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Reviewed condensed results of the group for the year ended 31 August 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 group" or the company)
REVIEWED CONDENSED RESULTS OF THE GROUP FOR THE YEAR ENDED 31 AUGUST 2012
- Pre-rights issue distributable earnings up by 11,1%
- Distribution up by 6,2% to 137,30 cents per linked unit
- Increase in net asset value up by 4,6% to 1 882 cents per linked unit
- Total investments of R3,6 billion
- 27,9% total return to investors for the year
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
Year to Year to
% 31 August 31 August
R000 change 2012 2011
Revenue 461 403 388 516
earned on contractual basis 19,1 457 452 384 218
straight-line lease adjustment 3 951 4 298
Operating costs (223 401) (185 891)
Net rental income from properties 238 002 202 625
earned on contractual basis 18,0 234 051 198 327
straight-line lease adjustment 3 951 4 298
Administrative costs (19 233) (17 594)
Depreciation (3 515) (3 670)
Operating profit 18,7 215 254 181 361
Fair value adjustments of investment properties 163 509 (22 026)
Investment income 52 947 51 761
interest received 1 153 1 729
listed investment 26 588 24 172
associate
share of after tax profit 13 293 8 796
fair value adjustment/capital reserves 8 191 13 160
interest 3 722 3 904
Finance costs 27,8 (127 387) (100 004)
interest on borrowings (129 200) (103 217)
interest capitalised 1 813 3 213
Fair value adjustments of interest rate derivatives (14 910) (11 342)
Amortisation of deemed debenture premium 10 906 10 669
Profit on sale of investment properties 666 464
Profit before debenture interest 300 985 110 883
Debenture interest 11,1 (127 633) (114 890)
Profit/(loss) before taxation 173 352 (4 007)
Taxation charge (63 413) 1 130
Deferred taxation (63 061) 1 305
Normal taxation (352) (175)
Total comprehensive income for the year attributable
to equity holders 109 939 (2 877)
Weighted linked units in issue ('000) 89 866 89 297
Linked units in issue ('000) 108 225 89 297
Basic earnings per share (cents) 3 897,1 122,3 (3,2)
Fully diluted earnings per share (cents) 3 253,0 101,6 (3,2)
Basic earnings per linked unit (cents) 110,8 264,4 125,4
Fully diluted earnings per linked unit (cents) 75,0 219,5 125,4
Distribution per linked unit (cents)
Dividends 0,68 0,64
Interest 136,62 128,66
Total 6,2 137,30 129,30
CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Audited
Year to Year to
R000 31 August 31 August
2012 2011
CASH FLOW FROM OPERATING ACTIVITIES
Net rental income from properties 211 303 177 063
Adjustment for:
depreciation and amortisation 12 547 6 479
working capital changes 7 567 17 030
Cash generated from operations 231 417 200 572
Investment income 31 463 29 805
Finance costs (127 387) (100 004)
Taxation paid (536) (175)
Distribution to linked unitholders paid (114 184) (116 621)
Net cash inflow from operating activities 20 773 13 577
CASH FLOW FROM INVESTING ACTIVITIES
Investing activities (313 712) (256 984)
Proceeds from disposal of investment properties 4 800 4 255
Net cash outflow used in investing activities (308 912) (252 729)
CASH FLOW FROM FINANCING ACTIVITIES
Issue of new units 290 624
(Decrease)/increase in interest-bearing borrowings (11 779) 237 654
Net cash generated from financing activities 278 845 237 654
NET DECREASE IN CASH AND CASH EQUIVALENTS (9 294) (1 498)
Cash and cash equivalents at beginning of year (22 797) (21 299)
Cash and cash equivalents at end of year (32 091) (22 797)
SEGMENTAL INFORMATION
Retail
shopping Retail- Corporate
R000 Industrial Office centres shops Residential unallocated Total
Analysis by property usage 2012
Revenue
Rentals and recoveries 80 213 89 488 152 848 98 273 35 032 455 854
Management fee 1 598 1 598
Straight-line lease adjustment 1 923 (1 123) (835) 3 486 500 3 951
Total revenue 82 136 88 365 152 013 101 759 35 532 1 598 461 403
Operating profit 49 524 43 626 62 467 61 162 17 761 (19 286) 215 254
Assets
Investment properties 517 543 568 353 905 568 651 990 235 467 2 878 921
Plant and equipment 54 10 721 15 726 6 467 5 073 38 041
Other assets 690 058 690 058
Total assets 517 597 579 074 921 294 658 457 240 540 690 058 3 607 020
Analysis by property usage 2011
Revenue
Rentals and recoveries 53 972 77 987 132 228 89 436 29 124 382 747
Management fee 1 598 1 598
Straight-line lease adjustment 28 (478) 1 815 2 333 473 4 171
Total revenue 54 000 77 509 134 043 91 769 29 597 1 598 388 516
Operating profit 27 680 41 950 60 565 51 285 14 011 (14 130) 181 361
Assets
Investment properties 346 419 489 850 808 170 605 332 166 402 2 416 173
Plant and equipment 702 10 450 27 433 4 737 1 471 44 793
Other assets 604 318 604 318
Total assets 347 121 500 300 835 603 610 069 167 873 604 318 3 065 284
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
R000 31 August 31 August
2012 2011
ASSETS
Non-current assets 3 565 859 3 023 244
Investment properties 2 834 133 2 375 336
Property, plant and equipment 9 882 13 397
Lease costs 28 159 31 396
Operating lease assets 44 788 40 837
Listed investment 375 981 310 390
Investments equity accounted 272 916 251 888
Current assets 41 161 42 040
Total assets 3 607 020 3 065 284
EQUITY AND LIABILITIES
Share capital and reserves 1 395 285 1 242 957
Share capital and premium 102 645 90 302
Non-distributable reserves 1 236 372 1 106 314
Retained earnings 56 268 46 341
Non-current liabilities 1 717 544 1 462 887
Debentures and premium 641 305 363 024
Interest-bearing borrowings 827 123 943 808
Derivative financial instruments 33 221 18 311
Deferred taxation 215 895 137 744
Current liabilities 494 191 359 440
Interest-bearing borrowings 348 918 234 696
Non-interest bearing 74 093 67 611
Linked unitholders 71 180 57 133
Total equity and liabilities 3 607 020 3 065 284
Linked units in issue ('000) 108 225 89 297
Net asset value per linked unit (cents) 1 882 1 798
Net asset value per linked unit (cents) before providing
for deferred tax 2 081 1 953
Loan to investment value ratio (%) 33,0 39,0
DISTRIBUTABLE EARNINGS
The following additional information is provided and is aimed at disclosing to the users the basis on which the distributions are calculated.
Reviewed Audited
Year to Year to
% 31 August 31 August
R'000 change 2012 2011
Revenue
earned on contractual basis 19,1 457 452 384 218
Operating costs (223 401) (185 891)
Net rental income from properties 18,0 234 051 198 327
Administrative costs (19 233) (17 594)
Depreciation (3 515) (3 670)
Operating profit 19,3 211 303 177 063
Investment income
interest received 1 153 1 729
listed investment 26 588 24 172
associate 17 015 12 700
Distributable profit before finance costs 18,7 256 059 215 664
Finance costs 27,4 (127 387) (100 004)
Distributable income before taxation 11,2 128 672 115 660
Taxation charge (352) (175)
Distributable earnings after tax 11,1 128 320 115 485
Add: Accrued distribution 6 814
Unitholders distributable earnings 17,0 135 134 115 485
Weighted linked units in issue ('000) 89 866 89 297
Distribution per linked unit (cents) 6,2 137,3 129,3
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-
Share distributable Retained
R000 capital reserves earnings Total
Balance at 1 September 2010 79 633 1 143 659 45 678 1 268 970
Total comprehensive income for the year (2 877) (2 877)
Transfer to capital deemed debenture premium 10 669 (10 669)
Dividends paid (580) (580)
Adjustment to valuation of listed investment,
net of deferred tax (22 556) (22 556)
Sale of investment properties 464 (464)
Fair value adjustments
Investment properties, net of deferred taxation (20 246) 20 246
Associate 13 160 (13 160)
Interest rate derivatives, net of deferred tax (8 167) 8 167
Balances at 31 August 2011 90 302 1 106 314 46 341 1 242 957
Issue of new units 1 437 1 437
Total comprehensive income for the year 109 939 109 939
Transfer to capital deemed debenture premium 10 906 (10 906)
Dividends paid (598) (598)
Adjustment to valuation of listed investment,
net of deferred tax 41 550 41 550
Sale of investment properties 666 (666)
Fair value adjustments
Investment properties, net of deferred taxation 90 386 (90 386)
Associate 8 191 (8 191)
Interest rate derivatives, net of deferred tax (10 735) 10 735
Balances at 31 August 2012 102 645 1 236 372 56 268 1 395 285
RECONCILIATION EARNINGS TO DISTRIBUTABLE EARNINGS
Reviewed Audited
Year to Year to
31 August 31 August
R000 2012 2011
Earnings/(losses) attributable to equity holders 109 939 (2 877)
Amortisation of deemed debenture premium (10 906) (10 669)
Profit on sale of investment properties (666) (464)
Fair value adjustments
associate (8 191) (13 160)
investment properties (163 509) 22 026
deferred tax 73 123 (1 780)
Headline earnings before debenture interest (210) (6 924)
Debenture interest 127 633 114 890
Headline earnings attributable to linked unitholders 127 423 107 966
Straight-line lease adjustment, net of deferred tax (2 845) (3 094)
Fair value adjustments of interest rate derivatives, net of deferred tax 10 735 8 167
Deferred taxation adjustments (6 993) 2 446
Accrued distribution 6 814
Distributable earnings attributable to linked unitholders 135 134 115 485
Headline earnings per linked unit (cents) 141,8 120,9
NOTES TO THE FINANCIAL STATEMENTS
Basis of preparation: The 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 and have been
independently reviewed in terms of Section 29(1) of the Companies Act.
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 applied to the revaluation of investments has increased from 14% to 18,6%. 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: Subsequent to year end Octodec disposed of the Eloff Ext. Mini Units property for an amount of R6,65 million.
Commitments: Octodec has capital commitments in an amount of R44,7 million relating to various re-developments of properties.
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 31 August 2012, the suretyship amounted to R224,2 million.
Auditors review: The condensed provisional financial information for the year ended 31 August 2012 has been reviewed by the groups auditors, Deloitte and Touche.
The review was conducted in accordance with ISRE 2410 Review of Interim Financial Information performed by the Independent Auditor of the Entity. A copy of the
unmodified review report is available for inspection at the companys registered office. Any reference to future financial performance in this announcement has
neither been reviewed nor reported on by the companys auditors. The auditors report does not necessarily cover all the information contained in this
announcement/financial report. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditors work they should
obtain a copy of that report together with the accompanying financial information from the registered office of the company.
DIRECTORS COMMENTARY
Review of results
All rental income received by the group, less operating costs, administration costs and interest on debt, is distributed semi-annually. The group does not
distribute capital profits. Economic and trading conditions continued to be challenging during the financial period. Rental income increased following
the successful upgrades of properties and a proactive approach to letting.
The total distribution per linked unit for the year of 137,30 cents per linked unit (2011: 129,30 cents) represents an increase of 6,2% on that paid in the
previous comparative period.
The new linked units issued pursuant to the rights issue resulted in a dilution of the distribution payable per linked unit holder. This is as a result of
Octodec receiving the proceeds of the rights issue on 17 August 2012, and the new unitholders' entitlement to a distribution for the period from 1 March 2012
to 31 August 2012.
The growth in the unit price from R15,95 to R19,02 at 31 August 2012 provided investors a capital growth of 19,2% for the year. The distribution of
137,30 cents per linked unit together with capital growth provided a total return of 27,8% for the year.
Rental income and net rental income increased by 19,1% and 18,0% respectively. The core portfolio representing those properties held for the previous comparable
year with no major development activity reflects rental income growth of 9,2%. Property expenses increased to 48,8% (31 August 2011: 48,4%) of revenue.
The increase in revenue was mainly due to improved letting and an increase in the recovery of utility and assessment rate charges. Despite rapidly escalating
charges in respect of assessment rates and utility charges, the cost recovery percentage from tenants was maintained during the year. This has impacted on the
total occupancy costs of tenants. Provisions and write-offs of bad debts remained at acceptable levels of 1,1% (2011: 0,7%) of total revenue.
Property and investment portfolio
Octodec invests in the retail, industrial and office property sectors. It also has a small residential property investment component in its portfolio.
Octodec continued to expand its property portfolio in the Johannesburg and Pretoria central business districts (CBDs). Various properties were redeveloped and
upgraded during the year at a total cost of R77,0 million. This included the office block, Elephant House, and the mixed-use properties, Dans Place and Temple
Court. All of these properties are situated in the Johannesburg CBD. Octodecs total investment of R45 million in Dans 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 2013 financial year. These include the
upgrade of the mixeduse residential property Kerk Street Building in the Johannesburg CBD. A 5 233 m2 retail development in the Pretoria CBD is scheduled for
completion in March 2013. This will be occupied by Cambridge, part of the Walmart Group, and other retailers.
Octodecs investment in IPS continued to provide acceptable earnings with profits earned from the associate company, excluding capital profits, increasing to
R17,0 million. This was an increase of 34,0% on the prior comparable period. The growth achieved by IPS was positively impacted by the mixed-use developments
Kempton Place, Craigs Place and Talis Place due to the improved occupancy levels achieved during the year.
During the period, Octodec acquired and transferred three properties for an aggregate purchase price of R216,2 million, providing an average weighted yield of 9,6%.
Details of the properties are:
Purchase price
including Initial
Name of Description Rentable costs yield Date of
property m2 R million % transfer
The Tannery Industrial Park 309 Derdepoort Road, Industrial
Silverton, Pretoria units 39 563 150,4 10,4 1 November 2011
FNB Centurion 2023 Hendrik Verwoerd
Drive, Centurion Retail 1 874 24,8 9,6 17 November 2011
Shoprite Cnr Eloff and Von Brandis Retail and
Eloff Street Streets, Johannesburg offices 34 224 41,0 6,6 11 April 2011
75 661 216,2 9,6
Vacancies in the Octodec portfolio at 31 August 2012 including properties held for redevelopment amounted to 12,9% (2011: 15,9%) of the total area.
Details of these vacancies, are set out in the table below:
Properties
Total Total held for
lettable area vacancies redevelopment Core vacancies
m2 % % %
31 August 2012
Offices 115 949 6,9 (4,3) 2,6
Retail shops 139 016 2,4 (0,9) 1,5
Retail shopping centres 84 088 0,2 0,2
Industrial 198 806 2,9 2,9
Residential 30 104 0,5 (0,3) 0,2
Total (%) 567 963 12,9 (5,5) 7,4
31 August 2011
Offices 117 948 9,3 (5,3) 4,0
Retail shops 94 196 2,6 (1,3) 1,3
Retail shopping centres 85 454 0,7 0,7
Industrial 171 478 2,8 (0,1) 2,7
Residential 24 401 0,5 (0,4) 0,1
Total (%) 493 477 15,9 (7,1) 8,8
Most of the properties remained fully let. As anticipated a number of properties under development or those which were recently upgraded for example,
Scotts Corner, had high vacancies. In recent years certain properties for example, Bosman Building, were acquired by Octodec with large vacancies and for
little or no consideration for the vacant space and that offered redevelopment opportunities. As the opportunities arise the potential of these vacancies
is being realised.
Octodec was successful in letting a number of properties that had been vacant for a considerable period. The office vacancies reduced to 6,9% partly due
to 7 776 m2 of office space having been converted to residential accommodation. The residential vacancies consist of, as expected, vacant units at the
recently upgraded Temple Court.
The shopping centre vacancies are at 0,2% of lettable area with a significant improvement in the occupancy levels at Gezina Shopping Centre and at
Killarney Mall.
Rights issue
Octodec successfully concluded a rights issue on 17 August 2012 for an amount of R300 million. 18 927 445 new linked units were issued at R15,85 each.
The rights issue proceeds included an accrued distribution of R6 813 880 or 36 cents per linked unit.
Borrowings
Octodecs gearing at the end of the year under review was 33,0% of the total value of its investment portfolio against 39,0% at 31 August 2011,
decreasing largely as a result of the rights issue undertaken.
Interest rates in respect of 66,3% of borrowings as at 31 August 2012 have been hedged, maturing at various dates ranging from April 2013 to October 2018.
The average weighted interest rate of all borrowings is 9,4% per annum.
Details of borrowings are as follows:
Nominal Interest rate
R000 amount %
Fixed rate borrowings expiry
April 2013 40 000 12,77
May 2013 53 250 12,72
November 2013 75 000 11,92
May 2018 100 000 12,06
October 2018 75 000 11,72
343 250 12,14
Nominal Interest rate
R000 amount %
Swap maturity
January 2014 15 000 11,99
August 2017 200 000 9,00
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 9,38
Total hedged borrowings 758 250 10,63
Variable rate borrowings 385 307 7,00
Total borrowings 1 143 557 9,4
Revaluation of property portfolio
It is the groups policy to perform a directors valuation of all the properties in the interim stage and at year-end. At the year-end one third
of the properties in the portfolio are valued by external registered valuers. The increase in the directors valuation of the portfolio by R167,5 million
to R2,92 billion represents an increase of 6,1%.
Directorate changes
It is with great sadness that the directors note the passing of Mr Alec Wapnick, the founder of the company, on 29 August 2012.
Unitholders are referred to the SENS announcement on 4 September 2012 advising that Mr Michael (Mike) Holmes retired from the board of Octodec as
non-executive director with effect from 1 September 2012. The board wishes to express its appreciation and gratitude to Mr Holmes for his guidance and his
invaluable contribution made to the company over the years.
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 in the financial services sector. He also serves as the chairman 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
Growth in the local economy is expected to remain subdued. Notwithstanding this environment, and barring unforeseen events, Octodec anticipates that growth in
distributions per linked unit for the 2013 financial year should be at least in line with the sector average.
Unitholders are advised that the abovementioned forecast has not been reviewed nor reported on by the companys auditors.
DECLARATION OF DIVIDEND 45 AND INTEREST PAYMENT (the distribution)
Notice is hereby given that dividend number 45 of 0,33 cents (2011: 0,32 cents) per ordinary share (out of income reserves) and interest of 65,77 cents per debenture
(2011: 63,98 cents), has been declared for the period 1 March 2012 to 31 August 2012, payable to linked unitholders recorded in the register on Friday, 16 November 2012.
The last date to trade cum distribution is Friday, 9 November 2012. The units will commence trading ex distribution on Monday, 12 November 2012. Payment date will
be Monday, 19 November 2012.
No dematerialisation or rematerialisation of linked unit certificates may take place between Monday, 12 November 2012 and Friday, 16 November 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 R357 142 being 0,33 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 0,33 cents per share.
The number of linked units in issue at the date of this declaration is 108 224 917 and the companys tax reference number is 9925/033/71/5.
By order of the Board
S Wapnick JP Wapnick
Chairman Managing Director
22 October 2012
Directors: S Wapnick (Chairman), JP Wapnick* (Managing), AK Stein* (Financial), 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 Proprietary 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: 22/10/2012 10:35:00 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.
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