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Unaudited interim results of the group for the six months ended 28 February 2013
OCTODEC INVESTMENTS LIMITED and its subsidiaries (“Octodec” or “the group” or “the company”)
(Incorporated in the Republic of South Africa)
(Registration number 1956/002868/06), Share code: OCT, ISIN: ZAE000005104
Unaudited interim results of the group
for the six months ended 28 February 2013
- Distribution up by 10,5% to 78,70 cents per linked unit
- Increase in net asset value by 5,6% to 1 987 cents per unit
- Total investments exceed R3,7 billion
- Reduction in core vacancies to 4,9%
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
six months six months year to
% 28 February 29 February 31 August
R’000 Change 2013 2012 2012
Revenue 245 975 215 801 461 403
– earned on contractual basis 13,9 247 059 216 967 457 452
– straight-line lease adjustment (1 084) (1 166) 3 951
Operating costs (123 150) (105 372) (223 401)
Net rental income from properties 122 825 110 429 238 002
– earned on contractual basis 11,0 123 909 111 595 234 051
– straight-line lease adjustment (1 084) (1 166) 3 951
Administrative costs (11 217) (8 694) (19 233)
Depreciation (1 655) (1 720) (3 515)
Operating profit 9,9 109 953 100 015 215 254
Fair value adjustments of investment properties 92 490 103 614 163 509
Fair value adjustments of interest rate derivatives 4 081 6 614 (14 910)
Investment income 36 396 24 270 52 947
– interest received 785 301 1 153
– listed investment 15 114 14 051 26 588
– associate
share of after tax profit 9 071 5 631 13 293
fair value adjustment/capital reserves 8 676 1 621 8 191
interest 2 750 2 666 3 722
Finance costs (11,4) (53 380) (60 233) (127 387)
– interest on borrowings (54 701) (61 754) (129 200)
– Interest capitalised 1 321 1 521 1 813
Amortisation of deemed debenture premium 10 311 5 334 10 906
Profit on sale of investment property 15 434 666
Profit before debenture interest 11,0 199 866 180 048 300 985
Debenture interest 34,0 (84 751) (63 267) (127 633)
Profit before taxation 115 115 116 781 173 352
Taxation charge (15 808) (63 399) (63 413)
– deferred taxation (15 696) (63 399) (63 061)
– normal taxation (112) – (352)
Profit for the period 99 307 53 382 109 939
Other comprehensive income for the period 25 168 7 139 41 550
Total comprehensive income for the period attributable
to equity holders 124 475 60 521 151 489
Weighted linked units in issue (’000) 108 225 89 297 89 297
Linked units in issue (’000) 108 225 89 297 108 225
Basic earnings per share (cents) 53,5 91,8 59,8 122,3
Diluted earnings per share (cents) 53,5 91,8 59,8 101,6
Basic earnings per linked unit (cents) 30,2 170,1 130,6 264,4
Diluted earnings per share (cents) 30,2 170,1 130,6 219,5
Distribution per linked unit (cents)
Dividends 0,39 0,35 0,68
Interest 78,31 70,85 136,62
Total 10,5 78,70 71,20 137,30
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
six months six months year to
28 February 29 February 31 August
R’000 2013 2012 2012
CASH FLOW FROM OPERATING ACTIVITIES
Net rental income from properties 111 037 101 180 211 303
Adjustment for:
– depreciation and amortisation 6 859 6 236 12 547
– working capital changes (1 810) (8 855) 7 567
Cash generated from operations 116 086 98 561 231 417
Investment income 18 650 17 018 31 463
Finance costs (53 380) (61 754) (127 387)
Taxation paid (423) – (536)
Distribution to linked unitholders paid (71 537) (56 499) (114 184)
Net cash outflow from operating activities 9 396 (2 674) 20 773
CASH FLOW FROM INVESTING ACTIVITIES
Investing activities (57 126) (226 192) (313 522)
Proceeds from disposal of investment properties 6 650 4 800 4 610
Net cash outflow used in investing activities (50 476) (221 392) (308 912)
CASH FLOW FROM FINANCING ACTIVITIES
Issue of new units – – 290 624
Increase in interest-bearing borrowings 57 989 256 437 (11 779)
Net cash generated from financing activities 57 989 256 437 278 845
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 16 909 32 371 (9 294)
Cash and cash equivalents at beginning of year (32 091) (22 795) (22 797)
Cash and cash equivalents at end of year (15 182) 9 576 (32 091)
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
Unaudited Audited
28 February 31 August
R’000 2013 2012
ASSETS
Non-current assets 3 749 565 3 565 859
Investment properties 2 952 729 2 834 133
Property, plant and equipment 8 227 9 882
Operating lease assets 43 703 44 788
Lease costs 37 482 28 159
Listed investment 406 900 375 981
Investments – equity accounted 300 524 272 916
Current assets 46 074 41 161
Total assets 3 795 639 3 607 020
Share capital and reserves 1 519 403 1 395 285
Share capital and premium 112 956 102 645
Non-distributable reserves 1 348 454 1 236 372
Retained earnings 57 993 56 268
Non-current liabilities 1 520 462 1 717 544
Debentures and premium 630 994 641 305
Interest-bearing borrowings 622 984 827 123
Derivative financial instruments 29 141 33 221
Deferred taxation 237 343 215 895
Current liabilities 755 774 494 191
Interest-bearing borrowings 594 179 348 918
Non-interest-bearing 76 844 74 093
Linked unitholders 84 751 71 180
Total equity and liabilities 3 795 639 3 607 020
Linked units in issue (’000) 108 225 108 225
Net asset value per linked unit (cents) 1 987 1 882
Net asset value per linked unit (cents) – before providing for deferred tax 2 206 2 081
Loan to investment value ratio (%) 32,5 33,0
DISTRIBUTABLE EARNINGS
The following additional information is provided and is aimed at disclosing to the users the basis on which the distributions are calculated.
Unaudited Unaudited Audited
six months six months year to
% 28 February 29 February 31 August
R’000 Change 2013 2012 2012
Revenue
– earned on contractual basis 13,9 247 059 216 967 457 452
Operating costs (123 150) (105 372) (223 401)
Net rental income from properties 11,0 123 909 111 595 234 051
Administrative costs (11 217) (8 694) (19 233)
Depreciation (1 655) (1 720) (3 515)
Operating profit 9,7 111 037 101 181 211 303
Investment income
– interest received 786 301 1 153
– listed investment 15 114 14 051 26 588
– associate 11 821 8 297 17 015
Distributable profit before finance costs 12,1 138 758 123 830 256 059
Finance costs (11,4) (53 380) (60 233) (127 387)
Distributable income before taxation 34,2 85 378 63 597 128 672
Taxation charge (112) – (352)
Distributable income after taxation 85 266 – 128 320
Interest received, accrued distribution – – 6 814
Unitholders distributable earnings 34,1 85 266 63 597 135 134
Linked units in issue (‘000) 108 225 89 297 108 225
Distributable earnings per linked
unit-weighted (cents) 10,6 78,8 71,2 150,4
Distribution per linked unit (cents) 10,5 78,7 71,2 137,3
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
Non-
Share distributable Retained
R’000 capital reserves earnings Total
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 151 489 151 489
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 tax 90 386 (90 386) –
– interest rate derivatives, net of deferred tax (10 735) 10 735 –
– associate, net of deferred tax 8 191 (8 191) –
Balances at 31 August 2012 102 645 1 236 372 56 268 1 395 285
Total comprehensive income for the year 124 475 124 475
Transfer to capital – deemed debenture premium 10 311 (10 311) –
Dividends paid (357) (357)
Adjustment to valuation of listed investment, net
of deferred tax 25 168 (25 168) –
Sale of investment properties 15 (15) –
Fair value adjustments
– investment properties, net of deferred tax 75 286 (75 286) –
– associate, net of deferred tax 8 676 (8 676) –
– interest rate derivatives, net of deferred tax 2 937 (2 937) –
Balances at 28 February 2013 112 956 1 348 454 57 993 1 519 403
RECONCILIATION – EARNINGS TO DISTRIBUTABLE EARNINGS
Unaudited Unaudited Audited
six months six months year to
28 February 29 February 31 August
R’000 2013 2012 2012
Total comprehensive income attributable to equity holders 124 475 60 521 151 489
Amortisation of deemed debenture premium (10 311) (5 334) (10 906)
Profit on sale of investment properties (15) (434) (666)
Fair value adjustments
– listed investment, net of deferred tax (25 168) (7 139) (41 550)
– associate, net of deferred tax (8 676) (1 621) (8 191)
– investment properties, net of deferred tax (92 490) (103 614) (163 509)
– deferred tax 17 204 61 874 73 123
Headline earnings before debenture interest 5 019 4 253 (210)
Debenture interest 84 751 63 267 127 633
Headline earnings attributable to linked unitholders 89 770 67 520 127 423
Straight-line lease adjustment, net of deferred tax 780 839 (2 845)
Fair value adjustments of interest rate derivatives, net of deferred tax (2 937) (4 762) 10 735
Deferred taxation adjustments (2 347) – (6 993)
Accrued distribution – – 6 814
Distributable earnings attributable to linked unitholders 85 266 63 597 135 134
Headline earnings per linked unit (cents) 82,9 75,6 117,7
SEGMENTAL INFORMATION
The group earns revenue in the form of property rentals. On a primary basis the group is organised into five major operating segments:
– Office
– Retail
– Shopping centres
– Industrial
– Residential
February February
2013 2012
Rental income by sector R'000 % R'000 %
Offices 30 522 17,0 29 971 18,6
Retail 42 769 23,8 35 533 22,1
Shopping Centres 55 653 30,9 53 007 32,9
Industrial 35 874 19,9 31 633 19,7
Residential 15 077 8,4 10 742 6,7
Total rental income 179 895 100,0 160 886 100,0
Recoveries 67 164 56 081
Revenue 247 059 216 967
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 investment philosophy to
invest only in properties situated in the Gauteng area, therefore the company has not reported on a geographical basis.
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 SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by Financial Reporting Standards Council, 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 2012.
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.
Commitments: Octodec has capital commitments in an amount of R13,2 million relating to various redevelopments of properties as well as for properties purchased for an
aggregate purchase consideration of R140,5 million, referred to in this announcement.
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 28 February 2013, 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.
DIRECTORS’ COMMENTARY
Review of results
All rental income received by the group, less operating costs and interest on debt, is distributed bi-annually. The group does not distribute capital profits.
Economic and trading conditions and consumer confidence continued to remain challenging during the financial period. The property portfolio continued to deliver
strong growth in earnings with rental income increasing following a number of successful upgrades of properties and a proactive approach to letting.
The total distribution per linked unit for the six months of 78,7 cents per linked unit (2012: 71,20 cents) represents an increase of 10,5% on that paid in the
previous corresponding period.
Rental income and net rental income increased by 13,9% and 11% respectively compared to the prior interim period. The core portfolio, representing those properties
held for the previous comparable period, with no major development activity, reflects rental income growth of 7,7%. The increase in revenue was mainly due to
contractual escalations, 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. These escalating charges impacted on the total
occupancy costs of tenants. Provisions and write-offs of bad debts were at acceptable levels of 0,9% (2012: 1,1%) of total tenant income.
Property and investment portfolio
Octodec invests in the retail, industrial and office property sectors. It also has a small residential component in its portfolio.
Octodec continued to expand its property portfolio in the Johannesburg and Pretoria central business districts (“CBDs”). Octodec acquired a portfolio of properties
for an aggregate purchase consideration of R140,5 million. The property portfolio consists of offices and is located in well-established office nodes. The effective
date of the acquisition will be the date of the fulfilment of the conditions precedent, which is expected to occur during June 2013. Further details of the acquisition
are set out in a SENS announcement dated 10 December 2012. Various properties were redeveloped and upgraded during the last six months at a total cost of R40,3 million.
The upgrade of the mixed-use residential property Kerk Street in Johannesburg CBD was completed in February 2013. A 5 233 m² retail development in the Pretoria CBD was
completed in March 2013. This is occupied by Cambridge, part of the Walmart Group, and other retailers. Octodec disposed of the Eloff Ext. Mini Units property for an
amount of R6,65 million.
Octodec’s investment in IPS continued providing acceptable earnings growth with profits earned from its associate company, excluding capital profits, increasing to
R11,8 million. This was an increase of 42,5% on the prior interim comparable period. This growth achieved by IPS was positively impacted by the improved occupancy
levels achieved during the period at the mixed-use development Kempton Place, Craig’s Place and Tali’s Place.
Vacancies in the Octodec portfolio at 28 February 2013, including properties held for redevelopment, amounted to 12,0% (2012: 12,9%) of total lettable area. Details
of these vacancies are set out in the table below.
Properties
Total Total held for
lettable area vacancies redevelopment Core vacancies
m2 % % %
28 February 2013
Offices 115 414 6,6 (5,5) 1,1
Retail – shops 99 661 1,9 (1,2) 0,7
Retail – shopping centres 104 828 0,8 – 0,8
Industrial 200 908 2,1 – 2,1
Residential 45 667 0,6 (0,4) 0,2
Total 566 478 12,0 (7,1) 4,9
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
Most of the properties remained fully let. As anticipated, a number of properties under development or those which were recently upgraded, for example, Scott’s Corner,
had high vacancies. In recent years certain properties, for example, Bosman Building, were acquired by Octodec with large vacancies and for little consideration for
the vacant space which 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 residential vacancies consist, as expected, of vacant
units at the recently upgraded Kerk Street.
Borrowings
Octodec’s value to loan ratio at the end of the period under review was 32,5% of the total value of its investment portfolio against 33,0% at 31 August 2012.
Interest rates in respect of 63,1% of borrowings at 28 February 2013 have been hedged, maturing at various dates ranging from April 2013 to October 2018. The average
weighted interest rate of all borrowings is 8,6% per annum, with unutilised banking facilities in an amount in excess of R297,5 million.
Details of borrowings are as follows:
Nominal Interest rate
R’000 amount %
Fixed rate borrowings expiry
April 2013 40 000 12,77
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 12,14
Nominal Interest rate
R’000 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 9,40
415 000 9,38
Total hedged borrowings 758 250 10,63
Variable rate borrowings – net 443 297 6,00
Total borrowings 1 201 547 8,60
Revaluation of property portfolio
It is the group’s policy to perform a directors’ valuation of all the properties at the interim stage and at year-end. At year-end, one-third of the properties in the
portfolio are valued by external registered valuers on a rotational basis.
The directors’ valuation of the portfolio of R3 billion includes an increase of R92,5 million or 3,1% for the six-month period ended 28 February 2013.
Prospects
Octodec is considering a number of redevelopment opportunities of existing properties which should enhance the quality of the property portfolio and result in
sustainable distributions. Growth in the local economy is expected to remain subdued. Notwithstanding this environment, and barring unforeseen events, Octodec
anticipates that the percentage growth rate in distributions per linked unit for the full 12-month period should be similar to that achieved in the first six-month
period.
The above-mentioned forecast has not been reviewed nor reported on by the company’s auditors.
DECLARATION OF DIVIDEND 46 AND INTEREST PAYMENT (“the distribution”)
Notice is hereby given that dividend number 46 of 0,39 cents (2012: 0,35 cents) per ordinary share and interest of 78,31 cents per debenture (2012: 70,85 cents),
has been declared for the period 1 September 2012 to 28 February 2013. This is payable to linked unitholders recorded in the register on Friday, 17 May 2013.
The last date to trade cum distribution is Friday, 10 May 2013. The units will commence trading ex distribution on Monday, 13 May 2013. Payment date will be Monday,
20 May 2013.
No dematerialisation or rematerialisation of linked unit certificates may take place between Monday, 13 May 2013 and Friday, 17 May 2013, 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 R422 077.1763 being 0,39 cents per share, and consequently no
dividend withholding tax is payable by shareholders. Shareholders will receive the dividend of 0,39 cents per share.
The number of linked units in issue at the date of this declaration is 108 224 917 and the company’s tax reference number is 9925/033/71/5.
By order of the board
S WAPNICK JP WAPNICK
(Chairman) (Managing director)
25 April 2013
Directors: S Wapnick (Chairman), JP Wapnick* (Managing Director), AK Stein* (Financial), MZ Pollack , DP Cohenˆ, PJ Strydom•
Non-executive director *Executive director •Independent non-executive director ˆLead independent non-executive
Registered office: CPA House, 101 Du Toit Street, Pretoria, 0002, PO Box 15, Pretoria, 0001, Tel: 012 319 8781 Fax: 012 319 8812
Transfer secretaries: Computershare Investor Services Proprietary Limited (Reg. No: 2004/003647/07), 70 Marshall Street, Johannesburg, 2001, PO Box 61051,
Marshalltown, 2107, Tel: 011 370 7700 Fax: 011 688 7712
Property administrator and asset manager: City Property Administration (Pty) Ltd; email: octodec@cityprop.co.za
www.octodec.co.za
Date: 25/04/2013 09:00:00 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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