INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Interim Resultsfor the period ended 29 February 2020
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
AGENDA
Octodec at a glance1
COVID-192
Overview for the period3
Our portfolio performance4
Our results and capital management5
Outlook6
Questions and answers7
Contact details8
Appendices9
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OCTODECAT A GLANCE
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OCTODEC AT A GLANCE
4
JSE-listed REIT since 1990 with 280 properties, total value of R12.6 billion
Our growth strategy is underpinned by three main objectives:
Create sustainable stakeholder value
Optimise our portfolio
Optimise our balance sheet and funding structure
We invest in properties situated mainly in the Tshwane and Johannesburg CBDs
Properties managed by City Property Administration (City Property):
Operational excellence with over 50 years’ property and asset management experience in industrial, office,
retail, residential and specialised property
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
COVID-19
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
COVID-19 RESPONSE
6
This unprecedented event is expected to continue to impact our business, with the future outlook being
highly uncertain
Swiftly adjusted to the operational impact of the global pandemic ahead of lockdown
A COVID-19 task team is in place and monitoring the situation on a daily basis:
Jeffrey Wapnick (MD), Anthony Stein (FD), City Property exco and support function representatives
Implement hygiene, safety measures and Government directives across the portfolio
Active risk management and implementation of mitigating actions
Proactive engagements with tenants, staff, funders and other stakeholders
Cash flows and costs management in line with changing operational requirements
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
COVID-19 RESPONSE continued
7
Business continuity and safety measures delivering as planned:
Increased use of electronic channels to service clients
Essential services to tenants maintained
Administrative functions carried out successfully remotely
Strategic objectives refocused around balance sheet management and liquidity planning
Strategic stakeholders’ engagements to mitigate effects on the broader value chain
Participating in industry discussions that support industry sustainability
Broadly supportive of the Property Interest Group’s rental relief guidelines for retail tenants
Commitment to staff members and suppliers, within established parameters
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
COVID-19 IMPACT
8
No new leasing activity taking place
Rate of collections affected by short-term uncertainty during the lockdown:
Government tenant collections unaffected
Residential tenants holding on to cash, despite being willing payers. Many tenants moved back “home” ahead
of lockdown
Retail negotiations ongoing; support required for smaller tenants
Providing relief to tenants on a case-by-case basis, within reason
Risks to manage:
Businesses downsizing or vacating premises altogether
Entrepreneurs and small businesses choosing to work from home
Corporate failures, administration and/or liquidation
Impact of reduced investor confidence and bank appetite to provide finance on disposals
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
9
Clearly going to continue to impact our business, with the outlook being highly uncertain
Active steps taken to enhance our financial position:
Certain repairs, maintenance costs and capex curtailed or deferred
Sources of funding further diversified; new loan facilities totalling R450 million secured with Absa
Good progress made on proactively addressing short-term loan expiries
Distributable earnings retained; no interim dividend declared
Following the recent unprecedented reductions in the South African repo rate, opportunity to take advantage of
the lower interest rate cycle
BALANCE SHEET AND LIQUIDITY RESPONSE
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
BALANCE SHEET AND LIQUIDITY RESPONSE continued
10
Tenant payment trends highly uncertain
Closely monitoring and trying to predict trends and impact on liquidity
Significant decline in collections for April
Continuous proactive engagements with all funders
Closely monitoring the impact on our debt covenants
Actively managing headroom and flexibility within bank debt covenants
Material uncertainty around valuation metrics
Continued and objective evaluation of impact on property valuations required
Continuous modelling across various scenarios, including impact on LTV and interest cover ratios
Stress tested our liquidity under these scenarios and are comfortable there is sufficient liquidity
Existing cash resources and unutilised banking facilities total R600 million
Supported by non-payment or flexibility in pay out of future dividends
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OVERVIEW FOR THE PERIOD
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Context Progress
Local economy’s continued vulnerability to absence of
structural reforms in a challenging operating environment, with
ongoing bouts of load shedding
‒ Operational excellence to mitigate risks
Challenging leasing environment, with cost cutting being the
main tenant driver
‒ Progress made in reducing overall commercial vacancies
‒ Total and core vacancies by GLA similar at 17.9% and 11.7% respectively
‒ Improved like-for-like growth in rental income of 2.2%
‒ Arrears and doubtful debt provisions kept at acceptable levels
‒ Property costs-to-revenue ratio (net of recoveries) increased to 37.7%
Increased new residential supply by competitors in
Johannesburg CBD
‒ Innovative and value-added initiatives introduced to improve our offering
and ensure we remain relevant
‒ Greater emphasis on marketing during the period
Council service delivery issues with rising costs (utility and
assessment rates)
‒ Strategic focus on uplifting key Tshwane and Johannesburg CBD nodes
‒ Greater efficiencies in utility management
OVERVIEW FOR THE PERIOD
12
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Context Progress
Challenging construction environment ‒ Completion of projects at acceptable yields is challenging
‒ “Construction mafia” increase risk of delayed completion
‒ Uncertainty regarding commencement of larger projects
‒ Actively focusing on the disposal of some of our mothballed properties,
previously earmarked for development
Weakening property fundamentals putting pressure on
profitability as well as property valuations
‒ Decrease in fair value of investment property by R213.9 million
Focus on balance sheet optimisation while reducing risk ‒ Interest rate swaps and loans tenures lengthened
‒ Active disposal of non-core and underperforming assets, although proving
to be more challenging
‒ Diversification of funding sources
Challenging to achieve distributable income growth in
recessionary environment with weak economic and
trading conditions
‒ Interim distributable income of 97.0 cents per share
‒ Distributable income for FY2020 to be weighed down by COVID-19
OVERVIEW FOR THE PERIOD continued
13
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OURPORTFOLIO PERFORMANCE
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OUR PORTFOLIO PERFORMANCE
15
Urbanisation underpinning sustainability of our existing portfolio and future growth potential
Tshwane (66.5% of portfolio)
Tshwane 1 091 604m² (FY2019: 1 094 163m²)
Tshwane CBD 525 727 m² (FY2019: 526 792m²)
Concentration of investments in strategic nodes
Recent developments and upgrades improving nodes
Johannesburg (33.5% of portfolio)
Johannesburg 550 435m² (FY2019: 566 268m²)
Johannesburg CBD 408 519m² (FY2019: 420 839m²)
Urban renewal gaining momentum
Increasing private sector investment
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
DISPOSALS
16
Recycling of capital to ensure sustainable value creation
Strategy is to dispose of non-core and underperforming properties
This includes mothballed properties previously earmarked for development
Disposed of 9 properties during the period at an average exit yield of 12.4% and at a profit of R1.6 million
At the date of this report:
5 properties already transferred for a total consideration of R78.2 million
Transfer of 4 properties for a total consideration of R66.3 million is expected to take place during the H2 of FY2020
Proceeds used to repay debt and to fund smaller upgrades of properties
Increasingly becoming more difficult to dispose of our properties, with banks reluctant to provide finance
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
22.9(FY2019: 23.6)
9.7(FY2019: 10.1)
15.8(FY2019: 15.8)
31.8(FY2019: 32.2)
7.4(FY2019: 7.0)
12.4(FY2019: 11.3)
Rental income by sector (%)
Retail – shops Retail – shopping centres
Offices Residential
Industrial Specialised and other
17
PORTFOLIO ANALYSIS: RENTAL INCOME
35.1(FY2019: 34.7)
20.4(FY2019: 21.3)
12.8(FY2019: 12.4)
12.1(FY2019: 11.8)
6.2(FY2019: 6.5)
5.0(FY2019: 5.0)
4.3 (FY2019: 4.3)
4.1(FY2019: 4.0)
Rental income by geographical area (%)
Tshwane CBD Johannesburg CBD
Tshwane Other Johannesburg and surrounding areas
Tshwane – Hatfield Tshwane – Arcadia
Silverton and surrounding areas Waverley, Gezina, Moot
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
18
PORTFOLIO ANALYSIS: GLA
19.9(FY2019: 20.3)
5.7(FY2019: 5.7)
24.6(FY2019: 24.9)
25.6(FY2019: 25.7)
14.7(FY2019: 14.8)
9.5(FY2019: 8.6)
GLA by sector (%)
Retail – shops Retail – shopping centres
Offices Residential
Industrial Specialised and other
32.0(FY2019: 31.8)
24.9(FY2019: 25.6)
15.0(FY2019: 14.8)
8.6(FY2019: 8.6)
6.8(FY2019: 6.7)
4.7(FY2019: 4.6)
4.3(FY2019: 4.2)
3.7(FY2019: 3.7)
GLA by geographical area (%)
Tshwane CBD Johannesburg CBD
Tshwane Other Johannesburg and surrounding areas
Silverton and surrounding areas Tshwane – Arcadia
Tshwane – Hatfield Waverley, Gezina, Moot
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
RESIDENTIAL
As at
29 Feb 2020
As at
31 Aug 2019
Number of properties 71 72
Number of residential units 9 332 9 413
Johannesburg (%) 36 36
Tshwane (%) 64 64
GLA (m²) 420 673 428 244
Rental income (R’million) 244 505
Rental income growth (like-for-like*) (%) 0.0 3.5
Total and core vacancies (% of GLA) 11.0 6.7
Bachelor R3 500 – R4 100
1 Bedroom R4 200 – R4 800
2 Bedroom R5 400 – R6 000
Average monthly rentals (excluding Hatfield)* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
19
Jeff’s Place
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
20
Tenant profile analysis, for applications during the period
24% of applicants are government employees
39% of occupants are students
Churn at 40% per annum
Average gross monthly salary per application of R30 767
Gross monthly salary above R35 000 – 12%
Affordability and uncertainty remains a concern for
our tenants
Increased competition in the Johannesburg CBD
with new residential buildings being released into
the market
Temporary imbalance between supply and demand
The Fields is Octodec’s biggest asset and situated in
Hatfield, a highly competitive area within the student
accommodation market
Decreased vacancies from FY2019
Offering furnished accommodation on a trial basis
Response to tough operating environment
Roll out of WiFi to enhance our product offering
Innovative and value-adding marketing campaigns
Maintaining our competitive edge by providing quality
apartments and service at affordable rentals
Refreshing of common areas and amenities
RESIDENTIAL continued
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
RETAIL – SHOPS
As at
29 Feb 2020
As at
31 Aug 2019
GLA (m2) 326 428 336 435
Rental income (R’million) 176 370
Rental income growth (like-for-like*) (%) 0.9 0.3
Total and core vacancies (% of GLA) 14.0 14.4
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
21
Retail Street Shops
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Offer shoppers a selection of brands, services and
food outlets
CBD retail offers more growth opportunities than
traditional shopping centres
Strong demand for well-located CBD retail node
with most vacancies situated outside of this
Lower cost structures (common area, security,
cleaning)
Rental growth under pressure, more rental freezes,
negative rent reversions and larger tenant installations
Strategic capital project:
Shoprite Tshwane and Shoprite Eloff Street –
consideration of upgrades to these properties,
however, not yield enhancing
22
RETAIL – SHOPS continued
Centre Walk
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Killarney Mall
RETAIL – SHOPPING CENTRES
As at
29 Feb 2020
As at
31 Aug 2019
GLA (m2) 93 796 94 012
Rental income (R’million) 85 158
Rental income growth (like-for-like*) (%) 6.6 2.2
Total and core vacancies (% of GLA) 3.0 4.7
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
23
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
24
Our six high quality neighbourhood/convenience
shopping centres:
Johannesburg: Killarney Mall and Woodmead Value Mart
Tshwane: The Park (previously Elardus Park), Waverley
Plaza, Gezina City and Blaauw Village (50% held JV)
The Park Shopping Centre
Upgrade to fresh modern look – R42.7 million
Significant reduction in vacancies, target 100% let in FY2020
New Pick n Pay Clothing, Ackermans, Gadgets Galore and
an improved food offering
Woodmead Value Mart
100% occupied during the period
Continues to outperform with strong rental growth of 11.1%
New G Star, ASCO, Replay and Levinsons
Killarney Mall
Rental income growth of 3.8%
Continued focus on improving tenant mix
Occupancy levels improved
New leases concluded with Tourvest (warehouse space –
previously vacant), Tammy Taylor and Ubik Home
PNA lease signed post period end
Waverley Plaza, Gezina and Blaauw Village
No vacancies
5.1% combined rental income growth
New Pick n Pay Clothing at Waverley Plaza
RETAIL – SHOPPING CENTRES continued
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OFFICES
As at
29 Feb 2020
As at
31 Aug 2019
Let to government (% of total rental income
from offices)53.2 49.4
Other (% of total rental income from offices) 46.8 50.6
GLA (m2) 403 999 412 627
Office space held for development/mothballed
(opportunities to sell, develop or enter into
partnerships) (% of GLA)
24.8 24.7
Rental income (R’million) 127 247
Rental income growth (like-for-like*) (%) 4.5 0.6
Total vacancies (% of GLA) 42.4 43.0
Core vacancies (% of GLA) 17.6 18.3
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
25
Bank Towers
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
26
Offices comprise
Government offices
Smaller units occupied by SMEs
Renewal of leases by National Department of Public
Works (DPW)
Challenging operating environment
Sustainability of revenue strengthened by successful renewal
of 18 leases
Renewal of 3 leases expected to be signed shortly
Tenure of leases of 3 – 5 years
Rentals at slightly less than FY2019 rentals
Non-government
Rentals stable
New tenants at Killarney Mall – Tourvest and Exclusive Books
with a total GLA of 1 801m2
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 R25 million for
FY2020 already committed
Considering the upgrade of vacant Ina Building situated in
Tshwane CBD to medical suites
Next door to Louis Pasteur Hospital
Cost of R40 million and 14% marginal yield
Possible commencement after certainty returns to market
OFFICES continued
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
INDUSTRIAL
As at
29 Feb 2020
As at
31 Aug 2019
Total GLA (m2) 241 298 246 363
Rental income (R’million) 57 110
Rental income growth (like-for-like*) (%) 5.5 3.6
Total vacancies (% of GLA) 8.8 10.2
Core vacancies (% of GLA) 8.3 9.3
* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
27
The Tannery Industrial Park
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Successful redevelopment of properties has yielded
improved returns
Upgrade largely tenant driven
Stronger demand experienced
The Tannery and Sildale industrial parks
showing strong growth in rental income of 8.5%
and 4.7% respectively
Our competitive advantage
Units situated in desirable industrial properties
and areas
Affordable selection of units available
28
Steyn’s Industrial Park
INDUSTRIAL continued
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
SPECIALISED AND OTHER
As at
29 Feb 2020
As at
31 Aug 2019
Total GLA (m2) 155 845 142 749
Rental income (R’million) 95 178
Rental income growth (like-for-like*) (%) 2.3 2.0
Total vacancies (% of GLA) 3.7 6.6
Core vacancies (% of GLA) 3.5 6.3
In order to provide a more meaningful analysis of our portfolio, the group’s properties
were aggregated into segments with similar economic characteristics reflecting the
occupier’s market it serves* Like-for-like rental income growth, after taking into account occupancy levels,
reversions and escalations for the period, assuming no major development activity.
29
Louis Pasteur
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Sector Tenants/Comments GLA m2
Hotels City Lodge and Fortis Hotels (Hatfield Tshwane) 13 458
Auto dealerships 4 motor dealerships (Tshwane and Johannesburg respectively)
Motor dealership with GLA of 3 692m2 let effective from November 2019
15 722
Healthcare facilities Louis Pasteur and Lister Building (Tshwane and Johannesburg CBDs
respectively)
Louis Pasteur Hospital – lease term of 5 years remaining
36 744
Educational facilities Colleges and schools (Tshwane and Johannesburg CBDs)
A few colleges have vacated with rent reductions being granted to others
72 303
Places of worship Situated mainly in the Tshwane and Johannesburg CBDs 17 618
Parking Improved control and revenue after the implementation of new parking
management system
1 982 leases
SPECIALISED AND OTHER continued
30
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
31
Increased focus on reducing vacancies
during FY2020
Successful decrease in commercial sector
Residential vacancies impacted by new supply,
aggressively marketed by competitors
Mothballed office vacancies of 100 166m2
for future redevelopment, partnerships or
disposal opportunities (FY2019: 101 859m2):
Acquired for development purposes
Consideration of possible sale of some of
these properties
VACANCIES BY SECTOR
Total vacancies
%
Core vacancies
%
29 February 2020
Offices 42.4 17.6
Retail 11.6 11.6
Specialised and other 3.7 3.5
Industrial 8.8 8.3
Residential 11.0 11.0
Total 17.9 11.7
31 August 2019
Offices 43.0 18.3
Retail 12.3 12.3
Specialised and other 6.6 6.3
Industrial 10.2 9.3
Residential 6.7 6.7
Total 17.7 11.4
* Core vacancies exclude lettable area of properties that are mothballed.
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
By rental income % By GLA m² %
Sector 2021 2022 2023 20242025 and
beyond2021 2022 2023 2024
2025 and
beyondVacant
Commercial
Retail – shops 36.4 24.9 22.6 7.3 8.8 35.9 21.8 15.4 5.6 7.2 14.0
Retail – shopping centres 43.1 17.3 14.4 10.1 15.0 44.6 14.3 11.8 11.2 15.1 3.0
Offices 75.7 9.5 9.6 2.9 2.3 42.4 6.1 5.2 2.0 1.9 42.4
Industrial 61.7 17.1 7.4 5.8 8.0 55.6 17.1 7.2 5.6 5.7 8.8
Specialised and other
Educational facilities 40.4 25.2 12.7 9.1 12.7 47.1 22.8 10.9 12.6 6.5 –
Healthcare facilities 24.8 13.7 10.9 1.9 48.7 17.5 8.7 6.5 1.5 49.9 15.9
Places of worship 76.5 14.0 7.9 – 1.6 74.9 16.6 6.2 – 2.3 –
Auto dealerships 43.8 14.7 – 41.6 – 43.6 23.5 – 32.9 – –
Hotels 100.0 – – – – 100.0 – – – – –
Subtotal 52.9 17.1 14.0 6.9 9.1 44.1 14.5 9.1 5.4 6.8 20.2
Residential 100.0 0.0 – – – 89.0 0.0 – – – 11.0
Total 67.5 11.8 9.7 4.7 6.3 55.6 10.8 6.8 4.0 5.0 17.9
32
LEASE EXPIRY PROFILELease expiry profile by weighted average rental income (%)
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Majority of leases provide for monthly agreement at expiry
On expiry effort is made to conclude longer term leases
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 – 5 year term
Average stay of residential tenant is 21 months
18 Government leases renewed, 3 expected to be signed shortly
Represents 31% of revenue from offices
Reflects improved office lease expiry in next reporting period
33
Molo Mollo
LEASE EXPIRY PROFILE continued
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Building Tenant Lease expiry GLA (m²) Renewal Comments
Inner Court Edcon – Jet Eloff Street January 2020 9 688Pre-COVID-19: Tenant made an offer for 1 100m² on ground floor
portion only – tenant on 40.9% rent reduction until March 2021
Rentmeester Park Special Investigating Unit March 2020 9 3175-year lease renewal, plus an additional 771m² of office space,
although at lower rentals
The Fields SEDA May 2020 6 568
Submitted tender for renewal on existing premises plus an additional
3 085 m² of office space: SEDA advised that they are awaiting
approval for a lease extension until 31 December 2020, while we
await outcome of the tender
KillarneyUnitrans Automotive –
Killarney ToyotaSeptember 2019 4 096
Notice given for 31 May 2020. Leasing team is proactively seeking a
replacement tenant and different alternatives are under consideration
CCMA Place CCMA May 2020 3 598Lease renewed for a further year; meanwhile, we await the outcome
of a tender process for a 5-year lease
Lenchen Park Voltex May 2020 985 Pre-COVID-19: Tenant confirmed that they will be renewing
Nedbank Plaza Nedbank August 2020 871 Tenant has requested reduced size
Anderson Place Standard Bank February 2020 848 Rent freeze for a 1-year lease renewal
Killarney Truworths August 2020 845 2-year lease under negotiation
Central TowersDepartment of Economic
DevelopmentMarch 2020 764
Renewal offer sent at 6% escalation for 1 year - Tenant generally
renews for 1-year lease term
Total: 37 580m²
34
10 MAJOR LEASE EXPIRIES BY GLA – FY2020
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OUR RESULTS AND CAPITAL MANAGEMENT
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
%
Change
Unaudited
6 months
29 February 2020
R’000
Unaudited
6 months
28 February 2019
R’000
Revenue 3.0 1 007 166 977 603 Like-for-like growth in rental income of 2.2% under pressure (FY2019: 2.0%)
Property operating costs 5.7 (475 782) (450 300) Increased efficiencies where possible, bad debts and movements in doubtful
debt provisions at 1.7% of rental income (FY2019: 1.3%)
Significant increase in repairs and maintenance costs (expected to normalise
in the second half)
Net rental income from properties 0.8 531 384 527 303 Net property expense-to-rental income ratio increased to 31.7%
(FY2019: 30.9%). Margin squeeze a concern
Administrative costs 17.1 (46 402) (39 625) Once-off VAT adjustment of R4.3 million, due to change in VAT apportioning
methodology
Operating profit (0.6) 484 982 487 678
Share of income from joint ventures 1 776 2 468 Prior period included interest received on shareholder loans
Distributable profit before finance costs 486 758 490 146
Net – finance costs 4.0 (225 368) (216 688) Weighted average all-in cost of borrowings 9.3% (FY2019: 9.3%)
Lower interest rate environment has not had a material impact on reducing
finance costs as we have hedged most of our debt
Net income after finance costs 261 390 273 458
Amount attributable to Edcon rent reduction (3 046) −
Distributable earnings attributable to shareholders (5.5) 258 344 273 458
Number of shares in issue (’000) 266 198 266 198
Distributable earnings per share (cents) (5.5) 97.0 102.7
36
OUR RESULTS AND CAPITAL MANAGEMENT
Distributable earnings simplified income statement
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Unaudited
29 February 2020
R’000
Audited
31 August 2019
R'000 ASSETS
Non-current assets 12 565 863 12 733 048
Investment property
12 467 501
12 637 240 Fair value of 280 investment properties. Weakening property fundamentals placing pressure on profitability as
well as property valuations
Other financial assets 74 751 74 764 Loan to joint operation (partner)
Derivative financial instruments 850 −
Investment in joint ventures 22 761 21 044 Equity accounted JV – 50% held
Current assets 184 232 201 633 Includes trade and sundry receivables. Arrears and doubtful debt provisions at acceptable levels despite
challenging operating environment. Tenant arrears at 3.5% of gross revenue (FY2019: 3.4%)
Non-current assets held for sale 133 250 209 300 Properties approved for sale
TOTAL ASSETS 12 883 345 13 143 981
EQUITY AND LIABILITIES
Equity 7 350 209 7 578 599
Non-current liabilities 4 633 603 4 220 988
Interest-bearing borrowings 4 417 722 4 027 644 Bank loans, DMTN programme notes. Weighted average term of loans up to 2.6 years
Derivative financial instruments 111 217 99 694 Increased due to mark-to-market valuation of interest rate swap contract liabilities. 91.7% of interest rate risk
hedged, with swap contacts having a weighted average term of 2.6 years
Deferred taxation 93 650 93 650 Liability for recoupment of previous capital allowances
Lease liabilities 11 014 −
Current liabilities 899 533 1 344 394
Interest-bearing borrowings 488 213 950 435 Bank loans, DMTN programme notes. Weighted average term of loans up to 2.6 years
Other 411 320 393 959
TOTAL EQUITY AND LIABILITIES 12 883 345 13 143 981
Shares in issue ('000) 266 198 266 198
Net asset value (NAV) per share (cents) 27.61 28.47
Loan to investment value (LTV) ratio (%) 39.3 38.9
37
Abridged condensed consolidated statement of financial position
OUR RESULTS AND CAPITAL MANAGEMENT continued
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
2 847
2 761
97 0.7
(80.4) (4)
(99.2)
2 500
2 600
2 700
2 800
2 900
3 000
3 100
3 200
NAV at31 August 2019
Distributableprofit
Other Revaluationof investment
property
Revaluationof interestrate swaps
Distributionpaid
November2019
NAV at29 February 2020
38
KEY DRIVERS IN MOVEMENT IN NET ASSET VALUE PER SHARE
Current weak trading environment
with a medium-term anticipation
of significantly subdued trade will
put further pressure on valuations
and NAV
Octodec share price trading at a
substantial discount to NAV
Movement in NAV (CPS)
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
39
CASH FLOW FOR THE PERIOD ENDED 29 FEBRUARY 2020
Strong cash flow generated from operations after taking finance costs into account (R’000)
519 316
(232 324)
(264 068)
78 177
(42 893)
1 675
(72 346) (12 463)0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
Cash generated fromoperations
Net finance costs Dividends paid(November 2019)
Proceeds from disposalof investment property
Investing activities Repaymentof loans
Decrease ininterest-bearing
borrowings
Movement forthe period
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
40
Prudent management of debt
LTV within target range of 35% – 40%
Rigorous review of our property valuations
for the reporting period
Interest rate hedging well above minimum
target of 70%
Proactively addressed loan expiries with
weighted term of 2.6 years (target of at least
2.5 years)
Continue to pay down debt with proceeds
from disposals
Unutilised banking facilities R245.3 million
at end of reporting period
CAPITAL MANAGEMENT
R’million
%
Interest rate
Total borrowings – Banks 4 001.6 8.6
DMTN Programme – unsecured 538.8 8.2
DMTN Programme – secured
(unlisted HQLA)365.5 8.5
TOTAL BORROWINGS 4 905.9 8.5
Cost of swaps – 0.8
TOTAL BORROWINGS 4 905.9 9.3
LTV (%) 39.3
Interest rate hedging – percentage of
borrowings (%)91.7
Weighted average term of swaps (years) 2.6
Weighted average term of debt (years) 2.6
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
59%R2 965 million
29%R1 435 million
12% R579 million
31 August 2019
Nedbank Standard Bank DMTN Programme
41
FUNDING SPLIT AS AT 29 FEBRUARY 2020
54%R2 672 million
35%R1 695 million
11% R539 million
29 February 2020
Process to further diversify funding ongoing
Diversification of funding sources
‒ Reduced Nedbank facility by
repayment of R210 million
during period
‒ New loan facilities secured
from ABSA amounting to
R225 million each for a 3 and
4-year tenure subsequent to
period end
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
327149
895
1 200
1 797
161
250
127
10%8%
21%
24%
37%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
31 August 2020 31 August 2021 31 August 2022 31 August 2023 31 August 2024
Secured loans R'000 Commercial paper R'000
42
INTEREST-BEARING DEBT EXPIRY PROFILE AS AT 29 FEBRUARY 2020
Debt maturing prior to 31 August 2020
Commenced process to extend
the short-term debt
Commercial paper (DMTN
Programme) of R161.4 million
Refinancing of R326.8 million
Nedbank loan recently approved
Weighted average term of loans:
Currently 2.6 years
(FY2019: 2.9 years)
Maintain at similar levels
Proactively addressed loan expiries
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
500
1 250
2 250
500
11%
28%
50%
11%
0%
10%
20%
30%
40%
50%
60%
0
500
1 000
1 500
2 000
2 500
31 August 2021 31 August 2022 31 August 2023 31 August 2024
Amount R'000
43
Lower interest rate cycle presents
opportunity to increase hedging
and offers attractive interest rate
swap opportunities to term out the
expiry profile
At year end, interest rates of
91.7% of borrowings hedged
(FY2019: 85.4%)
Average weighted expiry of
2.6 years (FY2019: 3.0 years)
Expiry profile per financial year
INTEREST RATE HEDGES EXPIRY PROFILE
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OUTLOOK
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
OUTLOOK
45
The ongoing uncertainty, economic and socioeconomic impacts will weigh down on performance for the remainder of the year
We will continue to take proactive steps to protect the business during this time
We remain committed and determined in our efforts to mitigate the reduction in earnings, optimise working capital and preserve
cash flow and liquidity
It is difficult to quantify the impact of COVID-19 on future earnings
Future guidance to shareholders of distributable earnings and dividend payout ratios will depend on:
Octodec's capital requirements
Performance in this weak economy
Proceeds from the sale of investment properties
The impact of COVID-19
While there remains significant uncertainty around the extent and duration of the impact of COVID-19, we believe we are well
positioned as a business to navigate the challenges
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
QUESTIONS AND ANSWERS
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
CONTACT DETAILS www.octodec.co.za
Jeffrey WapnickManaging Director
Tel: 082 900 1172
Email: [email protected]
Anthony SteinFinancial Director
Tel: 082 895 5205
Email: [email protected]
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
APPENDICES
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Investment case
49
Nzunza House
INVESTMENT CASE AND OUR STRATEGY
Proven business model
Well-established strategy
High-quality assets and services
Sound operating fundamentals
Robust portfolio across sectors
Large diversified tenant base
Steady demand driven by urbanisation
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
Strategic objectives How we do it
Create sustainable value for
our stakeholders
‒ Invest in long-term sustainable properties that offer growth opportunities, focusing on Tshwane
and Johannesburg CBDs and residential properties
‒ Improve the existing portfolio by selling non-core and non-profitable assets
‒ Develop and upgrade our properties to enhance and extract value
‒ Deliver on tenant expectations
‒ Assist our tenants in difficult times to avoid eviction, where possible
‒ Focus on tight control of property expenses
‒ Reduce our vacancies through active asset management
‒ Explore, create and take advantage of opportunities to generate rental streams from non-
traditional sources
Optimise our portfolio ‒ Invest in our property portfolio, with emphasis on assets in our strategic nodes
‒ Maintain our focus in the CBDs and residential
Optimise our balance sheet and
funding structure
‒ Diversity funding
‒ Proactive management of interest rate risks
‒ Management of risk in refinancing of borrowings
Our strategy
INVESTMENT CASE AND OUR STRATEGY continued
50
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED
TOP 10 PROPERTIES
Property Location Sector Size (m2)
The Fields Tshwane, Hatfield Mixed use 57 426
Killarney Mall Johannesburg, Killarney Shopping centre 47 470
Woodmead Value Mart Johannesburg, Woodmead Shopping centre 17 913
Sharon's Place Tshwane CBD Mixed use 20 985
Centre Walk Tshwane CBD Mixed use 25 744
Louis Pasteur Tshwane CBD Medical and other 24 799
Kempton Place Kempton Park Mixed use 35 381
Jeff's Place Tshwane CBD Mixed use 14 793
The Park Shopping Centre Tshwane, East Shopping centre 11 926
Silver Place Tshwane, Silverton Mixed use 26 142
Account for 28% of Octodec investment property portfolio by value
51
INTERIM RESULTS for the period ended 29 February 2020OCTODEC INVESTMENTS LIMITED