 99.8 0.2 – – – 84.3 0.1 – 0.2 – 15.4 Commercial Retail Retail – street shops 50.0 19.0 17.4 6.5 7.
Slide 29: Lease expiry profile continued
Lease expiry profile continued • Majority of leases are typically of a short-term nature, with lease periods of 12 months. Typical of residential and small to medium-sized enterprises • Profile in line with historical trends and expectations • Non-national tenant leases typically one to five-year te
Slide 30: Update on leases > 3 000m² that expired pre-February 2022
Update on leases > 3 000m² that expired pre-February 2022 Building Tenant Lease expiry GLA (m²) Renewal status Capitol Towers CoT Metropolitan Municipality November 2020 12 219 Tenant will remain on month to month as they are in the North process of buying their own property Centre Walk Department o
Slide 31: Leases > 3 000m² expiring FY2022/23
Leases > 3 000m² expiring FY2022/23 Building Tenant Lease expiry GLA (m²) Renewal status CCMA Place CCMA January 2023 3 598 An eight month lease effective 1 June 2022 has been signed, thereafter to tender Odeon Forum The Technology Innovation December 2022 3 102 Currently negotiating a seven month l
Slide 32: Reversions
Reversions New leases Renewals Reversions for the six month period % % Residential (1.2) 6.3 Offices (11.6) (0.5) Street shops (20.0) (10.8) Retail shops (5.9) (1.4) Industrial 0.5 (1.9) The above table reflects the reversions on new leases and renewals in respect of units vacated and relet between
Slide 33: Financial results and capital management
FINANCIAL RESULTS AND CAPITAL MANAGEMENT One on Mutual OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022
Slide 34: Distributable earnings (SA REIT FFO)
Distributable earnings (SA REIT FFO) Simplified income statement Unaudited Unaudited 28 February 28 February % 2022 2021 change R’000 R’000 Revenue earned on contractual basis 2.2 944 866 924 776 Like for like increase in rental income of 1.2% (Feb 2021: decrease of 8.5%)* COVID-19 rental discounts
Slide 35: Abridged condensed consolidated statement of financial position
Abridged condensed consolidated statement of financial position Unaudited Audited 28 February 31 August 2022 2021 R’000 R’000 ASSETS Non-current assets Investment property 10 941 200 11 133 100 254 investment properties Disposal of 12 properties for R121 million Furniture, fittings and equipment 611
Slide 36: Investment property valuation results
Investment property valuation results Net valuation decline of R77 million or 0.7% • The weak economic climate, including the impact of COVID-19, reduced rentals (resets), and increased administered property costs impacted the valuations • Rigorous review of our property valuations for the reporting
Slide 37: 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 38: Cash flow for the period ended 28 February 2022
Cash flow for the period ended 28 February 2022 Strong cash flow generated from operations after taking finance costs into account (R’000) OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022 38
Slide 39: Capital management
Capital management Prudent management of debt %* • LTV at 41.0% Interest rate hedging of 76.7% R’million Interest rate* • Interest cover ratio (ICR) 2.25 Total borrowings – banks 3 866.4 6.3 • R770.1 million maturing facilities subsequently refinanced with R844 million facilities with DMTN Programme
Slide 40: Funding split
Funding split Process to further diversify funding ongoing 28 February 2022 31 August 2021 41.5% 48.3% Diversification of funding R1 896 million R2 260 million sources Nedbank Nedbank • DCM investors rolling debt, 35.9% 35.5% but at higher rates R1 638 million R1 665 million Standard Bank Standard B
Slide 41: Borrowings and cash flow management
Borrowings and cash flow management Actively monitoring opportunities to place additional hedges Strategy is to maintain a hedge Interest rate derivatives expiry profile Loan expiry profile profile of 70% to 80% (R’billion and %) (R’billion and %) At 28 February 2022, 76.7% of borrowings hedged (FY2
Slide 42: Outlook
OUTLOOK Sharon’s Place LIMITED INTERIM RESULTS for the six months ended 28 February 2022 OCTODEC INVESTMENTS
Slide 43: Outlook
Outlook Although we remain cautious on the outlook for FY2022 given the weak economic climate and uncertainty, there are early signs of an improved trading environment and renewed tenant interest across all our sectors Negative rental reversions are still being experienced due to tenant affordabilit
Slide 44: Outlook continued
Outlook continued Going forward, we will continue to take proactive steps to grow our 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 requirements and liqu
Slide 45: Questions and answers
QUESTIONS AND ANSWERS Residential apartment OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022
Slide 46: 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 INTERIM RESULTS for the six months ended 28 February 2022 46
Slide 47: Appendices
APPENDICES Jeff’s Place OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022
Slide 48: 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 49: 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 stakeholders funding structure Growth and value creation
Slide 50: Top 10 properties
Top 10 properties Account for 30% 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 51: OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022
OCTODEC INVESTMENTS LIMITED INTERIM RESULTS for the six months ended 28 February 2022