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
Date: 13/05/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.