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OCT - Octodec Investments Limited - Unaudited results of the group for the six
months ended 29 February 2012
OCTODEC INVESTMENTS LIMITED and its subsidiaries
(Incorporated in the Republic of South Africa)
(Registration number 1956/002868/06)
Share code: OCT, ISIN: ZAE000005104
("Octodec" or "the company")
Unaudited results of the group for the six months ended 29 February 2012
Distribution up by 9,5% to 71,20 cents per linked unit
Increase in net asset value by 3,5% to 1 860 cents per unit
Total investments of R3,4 billion
Consolidated statement of comprehensive income
R`000 % Unaudited Unaudited Audited
Change 6 months 6 months Year to
29 Feb 28 Feb 31 Aug
2012 2011 2011
Revenue 215 801 186 074 388 516
- earned on contractual basis 17,3 216 967 184 939 384 345
- straight-line lease adjustment (1 166) 1 135 4 171
Operating costs (105 372) (88 679) (185 891)
Net rental income from properties 110 429 97 395 202 625
- earned on contractual basis 15,9 111 595 96 260 198 454
- straight-line lease adjustment (1 166) 1 135 4 171
Administrative costs (8 694) (8 504) (17 594)
Depreciation (1 720) (1 896) (3 670)
Operating profit 15,0 100 015 86 995 181 361
Fair value adjustments of
investment properties 103 614 45 863 (22 026)
gross fair value adjustment 102 448 46 998 17 855
attributable to straight-line
lease adjustment 1 166 (1 135) (4 171)
Investment income 24 270 30 934 51 761
- interest received 363 1 149 1 729
- listed investment 13 989 12 485 24 172
- associate
share of after tax profit 5 631 3 604 8 796
fair value adjustment/capital
Reserves 1 621 10 845 13 160
Interest 2 666 2 851 3 904
Finance costs 63,0 (53 619) (32 894) (111 346)
- interest on borrowings (61 754) (48 454) (103 217)
- interest capitalised 1 521 593 3 213
- fair value adjustments of
interest rate derivatives 6 614 14 967 (11 342)
Amortisation of deemed debenture 5 334 5 335 10 669
premium
Profit on sale of investment 434 - 464
property
Profit before debenture interest 32,2 180 048 136 233 110 883
Debenture interest 9,5 (63 267) (57 758) (114 890)
Profit/(loss) before taxation 116 781 78 475 (4 007)
Taxation charge (63 399) (17 385) 1 130
- Deferred taxation (63 399) (17 350) 1 305
- Normal taxation - (35) (175)
Total comprehensive income for the 53 382 61 090 (2 877)
period attributable to equity
holders
Linked units in issue (`000) 89 297 89 297 89 297
Linked units in issue (`000) 89 297 89 297 89 297
Basic and diluted earnings per (12,6) 59,8 68,4 (3,2)
share (cents)
Basic and diluted earnings per (1,8) 130,6 133,1 125,4
linked unit (cents)
Distribution per linked unit
(cents)
Dividends 0,35 0,32 0,64
Interest 70,85 64,68 128,66
Total 9,5 71,20 65,00 129,30
Consolidated statement of financial position
R`000 Unaudited Audited
29 Feb 31 Aug
2012 2011
Assets
Non-current assets 3 364 417 3 023 244
Investment properties 2 699 766 2 375 336
Property, plant and equipment 31 356 44 793
Operating lease assets 39 670 40 837
Listed investment 333 707 310 390
Investments - equity accounted 259 918 251 888
Current assets 56 085 42 040
Total assets 3 420 502 3 065 284
Equity and liabilities
Share capital and reserves 1 303 192 1 242 957
Share capital and premium 95 636 90 302
Non-distributable reserves 1 161 578 1 106 314
Retained earnings 45 978 46 341
Non-current liabilities 1 841 008 1 462 887
Debentures and premium 357 690 363 024
Interest bearing borrowings 1 274 948 962 119
Deferred taxation 208 370 137 744
Current liabilities 276 302 359 440
Interest bearing borrowings 148 523 234 696
Non-interest bearing 63 593 67 611
Linked unit holders 64 186 57 133
Total equity and liabilities 3 420 502 3 065 284
Linked units in issue (`000) 89 297 89 297
Net asset value per linked unit (cents) 1 860 1 798
Net asset value per linked unit (cents) - before 2 093 1 953
providing for deferred tax
Loan to investment value ratio (%) 42,2 39,6
Consolidated statement of cash flows
R`000 Unaudited Unaudited Audited
6 months 6 months Year to
29 Feb 28 Feb 31 Aug
2012 2011 2011
Cash flow from operating activities
Net rental income from properties 101 180 85 860 177 063
Adjustment for:
- depreciation 1 720 1 896 3 670
- working capital changes (8 855) 25 170 17 030
Cash generated from operations 94 045 112 926 197 763
Investment income 17 018 16 485 29 805
Finance costs (61 754) (48 454) (100 004)
Taxation paid - (35) (175)
Distribution to linked unit holders paid (56 499) (57 768) (116 622)
Net cash (outflow)/inflow from operating (7 190) 23 154 10 767
activities
Cash flow from investing activities
Investing activities (221 676) (186 095) (254 171)
Proceeds from disposal of investment 4 800 - 4 255
properties
Net cash outflow used in investing (216 876) (186 095) (249 916)
activities
Cash flow from financing activities
Increase in interest bearing borrowings 256 437 187 804 237 653
Net cash generated from financing 256 437 187 804 237 653
activities
Net increase/(decrease) in cash and cash 32 371 24 863 (1 496)
equivalents
Cash and cash equivalents at beginning of (22 795) (21 299) (21 299)
year
Cash and cash equivalents at end of year 9 576 (3 564) (22 795)
Distributable earnings
The following additional information is provided and is aimed at disclosing to
the users the basis on which the distributions are calculated.
R`000 % Unaudited Unaudited Audited
Changes 6 months 6 months Year to
29 Feb 28 Feb 31 Aug
2012 2011 2011
Revenue
- earned on contractual basis 17,3 216 967 184 939 384 218
Operating costs (105 372) (88 679) (185 891)
Net rental income from properties 15,9 111 595 96 260 198 327
Administrative costs (8 694) (8 504) (17 594)
Depreciation (1 720) (1 896) (3 670)
Operating profit 17,8 101 180 85 860 177 063
Investment income
- interest received 363 1 149 1 729
- listed investment 13 989 12 485 24 172
- associate 8 297 6 455 12 700
Distributable profit before 16,9 123 829 105 949 215 663
finance costs
Finance costs 25,9 (60 233) (47 861) (100 004)
Distributable income before 9,5 63 596 58 088 115 659
taxation
Taxation charge - (35) (175)
Unit holders distributable 9,5 63 596 58 053 115 484
earnings
Linked units in issue (`000) 89 297 89 297 89 297
Distributable earnings per linked 9,5 71,2 65,0 129,3
unit (cents)
Distribution per linked unit 9,5 71,2 65,0 129,3
(cents)
Reconciliation - earnings to distributable earnings
R`000 Unaudited Unaudited Audited
6 months 6 months Year to
29 Feb 28 Feb 31 Aug
2012 2011 2011
Earnings attributable to equity holders 53 382 61 090 (2 877)
Amortisation of deemed debenture premium (5 334) (5 335) (10 669)
Profit on sale of investment properties (434) - (464)
Fair value adjustments
- associate, net of deferred tax (1 621) (10 845) (13 160)
- investment properties, net of
deferred tax (41 741) (33 021) 20 246
Headline earnings before debenture 4 252 11 889 6 924
interest
Debenture interest 63 267 57 758 114 890
Headline earnings attributable to linked 67 519 69 647 107 966
unit holders
Straight-line lease adjustment, net of 839 (817) (3 094)
deferred tax
Fair value adjustments of interest rate (4 762) (10 777) 8 167
derivatives, net of deferred tax
Deferred taxation adjustments - - 2 446
Distributable earnings attributable to 63 596 58 053 115 485
linked unit holders
Headline earnings per linked unit (cents) 75,6 78,0 120,9
Consolidated statement of changes in equity
R`000 Share Non- Retained Total
capital distributable earnings
reserves
Balances at 31 August 2010 79 633 1 143 659 45 678 1 268 970
Total comprehensive income for (2 877) (2 877)
the year
Transfer to capital - deemed 10 669 (10 669) -
debenture premium
Dividends paid (580) (580)
Adjustment to valuation of (22 556) (22 556)
listed investment, net of
deferred tax
Sale of investment properties 464 (464) -
Fair value adjustments
- Investment properties, net
of deferred taxation (20 246) 20 246 -
- Interest rate derivatives,
net of deferred taxation 13 160 (13 160) -
- Associate, net of deferred
Tax (8 167) 8 167 -
Balances at 31 August 2011 90 302 1 106 314 46 341 1 242 957
Total comprehensive income for 53 382 53 382
the year
Transfer to capital - deemed 5 334 (5 334) -
debenture premium
Dividends paid (286) (286)
Adjustment to valuation of 7 139 7 139
listed investment, net of
deferred tax
Fair value adjustments
- Investment properties, net
of deferred taxation 41 741 (41 741) -
- Associate, net of deferred
tax 1 621 (1 621) -
- Interest rate derivatives,
net of deferred taxation 4 763 (4 763) -
Balances at 29 February 2012 95 636 1 161 578 45 978 1 303 192
NOTES TO THE FINANCIAL STATEMENTS
BASIS OF PREPARATION
The unaudited condensed consolidated financial statements have been prepared
in accordance with the framework, concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the AC 500
standards as issued by the Accounting Practices Board, the information as
required by IAS 34: Interim Financial Reporting, the JSE Listings Requirements
and the requirements of the South African Companies Act (71 of 2008), as
amended.
These condensed consolidated results were prepared under the supervision of Mr
AK Stein CA(SA), in his capacity as group financial director.
The accounting policies adopted and methods of computation are consistent with
those applied in the financial statements for the year ended 31 August 2011.
The effective Capital Gains Taxation ("CGT") rate to be applied to the
revaluation of investment properties has increased from 14% to 18,6%, as
announced in the recent 2012 Budget of Treasury. An adjustment relating to
prior years amounting to R42,6 million was made to the current year deferred
tax charge to account for the increased CGT rate.
Related party: City Property Administration (Proprietary) Limited is
responsible for the property and asset management of the group.
Subsequent events: There have been no subsequent events that require
reporting.
Contingent liability: The company has issued guarantees of R1 690 000 and R582
000 to the Tshwane Metropolitan Municipality and City Power - Johannesburg
respectively, for the provision of services to its subsidiaries. The company
has provided a suretyship to Nedbank Property Finance in favour of its 40%
held associate company, IPS Investments (Proprietary) Limited ("IPS"). At 29
February 2012, the suretyship amounted to R224,2 million.
Independent review by external auditors: These condensed consolidated
financial statements have not been reviewed or audited by our auditors
Deloitte & Touche.
Segmental information
R`000
Analysis by property usage -
29 February 2012 Industrial Office Retail Commercial
Revenue
Rentals and recoveries 38 122 43 474 72 844 47 565
Straight-line lease adjustment (48) (342) (910) 183
Total revenue 38 074 43 132 71 934 47 748
Net rental income from 22 528 22 500 30 185 27 548
properties
Assets
Investment properties and 495 889 543 912 859 493 626 680
operating lease assets
Plant and equipment 375 7 534 18 847 3 197
Other assets
Total assets 496 264 551 446 878 340 631 877
Analysis by property usage - 31
August 2011
Revenue
Rentals and recoveries 53 972 77 987 132 228 89 436
Management fee
Straight-line lease adjustment 28 (478) 1 815 2 333
Total revenue 54 000 77 509 134 043 91 769
Net rental income from 27 680 41 950 60 565 51 285
properties
Assets
Investment properties and 346 419 489 850 808 170 605 332
operating lease assets
Plant and equipment 702 10 450 27 433 4 737
Other assets
Total assets 347 121 500 300 835 603 610 069
Segmental information (continued)
R`000
Analysis by property usage - Corporate
29 February 2012 Residential unallocated Total
Revenue
Rentals and recoveries 14 962 216 967
Straight-line lease adjustment (49) (1 166)
Total revenue 14 913 - 215 801
Net rental income from properties 7 215 (9 961) 100 015
Assets
Investment properties 211 462 2 739 436
Plant and equipment 1 403 31 356
Other assets 649 710 649 710
Total assets 212 865 649 710 3 420 502
Analysis by property usage - 31
August 2011
Revenue
Rentals and recoveries 29 124 382 747
Management fee 1 598 1 598
Straight-line lease adjustment 473 4 171
Total revenue 29 597 1 598 388 516
Net rental income from properties 14 011 (14 130) 181 361
Assets
Investment properties 166 402 2 416 173
Plant and equipment 1 471 44 793
Other assets 604 318 604 318
Total assets 167 873 604 318 3 065 284
DIRECTORS` COMMENTARY
REVIEW OF RESULTS
All rental income received by the group, less operating costs and interest on
debt, is distributed semi-annually. The group does not distribute capital
profits. Economic conditions and consumer confidence continued declining
during the financial period. Rental income increased following successful
upgrades of properties and a proactive approach to letting despite a
challenging economic environment.
The total distribution per linked unit for the six months of 71,20 cents per
linked unit (2011: 65,00 cents) represents an increase of 9,5% on that paid in
the comparative period.
Rental income and net rental income increased by 17,3% and 15,9% respectively.
The core portfolio representing those properties held for the prior comparable
six months with no major development activity reflects rental income growth of
8,9%. Property expenses increased to 48,6% (31 August 2011: 48,4%) of revenue.
The increase in revenue was mainly due to improved letting and an increase in
utilities and assessment rate recoveries. Although leases allow for the
recovery of increased utilities and assessment rates from tenants, this has a
negative impact on the new rentals when leases expire. Provisions and write-
offs of bad debts remained at acceptable levels of 1,1% of total revenue.
Fewer tenants defaulted following improved collection processes. Distributable
income was negatively affected by the increased costs of funding on the
interest rate swaps entered into at a premium to the weighted average annual
floating interest rates. These interest rate swap agreements were entered into
to fix interest rates in a low interest rate environment.
Property and investment portfolio
Octodec invests in the retail, industrial and office property sectors and
holds a small residential component in its portfolio.
Octodec continued to expand its property portfolio in the Johannesburg and
Pretoria central business districts (CBDs) as well as continuing the
redevelopment and refurbishment of properties. Various properties were
upgraded during the period at a total cost of R36,2 million. This included the
office block, Elephant House, and the residential development, Dan`s Place.
Both are situated in the Johannesburg CBD. Octodec`s total investment of R45
million in Dan`s Place created 143 residential units and was completed in
March 2012 at a fully let yield of 9,9%. Octodec has various projects
earmarked for completion in the 2012 financial year. These include the upgrade
of the mixed use properties Temple Court and Kerk Street Building in the
Johannesburg CBD. A 5 233 mSquared retail development in the Pretoria CBD is
scheduled for completion in August 2012. This will be occupied by Cambridge,
part of the Walmart Group, and other retailers.
Octodec`s investment in IPS continued providing acceptable earnings growth
with profits earned from the associate company, excluding capital profits,
increasing to R8,3 million. This was an increase of 28,5% on the comparable
period. The growth achieved by IPS was positively impacted by the mixed-use
developments Kempton Place and Tali`s Place due to the improved occupancy
levels achieved during the period.
During the period, two properties were acquired and transferred for an
aggregate purchase price of R178,6 million, providing an average weighted
yield of 10,3%.
Details of the properties are:
Name of Descriptio Rent- Purchase Ini- Date of
property n able price in- tial transfer
mSquared cluding yield
costs
R million
309 Derdepoort Industrial 35 990 153,8 10,4 1 Nov 2011
The Tannery Rd, Silverton, units
Industrial Pretoria
Park
FNB 2023 Hendrik Retail 1 874 24,8 9,6 17 Nov 2011
Centurion Verwoerd Drive,
Centurion
31 864 178,6 10,3
Vacancies in the Octodec portfolio at 29 February 2012 amounted to 14,5% of
the total lettable area and details of these vacancies with reference to their
sectoral spread are set out in the table below:
29 Feb 2012 31 Aug 2011
% %
Offices 7,0 9,3
Retail - shops 3,4 2,6
Retail - shopping centres 0,2 0,7
Industrial 2,5 2,8
Residential 1,4 0,5
Total 14,5 15,9
A large percentage of the vacancies in the portfolio are in respect of
properties acquired with large vacancies, where little or no consideration was
paid for the vacant space. As the opportunities arise to develop these
properties, the potential of these vacancies will be realised.
Octodec was successful in letting a number of properties that had been vacant
for a considerable period. The office vacancies reduced to 7,0% partly due to
7 776 mSquared of office space having been converted to residential
accommodation. The residential vacancies consist of, as expected, vacant units
at the recently converted Dan`s Place and at Temple Court which is being
upgraded.
The vacant lettable area at Gezina Shopping Centre and at Killarney Mall
reduced significantly.
Borrowings
Borrowings increased as a result of the acquisition of properties, the
purchase of 615 653 Premium shares, and development costs incurred. Octodec`s
gearing at the end of the period under review was 42,2% of the total value of
its investment portfolio against 39,6% at 31 August 2011.
Interest rates in respect of 54,0% of borrowings at 29 February 2012 have been
hedged, maturing at various dates ranging from April 2013 to October 2018. The
average weighted interest rate of all borrowings is 9,2% per annum.
Details of borrowings are as follows:
R`000 Nominal amount Interest rate %
Fixed rate borrowings expiry
April 2013 40 000 13,12
May 2013 53 250 12,72
November 2013 75 000 11,92
April 2018 100 000 12,06
October 2018 75 000 11,72
343 250 12,18
Swap maturity
January 2014 15 000 11,99
August 2017 200 000 8,96
September 2017 50 000 9,31
January 2018 50 000 9,43
May 2018 50 000 10,13
August 2018 50 000 9,4
415 000 9,36
Total hedged borrowings 758 250 10,64
Variable rate borrowings 645 438 7,60
Total borrowings 1 403 688 9,20
Revaluation of property portfolio
It is the group`s policy to perform directors` valuations of all the
properties at the interim stage and at year-end. At year-end, a third of the
properties are valued by external valuers on a rotational basis.
The directors` valuation of the portfolio increased by R103,6 million, giving
rise to an increase in net asset value of 3,5%.
Directorate changes
Mr Petrus (Pieter) Strydom was appointed to the board as an independent non-
executive director from 6 February 2012. He is a chartered accountant and has
many years` experience. He will also serve as a member of the audit and risk
committees. He brings a wealth of experience to the board from an accounting
and corporate governance perspective and we look forward to his valued
contribution.
Prospects
Due to the focus on the letting of properties with vacancies and the upgrading
of properties, management is optimistic Octodec will deliver growth in
distributions per linked unit for the full 12-month period similar to that
achieved in the first six-month period. The abovementioned forecast has not
been reviewed nor reported on by the company`s auditors.
DECLARATION OF DIVIDEND 44 AND INTEREST PAYMENT
("the distribution")
Notice is hereby given that dividend number 44 of 0,35 cents (28 February
2011: 0,32 cents) per ordinary share (out of income reserves) and interest of
70,85 cents per debenture (28 February 2011: 64,68 cents), has been declared
for the period 1 September 2011 to 29 February 2012. This is payable to
linked unit holders recorded in the register on Friday, 18 May 2012. The last
date to trade cum distribution is Friday, 11 May 2012. The units will commence
trading ex distribution on Monday, 14 May 2012. Payment date will be Monday,
21 May 2012.
No dematerialisation or rematerialisation of linked unit certificates may take
place between Monday, 14 May 2012 and Friday, 18 May 2012, both days
inclusive.
The dividend component of the distribution is subject to dividend withholding
tax at 15%. In determining dividend withholding tax, Secondary Tax on
Companies ("STC") credits must be taken into account. The STC credits utilised
as part of this declaration amount to R312 541, being 0,35 cents per share,
and consequently no dividend withholding tax is payable by shareholders who
are normally not exempt from dividend withholding tax. Shareholders will
receive the dividend of 0,35 cents per share.
The number of linked units in issue at the date of this declaration is 89 297
472 and the company`s tax reference number is 9925/033/71/5.
By order of the board
S Wapnick JP Wapnick
Chairman Managing director
19 April 2012
Directors:
S Wapnick+ (Chairman), JP Wapnick* (Managing), AK Stein* (Financial),
MJ Holmes, MZ Pollack+, DP Cohen, PJ Strydom
* Executive Director
Independent Non-executive Director
+ Non-executive Director
Registered Office:
CPA House, 101 Du Toit Street, Pretoria, 0002
PO Box 15, Pretoria, 0001
Tel: 012 319 8811 Fax: 012 319 8812
Transfer Secretaries:
Computershare Investor Services (Pty) Limited
(Reg. No: 2000/006082/06)
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Tel: 011 370 7700 Fax: 011 688 7712
Property Asset Manager: email: propworld@cityprop.co.za
www.octodec.co.za
Date: 19/04/2012 10:43:00 Supplied by www.sharenet.co.za
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