Octodec Investments Limited · JSE:OCT
Octodec Investments — H1 2024 Earnings Presentation
38 slides from Octodec Investments's earnings presentation, May 14, 2024
Slide 1: Unaudited interim results
INTERIM RESULTS Unaudited interim results for the six months ended 29 February 2024
Slide 2: Contents and HY2024 performance highlights
CONTENTS HY2024 PERFORMANCE HIGHLIGHTS COMMENTARY 2 Introduction 2 Distributable income 2 Dividend 3 Rental income Distributable income Performance review 3 (R’million) after tax (R’million) Sector review 4 Collections 5 1 004.4 R219.5 (HY2023: R974.2) (HY2023: R234.5) Receivables and expected credi
Slide 3: Rental income by sector and geographical analysis
Rental income by sector Geographical analysis of rental income 4.5% Residential 6.4% Hatfield 7.2% 12.7% (2023: 32.8%) (2023: 6.0%) 12.1% Retail – street shops 4.4% Johannesburg and surrounding areas 33.9% (2023: 24.1%) (2023: 12.2%) Retail – shopping centres Johannesburg CBD 18.3% (2023: 12.3%) (20
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) and A2X, with a diversified portfolio of 237 residential, retail, office and industrial propertie
Slide 5: Dividend and performance review
Dividend Unaudited Unaudited 29 February 28 February 2024 2023 Cents per share Cents per share Distributable income per share 82.47 88.10 Distribution per share 60.00 60.0 Growth in distribution HY2024 0.0% 20.0% The board has considered the solvency and liquidity of the group and, despite the reduc
Slide 6: Sector review
The cost-to-income ratios are as follows: Unaudited Unaudited Audited 29 February 28 February 31 August 2024 2023 2023 % % % Property costs Gross basis 54.2 51.7 53.5 Net basis (net of recoveries) 38.0 35.4 37.5 Total property and administration costs Gross basis 59.4 56.5 58.6 Net basis (net of rec
Slide 7: Retail shops and shopping centres, offices, industrial
Retail shops and retail shopping centres Octodec’s retail portfolio is unique, in that its retail street shops are largely concentrated in the Tshwane and Johannesburg CBDs. Although the CBDs continue to be abuzz with large volumes of residents and visitors, disposable income has shrunk, and tenants
Slide 8: Receivables and expected credit loss; investment property
Receivables and expected credit loss Tenant arrears are currently at 4.5% of rental income (FY2023: 3.9%). Tenant arrears and the expected credit loss were as follows: Commercial Residential tenants tenants Total R’000 R’000 R’000 February 2024 (unaudited) Amount owing 78 194 22 734 100 928 Expected
Slide 9: Commercial, residential and commitments
Commercial We were pleased to announce the launch of HealthConnect (previously known as Ina Building), which is adjacent to Louis Pasteur Medical Building, and was repurposed into a medical centre offering medical suites to doctors and medical specialists and, being linked to Louis Pasteur Medical B
Slide 10: Investment property valuations; borrowings and cash flow management
Investment property valuations The property portfolio consisting of 237 buildings, including the joint venture, was internally valued at R11.2 billion in February 2024 (FY2023: R11.2 billion). In line with the group accounting policy, the entire portfolio is valued internally every six months, and a
Slide 11: Loan and interest rate derivatives expiry profile; covenants
503 1 012 993 348 Loan expiry profile (R’billion and %) Interest rate derivatives expiry profile (R’billion and %) 1 523 2 500 1 012 993 503 348 500 500 34.8% 11.5% 23.1% 22.7% 7.9% 14.3% 71.4% 14.3% 2025 2026 2027 2028 2029 2024 2025 2027 Total R4 379 Total R3 500 The weighted average term to expir
Slide 12: Vacancies
Vacancies There has been an increase in gross and core vacancies within all sectors across the portfolio with the exception of shopping centres. Gross vacancies, including properties held for redevelopment, have increased by 1.1%, from 19.8% to 20.9%, and core vacancies, which exclude the GLA relati
Slide 13: Vacancies by location; mothballed space
Vacancies by location Total Core Total Vacancies % of Total vacancies vacancies % Core 29 February 2024 GLA m2 GLA m2 vacancies % GLA m2 vacancies Tshwane CBD 505 878 101 839 32.0% 20.1% 69 922 13.8% Tshwane – Other 503 595 56 264 17.6% 11.2% 56 264 11.2% Johannesburg CBD 378 804 140 197 44.0% 37.0%
Slide 14: Lease expiry profile
Lease expiry profile The leases concluded with a large percentage of our tenants are typically of a short-term nature, where lease periods are generally for a period of 12 months. This has been a consistent characteristic of our portfolio since inception and forms part of our strategy. This is espec
Slide 15: Dividend declaration
Dividend declaration The board of Octodec has declared a cash dividend of 60.00000 cents per share for the six months ended 29 February 2024, payable out of the company’s distributable income. The salient dates relating to the interim dividend are as follows: 2024 Last day to trade cum dividend Tues
Slide 16: Outlook
Outlook The period under review is reflective of the challenging macroenvironment impacted by record unemployment and low economic growth, all of which negatively impacted Octodec. As such, we have adopted a cautious approach against the backdrop of the forthcoming general elections. Although we ant
Slide 17: Consolidated statement of financial position
CONSOLIDATED STATEMENT OF FINANCIAL POSITION Unaudited Unaudited Audited 29 February 28 February 31 August 2024 2023 2023 R’000 R’000 R’000 ASSETS Non-current assets 11 083 985 11 034 667 11 096 877 Investment property 10 889 594 10 819 879 10 905 950 Straight-line rental income accrual 89 942 88 25
Slide 18: Consolidated statement of profit and loss and other comprehensive income
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME Unaudited Unaudited Audited 29 February 28 February 31 August 2024 2023 2023 R’000 R’000 R’000 Revenue 1 005 862 961 099 1 982 537 Lease income and recoveries 1 004 370 974 226 1 995 095 Straight-line rental income accrual 1 49
Slide 19: Consolidated statement of changes in equity
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Non- distributable Retained Stated capital reserve income Total R’000 R’000 R’000 R’000 Balance at 31 August 2022 (audited) 4 210 134 1 326 464 785 242 6 321 840 Total comprehensive income for the period – – 360 138 360 138 Dividends paid – – (212 958) (21
Slide 20: Consolidated statement of cash flows
CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited Unaudited Audited 29 February 28 February 31 August 2024 2023 2023 R’000 R’000 R’000 Cash flows from operating activities Cash generated from operations 407 271 428 622 862 578 Interest received 9 357 5 878 13 256 Finance costs paid (199 309) (194 727)
Slide 21: Reconciliation of profit and loss to headline earnings
RECONCILIATION OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME TO HEADLINE EARNINGS Unaudited Unaudited Audited 29 February 28 February 31 August 2024 2023 2023 R’000 R’000 R’000 Total comprehensive income attributable to shareholders 98 978 360 138 610 463 Headline earnings adjustments Fair value
Slide 22: Reconciliation of income to distributable income
RECONCILIATION OF INCOME TO DISTRIBUTABLE INCOME Unaudited Unaudited Audited 29 February 28 February 31 August 2024 2023 2023 R’000 R’000 R’000 Total comprehensive income attributable to shareholders 98 978 360 138 610 463 Fair value changes Property disposals 160 4 574 3 206 Investment property 96
Slide 23: Notes to the unaudited condensed consolidated interim financial statements
NOTES TO THE UNAUDITED 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 unaudited cond
Slide 24: Fair value hierarchy and financial instruments
Fair value hierarchy The fair value hierarchy reflects the significance of the inputs used in making fair value measurements. The level within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value me
Slide 25: Classification of financial assets and liabilities
Classification of financial assets and liabilities Fair value Financial through profit assets at Outside scope or loss amortised cost of IFRS 9 Total R’000 R’000 R’000 R’000 ASSETS 29 February 2024 (unaudited) Loan to joint venture – 20 185 – 20 185 Accounts receivable and prepayments – 127 831 35 9
Slide 26: Investment property
Investment property Investment properties are valued biannually by the internal finance 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 least once ove
Slide 27: Unobservable inputs at 29 February 2024
The following unobservable inputs were used by the group at 29 February 2024: 29 February 2024 (unaudited) Weighted Weighted Weighted average average long- average Number of Fair value capitalisation range vacancy expense ratio properties R’000 rate % factor % % Capitalisation rate 8.50% – 8.75% 2 6
Slide 28: Unobservable inputs at 28 February 2023
28 February 2023 (unaudited) Weighted Weighted Weighted average average long- average Number of Fair value capitalisation range vacancy expense ratio properties R’000 rate % factor % % Capitalisation rate 8.25% – 8.75% 6 2 262 100 8.7 7.5 31.8 9.00% – 10.00% 76 5 380 300 9.7 5.9 31.0 10.25% –11.50%
Slide 29: Unobservable inputs at 31 August 2023
31 August 2023 (audited) Weighted Weighted Weighted average average long- average Number of Fair value capitalisation range vacancy expense ratio properties R’000 rate % factor % % Capitalisation rate 8.50% – 8.75% 2 645 800 8.6 1.8 27.9 9.00% – 10.00% 78 7 020 500 9.5 6.7 31.8 10.25% –11.50% 138 3
Slide 30: 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 31: Cash generated from operations
Cash generated from operations Unaudited Unaudited Unaudited 29 February 28 February 31 August 2024 2023 2023 R’000 R’000 R’000 Profit before taxation 108 885 371 499 629 528 Adjusted for: Straight-line rental income accrual (1 492) 13 127 12 558 Fair value changes to investment property 96 925 (136
Slide 32: Related-party transactions and events after the reporting date
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 are shareholders of both companies. Sharon Wapnick is also a partner of Tugendhaft Wapnick Banchetti and P
Slide 33: Rental income by sector
RENTAL INCOME BY SECTOR Unaudited Unaudited Audited 29 February 28 February 31 August 2024 2023 2023 R’000 % R’000 % R’000 % Residential 253 861 34.2% 241 571 33.2% 510 120 34.3% Retail – street shops 178 666 24.1% 177 610 24.4% 352 038 23.7% Retail – shopping centres 85 151 11.5% 83 329 11.4% 169 0
Slide 34: SA REIT ratios
SA REIT RATIOS 29 February 28 February 31 August 2024 2023 2023 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 98 978 360 138 610 463 Adjusted for: Accounting/specific adjustments: 12
Slide 35: SA REIT cost-to-income ratio
29 February 28 February 31 August 2024 2023 2023 R’000 R’000 R’000 SA REIT cost-to-income ratio Expenses Operating expenses per IFRS income statement (includes municipal expenses) 524 779 487 943 1 030 480 Administrative expenses per IFRS income statement 52 581 46 826 102 664 Other expenses, if dir
Slide 36: Cost of debt and SA REIT loan to value
29 February 28 February 31 August 2024 2023 2023 R’000 R’000 R’000 Cost of debt Variable interest rate borrowings Floating reference rate plus weighted average margin (%) 10.4% 9.5% 10.4% Pre-adjusted weighted average cost of debt (%) 10.4% 9.5% 10.4% Adjustments: Impact of interest rate derivatives
Slide 37: Company information
COMPANY INFORMATION Octodec Investments Limited Debt market Incorporated in the Republic of South Africa Nedbank Corporate and Investment Banking, a division of Nedbank Limited Registration number: 1956/002868/06 Contact person: Doris Thiele JSE share code: OCT 3rd Floor, Block F 135 Rivonia Campus,
Slide 38: octodec.co.za
octodec.co.za OCTODEC INVESTMENTS LIMITED 36 Unaudited interim results for the six months ended 29 February 2024