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OCTODEC INVESTMENTS LIMITED - Unaudited Interim Results for the six months ended 28 February 2019

Release Date: 13/05/2019 07:05
Code(s): OCT     PDF:  
 
Wrap Text
Unaudited Interim Results for the six months ended 28 February 2019

Octodec Investments Limited 
Incorporated in the Republic of South Africa  
Registration number: 1956/002868/06  
Share code: OCT  
ISIN: ZAE000192258 (Approved as a REIT by the JSE)
 
Octodec Investments Limited

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2019

CREATING VALUE BEYOND FINANCIAL RETURN 
Octodec Investments Limited (Octodec or the group or the company) is listed on the JSE Limited (JSE) as a real estate 
investment trust (REIT) with a portfolio of 293 properties valued at R13.0 billion. The group is a long-term investor in a 
Gauteng-focused property portfolio with most of its properties situated in the Tshwane and Johannesburg CBDs. 

Octodec is well-positioned to continue taking advantage of opportunities in the Tshwane and Johannesburg CBDs. The group's 
primary objective is to improve the existing properties in strategic and well located investment nodes with the objective 
of attracting new tenants and improving rental income. The group continues to invest in the defensive residential asset 
class, with a focus on properties that offer affordable rentals and which are located in densely populated urban areas. 

Octodec has contracted City Property Administration (Pty) Ltd (City Property), to perform its asset and property management 
functions. 

- 293 properties valued at R13.0bn
- 66.1% of our portfolio is in Tshwane
- 33.9% of our portfolio is in Johannesburg

Measuring performance
- 101.7 cents per share distributed for the six month period (February 2018: 101.7 cents)
- R29.16 net asset value (NAV) per share
- 2.2% like-for-like growth in rental income for the six month period
- 75.5% of exposure to interest rate risk is hedged (August 2018: 74.5%)
- 38.3% loan to investment value (LTV) (August 2018: 37.8%)
- 9.4% all-in annual weighted average cost of borrowings (February 2018: 9.2%)

Rental income % by sector
- Retail
  shopping centres   10.1% (Feb 2018: 10.4%)
  shops              23.9% (Feb 2018: 24.2%)
  
- Residential        31.9% (Feb 2018: 30.6%)

- Offices            15.6% (Feb 2018: 16.6%)
  
- Industrial          7.0% (Feb 2018:  7.2%)
  
- Specialised 
  and other          11.5% (Feb 2018: 11.0%)

Geographical analysis of the rental income
                                           % of Total
                                            portfolio
Tshwane CBD                                     34.4%
Johannesburg CBD                                21.3%
Tshwane Other                                   12.7%
Johannesburg and Surroundings                   11.9%
Tshwane Hatfield                                 6.4%
Tshwane Arcadia                                  4.9%
Silverton and Surroundings                       4.3%
Waverley, Gezina, Moot                           4.1%

* The information on rental income and property portfolio up to page 14 includes 100% of the joint ventures and not only 
the group's share. 


REVIEW OF RESULTS 

The prevailing poor economic and trading environment, exacerbated by political and policy uncertainty has weighed heavily 
on consumer confidence and spending power. We continue to focus on the core property fundamentals and have positioned 
ourselves to provide shareholders with long-term sustainable value creation. 

Octodec has delivered a dividend of 101.7 cents per share which is in line with its guidance to shareholders of flat 
growth. The dividend was impacted by pressure on rental income growth as well as an increase in property operating costs. 


                                                                                 Unaudited        Unaudited
                                                                                  6 months         6 months
                                                                               28 February      28 February
                                                                                      2019             2018
Salient features                                               % Change              R'000            R'000
Revenue - earned on a contractual basis                             5.2            977 603          929 656 
Net property income - earned on a contractual basis                 1.6            527 303          518 866 
Investment property including joint ventures                        0.6         12 980 069       12 904 343 
Shareholders' funds                                                (1.5)         7 763 260        7 884 600 
Interest bearing borrowings                                         2.8          4 966 627        4 832 687 
Shares in issue ('000)                                                -            266 198          266 198 
Net asset value (NAV) per share (cents)                            (1.6)             2 916            2 962 
Loan to investment value (LTV) ratio (%)                            1.3               38.3%           37.8% 
Distributable profit                                                1.0            273 458          270 779 
Dividend per share (cents)                                            -              101.7            101.7 

Rental income grew by R47.9 million or 5.2% compared to the corresponding reporting period, mainly attributable to the 
increase in rental income of Sharon's Place as well as the inclusion of 100% of Gerlan Properties (Pty) Ltd ("Gerlan") 
(Toyota Auto dealership) acquired on 1 July 2018 and Jardtal Properties (Pty) Ltd ("Jardtal") (Kempton Place and The 
Brooklyn) acquired on 1 November 2018. The remaining 50% interests in Gerlan and Jardtal were acquired during the period, 
and were accounted for as subsidiaries during the reporting period.

The core portfolio, represented by those properties held since the previous comparable period with no major development 
activity reflected like-for-like rental income growth of 2.2%. 

The lower growth in rental income for retail shops, shopping centres, offices and auto dealerships is mainly attributable 
to increased vacancies during the period as well as rental reversions, a result of the poor economic environment. 

Residential rental income increased by 3.9% in an environment of stable occupancy levels and greater focus on tenant 
retention.

Like-for-like rental income per sector and percentage increase for the six month period ended 28 February 2019 
(2.2% increase in total)
                                                R'million                 Percentage
                              like-for-like rental income       like-for-like growth
Retail
  Shops                                           178 714                       1.8%
  Shopping centres                                 78 349                       0.3%
Residential                                       236 356                       3.9%
Offices                                           120 961                     (3.0)%
Industrial                                         54 564                       3.0%
Specialised and other                   
  Educational facilities                           15 848                      21.1%
  Healthcare facilities                            17 448                       9.5%
  Places of worship                                 3 660                      15.7%
  Auto dealerships                                  9 402                     (6.0)%
  Hotels                                            8 145                       6.5%
  Parking                                          33 797                       4.5%


Cost to income ratios 
                                                 28 February                 28 February                   31 August
                                                        2019                        2018                        2018
                                                           %                           %                           %
Property costs                                       
Gross basis                                             46.1                        44.2                        45.7 
Net basis (net of recoveries)                           30.9                        28.3                        30.0 
Administrative costs                                 
Gross basis                                              4.1                         5.2                         4.4 
Net basis (net of recoveries)                            5.2                         6.7                         5.6 
Property and administration costs                    
Gross basis                                             50.1                        49.4                        50.0 
Net basis (net of recoveries)                           36.1                        35.0                        35.6 

Property costs, both on a gross and net basis, have increased compared to the prior period. This is largely due to an 
increase in utility and assessment rate charges and an overall increase in property management costs.

Bad debt write-offs and provisions during the period increased to 1.3% of total tenant income (28 February 2018: 1.2%). 
Residential bad debts contributed to the slight increase in the bad debt expense which is a result of the difficult 
economic conditions facing the consumer. Despite the sustained economic pressure, arrears and doubtful debt provisions 
remain at acceptable levels as a result of tight credit risk management and collections. 

The administration costs decreased by 24.1% compared to the same period in 2018. In the prior period, the administration 
costs included once-off costs incurred with the negotiation and preparation of the asset and property management agreement 
as well as a provision for a VAT liability relating to prior periods. The asset management fees reduced to 0.42% 
(previously 0.5%) in terms of the new asset and property management agreement with City Property which was effective from 
1 July 2018.

Finance costs for the period amounted to R225.7 million, an increase of 5.5% compared to the prior period. The all-in 
weighted cost of borrowings increased to 9.4% per annum (February 2018: 9.2%). This is mainly due to the cost of additional 
hedging contracts entered into during the prior period as well as the interest expensed on the completed development, 
Sharon's Place, which was previously capitalised to the cost of the development. 

Octodec is a voluntary participating landlord in the Edcon recapitalisation and restructure programme ("the restructure"). 
Octodec's exposure to Edcon amounted to 0.9% of total gross lettable area (GLA) and 1.2% of rental income and the impact of 
the restructure on distributable income for the financial year ending 31 August 2019 is R2.2 million or 0.4% of 
distributable income. For further information on the restructure, please refer to the Octodec SENS announcement dated 
12 March 2019.

INVESTING FOR GROWTH

Developments
Sharon's Place which was completed in phases by 30 June 2018 was 98% occupied as at February 2019, with strong growth in 
rental income expected for the foreseeable future.

During the current period, the group did not undertake any significant developments. However, the group has several smaller 
projects underway, in line with Octodec's strategy to upgrade, maintain and extract value from its property portfolio. One 
of these is the refurbishment of Elarduspark Shopping Centre, a community shopping centre in a south-eastern suburb of 
Pretoria, which is expected to be completed in October 2019 at a cost of R40.4 million. These various upgrades should not 
only improve the occupancy levels and enhance the value of the portfolio, but will also contribute to the upliftment of the 
areas in which Octodec is predominantly invested.

Investments
Octodec acquired the remaining 50% interest in Jardtal, effective 1 November 2018, for a cash consideration of 
R36.5 million at an initial yield of 9.5%. 

Jardtal comprises two properties, Kempton Place, a residential complex with retail and parking, located in Kempton Park and 
The Brooklyn, a residential building with retail, located in the Johannesburg CBD.

Disposals
In line with the decision to dispose of non-core or under-performing properties, the group disposed of a further fourteen 
properties during the period. At the date of this report, six of these properties had been transferred for a total 
consideration of R98.8 million. Transfer of the remaining eight properties for a total consideration of R39.0 million is 
expected to take place before the 2019 financial year-end. The properties were sold at an average combined exit yield of 
5.7% and a combined premium of R2.4 million to carrying value. 


Properties disposed of and transferred before 28 February 2019 

Property                          Location                Total      Profit/(loss)
                                                  consideration        on disposal             Transfer         Exit
                                                      R'million          R'million                 date        yield % 
Medical Towers            Johannesburg CBD                 25.2                0.8       September 2018          3.3 
Ken's Court                   Pretoria CBD                 44.6                1.6       September 2018          4.4 
The Pavilion                     Sunnyside                 23.1               (1.5)       December 2018          7.5 
Brianley (2)                     Silverton                  2.0               (0.7)       December 2018         11.6 
Midchurch                     Pretoria CBD                  1.5                0.2        December 2018            -
Troymona (1 out of 2 houses)      Waverley                  1.1                0.2         January 2019          8.2 
Monaco (5 out of 12 remaining 
sectional title units)            Tshwane-
                                   Arcadia                  1.3                0.1         September to 
                                                                                          February 2019          7.0 
Total                                                      98.8                0.7                               5.1 

Transfers expected to take place after 28 February 2019 

Property                          Location                Total      Profit/(loss)             Expected
                                                  consideration        on disposal             transfer         Exit
                                                      R'million          R'million                 date        yield % 
Supmall                          Silverton                 11.2                  -           April 2019*         9.2 
Goleda (3)                    Tshwane West                  1.9                0.2           April 2019*         4.5 
Notrevlis                        Silverton                 11.2                0.2             May 2019*         5.5 
Viskin                        Pretoria CBD                  2.9                0.8             May 2019         10.2 
Brianley (4)                     Silverton                  2.0                  -             May 2019          3.1 
Brianley (7)                     Silverton                  1.7                0.4             May 2019          1.9 
Hannyhof (1)                    Hermanstad                  5.4                0.1             May 2019          9.7 
Hannyhof (2)                    Hermanstad                  2.7                  -             May 2019          7.5 
Total                                                      39.0                1.7                               7.3 
* Already transferred 

Vacancies 
Vacancies in the Octodec portfolio at 28 February 2019, including properties held for redevelopment, amounted to 17.7% 
(31 August 2018: 18.6%) of gross lettable area. The core vacancies, which exclude the gross lettable area relating to 
properties held for development and those currently being redeveloped amounted to 11.3% (31 August 2018: 11.6%).

Vacancies by sector as at 28 February 2019

                                                                        Properties                       
                                           Gross                          held for                      
                                        lettable                     redevelopment                       
                                            area          Total        or recently           Core    
                                           (GLA)      vacancies          developed      vacancies   
                                              m2              %                  %              %   
Retail - shops                           338 794           12.8                 -            12.8 
Retail - shopping centres                 95 012            6.6                 -             6.6 
Residential                              391 887            5.7                 -             5.7 
Offices                                  410 103           43.9             (24.6)           19.3 
Industrial                               252 015           12.3             (1.05)           11.3 
Specialised and other                        
  Educational facilities                  60 268              -                 -               - 
  Healthcare facilities                   36 566           14.7              (1.2)           13.5 
  Places of worship                       16 361              -                 -               - 
  Auto dealerships                        14 403              -                 -               - 
  Hotels                                  13 458              -                 -               - 
Total                                  1 628 867           17.7              (6.4)           11.3 

Vacancies by sector as at 31 August 2018 

                                                                        Properties                       
                                           Gross                          held for                      
                                        lettable                     redevelopment                       
                                            area          Total        or recently           Core    
                                           (GLA)      vacancies          developed      vacancies   
                                              m2              %                  %              %   
Retail - shops                           349 633           13.2               (0.1)          13.1 
Retail - shopping centres                 95 009            5.2                  -            5.2 
Residential                              393 643            6.4               (0.6)           5.8 
Offices                                  413 581           45.1              (26.4)          18.7 
Industrial                               253 396           15.0               (1.0)          14.0 
Specialised and other                        
  Educational facilities                  56 753              -                  -              - 
  Healthcare facilities                   36 566           14.1               (1.2)          12.9 
  Places of worship                       16 672              -                  -              - 
  Auto dealerships                        15 722              -                  -              - 
  Hotels                                  13 458              -                  -              - 
Total                                  1 644 433           18.6               (7.0)          11.6 

There has been an overall decrease in core vacancies. The most notable reduction was in the industrial sector, although 
with lower rentals being achieved. The increase in shopping centre vacancies is mainly attributable to the impact of the 
upgrade of Elarduspark Shopping Centre, with vacant space not being relet in anticipation of the upgrade. The occupancy 
levels are expected to improve after the completion of the upgrade of this shopping centre.

In recent years, certain office properties such as Fedsure House, Reinsurance House, Van Riebeeck Medical Building and 
Midtown were acquired with high vacancy levels. The potential of these office properties, with 101 046 m2 of mothballed 
space, is being investigated and offer significant residential conversion, office redevelopment or disposal opportunities, 
the value of which will be realised in due course.

Lease expiry profile
Octodec's portfolio features a mix of short to long-term leases due to the nature of the property portfolio. The majority 
of the leases provide for a monthly agreement at expiry of the lease. When this occurs an effort is made to conclude 
longer-term leases. This is especially typical of the residential market and leases with small to medium-sized enterprises. 
The lease expiry profile is in line with historical trends and expectations.

Lease expiry profile as at 28 February 2019

                            By rental income(%)                          By GLA m2(%)                        
                                                             2024                                         2024
                                                              and                                          and    Vacant
Sector                      2020    2021    2022    2023   beyond        2020    2021    2022    2023   beyond         %

Retail - shops              38.3    20.7    17.6    15.0      8.4        37.3    17.4    15.4    10.0      7.1      12.8 
Retail - shopping 
         centres            22.9    33.5    20.6     7.2     15.8        20.2    34.1    12.8     7.3     19.0       6.6 
Residential                 97.0     3.0       -       -        -        90.7     3.6       -       -        -       5.7 
Offices                     59.7    28.1     4.2     5.1      2.9        33.7    15.1     2.5     2.8      2.0      43.9 
Industrial                  50.4    27.0     9.8     1.8     11.0        44.3    22.3     9.9     1.8      9.4      12.3 
Specialised and other 
  Educational facilities    65.7     8.1    10.5     8.0      7.7        68.6     6.0     9.3     8.1      8.0         - 
  Healthcare facilities     21.2    19.4    43.3     6.6      9.5        14.8    12.7    47.4     4.6      5.8      14.7 
  Places of worship         76.8    16.7     4.7     1.8        -        70.8    22.6     5.7     0.9        -         - 
  Auto dealerships          43.2    25.3       -       -     31.5        54.0    19.2       -       -     26.8         - 
  Hotels                       -   100.0       -       -        -           -   100.0       -       -        -         - 
                            60.6    18.6     9.2     5.7      5.9        50.1    15.5     7.6     3.9      5.2      17.7 

Borrowings
Borrowings as at 28 February 2019 
                                                                          Weighted average 
                                                 Amount                  interest rate per 
                                              R'million                            annum % 

Bank loans                                      3 909.7                                8.9 
Domestic medium-term note programme (DMTN)      1 057.0                                8.7 
Total borrowings                                4 966.7                                8.9 
Cost of swaps                                         -                                0.5 
Total borrowings                                4 966.7                                9.4 

The group's loan to value ratio (LTV) as at 28 February 2019 was 38.3% (August 2018: 37.8%), taking into account the loans 
and investment value of our equity accounted joint ventures.

Octodec has reduced its exposure to interest rate risk by entering into interest rate swap contracts. As at 28 February 
2019, 75.5%, of its borrowings were hedged (August 2018: 74.5%) with a weighted average period of 2.3 years. Subsequent to 
28 February 2019, Octodec entered into an additional swap contract for an amount of R500 million, increasing the hedging of 
our borrowings to 85.6%. 

Including the additional swap contract entered into after 28 February 2019, the hedges in place are for a weighted average 
period of 2.4 years. 

As at 28 February 2019, the all-in weighted average interest rate of all borrowings was 9.4% per annum (February 2018: 
9.2%), with a weighted average term to expiry of 2.3 years (August 2018: 2.5 years).

The process to extend or refinance short-term borrowings has already commenced with the banks and Octodec is confident of 
the successful outcome thereof. 

Loan expiry profile per financial year (Rm and %)
                Rm        %
2019         1 115      22.5%
2020         1 003      20.8%
2021           626      12.6%
2022           740      14.9%
2023           369       7.4%
2024         1 083      21.8%

Total value of loans R4.966 billion

Expiry profile of fixed rate loans and interest rate swap contracts per financial year (Rm and %)
                Rm        %
2020           500      11.8%
2021         1 750      41.2%
2022           750      17.6%
2023         1 250      29.4%

Total interest rate swaps R4.250 billion

Octodec participates in a DMTN programme through its subsidiary, Premium Properties Limited. As at 28 February 2019 the 
total issuance was at R1.057 billion, or 21.3% of the group's borrowings. Global Credit Rating's long and short-term 
national scale ratings of Premium Properties Limited are A-(ZA) and A1-(ZA) respectively.

Octodec had unutilised available banking facilities amounting to R562.1 million at 28 February 2019.


CHANGES IN FAIR VALUE

It is the group's policy to perform internal valuations of all the properties at the interim period and at year-end. 
The valuations are based on the income capitalisation method, which is consistent with the basis used in prior years. 
The property portfolio, was internally valued at R13.0 billion at 28 February 2019 after a write down in fair value of 
R23.0 million, mainly attributable to an increase in the capitalisation rates applied in the valuation of the portfolio, in 
an environment of low growth. 

The mark-to-market value of interest rate swaps contracts, which protect the group against adverse interest rate movements, 
resulted in a fair value loss of R37.0 million for the period.

PROSPECTS

Local market uncertainty continues and no significant improvement in the economy and consumer health is expected in the 
short-to-medium term. Following the conclusion of the general elections this month, political risk and uncertainty is 
expected to settle, restoring some level of confidence. South Africa is expected to achieve minimal growth for 2019. 
Thereafter, improved conditions should provide the stimulus for Octodec to unlock value and provide shareholders with a 
growing sustainable distribution. 

Octodec's experienced management team combined with its diversified portfolio, large number of tenants, sound operating 
fundamentals and prudent capital management, underpin the group's resilience during these challenging times. 

The disposal of non-core or under-performing properties will remain a key focus area for the foreseeable future. The 
proceeds from the disposals will be applied towards the repayment of borrowings. 

The forecast dividend for the second six month period ending 31 August 2019 is expected to be slightly lower than the 
dividend for the six month period ended 28 February 2019, resulting in an anticipated decrease of approximately 2% in the 
dividend for the year.

This guidance is based on:
-  the current market and trading conditions prevailing for the property portfolio
-  the current forecast investment property income calculated using contractual rentals and assumed market-related renewals
-  allowance for vacancies using assumptions and historical experience
-  no major corporate and tenant failures occurring 
-  no further deterioration in the political and socio-economic environment
-  the cost of terming out of loans and entering into additional interest rate swap contracts

This forecast has been neither reviewed nor reported on by the group's auditors.

DECLARATION OF CASH DIVIDEND

The board of directors of Octodec declared an interim cash dividend of 101.7 cents per share, for the six months ended 
28 February 2019, out of the company's distributable income.

SALIENT DATES AND TIMES
The salient dates and times for the cash dividend are as set out below:

                                                                                                 2019 
Last day to trade cum dividend                                                        Tuesday, 28 May 
Shares trade ex dividend                                                            Wednesday, 29 May 
Record date to receive cash dividend                                                   Friday, 31 May 
Electronic transfer into personal bank account of certificated shareholders2           Monday, 3 June 
Accounts credited by CSDP or broker to dematerialised shareholders with the cash 
dividend payment                                                                       Monday, 3 June 
Notes:
1.  Shares may not be dematerialised or rematerialised between Wednesday, 29 May 2019 and Friday, 31 May 2019, both days 
    inclusive. 
2.  Where the transfer secretaries do not have the banking details of any certificated shareholders, the cash dividend will 
    be held by the company pending receipt of the relevant certificated shareholder's banking details, whereafter the cash 
    dividend will be paid via electronic transfer into the personal bank accounts of certificated shareholders.


Tax implications for non-resident shareholders

Dividends received by non-resident shareholders from a REIT will not be taxable as income and will be exempt from income 
tax in terms of the exemption in section 10(1)(k)(i) of the Income Tax Act. Any dividend received by a non-resident from a 
REIT is subject to dividend tax at 20%, unless the rate is reduced in terms of any applicable agreement for the avoidance 
of double taxation agreements (DTA) between South Africa and the country of residence of the non-resident shareholders. 
Assuming dividend tax will be withheld at a current rate of 20% the net dividend amount due to non-resident shareholders is 
81.36 cents per share. 

A reduced dividend tax in terms of the applicable DTA may only be relied on if the non-resident shareholder has submitted 
the following forms to his/her CSDP or broker, as the case may be, in respect of uncertificated shares, or the transfer 
secretaries, in respect of certificated shares:

-  A declaration that the dividend is subject to a reduced rate as a result of the application of the DTA; and
-  A written undertaking to inform the CSDP, broker or the transfer secretaries, as the case may be, should the 
   circumstances affecting the reduced rate change or the beneficial owner cease to be the beneficial owner,

both in the form prescribed by the Commissioner for the South African Revenue Services (SARS).  

If applicable, non-resident shareholders are advised to contact the CSDP, broker or the company, as the case may be, to 
arrange for the above-mentioned documents to be submitted prior to payment of the dividend, if such documents have not 
already been submitted.

Tax implications for South African resident shareholders

Dividends received by or accrued to South African tax residents must be included in the gross income of such shareholders.
They are not exempt from income tax in terms of the exclusion to the general dividend exemption contained in section 
10(1)(k)(i)(aa) of the Income Tax Act because they are dividends distributed by a REIT. These dividends are, however, 
exempt from dividend withholding tax (dividend tax) in the hands of South African resident shareholders, provided that the 
South African resident shareholders have made submissions to the CSDP or broker, as the case may be, in respect of 
uncertificated shares, or the company in respect of certificated shares, a DTD (EX) (Dividend Tax: declaration that the 
dividend is exempt from dividends tax and a written undertaking to inform the CSDP, broker or the company, as the case may 
be, should the circumstances affecting the exemption change or the beneficial owner ceases to be the beneficial owner, both 
in the form prescribed by the Commissioner for the South African Revenue Services (SARS).

If resident shareholders have not submitted the above-mentioned documentation to confirm their status as a South African 
resident they are advised to contact their CSDP or broker, as the case may be, to arrange for the documents to be submitted 
prior to payment of the cash dividend.

Shareholders are encouraged to consult with their professional advisors should they be in any doubt as to the appropriate 
action to take.

The number of shares in issue at the date of this declaration is 266 197 535 and Octodec's tax reference number is 
9925/033/71/5. 

By order of the board 
S Wapnick                   JP Wapnick 
Chairman                    Managing director 
10 May 2019 


NOTES TO THE 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, 71 of 2008 of South Africa. The interim report has been prepared in 
accordance with IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting 
Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council. The accounting 
policies applied in the preparation of the condensed consolidated interim financial statements are in accordance with 
International Financial Reporting Standards (IFRS) and, with the exception of the adoption of IFRS 9 - Financial 
instruments and IFRS 15 - revenue from contracts, are consistent with those applied in the preparation of the previous 
consolidated audited financial statements for the year ended 31 August 2018.

The group has adopted IFRS 9 - Financial instruments and IFRS 15 - Revenue from contracts with customers and the adoption 
thereof did not have any material impact on the results for the period. 

These results have been prepared under the historical cost convention, except for investment properties, which are measured 
at fair value, and certain financial instruments, which are measured at either fair value or amortised cost.

These condensed consolidated interim financial statements were prepared under the supervision of Mr AK Stein CA(SA), 
in his capacity as group financial director and have not been reviewed or reported on by the company's auditors.

Fair value measurement
The valuation techniques used for calculating fair value have remained unchanged compared to the previous reporting period.

Investment property
The fair value of the group's investment property as at 28 February 2019 was arrived at on the basis of a valuation 
technique using the net income capitalisation method by taking into account prevailing market rentals, occupation levels 
and capitalisation rates. 

The first key input used in the valuation calculation is the capitalisation rate. The range of annual capitalisation rates 
applied to the property portfolio is between 8.0% and 12.5% (August 2018: 8.0% and 13.0%) with a weighted annual average of 
9.4% (August 2018: 9.3%).

The second key input used in the valuation calculation is the long-term net operating income margin, of which the expense 
ratio is the significant unobservable input. Expense ratios used ranged from 6.3% to 48.9% (August 2018: 5.7% to 49.1%) 
with a weighted average of 25.5% (August 2018: 25.1%).

The third key input used in the valuation calculation is the long-range vacancy factor. The expected long-range vacancy 
factor takes into account historic and future vacancy trends. The long-range vacancy factor indicates the expected vacancy 
to be applied over the long-term that best approximates the actual experience. The long-range vacancy factor used ranged 
from 0.0% to 25.0% (August 2018: 0.0% to 30.0%) with a weighted average of 5.7% (August 2018: 5.6%).

The directors value the entire property portfolio bi-annually. The effect of the fair value measurement on investment 
properties resulted in a decrease in profit of R23.0 million in the statement of profit and loss and other comprehensive 
income.

Financial instruments
Financial instruments measured at fair value include interest rate swaps. The fair values of the interest rate swaps are 
determined on a mark-to-market valuation calculated by discounting the estimated future cash flows based on the terms and 
maturity of each contract and using the market interest rate indicated on the SA swap curve.

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 measurement.
The different levels have been defined as:
-  Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
-  Level 2: Input other than quoted prices included within Level 1 that are observable for the asset or liability, either 
   directly (i.e. as prices) or indirectly (i.e. derived from prices)
-  Level 3: Input for the asset or liability that is not based on observable market data 

The following table reflects the levels within the fair value hierarchy of financial and non-financial assets measured at 
fair value at 28 February:

                                                2019                           2018
                                               R'000                          R'000
                                       Level 2        Level 3         Level 2         Level 3
Derivative financial instruments 
  Assets                                 1 090                          3 989
  Liabilities                           46 593                         45 793
Non-financial instruments
  Investment property                              12 667 011                      12 488 106
  Investment property held for sale                   290 700                         242 800

There were no transfers between Level 1, 2 and 3 during the six months ended 28 February 2019.

Fair value measurements using significant unobservable inputs
                                                 Investment                         Investment
                                            property, plant                    property, plant
                                              and equipment                      and equipment
                                                28 February                          31 August
                                                       2019                               2018
                                                      R'000                              R'000
Balance at beginning of period                   12 743 362                         12 598 898 
Total fair value changes for the 
period included in profit and loss                  (23 021)                           (39 084)
Straight-line rental income accrual                  (1 423)                             1 482 
Depreciation and amortisation                        (7 977)                           (17 558)
Acquisitions, disposals and other movements:                       
  Developments and subsequent expenditure            34 621                            185 232 
  Acquired through business combination             310 200                             76 000 
  Disposals                                         (98 050)                           (61 608)
Balance at end of period                         12 957 712                         12 743 362 
Included in profit and loss for the period:                        
Changes in fair value of investment property        (23 021)                           (39 084)

Relationship of unobservable inputs to fair value
The significant unobservable inputs used in the fair value measurement of the group's investment properties are the 
capitalisation rates, the expense to income ratios as well as the long-range vacancy factor. Significant 
increases/(decreases) in any of these inputs in isolation would result in a significantly lower/(higher) fair value 
measurement. 

An increase of 1% in the capitalisation rate, while all other variables remain constant, would result in a decrease in the 
carrying amount of investment property of R1.2 billion. A decrease of 1% in the capitalisation rate, while all other 
variables remain constant, would result in an increase in the carrying amount of investment property of R1.5 billion. 

An increase/(decrease) of 1% in the weighted average expense ratio used to calculate the long-term net operating income 
margin, while all other variables remain constant, would result in an increase/(decrease) in the carrying amount of 
investment property of R173.2 million. 

An increase/decrease of 1% in the long-range vacancy factor, while all other inputs remain constant, would result in an 
increase/decrease in the carrying amount of investment property of R136.9 million.

Stated capital
There have been no changes in the issued shares of the company.

                                   28 February           28 February         31 August
                                          2019                  2018              2018 
Shares in issue ('000)                 266 198               266 198           266 198 
Weighted shares in issue ('000)        266 198               266 586           266 389 

Events after the reporting date 
There have been no material subsequent events that require reporting.

Commitments  
The group has approved capital commitments in the amount of R63.9 million, relating to various redevelopments, upgrades of 
properties and committed tenant installations. These will be funded out of existing unused banking facilities.  

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 the Wapnick family is a shareholder of both companies.

Total rental income received from City Property for the lease of its two offices in Pretoria and Johannesburg, amounts to 
R4.2 million and total payments made to City Property amount to R95.1 million. This includes fees for collections, leasing, 
property management, asset management, commission on acquisitions and disposals as well as upgrades and developments. 

At 28 February 2019, an amount of R5.8 million was owing to City Property.

Business combination 
With effect from 1 November 2018, Joybee Properties (Pty) Ltd (Joybee), a subsidiary of the group, acquired the remaining 
50% of Jardtal, a property-owning company, for a consideration of R36.5 million, settled in cash, increasing its 
shareholding from 50% to 100%. This resulted in Joybee acquiring control of Jardtal and accordingly Jardtal changed from a 
joint venture to a subsidiary of the group.

Fair value of assets acquired and liabilities recognised at the date of acquisition. 

                                                                            R'000 
Non-current assets
  Investment property                                                     310 165 
Current assets 
  Loans receivable                                                          2 994 
  Accounts receivable and prepayments                                       1 590 
  Bank balance and cash                                                       915 
                                                                            5 499 
Non-current liabilities                                             
  Interest bearing borrowings                                            (154 316)
Current liabilities                                                
  Interest bearing borrowings                                             (74 100)
  Non-interest bearing borrowings                                          (8 189)
                                                                          (82 289)
Total identifiable net assets                                              79 059 
Fair value of equity interest held before the business combination        (39 530)
Bargain purchase on acquisition                                            (3 029)
Acquisition date fair value consideration paid in cash                     36 500 

Net cash outflow on acquisition

                                                                            R'000
Cash consideration paid                                                    36 500
Bank and cash acquired                                                       (915)
Net cash outflow on acquisition                                            35 585

Octodec acquired the remaining shares in Jardtal as it provided Octodec shareholders with an attractive return.

Impact of acquisition on the results of the group
Included in revenue and profit for the period is R15.0 million and R4.5 million respectively, in respect of Jardtal. If the 
acquisition had occurred on 1 September 2018, consolidated revenue for the period ended 28 February 2019 would have been 
R984.0 million compared to R977.6 million and consolidated profit after tax would have been R209.3 million compared to 
R209.6 million.

Changes to the board  
The board welcomes Mr NC Mabunda, who was appointed to the board with effect from 11 February 2019, and looks forward to 
working with him.


FINANCIAL STATEMENTS 

Condensed consolidated statement of financial position 
                                                             Unaudited               Unaudited                 Audited 
                                                           28 February             28 February               31 August 
                                                                  2019                    2018                    2018 
                                                                 R'000                   R'000                   R'000 
ASSETS                                       
Non-current assets                                          12 765 459              12 739 824              12 590 121 
  Investment property                                       12 521 319              12 331 263              12 228 808 
  Plant and equipment                                            2 731                   4 530                   3 463 
  Straight-line rental income accrual                          110 838                 111 998                 111 282 
  Tenant installation and lease costs                           32 123                  40 315                  35 210 
  Other financial assets                                        75 000                  75 000                  75 000 
  Derivative financial instruments                               1 090                   3 281                   7 618 
  Investment in joint ventures                                  22 358                 173 437                 128 740 
Current assets                                                 171 175                 215 149                 199 099 
  Accounts receivable and prepayments                          118 490                 134 827                 130 498 
  Derivative financial instruments                                   -                     708                   1 986 
  Other financial assets                                         2 802                   1 491                   3 028 
  Taxation receivable                                              675                       -                     675 
  Bank and cash                                                 49 208                  78 123                  62 912 

  Non-current assets held for sale                             290 700                 242 800                 364 600 

TOTAL ASSETS                                                13 227 334              13 197 773              13 153 820 
EQUITY AND LIABILITIES                       
Equity                                                       7 763 260               7 884 600               7 824 398 
  Stated capital                                             4 210 134               4 210 134               4 210 134 
  Non-distributable reserve                                  3 200 260               3 327 048               3 262 710 
  Retained earnings                                            352 866                 347 418                 351 554 
Non-current liabilities                                      3 990 746               4 218 706               3 345 332 
  Interest-bearing borrowings                                3 851 395               4 093 637               3 240 759 
  Derivative financial instruments                              46 593                  44 591                  17 977 
  Deferred taxation                                             92 758                  80 478                  86 596 
Current liabilities                                          1 473 328               1 094 467               1 984 090 
  Interest-bearing borrowings                                1 115 232                 739 050               1 605 774 
  Non-interest bearing borrowings                              358 096                 354 215                 378 217 
  Derivative financial instruments                                   -                   1 202                      99 

TOTAL EQUITY AND LIABILITIES                                13 227 334              13 197 773              13 153 820 


Condensed consolidated statement of comprehensive income 
                                                                       Unaudited            Unaudited              Audited 
                                                                        6 months             6 months            12 months 
                                                          %          28 February          28 February            31 August 
                                                     Change                 2019                 2018                 2018 
                                                                           R'000                R'000                R'000 
Revenue                                                 4.9              976 180              930 924            1 895 288 
  earned on a contractual basis                         5.2              977 603              929 656            1 893 806 
  straight-line rental income accrual                                     (1 423)               1 268                1 482 
Property operating costs                                9.6             (450 300)            (410 790)            (864 911)
Net rental income from properties                       1.1              525 880              520 134            1 030 377 
Administration expenses                               (24.1)             (39 625)             (52 238)             (82 875)
Operating profit                                        3.9              486 255              467 896              947 502 
Fair value (losses)/gains                                                (60 051)              61 075                  589 
  investment property                                                    (23 021)              54 733              (39 084)
  interest rate derivatives                                              (37 030)               6 342               39 673 
Profit/(loss) on disposal of 
investment property                                                          719                1 051                 (916)
Gain/(loss) on derecognition of share 
in joint venture                                                               -                    -               (2 770)
Bargain purchase on business 
combination                                                                3 029                    -                    - 
Impairment of goodwill                                                         -                    -               (1 992)
Interest income                                                            8 987                9 498               18 584 
Finance costs                                           5.5             (225 675)            (213 869)            (438 881)
  interest on borrowings                                                (225 675)            (223 035)            (451 967)
  interest capitalised                                                         -                9 166               13 086 
Share of income from joint ventures                                        2 482                4 437                9 954 
  share of after tax profit                                                1 106                4 026                9 291 
  share of fair value gains/(losses)                                          14               (4 085)              (9 747)
  interest & management fees                                               1 362                4 496               10 410 

Profit before taxation                                (34.6)             215 746              330 088              532 070 
Taxation charge                                                           (6 161)                 (46)               8 493 
current                                                                        -                    -                1 522 
deferred                                                                  (6 161)                 (46)               6 971 

Profit for the period                                 (36.5)             209 585              330 042              540 563 
Other comprehensive income for the 
period - Items that will not be 
reclassified to profit and loss                                                -                    -                    - 
Total comprehensive income for the 
period attributable to equity holders                 (36.5)             209 585              330 042              540 563 
Basic and diluted earnings per share (cents)          (36.4)                78.7                123.8                202.9 


Condensed consolidated statement of changes in equity 
                                                                              Non-                               
                                                         Stated      distributable       Retained                
                                                        capital            reserve       earnings          Total 
                                                          R'000              R'000          R'000          R'000 
Balance at 31 August 2017 (audited)                   4 221 477          3 269 053        337 699      7 828 229 
Total comprehensive income for the period                     -                  -        330 042        330 042 
Shares repurchased                                      (11 343)                 -              -        (11 343)
Dividends paid                                                -                  -       (262 328)      (262 328)
Transfer to non-distributable reserve        
Profit on sale of investment property                         -              1 051         (1 051)             - 
Fair value gains/(losses)                    
  investment property                                         -             54 733        (54 733)             - 
  joint ventures                                              -             (4 085)         4 085              - 
  interest rate derivatives (net of deferred tax)             -              6 296         (6 296)             - 
Balance at 28 February 2018 (unaudited)               4 210 134          3 327 048        347 418      7 884 600 
Total comprehensive income for the period                     -                  -        210 521        210 521 
Dividends paid                                                -                  -       (270 723)      (270 723)
Transfer to non-distributable reserve        
 Loss on sale of investment property                          -             (1 967)         1 967              - 
 Loss on derecognition of investment in 
 Joint venture                                                -             (2 770)         2 770              - 
 Impairment of goodwill                                       -             (1 992)         1 992              - 
 Deferred tax                                                 -              8 493         (8 493)             - 
 Fair value gains/(losses)                    
  investment property                                         -            (93 817)        93 817              - 
  investment property - joint ventures                        -             (5 662)         5 662              - 
  interest rate derivatives (net of deferred tax)             -             33 377        (33 377)             - 
Balance at 31 August 2018 (audited)                   4 210 134          3 262 710        351 554      7 824 398 
Total comprehensive income for the period                     -                  -        209 585        209 585 
Dividends paid                                                -                  -       (270 723)      (270 723)
Transfer to non-distributable reserve        
 Profit on sale of investment property                        -                719           (719)             - 
 Deferred tax                                                 -             (6 161)         6 161              - 
 Profit on derecognition of investment in 
 joint venture                                                -              3 029         (3 029)             - 
 Fair value gains/(losses)                    
  investment property                                         -            (23 021)        23 021              - 
  investment property - joint ventures                        -                 14            (14)             - 
  interest rate derivatives (net of deferred tax)             -            (37 030)        37 030              - 
Balance at 28 February 2019 (unaudited)               4 210 134          3 200 260        352 866      7 763 260 


Condensed consolidated statement of cash flows 
                                                             Unaudited               Unaudited                 Audited 
                                                              6 months                6 months               12 months 
                                                           28 February             28 February               31 August 
                                                                  2019                    2018                    2018 
                                                                 R'000                   R'000                   R'000 
Cash flow from operating activities                   
Net rental income from properties                              486 255                 467 896                 947 502 
Adjusted for:                                        
  straight-line rental income accrual                            1 423                  (1 268)                 (1 482)
  depreciation, amortisation and impairments                     7 977                   8 214                  17 558 
  working capital changes                                       (9 914)                 20 182                  42 629 
Cash generated from operations                                 485 741                 495 024               1 006 207 
Interest income                                                  8 987                   9 498                  18 584 
Finance costs                                                 (227 476)               (223 035)               (446 227)
Dividend paid to equity holders                               (270 723)               (262 328)               (533 051)
Net cash (utilised)/generated from 
operating activities                                            (3 471)                 19 159                  45 513 
Cash flow from investing activities                   
Acquisition/development of investment property                 (34 655)               (109 293)               (173 062)
Increase in financial assets                                       226                       -                  (2 817)
Income from joint ventures                                           -                       -                  24 916 
Net repayment to joint venture                                  (4 765)                      -                       - 
Purchase of subsidiary                                         (35 585)                      -                 (32 858)
Proceeds from disposal of investment property                   98 769                  42 491                  61 608 
Net cash generated/(utilised) used in 
investing activities                                            23 990                 (66 802)               (122 213)
Cash flow from financing activities                   
Shares repurchased                                                   -                 (11 343)                (11 343)
Proceeds from borrowings                                     1 167 115               1 657 187               2 714 034 
Repayment of borrowings                                     (1 201 338)             (1 650 834)             (2 693 835)
Net cash (utilised)/generated from 
financing activities                                           (34 223)                 (4 990)                  8 856 
Net decrease in bank and cash balance                          (13 704)                (52 633)                (67 844)
Bank and cash balance at beginning of period                    62 912                 130 756                 130 756 
Bank and cash balance at end of period                          49 208                  78 123                  62 912 


Reconciliation of comprehensive income to headline earnings 
                                                             Unaudited               Unaudited                 Audited 
                                                              6 months                6 months               12 months 
                                                           28 February             28 February               31 August 
                                                                  2019                    2018                    2018 
                                                                 R'000                   R'000                   R'000 
Total comprehensive income attributable to 
equity holders                                                 209 585                 330 042                 540 563 
Headline earnings adjustments:                       
Profit on sale of investment properties                           (719)                 (1 051)                    916 
Impairment of goodwill                                               -                       -                   1 992 
(Gain)/loss on derecognition of interest 
in joint venture                                                (3 029)                      -                   2 770 
Fair value gains/(losses)                            
  investment property                                           23 021                 (54 733)                 39 084 
  investment property - joint ventures                             (14)                  4 085                   9 747 
Headline earnings attributable to equity holders               228 844                 278 343                 595 072 
Headline and diluted headline earnings 
per share (cents)                                                 86.0                   104.4                   223.4 


Condensed consolidated segmental information 
The group earns revenue in the form of property rentals. The group's properties are aggregated into segments with similar 
economic characteristics such as the occupier's market it serves and the nature of the property. 

                           Unaudited                Unaudited                                      Unaudited
                            6 months                 6 months                   Re-classi-          6 months
                         28 February              28 February                     fication       28 February
                                2019                     2018                   of sectors              2018
Rental income by sector        R'000          %         R'000          %             R'000             R'000
Offices                      120 807       15.8       124 408       17.2           (27 661)          152 069 
Retail                       257 029       33.7       251 875       34.8           (16 951)          268 826 
Industrial                    54 582        7.2        55 084        7.6            (1 303)           56 387 
Residential                  241 788       31.7       214 449       29.6                 -           214 449 
Specialised and other            
Parking                       34 029        4.4        32 186        4.5                 -            32 186 
Healthcare facilities         17 448        2.3        15 939        2.2            15 939                 - 
Auto dealerships               9 402        1.2         6 078        0.8             6 078                 - 
Hotels                         8 145        1.1         7 648        1.1             7 648                 - 
Places of worship              3 660        0.5         3 162        0.4             3 162                 - 
Educational facilities        15 848        2.1        13 088        1.8            13 088                 - 
Total rental income          762 738      100.0       723 917      100.0                 -           723 917 
Straight-line rental 
income accrual                (1 423)                   1 268                        1 268                 - 
Recoveries                   214 865                  205 739                       (1 268)          207 007 
Revenue                      976 180                  930 924                            -           930 924 

In order to provide a more meaningful analysis, the group changed its reporting sectors in August 2018 to reflect the 
occupier of the property instead of the nature of the property. The comparative amounts for 28 February 2018 were restated 
to reflect the changes in the sectors.

Further segment results cannot be allocated on a reasonable basis due to the "mixed use" of certain of the properties.  
It is the company's policy to invest predominantly in properties situated in the Gauteng area and therefore the company has 
not reported on a geographical basis.


Reconciliation of earnings to distributable earnings 
                                                             Unaudited               Unaudited                 Audited 
                                                              6 months                6 months               12 months 
                                                           28 February             28 February               31 August 
                                                                  2019                    2018                    2018 
                                                    %            R'000                   R'000                   R'000 
Total comprehensive income attributable to 
equity holders                                                 209 585                 330 042                 540 563 
(Profit)/loss on sale of investment 
properties                                                        (719)                 (1 051)                    916 
(Gain)/loss on derecognition of investment 
in joint venture                                                (3 029)                  2 770 
Impairment of goodwill                                               -                       -                   1 992 
Fair value gains/(losses)                    
investment property                                             23 021                 (54 733)                 39 084 
investment property - joint ventures                               (14)                  4 085                   9 747 
Straight-line rental income accrual                              1 423                  (1 268)                (39 673)
Fair value gains/(losses) of interest rate 
derivatives                                                     37 030                  (6 342)                 (1 482)
Taxation - Current and deferred                                  6 161                      46                  (8 493)
Share of after tax profit of joint venture 
- not distributable                                                  -                       -                  (3 980)
Distributable earnings attributable to 
equity holders                                                 273 458                 270 779                 541 444 
Represented by:                              
Revenue                                      
  earned on a contractual basis                    5.2         977 603                 929 656               1 893 806 
Property operating costs                           9.6        (450 300)               (410 790)               (864 911)
Net rental income from properties                  1.6         527 303                 518 866               1 028 895 
Administrative expenses                          (24.1)        (39 625)                (52 238)                (82 875)
Operating profit                                   4.5         487 678                 466 628                 946 020 
Interest income                                                  8 987                   9 498                  18 584 
Share of income from joint ventures                              2 468                   8 522                  15 721 
Distributable profit before finance costs                      499 133                 484 648                 980 325 
Finance costs                                      5.5        (225 675)               (213 869)               (438 881)
Distributable income before taxation               1.0         273 458                 270 779                 541 444 
Taxation                                                             -                      -                       - 
Equity holders distributable earnings              1.0         273 458                 270 779                 541 444 


Octodec Investments Limited 
Incorporated in the Republic of South Africa 
Registration number: 1956/002868/06 
JSE share code: OCT 
ISIN: ZAE000192258 (Approved as a REIT by the JSE) 

Registered address 
CPA House, 101 Du Toit Street, Tshwane 0002 
Tel: 012 319 8781, Fax: 012 319 8812, E-mail: info@octodec.co.za 

Directors 
S Wapnick (Chairman)1, JP Wapnick (Managing director)2, 
AK Stein (Financial director)2, DP Cohen3, GH Kemp4, NC Mabunda4 
MZ Pollack1, PJ Strydom4 
1 Non-executive director 
2 Executive director 
3 Lead independent director 
4 Independent non-executive director 

Group company secretary 
Elize Greeff 
CPA House, 101 Du Toit Street Tshwane 0002 
Tel: 012 357 1564, Email: elizeg@octodec.co.za 

Sponsor 
Java Capital 
Contact person: Tanya de Mendonca 
6A Sandown Valley Crescent, Sandown, Sandton 2196 
PO Box 522606, Saxonwold 2132 
Tel: 011 722 3059, Email: sponsor@javacapital.co.za 

Transfer secretaries 
Computershare Investor Services Proprietary Limited 
Contact person: Leon Naidoo 
Rosebank Towers, 15 Biermann Avenue, Rosebank 2196 
PO Box 61051, Marshalltown 2107 
Tel: 011 370 5000, Email: leon.naidoo@computershare.co.za 

Investor relations 
Instinctif Partners 
Contact person: Louise Fortuin 
The Firs, 302 3rd Floor, Cnr Cradock and Biermann Road, Rosebank 2196 
Tel: 011 447 3030, E-mail: investorrelations@octodec.co.za 

Date of publication:13 May 2019 
http://www.octodec.co.za 



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