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Update on the COVID-19 impact and trading statement
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)
(“Octodec” or “the Company”)
UPDATE ON THE COVID-19 IMPACT AND TRADING STATEMENT
Introduction
From the onset of the COVID-19 pandemic, Octodec implemented a range of measures across
its portfolio to manage its impact on the business effectively, while prioritising the health and
wellbeing of employees, tenants, business partners and other stakeholders across the group’s
value chain.
To date, the business continuity plans implemented in collaboration with City Property
Administration Proprietary Limited, Octodec’s property and asset manager, have ensured
uninterrupted services to tenants throughout the extended lockdown, while the business
responded quickly to the pressures in its operating environment.
Operational update
The impact of the government’s lockdown restrictions on Octodec’s operations has been
challenging. While the operating environment remains fluid, and the full effects of the crisis
on Octodec uncertain, trading conditions have improved as the economy progressively
reopened in line with the government’s risk-adjusted strategy.
Octodec’s response included selective rental relief packages to address affordability during the
lockdown period. These were granted on a case-by-case basis, based on a long-term view,
considering factors including the tenant’s business sustainability as well as retention and
vacancy levels.
The majority of commercial tenants were afforded discounts rather than deferments or payment
plans, especially small, medium, and micro enterprises (SMMEs) which continue to be the
most affected. Given the uncertain outlook, this approach provides greater certainty around the
management of future cash flows, arrears, and bad debts.
As lockdown restrictions eased, more commercial tenants resumed their business activities,
resulting in a month-on-month improvement in rental collections. Longer recovery time is
projected for tenants in the education, places of worship and hotel sectors as reflected by lower
collection levels. These sectors represent 4% of our total rental income.
On the retail front, Octodec’s shopping centres and shops are well located, with many offering
affordable and neighbourhood shopping conveniences which have been well supported by
consumers.
Government office tenants, which make up 8% of Octodec’s total rental income, have
continued to meet their obligations.
The residential portfolio remains resilient with relief measures only provided under exceptional
circumstances and predominantly in the form of payment plans.
Collections
The table below illustrates collections for April, May, and June 2020, expressed as a percentage
of the contractual rental plus recoveries billed before the granting of any COVID-19 related
relief. Further, the table illustrates the rental relief given to tenants for the same period. March
2020 figures are included for comparative purposes.
Collections as a percentage of billings (before rental relief as set out below)
Total (%) Commercial (%) Residential (%)
March 2020 98 97 99
April 2020 66 61 83
May 2020 74 69 88
June 2020 91 90 92
Rental relief granted to date (excluding Vat)
Total Commercial Residential
(R’ million) (R’ million) (R’ million)
March 2020 nil nil nil
April 2020 0.3 0.3 nil
May 2020 44.7 44.6 0.1
June 2020 33.8 33.3 0.5
July 2020 (to date) 10.4 10.3 0.1
Total 89.2 85.5 0.7
Encouragingly, July 2020 collections to date have shown similar trends when compared to June
2020. Whilst our credit control processes remain robust the final assessment of the impairment
of our trade receivables will be done when we have more clarity and certainty on the
outstanding arrears.
Capital management and liquidity
Octodec entered the pandemic with a strong liquidity position, having adopted a prudent
approach to portfolio expansion and capital management, including further diversification of
its funder base.
More recently, Octodec engaged pro-actively with its banks to extend upcoming debt maturities
and relax Group Interest Cover Ratio (ICR) covenants, given the anticipated impact of COVID-
19 relief measures and trade receivables impairments on profitability for the current financial
year. Approval was obtained to extend the term of all bank loans maturing prior to 30 June
2021 for a further period of 1 to 2 years and for the relaxation of Group ICR covenants for the
31 August 2020 measurement period.
Global Credit Ratings (“GCR”) has undertaken a credit rating review of Octodec, as guarantor
to Premium Properties Limited’s Domestic Medium-Term Note Programme (‘’DMTN”). GCR
has confirmed Octodec’s rating, long-term national scale issuer rating of A-(za) and the short-
term issuer rating of A2(za). The rating outlook has been changed to “Negative” from “Stable
outlook”. The Negative Outlook reflects the REIT’s and the industry’s susceptibility to
elevated covenant and funding risk, lately exacerbated by COVID-19 related disruptions.
GCR’s full credit rating announcement is publicly available on GCR’s website at
https://gcrratings.com/announcements/gcr-places-octodec-investments-limiteds-issuer-
rating-of-a-za-on-negative-outlook-due-to-elevated-industry-risk/.
In June 2020, Octodec repaid a DMTN maturing note amounting to R155 million, using
available facilities and cash resources. Octodec’s remaining exposure to noteholders is
R376 million or 8% of overall debt with the next maturity date falling due in May 2021,
amounting to R120 million.
Octodec currently has available cash and committed undrawn debt facilities of approximately
R400 million and continues to prioritise cash preservation, including reducing expenditure on
upgrades and a moratorium on new projects, with the exception of critical and necessary capital
expenditure.
While unprecedented decreases in interest rates have taken place over recent months, bank
margins have increased, and this trend is expected to continue. Octodec’s interest rate risk is
approximately 94% hedged for an average weighted tenure of 2.6 years and therefore Octodec
does not benefit to the full extent on the recent interest rate decreases.
Given the changes in the trading conditions, property valuation metrics are expected to come
under pressure, especially in the absence of measurable property transactions. Octodec has
always taken a conservative approach to its valuations, and management continues to monitor
the impact of property fundamentals on valuations, including through engagements with
external valuers.
Extensive forecasting, sensitivity analysis and modelling of cash flow and balance sheet
metrics is carried out regularly, including stress testing under different potential scenarios
arising from COVID-19. The Board is satisfied with Octodec’s current levels of solvency and
liquidity.
Conclusion
Octodec’s management team continues to engage with a wide range of stakeholders to
proactively manage the impact of this unprecedented crisis on tenants while addressing
emerging trends to inform its strategy.
The inherent defensive nature of Octodec’s portfolio, supported by a large and diverse tenant
base focused predominantly in key nodes around the Johannesburg and Pretoria CBDs, coupled
with continued focus on prudent balance sheet management and cash preservation, positions
Octodec well to navigate the challenging period ahead.
Trading statement
Shareholders are referred to the Company’s SENS announcements released on 7 April and 22
April 2020, wherein the distribution guidance previously communicated for the financial year
ending 31 August 2020, was withdrawn.
Octodec currently uses distribution per share (DPS) as its relevant measurement of financial
results, and accordingly, in terms of the JSE Listings Requirements, is required to publish a
trading statement as soon as it becomes reasonably certain that the DPS for the next reporting
period will differ by at least 15% from that of the prior corresponding period.
Given the ongoing uncertainty around the future impact of COVID-19 on the economy and
Octodec’s future financial performance, the Board has decided to revisit the current distribution
policy which was to pay out 100% of distributable earnings. When assessing the final
distribution, numerous factors will be taken into account, including our commitment to cash
preservation and balance sheet management and potential amendments to the REIT
legislation. As reported at half-year, Octodec did not declare an interim distribution to prioritise
prudent capital management.
Shareholders are advised that distributable earnings, on which DPS are based, is expected to
decrease by at least 15% for the financial year ending 31 August 2020 with a corresponding
decrease of at least 15% from the DPS of 200.9 cents for the prior corresponding period. The
Company will publish a further trading statement once it has the reasonable degree of certainty
required to confirm the extent of the difference in DPS from the prior corresponding period.
A final decision in respect of DPS will be made at the Board meeting on 13 November 2020 to
approve the FY2020 results, which will be released to the market on or about 16 November
2020, subject to no delays as a result of COVID-19.
The contents of this announcement and the financial information on which it has been based
have not been reviewed, audited, or reported on by the Company’s auditors.
24 July 2020
Sponsor
Java Capital
Date: 24-07-2020 10:00:00
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