annual financial results for the 12 months ended 31 august ...€¦ · annual financial results for...
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annual financial results for the 12 months ended 31 August 2017
Creating value beyond financial return
Octodec Head OfficeSharon’s PlaceOne On Mutual012Steyn’s Place
agenda
1 about us 03
2 overview for the period 06
3 our portfolio performance 10
4 our results 33
5 outlook 44
6 questions and answers 48
7 contact details 49
8 appendices 50
2
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
2017Tshwane, Church Square
1905Pretoria, Church Square
1about us
3
2017One on Mutual completed
2014One on Mutual site preparation
the Octodec story
4
• Listed on the JSE in 1990: REIT status on 1 September 2013
• Provided shareholders with an annual compounded return over a five and 10-year period of 12.8% and 9.4% respectively
• 315 properties (including joint ventures) in portfolio
• Properties managed by City Property Administration (Pty) Ltd
‣ New five-year management contract under negotiation
‣ Separate sub-committee formed comprising of non-executive directors
‣ Over 40 years’ property management experience
‣ Solid track record of managing residential, retail, office and industrial property
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
2017Kerk Street,
Johannesburg
1911Anstey’s Building
the Octodec story our strategy
5
• The strategy remains the same
‣ Focus on Tshwane and Johannesburg CBDs
‣ Continually improving the quality of our portfolio
‣ Focus on growing our residential portfolio
‣ Continue to focus on the low to mid income LSM
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
2017Kerk Street,
Johannesburg
1911Anstey’s Building
2overview for the period
6
2016Tshwane, Church Square
1920sPretoria,Church Square
overview for the period• Dividends of
203.1 cents per share, for the twelve month period ending 31 August 2017, a 0.8% increase compared to the prior period of 201.5 cents per share
• Total property assets value at R12.8 billion, up by R474.2 million
• NAV up by 0.7% to R29.33 per share
7
Progress
• Property fundamentals sound
• Strategic greenfield developments to uplift key Tshwane CBD node
• Entrance to new market outside the CBD
• Successful trial of more upmarket offering with One on Mutual trading above expectations
• Profitable recycling of non-core assets
• Improved balance sheet
• Prudent capital management
Context• Residential increasingly competitive
• Tough economic, political and operating environment
• Rising costs (finance, utility and assessment rates and operating costs)
• Council service delivery issues
• Difficult construction environment
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
overview of Tshwane CBD• Concentration of investments
• Increased urbanisation
• New developments improving node
• New Tshwane House
‣ GLA of 37 000 m2
‣ Housing in excess of 1 500 staff
8
Sustaining city life: TWO decades of building a city bears fruit
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
Octodec propertiesOctodec properties – developments
New Tshwane
House
One on Mutual MidtownSharon’s
Place
overview of Johannesburg CBD• Urban renewal gaining momentum
• Increasing private sector investment
• Higher demand for property
• Local council support
9
Sustaining city life: TWO decades of building a city bears fruit
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
Octodec properties
3 our portfolioperformance
10
29%Residential
8%Industrial
22.2%Offices
4.2%Parking
26.6%High street
shops
10%Shoppingcentres
11
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
portfolio analysis: rental income 31 August 2017
29.0(FY16: 29.5)
26.6 (FY16: 28.9)
22.2 (FY16: 19.6) 10.0
(FY16: 9.8)
8.0(FY16:
8.0)
4.2(FY16:
4.2)
Rental income (%) by sector
Residential Retail: shops Offices Retail: shopping centres Industrial Parking
2.3
4.4
4.8
7.3
12.1
14.7
21.5
32.9
0%5%
10%15%20%25%30%35%40%
Centurion
Silverton and surrounding areas
Tshwane Arcadia
Hatfield
Johannesburg and surrounding areas
Tshwane O
ther
Johannesburg CBD
Tshwane C
BD
Rental income (%) by geographical location
12
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
portfolio analysis: GLA31 August 2017
23.7 (FY16: 22.0)
25.3 (FY16: 25.9)
29.3(FY16: 29.4)
5.5 (FY16:
5.4)
16.2 (FY16: 17.3)
GLA (%) by sector
Residential Retail: shops Offices Retail: shopping centres Industrial
3.8
4.2
4.6
5.9
7.0
9.1
9.1
24.9
31.4
0%5%
10%15%20%25%30%35%40%
Waverley, G
ezina, Moot
Hatfield
Tshwane, Arcadia
Tshwane W
est
Silverton and surrounding areas
Tshwane O
ther
Johannesburg and surrounding areas
Johannesburg CBD
Tshwane C
BD
GLA (%) by geographical location
residential
13
Portfolio sectors:Rental income (%)
29%Rental income
Average monthly rentals:• R3 400 – R3 900 for a bachelor unit (average size 27 m2)• R4 100 – R4 600 for a one-bedroom unit (average size 43 m2)• R5 400 – R5 900 for a two-bedroom unit (average size 63 m2)Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity
*Octodec Investments Limited | Reviewed provisional annual results presentation 2017
2.5%Growth in rental income
*
2017 2016
Number of properties 70 68Number of residential units
‣ Johannesburg‣ Tshwane
9 50934%66%
8 84038%62%
Gross lettable area (GLA) 394 721 m2 366 827 m2
Rental income R415 million R407 millionGrowth in rental income year-on-year (like-for-like) 2.5% 5.6%
Total vacancies at year end (% of GLA) 12.3% 4.0%Core vacancies (% of GLA) 7.2% 3.6%
residential (continued)
14
Portfolio sectors:Rental income (%)
29%Rental income
• Tenant profile analysis, for applications during the year‣ Employed by government – 27% of occupants‣ Students – 27% of occupants‣ Churn at 45% per annum‣ Average gross salary per application of R28 000‣ Gross salary above R35 000 – 7% of occupants
• Strong demand for residential units• Vacancies higher due to:
‣ Total vacancies include 400 units at Sharon’s Place – under development
‣ Increased competition in Hatfield and Johannesburg CBD‣ Slower take-up by students – impact mainly in Hatfield
• Affordability a concern in the tough economic environment• Bad debts write-offs below 1% reflect strong collection and credit
management• Ongoing innovation such as roll-out of fibre installation and wifi• Response to tough operating environment – zero deposit for selective
buildings
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
2.5%Growth in rental income
*
retail overview - combined
15
Portfolio sectors:Rental income (%)
Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity
*
36.6%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
5.9%Growth in rental income
*
2017 2016
Gross lettable area (GLA) 512 310 m2 523 635 m2
Rental income R523 million R533 millionGrowth in rental income year-on-year (like-for-like)* 5.9% 5.5%
Total vacancies at year end(% of GLA) 9.3% 8.5%
Core vacancies (% of GLA) 8.0% 8.5%
retail: high street shops
16
Portfolio sectors:Rental income (%)
• High street shops make up 82% of our retail portfolio by GLA and provide 73% of our retail portfolio rental income
• 69.4% of our high street shops are in Tshwane• 30.6% are in Johannesburg• Strong demand in well located CBD retail node• CBD retail offers more growth opportunities than traditional
shopping centres• Retailers are demanding larger tenant installations• Lower cost structures (common area, security, cleaning)Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity
*
26.6%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
5.7%Growth in rental income
*
2017 2016
Gross lettable area (GLA) 420 443 m2 432 456 m2
Rental income R380 Million R398 MillionRental income growth (like-for-like)* 5.7% 5.4%Total vacancies (% of GLA) 10.3% 9.1%Core vacancies (% of GLA) 8.8% 9.1%
retail: high street shops (continued)
17
Portfolio sectors:Rental income (%)
26.6%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
5.7%Growth in rental income
Top 10 retailers by rentable area
Top 10 retailers by rental FY17
Lessee GLA (m2) Lessee Rental (R’000)
Shoprite Checkers 48 145 Shoprite Checkers 26 237
Pepkor 16 193 Pepkor 22 047
Edcon 13 647 Edcon 15 226
Bidvest 12 325 Bidvest 12 947
Standard Bank 9 591 Foschini Retail Group 11 448
Mr Price Group 6 342 Nedbank 11 127
Foschini Retail Group 6 202 Standard Bank 10 923
AutoZone 5 501 Mr Price Group 8 821
Nedbank 5 388 KFC 7 878
Cambridge Food 4 489 FNB 5 820
Total 127 823 Total 132 475
retail: shopping centres
18
Portfolio sectors:Rental income (%)
We have six high-quality neighbourhood / convenience shopping centres:
• Johannesburg: Killarney Mall and the Woodmead Value Mart
• Tshwane: Elardus Park, Waverley Plaza, Gezina City and BlaauwVillage (50% held JV)
10%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
6.4%Growth in rental income
2017 2016
Gross lettable area (GLA) 91 867 m2 91 179 m2
Rental income R143 Million R135 MillionRental income growth (like-for-like) 6.4% 4.7%Total and core vacancies (% of GLA) 4.6% 5.4%
retail: shopping centres (continued)
19
Portfolio sectors:Rental income (%)
• Elardus Park Shopping Centre ‣ Increase in vacancies to 12%‣ In need of an upgrade
• Woodmead Value Mart‣ No vacancies ‣ Rental growth of 10%
• Killarney Mall‣ Occupancy levels stable‣ Increase in trading density by 5% and net property income‣ Focus on improving tenant mix
• Waverley Plaza and Gezina‣ No vacancies
10%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
6.4%Growth in rental income
offices
20
Portfolio sectors:Rental income (%)
Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity
*
22.2%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
8.4%Growth in rental income
*
2017 2016
Let to government (% of total rental income from offices) 42.2% 35.7%
Other (% of total rental income from offices) 57.8% 64.3%Gross lettable area (GLA) 487 510 m2 489 750 m2
Percentage of office space in development / mothballed (opportunities to sell, develop orenter into partnerships)
18.2% 19.4%
Rental income R317 Million R269 MillionGrowth in rental income year-on-year (like-for-like) 8.4% 5.2%
Total vacancies at year-end (% of GLA) 33.8% 34.7%Core vacancies at year-end (% of GLA) 15.6% 15.3%
offices (continued)
21
Portfolio sectors:Rental income (%)
22.2%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
8.4%Growth in rental income
*
• Offices comprise of‣ Government office space‣ Corporates‣ Smaller units occupied by SME’s, occupancy levels stable
• Upgrading of offices‣ Wits Technikon – R16.1m (let effective 1 March 2017)‣ Midtown – R17.3m (first phase of renovation)
• Strong like-for-like growth mainly due to new government lease for 9 365 m2 included in results for 12 months (effective 1 March 2016)
industrial
22
Portfolio sectors:Rental income (%)
Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity
*
8%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
5.8%Growth in rental income
*
2017 2016
GLA in Tshwane 217 090 m2 235 306 m2
GLA in Johannesburg 53 431 m2 53 602 m2
Total GLA 270 521 m2 288 908 m2
Rental Income R115 million R110 million
Growth in core rental income year-on-year (like-for-like) 5.8% 3.3%
Total and core vacancies at year-end (% of GLA) 12.3% 10.8%
industrial (continued)
23
Portfolio sectors:Rental income (%)
8%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
5.8%Growth in rental income
*
• Successful redevelopment of properties – demand for upgraded properties‣ Achieving higher rentals after upgrades‣ Upgrade largely tenant driven‣ The Tannery Industrial Park (R12m) – improved occupancy
and rentals achieved• Our competitive advantage
‣ Lower cost of occupation in desirable areas
parking
24
Portfolio sectors:Rental income (%)
Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity
*
4.2%Rental income
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
4.6%Growth in rental income
*
2017 2016
Average monthly residential rentals (per bay) R380 R360
Average monthly commercial rentals(per bay) R650 R600
Rental income R61 million R58 millionGrowth in core rental income year-on-year (like-for-like)* 4.6% 7.2%
• Focused strategy to increase the number of parking bays in the CBD, due to high demand
• Strong demand from government and residential tenants
• Greater focus on increasing revenue through improved efficiencies
vacancies by sector as at 31 August 2017
25
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
33.8
10.3
4.6
12.3
12.3
17.7
15.6
8.8 4.6
12.3 7.2
10.7
0.0%5.0%
10.0%15.0%20.0%25.0%30.0%35.0%40.0%
Offices
High street shops
Retail: Shopping
centres
Industrial
Residential
Total
% of gross lettable area (by sector)Total vacanciesCore vacancies
Note: • Total vacancies include mothballed properties held for development which offer significant redevelopment, partnership or disposal
opportunities. The value of these vacancies will be realised over time.• Core vacancies exclude lettable area of properties that are mothballed.
vacancies
• Total vacancies in our portfolio as at 31 August 2017 were at 17.7% of our total GLA (2016: 15.6% of our total GLA)
• Core vacancies were at 10.7% of total GLA (31 August 2016: 9.8%)
• Core vacancies increased mainly in the residential sector (mainly Hatfield and other strong student nodes)
• Residential total vacancies include 20 195 m2
relating to Sharon’s Place, One on Mutual and The Manhattan
• Mothballed office vacancies of 88 742 m2 for future redevelopment, partnerships or disposal opportunities 26
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
lease expiry profile
27
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
Gross lettable area
m²GLA (%)
Monthly contractual rent
R’000
Rental income
(%)Residential (12 months and less) 346 027 20.8 34 946 29.4
Monthly commercial 234 506 14.1 15 544 13.1
to 28 February 2018 317 555 19.1 25 461 21.4
to 28 February 2019 170 060 10.2 14 321 12.1
to 29 February 2020 148 485 8.9 13 149 11.1
to 28 February 2021 81 118 4.9 7 984 6.7
Thereafter 73 179 4.4 7 371 6.2
Vacancies 294 132 17.6 0.0
Total 1 665 062 100.0 118 740 100.0
lease expiry profile
Octodec’s portfolio features a mix of short- to long-term leases with the majority of short-term leases providing for a monthly agreement at expiry, which is typical of the residential market and leases with small to medium sized enterprises
• Government leases concluded for three-year term on average
• Residential leases – short term leases (12 month contracts providing for a month to month arrangement on expiry)
• Majority of leases for non-national tenants concluded for 1- to 10-year term
• National tenants – leases concluded for 3- to 10-year term 28
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
recent sales
29
In line with our strategy to dispose of non-core assets, the following properties were sold and transferred during the period under review
• The profit on the disposal consideration of R77.8 million amounted to R3.7 million, a premium of 4.8% above revalued book value at 31 August 2016.
• A further 35 non-core properties with a carrying value of R284.3 million have been recommended for disposal by the board. The average carrying value of these properties is R8.1 million.
• The proceeds from property sales will be used to repay debt, as well as fund the development pipeline.
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
Property Location
Total consideration
R’million
Profit / (loss) on disposal
R’million
Transfer date / expected
transfer date
Exityield
%
Frederika Street Gezina, Tshwane 7.8 0.1 3 Feb 2017 8.0
Karkap Gezina, Tshwane 5.5 0.4 3 Feb 2017 10.7
Munt Street Waltloo, Tshwane 10.9 2.1 28 Feb 2017 7.8Raschers Johannesburg CBD 6.1 0.2 26 Nov 2016 2.7Paulefko Tshwane CBD 4.4 0.9 17 Oct 2016 9.7Blagil Hatfield, Tshwane 2.1 (0.1) 26 Nov 2016 9.9High Court Building and Somerset House Johannesburg CBD 14.5 (0.1) 26 Nov 2016 –Fine Art House and Fine Art Court Johannesburg CBD 17.5 0.3 May 2017 3.5Valhof Valhalla, Tshwane 9.0 (0.1) May 2017 10.5Total 77.8 3.7
30• The impact of the let-up affects results negatively. The loss after interest for the 2017 financial year was at R13.4 million or equivalent to 2.5% of distributable income• The construction of the residential development Reinsurance House is in the planning phase, which is situated in the Johannesburg CBD. The total development costs is
expected to be R90 million• This development will only commence if an acceptable yield is achieved – at least 8.5% per annumOctodec Investments Limited | Reviewed provisional annual results presentation 2017
capital expenditure greater than R50 millionManagement recognises the need to improve hurdle rates of returns and has taken a more cautious approach to development roll-outs going forward
Property Location Details
Total develop-
ment costR’million
Completion date
Fully letyield %
Loss after interest FY2017
R’millionThe Manhattan
Sunninghill, Johannesburg
50% undivided share in residential development – 180 units and parking
80.9 December 2016 9.0 6.1
One on Mutual
Tshwane CBD
Upmarket residential development of 142 units, 1 746 m2 retail and 204 parking bays
155.0 February 2017 7.1 6.3
Sharon’s Place
Tshwane CBD
400 residential units, 5 660m2 retail and 289 parking bays
356.0 Early 2018 - residential
July 2017- retail
7.3 -
Pretoria Midtown
Tshwane CBD
Upgrade of 7 133m² office block with 944m² retail and 90 parking bays
56.5 1st phase complete2nd phase subject to securing lease
9.5 1.0
Total 648.4 13.4
One on Mutual
The project was designed to be a more upmarket mixed-use development, attracting mid-income tenants working in Tshwane CBD
Development cost of: R155mResidential units: 142Retail: 1 746m2
(mostly let – Pick n Pay and Mugg & Bean)Offices: 443m2 (not let)Parking bays: 204
Currently over 90% residential occupancy
31
One on
Mutual
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
sharon’s place
Tshwane CBD mixed use development Development cost of: R356mResidential units: 400Retail: 5 660m²Parking bays: 289
• Retail completed in July 2017• Retail leasing progressing well and is
almost 100% let with anchor tenants including Shoprite and Clicks
• Completion of the 400 residential units delayed further, expected completion in early 2018
32
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
2016Sharon’s Place construction
2017Sharon’s Place
2014Centre Forum
4our results
33
2017Tshwane,Golden Mile
1902Market Place, Pretoria
achievements
34
• Distribution growth per share of 0.8% to 203.1 cents per share for the twelve month period
• Like-for-like growth in rental income of 5.3%• Net property expense to rental income ratio increased to
30.9% (31 August 2016: 29.6%)• Arrears and doubtful debt provisions remain at acceptable
levels despite a challenging operating environment ‣ Bad debts and movements in doubtful debt provisions
as a percentage of rental income – 0.9% (31 August 2016: 0.8%)
‣ Tenant arrears at 3.9% of gross revenue (3.6% at 31 August 2016)
• Balance sheet strengthened ‣ Loan to value ratio of 37.1% (31 August 2016: 38.3%)‣ Proceeds of R263 million from dividend reinvestment
programme‣ Proceeds from disposal of properties of R77 million
Distribution growth of
0.8%
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
Rental income
Like for like growth
5.3%
achievements (continued)
35
• 0.7% increase in net asset value (NAV) to R29.33 per share• Interest rate risk reduced – 82.1% hedged through interest rate
swap contracts• Successful refinance of Domestic Medium Term Note
Programme (DMTN) commercial paper notes • Four major projects under construction during the period with
two successfully completed• Some major renovations to existing properties recently
completed (Wits Technikon) in JHB CBD
Distribution growth of
0.8%
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
Rental income
Like for like growth
5.3%
challenges
36
• Tough economic and operating environment• Like-for-like growth in rental income of 5.3%, under pressure• Rise in costs (finance cost, utilities, assessment rates and repairs and
maintenance)• Higher interest rates (all-in weighted average cost of funding at 9.2%
at 31 August 2017)• Core vacancies in portfolio (excludes properties held for
redevelopment) at 10.7% (31 August 2016: 9.8%)• Dilutionary impact in the short term on distribution growth due to:‣ Let-up phase of new residential developments‣ Major upgrades to properties‣ Properties acquired with vacancies, for redevelopment
• Council service delivery challenges
New development
impact
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
distributable earningssimplified income statement
37
Note: Shareholders will be entitled to elect to reinvest the cash dividend in return for sharesOctodec Investments Limited | Reviewed provisional annual results presentation 2017
R’000%
ChangeReviewed
31 August 2017Audited
31 August 2016
Revenue – earned on contractual basis 5.4% 1 836 251 1 742 871 Like-for-like growth in rental income of5.3%
Operating costs 6.7% (843 636) (790 529) Increased cost pressures
Net rental income from properties 4.2% 992 615 952 342
Administrative costs 9.6% (77 813) (71 005) Increased corporate costs
Operating profit 3.8% 914 802 881 337
Interest income 18 094 10 138 Loan advanced to JV partners
Share of income from Joint Ventures 12 238 14 026 4 equity accounted JVs
Distributable profit before finance costs 945 134 905 501
Finance costs 3.5% (408 702) (394 751) Increase in interest rates
Shareholder distributable earnings 5.0% 536 432 510 750
Number of shares in issue (000) 266 864 254 551
Dividend per share (cents) 203.10 201.50
% growth in distribution 0.8
condensed consolidatedstatement of financial position
38
R'000 Reviewed 31 August 2017 Audited 31 August 2016ASSETSNon-current assets 12 568 875 12 219 234Investment properties 12 153 834 11 776 839 320 properties 2016 – 311 properties 2017Plant and equipment 5 300 6 810Straight-line rental income accrual 110 864 115 849Tenant installation and lease costs 44 550 57 133Other financial assets 75 000 51 849Derivative financial instruments 1 847 38 172Investment in joint ventures 177 480 172 528 4 equity accounted JVs - 50% heldCurrent assets 560 397 373 661Receivables 145 291 131 552Cash and cash equivalents 130 756 69 109Non-current assets held for sale 284 350 173 000 Properties recommended for sale at 31 August 2017
13 129 272 12 592 895EQUITY AND LIABILITIESEquity 7 828 229 7 413 800Stated capital 4 221 477 3 958 207Non-distributable reserves 3 269 053 3 112 855Retained earnings 337 699 342 708Non-current liabilities 3 381 370 4 106 208Interest-bearing borrowings 3 253 517 4 023 911Derivative financial instruments 47 421 9 308Deferred taxation 80 432 72 989Current liabilities 1 919 673 1 072 887Interest-bearing borrowings 1 572 817 755 116 Commercial paper notes, short term bank financeNon-interest bearing borrowings 342 548 317 771Derivative financial instruments 4 308 -
13 129 272 12 592 895Shares in issue ('000) 266 864 254 551Net asset value (NAV) per share (cents) 2 933 2 913Loan to investment value (LTV) ratio (%) 37.1% 38.3%
cash flow for the year ended 31 August 2017
39
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
69109
948325
(421107)
(536 536)
263270
77200
(316812)
47307
130756
-600 000-400 000-200 000
0200 000400 000600 000800 000
1 000 000
Balance 1 September
2016
Cash generated from
operations
Net finance costs
Dividend paid
Issue of new shares
Disposal of investm
ent property
Acquisition and im
provements to
investment property
Increase in interest bearing borrow
ings
Balance end of year
R'000
capital managementfunding at 31 August 2017
• Prudent management of debt‣ LTV – at 37.1% (target – maximum
of 40%)‣ Interest rate hedging – maintain at
levels of at least 80% ‣ Proactively address expiries of
loans and swaps in the 2018 FY‣ Debt capital market issuance –
R1 116.0m of total borrowings (currently at 23.1%)
• Continue to pay down debt through sales of non-core properties
• Unutilised banking facilities of R625.9 million
4040
R’000Interest
rateTotal borrowings – Banks 3 710.30 9.1%
DMTN programme 1 116.0 8.5%
TOTAL BORROWINGS 4 826.30 9.0%
Cost of swaps 0.2%
TOTAL BORROWINGS 4 826.30 9.2%
Loan to value 37.1%
Weighted average cost of borrowings– all-in cost, including swaps 9.2%
Interest rate hedging – percentage of borrowings 82.1%
Weighted average term of fixed rate loans/swaps 1.6 years
Weighted average term of debt 1.4 years
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
Nedbank –R2 999m
Standard Bank –R1 025m
DMTNprogramme
–commercial
paperR755m
31 August 2016
Nedbank –R2 785m
Standard Bank –R925m
DMTNprogramme
–commercial
paper R1 116m
31 August 2017
funding as at 31 August 2017
41
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
interest bearing debt expiry profile as at 31 August 2017
42
Debt maturing in the next 12 months:• Short term borrowings are
commercial paper (DMTN programme) of R958m and bank secured loans of R615m
• To date, R239m of the commercial paper notes have been successfully refinanced for a 12-month term at an all-in cost of 130 bps above JIBAR
• Debt maturing after 31 August 2017‣ Higher cost of interest
anticipated
Expiry profile per financial year (Rm and %)
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
1573
2440
525 288
0
500
1 000
1 500
2 000
2 500
3 000
31 Aug 2018 31 Aug 2019 31 Aug 2020 31 Aug 2021
Thou
sand
s
Rm
32.6%
50.5%
10.9%6.0%
Secured loansCorporate paper
1351
1361
500
750
0
200
400
600
800
1 000
1 200
1 400
1 600
31 Aug 2018
31 Aug 2019
31 Aug 2020
31 Aug 2021
Thou
sand
s
Rm
34.1% 34.4
12.6%
18.9%
interest rate hedges expiry profile
43
Fixed rate loans –R412 millionSwaps – total of R3.550 billionAverage weighted expiry –1.6 years• At 31 August 2017, interest rates in
respect of 82.1% of borrowings hedged
• R1.250 billion of swap contracts commenced effective from 3 January 2017 ‣ Weighted term 3.6 years‣ All-in weighted cost of 8.11%
Expiry profile per financial year (Rm and %)
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
5outlook
44
2017012central
2014012central original site
outlook• Continued lack of 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‣ CBD retail continues to generate strong demand from National and
independent tenants‣ Strong demand for affordable and secure, quality residential
accommodation• Residential developments to significantly uplift the Tshwane CBD node
where we have a strategic concentration of assets‣ One on Mutual letting well above expectation‣ Sharon’s Place will be ready for occupation in early 2018
45
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
outlook (continued)
• Continue to unlock value – future development opportunities under discussion
• Exploring new product offering (Nano units)• Consideration of residential opportunities outside of Gauteng - ongoing• Project returns will be improved, hurdle yield required of above 8.5%• Disposal of non-core or non-performing properties will remain a focus
area
46
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
Forecast• Impact on distributions during let-up phase• Current forecast growth in distributable
income per share‣ No growth for 2018 FY‣ Positive growth in 2019 FY
investment case
• Strategy to remain the same and diversify geographically
• Sustainable model – urban renewal and middle-class growth
• Well-balanced portfolio with significant synergies across sectors in the CBDs
• Strong development pipeline – unlock value of current portfolio (new and redevelopments)
• Proven track record – hands-on approach delivering steady returns
Well-positioned to continue to unlock value and navigate the challenging economic environment
47
Steady and sustainable
value creation
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
6questions and answers
48
2016Kerk Street Building, Johannesburg
1936Anstey’s Building
after modernisation
2011The building beforeredevelopment
7contact uswww.octodec.co.za
49
Managing DirectorTel: +27 12 319 8708e-mail: [email protected]
Anthony Stein
Financial DirectorTel: +27 12 319 8780e-mail: [email protected]
Jeffrey Wapnick
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
8appendices
50
2017One on Mutualcompleted
2015One on Mutual under construction
corporate structure
51
38%Institutional investors
23%Other
39%Wapnick family
& directors
Top 5Beneficial institutional shareholders
4.8%GovernmentEmployees
Pension Fund
4.9%Stanlib
5.2%Old Mutual
Group
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
3.8%Nedbank
Group
2.3%Eskom
Pension & Provident
Fund
our strategy
• Offer innovative property investment opportunities that create and deliver long-term sustainable returns by:
‣ Building a diversified portfolio in the Tshwane and Johannesburg CBDs and surrounding areas with an exposure to residential, office, retail and industrial sectors
‣ Actively promoting urban renewal in the Tshwane and Johannesburg CBDs
• Increase the profitability of our existing portfolio by:‣ Continually improving the quality of our portfolio‣ Enhancing our tenant profile‣ Developing well-located properties
52
1899Palace of Justice, Pretoria
2016Tshwane (previously Pretoria)Octodec Investments Limited | Reviewed provisional annual results presentation 2017
our strategy (continued)
• Increase the profitability of our existing portfolio by:‣ Concentration of properties in Tshwane and
Johannesburg CBDs, which makes it easier to manage and extract value from our portfolio
‣ Pursuing acquisitions that offer strategic value and sustainable yield-enhancing opportunities
‣ Focusing on growing our residential portfolio in the medium term
‣ Recycling capital from low growth, poor quality assets to high growth, high quality assets
‣ Enhancing returns through effective mix of debt and equity to optimise capital structure
‣ Management of interest and liquidity risk
53
1880Church Street South, Pretoria
2016Tshwane (previously Pretoria)
Octodec Investments Limited | Reviewed provisional annual results presentation 2017
top 10 propertiesAccount for 25.0% of the Octodec investment property portfolio by value
54
Property Location Sector Size (m2)
The Fields Hatfield, Tshwane Mixed use 54 026
Killarney Mall Killarney, Johannesburg Shopping centre 46 945
Centre Walk Tshwane CBD Mixed use 25 417
Woodmead Value Mart Woodmead,Johannesburg Shopping centre 18 093
Kempton Place Kempton Park Mixed use 32 507
Sharon’s Place Tshwane CBD Mixed use 5 647
Louis Pasteur Medical Tshwane CBD Mixed use 22 314
Nedbank Plaza Arcadia, Tshwane Mixed use 23 177
Steyn’s Place Tshwane CBD Mixed use 15 638
Jeff’s Place Tshwane CBD Residential 14 771
Octodec Investments Limited | Reviewed provisional annual results presentation 2017