Octodec Investments Limited · JSE:OCT
Octodec Investments — FY2020 Earnings Presentation
59 slides from Octodec Investments's earnings presentation, Nov 16, 2020
Slide 1: Reviewed Provisional Annual Results
Reviewed Provisional Annual Results for the 12 months ended 31 August 2020 OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 2: Agenda
AGENDA 1 Octodec at a glance 2 COVID-19 3 Overview for the period 4 Our portfolio performance 7 Questions and answers 5 Our results and capital management 8 Contact details 6 Outlook 9 Appendices OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 3: Octodec at a glance
OCTODEC AT A GLANCE OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 4: Octodec at a glance
OCTODEC AT A GLANCE Octodec is a JSE-listed REIT with a diversified inner-city focused property portfolio of 277 properties WHO valued at R11.8 billion. We are invested in strategic nodes in the CBDs of Tshwane, the administrative capital of South Africa, WHERE and Johannesburg, the economic hub of
Slide 5: COVID-19
COVID-19 OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 6: COVID-19 response
COVID-19 RESPONSE The impact of COVID-19 on economies and our business is material and continuously evolving COVID-19 task team closely monitoring the impact and its implications for our business, ensuring agility: − Jeffrey Wapnick (MD), Anthony Stein (FD), City Property exco and support function r
Slide 7: COVID-19 response continued
COVID-19 RESPONSE continued Business continuity and safety measures delivering as planned: − Enhanced electronic channels to service tenants − Ability to maintain essential services to tenants where lockdown restrictions apply − Proven success of carrying out administrative functions remotely − Stra
Slide 8: COVID-19 impact
COVID-19 IMPACT Rate of collections affected by short term uncertainty and affordability: − Government tenant collections unaffected − Many residential tenants moved back to family homes with a growing number of tenants unable to pay − As lockdown restrictions eased, more commercial tenants resumed
Slide 9: COVID-19 impact continued
COVID-19 IMPACT continued Total rental relief granted for FY2020 included rental discounts amounting to R103,6 million: − Octodec’s response included selective rental relief packages given to address affordability, on a case-by-case basis − Considering factors including tenant retention and vacancy
Slide 10: COVID-19 impact continued
COVID-19 IMPACT continued Risks to manage: − Negative impact on our tenants remains evident and expected to continue for some time − Entrepreneurs and small businesses choosing to work from home − Residential tenants downsizing and seeking alternative accommodation − Corporate failures, business res
Slide 11: Balance sheet and liquidity response
BALANCE SHEET AND LIQUIDITY RESPONSE Active steps taken to enhance our financial position: − Certain repairs, maintenance costs and capex curtailed or deferred − Sources of funding diversified; loan facilities totaling R450 million secured with Absa − Good progress made on proactively addressing sho
Slide 12: Balance sheet and liquidity response continued
BALANCE SHEET AND LIQUIDITY RESPONSE continued Ongoing proactive and constructive engagements with all funders − Closely monitoring the impact on our debt covenants − Actively managing headroom and flexibility within bank debt covenants − ICR covenant for the 31 August 2020 measurement period reduce
Slide 13: Overview for the period
OVERVIEW FOR THE PERIOD OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 14: Overview for the period
OVERVIEW FOR THE PERIOD Context Progress Local economy’s continued vulnerability to absence of structural ‒ Operational excellence to mitigate risks reforms in a challenging operating environment Tough leasing environment, increased vacancies and rising costs ‒ At 31 August 2020, total and core vaca
Slide 15: Overview for the period continued
OVERVIEW FOR THE PERIOD continued Context Progress Larger projects difficult in the weak economic environment ‒ Completion of projects at acceptable yields is challenging ‒ Uncertainty regarding commencement of larger projects ‒ Actively focused on the disposal of some of our mothballed properties,
Slide 16: Our portfolio performance
OUR PORTFOLIO PERFORMANCE OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 17: Gauteng focus
GAUTENG FOCUS Urbanisation underpinning sustainability of our existing portfolio and future growth potential Tshwane (66.3% of portfolio) − Tshwane 1 083 762m² (FY2019: 1 094 163m²) − Tshwane CBD 527 355m² (FY2019: 526 792m²) − Concentration of investments in strategic nodes − Recent developments an
Slide 18: Disposals
DISPOSALS Recycling of capital to ensure sustainable value creation − Strategy is to dispose of non-core properties − This includes mothballed properties previously earmarked for development − Disposed of 11 properties during the period at an average exit yield of 11.6% and at a profit of R1.6 milli
Slide 19: Portfolio analysis: rental income
PORTFOLIO ANALYSIS: RENTAL INCOME Rental income by sector (%) Rental income by geographical area (%) 4.1 4.1 12.5 (FY2019: 4.3) (FY2019: 4.0) (FY2019: 11.3) 23.4 (FY2019: 23.6) 5.0 (FY2019: 5.0) 7.1 (FY2019: 7.0) 6.7 35.3 (FY2019: 6.5) (FY2019: 34.7) 12.0 9.9 (FY2019: 11.8) (FY2019: 10.1) 31.3 (FY20
Slide 20: Portfolio analysis: GLA
PORTFOLIO ANALYSIS: GLA GLA by sector (%) GLA by geographical area (%) 9.2 6.6 3.8 (FY2019: 8.6) (FY2019: 6.7) (FY2019: 3.7) 19.8 (FY2019: 20.3) 4.7 (FY2019: 4.6) 14.4 32.3 4.3 (FY2019: 31.8) (FY2019: 14.8) (FY2019: 4.2) 5.7 (FY2019: 5.7) 8.7 (FY2019: 8.6) 14.6 25.7 25.2 (FY2019: 14.8) (FY2019: 25.7
Slide 21: Residential
RESIDENTIAL As at As at 31 Aug 2020 31 Aug 2019 Number of properties 71 72 Number of residential units 9 350 9 413 Johannesburg (%) 36 36 Tshwane (%) 64 64 GLA (m²) 420 909 428 244 Rental income (R’million) *484 505 Rental income growth (like-for-like) (%) *(2.6) 3.5 Total and core vacancies (% of G
Slide 22: Residential continued
RESIDENTIAL continued Tenant profile analysis, for applications during the period − 27% of applicants are government employees − 31% of occupants are students − Churn at 47% per annum (excluding Hatfield) − Average gross monthly salary per application of R29 925 − Gross monthly salary above R35 000
Slide 23: Residential continued
RESIDENTIAL continued Response to tough operating environment − Roll out of WiFi to enhance our product offering − Increased marketing efforts and promotions Increased competition in the Johannesburg CBD with new residential buildings being released into the market − Temporary imbalance between supp
Slide 24: Retail – shops
RETAIL – SHOPS As at As at 31 Aug 2020 31 Aug 2019 GLA (m2) 323 297 336 435 Rental income (R’million) *361 370 Rental income growth (like-for-like) (%) *(1.7%) 0.3 Total and core vacancies (% of GLA) 14.8 14.4 Retail Street Shops * Before COVID-19 rental relief of R44 million. OCTODEC INVESTMENTS LI
Slide 25: Retail – shops continued
RETAIL – SHOPS continued Wide range of offering to attract emerging middle-class shoppers CBD retail offers more growth opportunities than traditional shopping centres − Convenient locations with high foot traffic − Lower cost structures (common area, security cleaning) − Affordable offering from te
Slide 26: Retail – shopping centres
RETAIL – SHOPPING CENTRES As at As at 31 Aug 2020 31 Aug 2019 GLA (m2) 93 796 94 012 Rental income (R’million) *154 146 Rental income growth (like-for-like) (%) *6.4 2.2 Total and core vacancies (% of GLA) 3.7 4.7 The Park Shopping Centre * Before COVID-19 rental relief of R12 million. OCTODEC INVES
Slide 27: Retail – shopping centres continued
RETAIL – SHOPPING CENTRES continued Our six high quality neighbourhood/convenience shopping centres: − Johannesburg: Killarney Mall and Woodmead Value Mart − Tshwane: The Park, Waverley Plaza, Gezina City and Blaauw Village (50% held JV) The Park Shopping Centre − Upgrade to fresh modern look – comp
Slide 28: Retail – shopping centres continued
RETAIL – SHOPPING CENTRES continued Killarney Mall − Rental income growth of 3.3%* − Continued focus on improving tenant mix − Averaging a 5% increase in footfall until COVID-19 − Ended FY2020 with vacancies at 9% − New leases large format PNA, Tammy Taylor, Premier Homeware and Ubik Home Waverley P
Slide 29: Offices
OFFICES As at As at 31 Aug 2020 31 Aug 2019 Let to government (% of total rental income 51.0 49.4 from offices) Other (% of total rental income from offices) 49.0 50.6 GLA (m2) 411 608 412 627 Office space held for development/mothballed (opportunities to sell, develop or enter into 23.3 24.7 partne
Slide 30: Offices continued
OFFICES continued Offices comprise − Government offices − Smaller units occupied by SMMEs Renewal of leases by National Department of Public Works (DPW) − Challenging operating environment − Sustainability of revenue strengthened by successful renewal of 20 leases and 100% collections − Renewal of 1
Slide 31: Offices continued
OFFICES continued Considering contemporary alternative offerings − Shared office space model suitable for CBD market − Improved tenant offering Strategic capital projects − High priority to ensure quality assets − Air conditioning and modernisation cost of R24 million for FY2020 − Considering the up
Slide 32: Industrial
INDUSTRIAL As at As at 31 Aug 2020 31 Aug 2019 Total GLA (m2) 234 600 246 363 Rental income (R’million) *110 110 Rental income growth (like-for-like) (%) *2.4 3.6 Total vacancies (% of GLA) 13.2 10.2 Core vacancies (% of GLA) 12.8 9.3 The Tannery Industrial Park * Before COVID-19 rental relief of R1
Slide 33: Industrial continued
INDUSTRIAL continued Customised premises to specific requirements, with pockets of small spaces for start-up and small businesses − Affordable rental options − Security and controlled access to industrial parks The Tannery and Sildale larger industrial parks situated in Silvertondale, Tshwane − comb
Slide 34: Specialised and other
SPECIALISED AND OTHER As at As at 31 Aug 2020 31 Aug 2019 Total GLA (m2) 149 864 142 749 Rental income (R’million) *193 181 Rental income growth (like-for-like) (%) *2.2 2.0 Total vacancies (% of GLA) 6.6 6.6 Core vacancies (% of GLA) 6.3 6.3 In order to provide a more meaningful analysis of our por
Slide 35: Specialised and other continued
SPECIALISED AND OTHER continued Sector Tenants/Comments GLA m2 Hotels City Lodge and Fortis Hotels (Hatfield Tshwane) 13 458 Auto dealerships Four motor dealerships (Tshwane and Johannesburg respectively) Motor dealership with GLA of 3 692m2 let effective from November 2019 15 722 Healthcare facilit
Slide 36: Vacancies by sector
VACANCIES BY SECTOR Increased vacancies during H2 of FY2020 Total vacancies Core vacancies − Increased pressure on commercial tenants as % % a result of weaker trading environment during 31 August 2020 COVID-19 lockdown Offices 46.3 23.0 − Residential vacancies impacted by new supply, Retail 12.3 12
Slide 37: Lease expiry profile
LEASE EXPIRY PROFILE By rental income % By GLA m² % 2025 and 2025 and Sector 2021 2022 2023 2024 2021 2022 2023 2024 Vacant beyond beyond Residential 100.0 83.0 17.0 Commercial Retail – street shops 41.9 25.2 18.9 7.2 6.8 41.8 18.7 14.4 4.5 5.7 14.8 Retail – shopping centres 43.9 18.1 13.3 10.1 14.5
Slide 38: 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 1 – 5 year term National tenant leases typically 3
Slide 39: Major lease expiries by GLA – FY2021
10 MAJOR LEASE EXPIRIES BY GLA – FY2021 Building Tenant Lease expiry GLA (m²) Renewal status The Fields City Lodge November 2020 9 709 Rental negotiations have commenced. A significant reduction in rental is anticipated. Inner Court Jet Eloff Street February 2021 9 688 Premises are vacant. Currently
Slide 40: Our results and capital management
OUR RESULTS AND CAPITAL MANAGEMENT OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 41: Distributable earnings simplified income statement
DISTRIBUTABLE EARNINGS SIMPLIFIED INCOME STATEMENT Reviewed Audited % 31 August 2020 31 August 2019 Change R’000 R’000 Revenue earned on contractual basis (0.1) 1 989 630 1 990 886 Like-for-like decrease in rental income of (0.3%) under pressure (FY2019: 1.6%) COVID-19 rental discounts (103 578) – R
Slide 42: Abridged condensed consolidated statement of financial position
ABRIDGED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Reviewed Audited 31 August 2020 31 August 2019 R’000 R'000 ASSETS Non-current assets 11 664 307 12 733 048 Investment property 11 642 600 12 637 240 Fair value of 276 investment properties. Weakening property fundamentals placing pressu
Slide 43: Investment property valuation results
INVESTMENT PROPERTY VALUATION RESULTS Net valuation decline of R1.1 billion or 8.2% − COVID-19 created unprecedented uncertainty in relation to inputs underpinning property valuations − Rigorous review of our property valuations for the reporting period − In terms of the JSE Listings Requirements, a
Slide 44: Investment property valuation results continued
INVESTMENT PROPERTY VALUATION RESULTS continued The following is a summary of the inputs used 2020 2019 Weighted Weighted Weighted average Weighted average average Long Weighted average long Weighted Number Fair capitali- range average Number Fair capitali- range average of value sation vacancy expe
Slide 45: Key drivers in movement in net asset value per share
KEY DRIVERS IN MOVEMENT IN NET ASSET VALUE PER SHARE Movement in NAV (CPS) 3 500 − Current weak trading environment 157 3 000 2 847 will put further pressure on (10) valuations and NAV 2 500 2413 (396) (85) − Octodec share price trading at a (99) substantial discount to NAV 2 000 − Revaluation of in
Slide 46: Cash flow for the period ended 31 August 2020
CASH FLOW FOR THE PERIOD ENDED 31 AUGUST 2020 Strong cash flow generated from operations after taking finance costs into account (R’000) 1 000 000 909 633 800 000 600 000 400 000 (461 110) 98 194 3 887 200 000 (264 068) (76 903) 0 (282 361) (72 728) -200 000 Cash generated Net finance costs Dividend
Slide 47: Capital management
CAPITAL MANAGEMENT Prudent management of debt % − LTV medium term projected range of R’million Interest rate 40% – 45% (inclusive liability for derivatives) Total borrowings – Banks 3 946.4 5.6 − Interest rate hedging above minimum target of 80% DMTN Programme – unsecured 376.9 5.1 − Proactively add
Slide 48: Funding split as at 31 August 2020
FUNDING SPLIT AS AT 31 AUGUST 2020 Process to further diversify funding ongoing 31 August 2020 31 August 2019 Diversification of funding sources 8% R377 million 12% ‒ DCM investors reluctant to roll R579 million 52% 59% R2 965 million debt on expiry 10% R2 430 million R449 million ‒ New loan facilit
Slide 49: Interest-bearing debt expiry profile
INTEREST-BEARING DEBT EXPIRY PROFILE AS AT 31 AUGUST 2020 Proactively addressing loan expiries 2 000 40.8% 45% Debt maturing prior to 31 August 2021 1 800 40% 34.0% − Ongoing discussions to extend 1 600 127 35% the commercial paper (DMTN 1 400 30% Programme) of R250.2 million 1 200 − Refinancing of
Slide 50: Interest rate hedges expiry profile
INTEREST RATE HEDGES EXPIRY PROFILE Expiry profile per financial year 3 500 80% Lower interest rate cycle presents 66.7% 70% 3 000 opportunity to increase hedging 60% and offers attractive interest rate 2 500 swap opportunities to term out the 50% expiry profile 2 000 40% − At year end, interest rat
Slide 51: Outlook
OUTLOOK OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 52: Outlook
OUTLOOK The ongoing uncertainty, economic and socioeconomic impacts will continue to weigh down on our performance for FY2021 We will continue to take proactive steps to mitigate the reduction in earnings, optimise working capital and preserve cash flow and liquidity, thereby protecting the business
Slide 53: Questions and answers
QUESTIONS AND ANSWERS OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 54: Contact details
CONTACT DETAILS www.octodec.co.za Jeffrey Wapnick Anthony Stein Managing Director Financial Director Tel: 082 900 1172 Tel: 082 895 5205 Email: jeffw@octodec.co.za Email: anthony@octodec.co.za OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 55: Appendices
APPENDICES OCTODEC INVESTMENTS LIMITED REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020
Slide 56: 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 visionary perspective is to create a thriving inner- city environment that serves the emerging middle cla
Slide 57: Our strategy continued
OUR STRATEGY continued Our strategy is driven by three strategic objectives which are delivered through focused activities Strategic objectives How we do it Create sustainable value for ‒ Invest in long term sustainable properties that offer growth opportunities, focusing on Tshwane and Johannesburg
Slide 58: 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 59: www.octodec.co.za
OCTODEC INVESTMENTS LIMITED www.octodec.co.za REVIEWED PROVISIONAL ANNUAL RESULTS for the 12 months ended 31 August 2020