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OCTODEC INVESTMENTS LIMITED - Reviewed Interim Results 2017

Release Date: 02/05/2017 07:30
Code(s): OCT     PDF:  
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Reviewed Interim Results 2017

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)

REVIEWED INTERIM RESULTS 2017

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 316 properties valued at R12.7 billion, which includes a 50% interest in four joint ventures. It 
invests in the retail, residential, shopping centre, industrial and office property sectors and all of its properties are situated 
in Gauteng.

Octodec has contracted with City Property Administration Proprietary Limited, one of South Africa's leading property asset 
management companies, to perform its asset management, property management and company secretarial functions.

The rental Octodec receives from its property portfolio, including the distributable income from its equity-accounted investments, 
less operating costs, interest on debt and normal taxation, is distributed to shareholders bi-annually. Octodec does not 
distribute its capital profits.

Octodec strategy

- Maintain and grow distributions to our shareholders
- Grow our existing portfolio, focusing on redeveloping and upgrading properties
- Continue to investigate new frontiers
- Medium-term focus on growing our residential portfolio

Measuring our performance

- 6.5% distribution growth to 104.8 cents per share for the six month period (2016: 98.4 cents)
- 1.6% increase in net asset value per share (NAV) to R29.58
- 5.5% like-for-like growth in rental income for the six-month period
- One on Mutual mixed-use residential development completed
- 96.3% of exposure to interest rate risk is hedged
- Loan to investment value (LTV) at 37.2%
- All-in annual weighted average cost of borrowings at 9.2%

Property sectors: Rental income % of our portfolio 
                                        February             February
                                            2017                 2016
Residential                                29.5%                30.2%
Retail shops                               27.1%                27.6%
Offices                                    21.1%                19.5%
Shopping centres                           10.0%                10.0%
Industrial                                  8.2%                 8.4%
Parking                                     4.1%                 4.3%

Geographical analysis of rental income 
                                                           % of Total
                                           R'000            portfolio
Tshwane Central                          238 282                34.0%
Johannesburg Central                     150 266                21.4%
Johannesburg and surrounding areas        71 599                10.2%
Hatfield                                  52 422                 7.5%
Tshwane Arcadia                           34 773                 5.0%
Silverton and surrounding area            32 257                 4.6%
Waverley, Gezina, Moot                    26 489                 3.8%
Tshwane Other                             94 431                13.5%

Total rental income 
R700.5 million


Review of results

Octodec, which is well-positioned to continue taking advantage of opportunities in the Tshwane and Johannesburg CBDs, has 
delivered results which are slightly above the previous guidance of 6% growth in dividends per share. The group's primary 
objective remains to improve our existing properties in strategic investment nodes in order to attract new tenants and improve our 
rental income.

Despite low domestic economic growth directly negatively impacting disposable income, Octodec has been able to increase its like-
for-like rental income by 5.5% with its rental from offices showing the strongest growth of 8.2%. This growth is mainly 
attributable to the leases concluded in 2016 for the Centre Walk offices.

The residential portfolio showed lower growth in like-for-like rental income of 3.8%, which is mainly attributable to lower 
escalations of rentals in Hatfield and the Tshwane CBD, which hitherto had been strong student nodes. This trend is expected to 
continue for the remainder of the financial year.

Our core portfolio, representing those properties held for the previous comparable period with no major development activity, 
reflected rental income growth of 5.5%.

Our core portfolio
                               Percentage increase in
                                   core rental income
Residential                                      3.8%
Retail shops                                     5.7%
Offices                                          8.2%
Shopping centres                                 6.0%
Industrial                                       6.1%
Parking                                          2.1%

5.5% growth in rental income

The ratio of net property expenses (property expenses net of recoveries and excluding administration costs) to rental income 
(excluding amounts attributable to straight-line rental income accrual) for the group remained unchanged at 29.6% 
(31 August 2016: 29.6%). This can be attributed to our continued focus on cost control. Bad debt write-offs and provisions during 
the year increased slightly to 1.2% of total tenant income (31 August 2016: 0.8%). Arrears and doubtful debt provisions remain at 
acceptable levels as a result of tight credit risk management. No significant deterioration is anticipated. 

Finance costs for the period amounted to R198.9 million, an increase of 3.2% compared to the prior period. The all-in weighted 
cost of borrowings increased marginally to 9.2% per annum (31 August 2016: 9.0%). This is mainly due to increased borrowings to 
fund the developments and projects.

Distribution to shareholders

The rental income received by Octodec, less operating costs and interest on debt, is distributed to shareholders twice a year. 
We declared a total distribution of 104.8 cents per share for the six-month period compared to 98.4 cents declared in the prior 
comparative period, an increase of 6.5%. 

Investing for growth

The group had four major projects under construction during the period under review. Three of these projects, One on Mutual, 
Sharon's Place and Midtown are situated in close proximity to the new council head office, Tshwane House. Tshwane House will be 
ready for occupation shortly and will have a positive impact on these three developments as well as the continued growth within 
the node. 

Developments

Salient details of these developments:

-  One on Mutual, a mixed-use property, adjacent to Church Square in the Tshwane central business district (CBD) consists of 
   142 residential units, ground floor retail premises and parking. The total cost of the project, excluding land, is 
   R155.0 million, with an expected fully let annual yield of 7.1%, exclusive of land costs. The project was completed in 
   February 2017. To date the letting of this property is progressing well ahead of our expectations. 

-  The Manhattan, a 180-unit residential development in Sunninghill, Johannesburg, was completed in December 2016. The total 
   development cost of this 50% held joint operation amounts to R80.9 million. In due course, when fully let the initial annual 
   yield, inclusive of land costs, is expected to be 9.5%. Marketing efforts to launch this development are in full swing.

-  Sharon's Place, a large, well located residential development consisting of 400 residential units, 5 660 m2 of ground floor 
   retail, anchored by Shoprite and Clicks, and 289 parking bays, is adjacent to the new Tshwane House municipal development in 
   the Tshwane CBD. The total cost of the project is R356.0 million. We expect to complete the project in July 2017 with an annual 
   yield, excluding land costs, of 7.3%, when fully let.

-  The renovation of Midtown, an office upgrade, is also adjacent to the new Tshwane House municipal development in Tshwane CBD. 
   The property consists of 7 133 m² of offices, 944 m² of retail and 90 parking bays. The total cost of this project is 
   R56.5 million at a fully let annual yield, inclusive of land costs, of 9.5%. The first phase of this renovation is complete, 
   at a cost of R21 million. We will commence work on the second phase of the renovation when a suitable office tenant is secured.

The group has several small projects under way, in line with Octodec's strategy to upgrade and extract value from its property 
portfolio. These projects will not only enhance the value of our portfolio, but will also contribute to the uplifting of the 
Tshwane and Johannesburg CBDs in which Octodec is invested.

Wits Technikon, an office block situated in the Johannesburg CBD, was recently upgraded at a total cost of R19.5 million. The 
upgrade of 10 383 m2 of the property, provides additional space required by a school. Occupation took place in February 2017 at a 
monthly rental of R266 220. The initial yield on the upgrade cost is 14.8%.

We are in the planning phase of the development of two residential properties: Reinsurance House and Van Riebeeck Medical 
Building, which are situated in prime locations in the Johannesburg and Tshwane CBDs, respectively.

The total cost of these developments is expected to be approximately R240 million. 

New and redeveloped properties grow our rental income stream. However, phased take up of units tends to have a negative impact on 
results in the short term. It takes between six and nine months for residential developments to achieve full occupancy levels. 
As a result thereof the distribution growth is expected to be negatively impacted in the second six-month period.

Disposals

In line with our strategy to dispose of non-core or non-performing properties, the group disposed of a further eight properties 
during the period under review for a total consideration of R50.6 million. We have disposed of an additional four properties and 
transfer is expected in the near future.

Transferred before 28 February 2017:

                                                               Total   Profit/(loss)                       Exit 
                                                       consideration    on disposal        Transfer       yield 
PROPERTY                          LOCATION                 R'million      R'million            date           % 
Frederika Street                  Pretoria West                  7.6            0.1      3 Feb 2017         8.0 
Karkap                            Gezina, Pretoria               5.4            0.4      3 Feb 2017        10.7 
Muntstreet                        Silvertondale, Pretoria       11.1            1.9     28 Feb 2017         7.8 
Raschers                          Johannesburg CBD               5.8            0.2     26 Nov 2016         2.7 
Paulefko                          Pretoria CBD                   4.3            0.9     17 Oct 2016         9.7 
Blagil                            Hatfield, Pretoria             2.1           (0.1)    26 Nov 2016         9.9 
High Court Building 
and Somerset House                Johannesburg CBD              14.3           (0.2)    26 Nov 2016           – 
Total                                                           50.6            3.2                             

Transfers expected after 28 February 2017:

                                                               Total   Profit/(loss)                       Exit 
                                                       consideration    on disposal        Transfer       yield 
PROPERTY                          LOCATION                 R'million      R'million            date           % 
Pretwade                          Wadeville, Johannesburg       10.2            0.2        May 2017        10.1 
Fine Art House and 
Fine Art Court                    Johannesburg CBD              17.1            0.2      April 2017         3.5 
Valhof                            Valhalla, Pretoria             9.2           (0.2)       May 2017        10.5 
Total                                                           36.5            0.2

Vacancies

Vacancies in the Octodec portfolio at 28 February 2017, including properties held for redevelopment, amounted to 16,8% 
(31 August 2016: 15,6%) 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 10.1% (31 August 2016: 9.8%).

                                                                           Properties
                                            Total             Total          held for            Core 
                                    lettable area         vacancies     redevelopment       vacancies 
                                               m2                 %                 %               % 
28 FEBRUARY 2017
Offices                                   492 992              35.4             (20.5)           14.9 
Retail – shops                            419 201              10.3              (1.1)            9.2 
Retail – shopping centres                  91 874               4.4                 –             4.4 
Industrial                                280 884               9.9                 –             9.9 
Residential                               371 103               7.7              (1.4)            6.3 
Total                                   1 656 054              16.8              (6.7)           10.1 

31 AUGUST 2016                               
Offices                                   489 750              34.7             (19.4)           15.3 
Retail – shops                            432 456               9.1                 –             9.1 
Retail – shopping centres                  91 179               5.4                 –             5.4 
Industrial                                288 908              10.8                 –            10.8 
Residential                               366 827               4.0              (0.4)            3.6 
Total                                   1 669 120              15.6              (5.8)            9.8 

As expected, a number of properties under development, or those which were recently upgraded, had vacancies. In recent years, 
certain properties, such as Fedsure House, Reinsurance House, Van Riebeeck Medical Building and Midtown were acquired with high 
vacancy levels. These properties offer significant redevelopment opportunities, the value of which will be realised over time. 
As opportunities arise, the value of these redevelopment opportunities is being realised. 

The group has approximately 101 178m2 of mothballed office space which is under development, or available for future 
redevelopment, or possible disposal. We will continue to explore opportunities to unlock the value in this vacant space.

Lease expiry profile

Octodec's portfolio features a mix of short- to long-term leases. The majority of leases provide for a monthly agreement at expiry 
of the lease. When this occurs an effort is made to conclude longer leases. This is especially typical of the residential market 
and leases with small to medium-sized enterprises.

                                          Gross                              Monthly
                                  lettable area                     contractual rent
                                         GLA m2             %                      R            %
Residential (12 months and less)        342 427          20.7              36 508 740        31.1 
Monthly commercial                      203 844          12.3              11 719 627        10.0 
to 28 February 2018                     355 167          21.5              27 808 812        23.7 
to 28 February 2019                     180 991          10.9              15 266 853        13.0 
to 28 February 2020                     126 290           7.6              10 243 216         8.7 
to 28 February 2021                      87 989           5.3               9 383 126         8.0 
thereafter                               81 057           4.9               6 514 491         5.5 
Vacancies                               278 289          16.8                       –           – 
Total                                 1 656 054         100.0             117 444 865       100.0 

Borrowings and working capital

                                                                                         Weighted 
                                                                                          average 
                                                                                    interest rate 
                                                                    Amount              per annum 
                                                                 R'million                      % 
Bank loans                                                         3 997.9                    9.2 
Domestic medium term note programme (DMTN)                           736.9                    8.7 
Total borrowings                                                   4 734.8                    9.1 
Cost of swaps                                                            –                    0.1 
Total borrowings                                                   4 734.8                    9.2 

The group's loan to value ratio (LTV) (value of interest bearing borrowings, net of cash divided by the fair value of its 
investment portfolio) at 28 February 2017, is 37.2% (31 August 2016: 38.3%). This decrease is mainly attributable to the 
revaluation of the property portfolio, a reduction in borrowings due to the proceeds of properties disposed of during the period, 
as well as the capital raised from the dividend reinvestment programme.

Octodec has reduced its exposure to interest rate risk by entering into interest rate swap contracts in respect of 96.3% 
(31 August 2016: 82.9%) of its borrowings. The hedges in place are for a weighted average period of 2.0 years. The all-in average 
weighted interest rate of all borrowings is 9.2% per annum (29 February 2016: 8.9%).

Loan expiry profile (financial year)

                                                          % of Total
                                           R'000          borrowings
Year                                                               %
2017                                     564 503                11.9
2018                                     786 833                16.6
2019                                   2 557 293                54.0
2020                                     538 327                11.4
2021                                     287 892                 6.1

Total value of loans
R4.735 billion

Expiry profile of fixed rate loans and interest rate swap contracts (per financial year)

                                                          % of Total
                                           R'000          borrowings
Year                                                               %
2017                                     600 000                13.2
2018                                   1 350 580                29.6
2019                                   1 361 400                29.8
2020                                     500 000                11.0
2021                                     750 000                16.4

Total interest rate swaps in place
R4.562 billion

After taking into account all swaps expiring prior to 31 August 2017, our forecast hedged position will be at 84.2% at 
31 August 2017.  

Octodec participates in the DMTN programme through its subsidiary, Premium Properties Limited. As at the date of this report the 
total issuance was at R736.9 million, or 15.5% of the group's borrowings. 

Global Credit Rating's long- and short-term national scale ratings of Premium Properties Limited were maintained at A (ZA) and 
A1 (ZA), respectively. 

Octodec had unutilised available banking facilities amounting to R607.8 million at 28 February 2017.

Changes in fair value

It is the group's policy to perform internal valuations of all the properties at the interim stage 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 R12.7 billion, after a net increase in valuation of R211.0 million or 1.7% for the 
six-month period ended 28 February 2017.

The mark-to-market value of interest rate swaps contracts, which protect the group against adverse interest rate movements, 
decreased by R40.2 million.

Prospects

The recent downgrade of South Africa's foreign and local credit rating to below investment grade does not bode well for the people 
of South Africa. While the consequences of this downgrade are not yet clear, it will certainly impact interest rates and 
inflation, and is likely to push them upwards, weaken the rand and ultimately put pressure on disposable income. We believe that, 
despite the challenges of the economic environment, Octodec is well-positioned as a result of the resilience of its diversified 
portfolio consisting of a very large number of tenants, as well as the sound operating fundamentals that are firmly in place.

We are currently considering opportunities outside our traditional focus in Gauteng province that would increase our geographic 
diversification. While these opportunities would increase our geographic diversification they are in market sectors in which we 
have extensive experience and expertise.

Octodec uses distributable income per share as its relevant measure of performance. Current indications are that the growth in our 
distributable income per share is expected to be approximately 6% for the 2017 financial year. 

This guidance is based on the following key assumptions: 

- forecast investment property income is based on contractual rental escalations and market related renewals 
- appropriate allowance for vacancies has been incorporated into the forecast
- no major corporate and tenant failures will occur
- no further deterioration in the economic, social and political environment.

This forecast has neither been reviewed nor reported on by the group's auditors.

Declaration of cash dividend with the option to elect to reinvest the cash dividend in return for Octodec shares

The board of directors of Octodec declared an interim cash dividend of 104.8 cents per share, for the six months ended 
28 February 2017, out of the company's distributable income (the cash dividend).

Shareholders will be entitled, in respect of all or part of their shareholdings, to elect to reinvest the cash dividend in return 
for Octodec shares (the share reinvestment alternative). Those shareholders who elect not to reinvest will receive a gross cash 
dividend of 104.8 cents per share. The entitlement for shareholders to receive the share reinvestment alternative is subject to 
the board agreeing on the pricing and terms of the share reinvestment alternative. The board in its discretion may withdraw the 
share reinvestment alternative should market conditions warrant such actions and such withdrawal will be communicated to 
shareholders prior to the finalisation announcement to be published by 11:00 on Tuesday, 16 May 2017. 

A circular providing further information in respect of the cash dividend and share reinvestment alternative (the circular) will be 
posted to shareholders on Friday, 5 May 2017. 

Shareholders who have dematerialised their shares through a Central Securities Depository Participant (CSDP) or broker should 
instruct their CSDP or broker with regard to their election in terms of the custody agreement entered into between them and their 
CSDP or broker. 

The distribution of the circular and/or accompanying documents and the right to elect shares in jurisdictions other than the 
Republic of South Africa (SA) may be restricted by law and any failure to comply with any of these restrictions may constitute a 
violation of the securities laws of any such jurisdictions. Shareholders' rights to elect shares are not being offered, directly 
or indirectly, in the United Kingdom (UK), European Economic Area (EEA), Canada, United States of America (USA), Japan or 
Australia unless certain exemptions from the requirements of those jurisdictions are applicable.

SALIENT DATES AND TIMES                                                                     2017 

- Circular and form of election posted to shareholders and
  announced on SENS                                                                Friday, 5 May 
- Finalisation information including the share ratio and reinvestment 
  price per share published on SENS                                              Tuesday, 16 May 
- Last day to trade in order to participate in the election to receive
  shares in terms of the share reinvestment alternative or to receive a 
  cash dividend (LDT)                                                            Tuesday, 23 May 
- Shares trade ex-dividend                                                     Wednesday, 24 May 
- Listing of maximum possible number of shares under the share 
  reinvestment alternative                                                        Friday, 26 May 
- Last day to elect to receive shares in terms of the share
  reinvestment alternative or to receive a cash dividend
  (no late forms of election will be accepted) at 12:00 (SA time)                 Friday, 26 May 
- Record date for the election to receive shares in terms of the
  share reinvestment alternative or to receive a cash dividend
  (record date)                                                                   Friday, 26 May 
- Announcement of results of cash dividend and share
  reinvestment alternative released on SENS                                       Monday, 29 May 
- Cash dividend cheques posted to certificated shareholders on
  or about                                                                        Monday, 29 May 
- Accounts credited by CSDP or broker to dematerialised shareholders 
  with the cash dividend payment                                                  Monday, 29 May 
- Share certificates posted to certificated shareholders on or about           Wednesday, 31 May 
- Accounts updated with the new shares (if applicable) by CSDP or 
  broker to dematerialised shareholders                                        Wednesday, 31 May 
- Adjustment to shares listed on or about                                         Friday, 2 June 

Notes:

Shareholders electing the share reinvestment alternative are alerted to the fact that the new shares will be listed on LDT + 3 and 
that these new shares can only be traded on LDT + 3, due to the fact that settlement of the shares will be three days after the 
record date, which differs from the conventional one day after record date settlement process.

Shares may not be dematerialised or rematerialised between Wednesday, 24 May 2017 and Friday, 26 May 2017, both days inclusive. 
The above dates and times are subject to change. Any changes will be released on SENS.

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. With effect from 22 February 2017, 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 83.84 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 
- 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 transfer secretaries, 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 transfer 
secretaries in respect of certificated shares, a DTD (EX) (Dividend Tax: declaration and undertaking to be made by the beneficial 
owner of a share) form to prove their status as a South African resident and indicating the exemption upon which they are relying.  

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 maybe, 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 261 539 462 and Octodec's tax reference number is 9925/033/71/5. 

By order of the board

S Wapnick                           JP Wapnick
Chairman                            Managing director

26 April 2017


Notes to the condensed consolidated interim financial statements

Basis of preparation

The reviewed condensed consolidated interim financial statements are prepared in accordance with the requirements of the JSE 
Limited Listings Requirements and the requirements of the Companies Act, 71 of 2008. The interim report has been prepared in 
accordance with IAS 34: Interim Financial Reporting as well as 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 reviewed condensed consolidated interim financial statements are in accordance with 
International Financial Reporting Standards (IFRS) and are consistent with those applied in the preparation of the previous 
consolidated financial statements.

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 reviewed condensed consolidated interim financial statements were prepared under the supervision of Mr AK Stein CA (SA), in 
his capacity as group financial director.

Fair value measurement 

The fair value of investment properties is arrived at on the basis of a valuation technique using the net income capitalisation 
method, carried out at 28 February 2017, by taking into account prevailing market rentals, occupation levels and capitalisation 
rates. The other key input used in the valuation calculation is the expected long-term net operating income margin, of which the 
expense ratio and long range vacancy factor is the significant unobservable input. There have been no changes in judgements or 
estimates of amounts or valuation techniques as reported in previous reporting periods. The directors value the entire property 
portfolio bi-annually. The effect of the fair value measurement on investment properties resulted in a net increase in profits of 
R211 million in the statement of comprehensive income. In terms of the JSE Listings Requirements, investment property has to be 
independently valued at least every three years. Independent valuations are obtained annually on a rotational basis to determine 
the reasonableness of the directors' valuations, ensuring that every property is valued every three years.

Financial instruments measured at fair value include derivatives. The fair values of the interest rate swaps are determined on a 
mark- to-market valuation calculated by the various financial institutions with whom the swaps are held, 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 in its entirety.

The different levels have been defined as follows: 

-  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 (unobservable input).

Investment properties and derivative financial instruments have been categorised as Level 3 and Level 2, respectively, and there 
have been no significant transfers made between Levels 1, 2 and 3 during the year under review. There have been no material 
changes in judgements or estimates of amounts or valuation techniques as reported in previous reporting periods.

Fair value measurements using significant unobservable inputs (Level 3) – 
reconciliation of investment property:
                                                                                              Reviewed 
                                                                                   Investment Property 
                                                                                                 R'000 
Balance as at 31 August 2016                                                                12 129 631 
Net gains for the period included in profit and loss                                           211 003 
Transfers into/(out of) Level 3                                                                      – 
Acquisitions, disposals and other movements:                                                           
– Acquisitions and subsequent expenditure                                                      195 050 
– Disposals                                                                                    (47 400)
Balance as at 28 February 2017                                                              12 488 284 
Included in profit and loss for the period:                                                            
Changes in fair value of investment property                                                   211 003 

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 by 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 a decrease/increase in the carrying amount of investment property of 
R163.2 million. 

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 expected 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 range of long range vacancy factors used was from 
0.0% to 45.0%.

Events after the reporting date 

There have been no subsequent events that require reporting.

Commitments 

The group has capital commitments in an amount of R193.4 million, relating to various redevelopments and upgrades of properties. 
These will be funded out of existing unused banking facilities.

Related party transactions 

Total payments made to City Property Administration Proprietary Limited amounted to R94.2 million. These included fees and 
commissions for collections, asset management, leasing, property management, acquisitions and disposals, as well as upgrades and 
developments.  

Independent auditor's review report 

Deloitte & Touche have issued their unmodified review report on the reviewed condensed consolidated interim financial statements 
for the period ended 28 February 2017. The review was concluded in accordance with ISRE 2410 Review of Interim Financial 
Information performed by the independent auditor of the entity. A copy of their unmodified review report is available for 
inspection at Octodec's registered office. 

The auditor's review report does not necessarily report on all of the information contained herein. Shareholders are therefore 
advised that in order to obtain a full understanding of the nature of the auditor's engagement, they should obtain a copy of the 
report, together with the accompanying financial information, from Octodec's registered office.  


Financial statements 

Condensed consolidated statement of financial position 
as at 28 February 2017
                                                             Reviewed              Reviewed                Audited 
                                                          28 February           29 February              31 August 
                                                                 2017                  2016                   2016 
                                                                R'000                 R'000                  R'000 
ASSETS                                                                                                             
Non-current assets                                         12 605 157            12 055 953             12 219 234 
  Investment properties                                    12 169 639            11 623 487             11 776 839 
  Plant and equipment                                           6 140                 7 895                  6 810 
  Straight-line rental income accrual                         115 353               118 388                115 849 
  Tenant installation and lease costs                          50 962                59 830                 57 133 
  Other financial assets                                       69 275                20 290                 51 849 
  Derivative financial instruments                             18 024                65 056                 38 172 
  Investment in joint ventures                                175 764               161 007                172 582 
Current assets                                                186 369               124 808                200 661 
  Receivables                                                 144 076               100 546                131 552 
  Cash and cash equivalents                                    42 293                24 262                 69 109 
  Non-current assets held for sale                            146 190                     –                173 000 
                                                           12 937 716            12 180 761             12 592 895 
EQUITY AND LIABILITIES                                                                                             
Equity                                                      7 736 852             7 216 023              7 413 800 
  Stated capital                                            4 101 286             3 907 819              3 958 207 
  Non-distributable reserve                                 3 281 786             3 008 826              3 112 885 
  Distributable reserve                                       353 780               299 378                342 708 
Non-current liabilities                                     4 278 762             3 913 451              4 106 208 
  Interest-bearing borrowings                               4 170 344             3 838 902              4 023 911 
  Derivative financial instruments                             27 955                 1 564                  9 308 
  Deferred taxation                                            80 463                72 985                 72 989 
Current liabilities                                           922 102             1 051 287              1 072 887 
  Interest-bearing borrowings                                 564 503               737 001                755 116 
  Trade payables                                              329 407               311 073                315 698 
  Bank overdraft                                               24 715                     –                      – 
  Derivative financial instruments                              1 358                   602                      – 
  Distributions payable                                         2 119                 2 611                  2 073 
                                                           12 937 716            12 180 761             12 592 895 
Shares in issue ('000)                                        261 539               252 322                254 551 
Net asset value (NAV) per share (cents)                         2 958                 2 860                  2 913 
Loan to investment value (LTV) ratio (%)                         37.2                  38.0                   38.3 


Condensed consolidated statement of comprehensive income 
as at 28 February 2017
                                                             Reviewed              Reviewed                Audited 
                                                             6 months              6 months              12 months 
                                                          28 February           29 February              31 August 
                                                                 2017                  2016                   2016 
                                            % change            R'000                 R'000                  R'000 
REVENUE                                                       897 190               856 032              1 770 438 
  earned on contractual basis                    5.3          897 813               852 417              1 742 871 
  once-off reinstatement contribution 
  from tenant                                                       –                     –                 25 000 
  straight-line rental income accrual                            (623)                3 615                  2 567 
Property operating costs                         4.5         (402 130)             (384 930)              (790 529)
Net rental income from properties                5.1          495 060               471 102                979 909 
Administrative costs                             0.5          (37 660)              (37 465)               (71 005)
Operating profit                                 5.5          457 400               433 637                908 904 
Fair value changes                                            170 853               210 033                303 105 
  investment property                                         211 003               158 817                285 914 
  interest rate derivatives                                   (40 150)               51 216                 17 191 
Profit on sale of investment property                           2 566                   483                  8 490 
Reversal of impairment of loans                                     –                     –                    378 
Share of income from joint ventures                             9 567                 6 787                 20 898 
  share of after-tax profit                                     1 969                 2 383                  3 009 
  reserves                                                      2 956                  (921)                 6 872 
  interest and management fees                                  4 642                 5 325                 11 017 
Profit before finance costs                     (1.6)         640 386               650 940              1 241 775 
Interest income                                                 8 404                 3 294                 10 138 
Finance costs                                    3.2         (198 901)             (192 745)              (394 751)
  interest on borrowings                                     (217 647)             (202 589)              (416 659)
  interest capitalised                                         18 746                 9 844                 21 908 
Profit before taxation                          (2.5)         449 889               461 489                857 162 
Taxation charge – deferred                                     (7 474)                    –                      – 
Profit for the period                           (4.1)         442 415               461 489                857 162 
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           (4.1)         442 415               461 489                857 162 

Number of shares in issue ('000)                              261 539               252 322                254 551 
Weighted shares in issue ('000)                               257 987               252 322                252 888 
Basic and diluted earnings per share (cents)    (6.2)           171.5                 182.9                  338.9 
Distribution per share (cents)               
Interim                                                       104.80                   98.40                 98.40 
Final                                                              –                       –                103.10 
Total                                            6.5          104.80                   98.40                201.50 


Condensed consolidated statement of changes in equity 
for the six months ended 28 February 2017
                                                                                    Non                                 
                                                              Stated      distributable         Retained                
R'000                                                        capital            reserve         earnings          Total 
Balance at 31 August 2015 (audited)                        3 907 819          2 799 231          280 629      6 987 679 
Total comprehensive income for the period                          –                  –          461 489        461 489 
Dividends paid                                                     –                  –         (233 145)      (233 145)
Transfer to non-distributable reserve        
– Profit on sale of investment property                            –                483             (483)             – 
– Fair value changes                         
  – investment property                                            –            158 817         (158 817)             – 
  – joint ventures                                                 –               (921)             921              – 
  – interest rate derivatives (net of deferred tax)                –             51 216          (51 216)             – 

Balance at 29 February 2016 (reviewed)                     3 907 819          3 008 826          299 378      7 216 023 
Total comprehensive income for the period                                                        395 673        395 673 
Issue of new shares                                           50 388                                             50 388 
Dividends paid                                                                                  (248 284)      (248 284)
Transfer to non-distributable reserve        
– Profit on sale of investment property                                           8 007           (8 007)             – 
– Fair value changes                         
  – investment property                                                         127 097         (127 097)             – 
  – joint ventures                                                                7 793           (7 793)             – 
  – interest rate derivatives (net of deferred tax)                             (38 838)          38 838              – 

Balance at 31 August 2016 (audited)                        3 958 207          3 112 885          342 708      7 413 800 
Total comprehensive income for the period                          –                  –          442 415        442 415 
Issue of new shares                                          143 079                  –                –        143 079 
Dividends paid                                                     –                  –         (262 442)      (262 442)
Transfer to non-distributable reserve        
– Profit on sale of investment property                            –              2 566           (2 566)             – 
– Deferred tax                                                     –             (7 539)           7 539              – 
Fair value changes                           
  – investment property                                            –            211 003         (211 003)             – 
  – joint ventures                                                 –              2 956           (2 956)             – 
  – interest rate derivatives (net of deferred tax)                –            (40 085)          40 085              – 
Balance at 28 February 2017 (reviewed)                     4 101 286          3 281 786          353 780      7 736 852 


Condensed consolidated statement of cash flows 
for the six months ended 28 February 2017
                                                             Reviewed              Reviewed                Audited 
                                                             6 months              6 months              12 months 
                                                          28 February           29 February              31 August 
                                                                 2017                  2016                   2016 
                                                                R'000                 R'000                  R'000 
CASH FLOW FROM OPERATING ACTIVITIES                  
Net rental income from properties                             457 400               433 637                908 904 
Adjustment for:                                     
– straight-line rental income accrual                             623                (3 615)                (2 567)
– depreciation and amortisation                                11 341                11 041                 20 524 
– working capital change                                        1 185               (21 870)               (48 248)
Cash generated from operations                                470 549               419 193                878 613 
Interest income                                                 8 404                 8 619                 10 138 
Finance costs                                                (217 647)             (192 745)              (416 659)
Distribution to equity holders paid                          (262 396)             (234 016)              (482 840)
Net cash (outflow)/inflow from operating activities            (1 090)                1 051                (10 748)

CASH FLOW FROM INVESTING ACTIVITIES                  
Investing activities                                         (199 938)             (241 674)             (479 404)
Proceeds from disposal of investment property                  50 598                14 586                55 450 
Net cash outflow used in investing activities                (149 340)             (227 088)             (423 954)

CASH FLOW FROM FINANCING ACTIVITIES                  
Issue of new shares                                           143 079                     –                50 388 
(Decrease)/increase in interest-bearing borrowings            (44 180)              195 030               398 154 
Net cash generated from financing activities                   98 899               195 030               448 542 

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS          (51 531)              (31 007)               13 840 
Cash and cash equivalents at beginning of period               69 109                55 269                55 269 
Cash and cash equivalents at end of period                     17 578                24 262                69 109 


Reconciliation of earnings to headline earnings 
for the six months ended 28 February 2017
                                                             Reviewed              Reviewed                Audited 
                                                             6 months              6 months              12 months 
                                                          28 February           29 February              31 August 
                                                                 2017                  2016                   2016 
Total comprehensive income attributable to 
equity holders                                                442 415               461 489                857 162 
(Profit)/loss on sale of investment properties                 (2 566)                 (483)                (8 490)
Reversal of impairment of loans                                     –                     –                   (378)
Fair value changes                                   
– investment property                                        (211 003)             (158 817)              (285 914)
– investment property – joint ventures                         (2 956)                  921                 (6 872)
Headline earnings attributable to equity holders              225 890               303 110                555 508 
Headline earnings per share (cents)                              87.6                 120.1                  219.7 


Condensed consolidated segmental information 
for the six months ended 28 February 2017

The group earns revenue in the form of property rentals. On a primary basis the group is organised into six major 
operating segments: 
                                                            Reviewed                         Reviewed 
                                                            6 months                         6 months 
                                                         28 February                      29 February 
                                                                2017                             2016 
                                                               R'000        %                   R'000        % 
REVENUE                                      
Offices                                                      148 141     21.1                 129 227     19.5 
Retail shops                                                 189 975     27.1                 182 782     27.6 
Shopping centres                                              69 838     10.0                  65 910     10.0 
Industrial                                                    57 560      8.2                  55 359      8.4 
Parking                                                       28 982      4.1                  28 751      4.3 
Residential                                                  206 023     29.5                 199 851     30.2 
Total rental income                                          700 519    100.0                 661 880    100.0 
Recoveries and other income                                  196 671                          194 152 
Revenue                                                      897 190                          856 032 

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 philosophy to invest predominantly in properties situated in the Gauteng area, therefore the company has not reported 
on a geographical basis.


Reconciliation of earnings to distributable earnings
for the six months ended 28 February 2017

The following additional information is provided and is aimed at disclosing to the users the basis on which the distribution 
is calculated:

                                                             Reviewed              Reviewed                Audited 
                                                             6 months              6 months              12 months 
                                                          28 February           29 February              31 August 
                                                                 2017                  2016                   2016 
                                            % change            R'000                 R'000                  R'000 
Total comprehensive income attributable to 
equity holders                                                442 415               461 489                857 162 
(Profit)/loss on sale of investment properties                 (2 566)                 (483)                (8 490)
Reversal of impairment of loans                                     –                     –                   (378)
Fair value changes                                   
– investment property                                        (211 003)             (158 817)              (285 914)
– investment property – joint ventures                         (2 956)                  921                 (6 872)
Straight-line rental income accrual                               623                (3 615)                (2 567)
Fair value changes of interest rate derivatives, 
net of deferred tax                                            40 085               (51 216)               (17 191)
Deferred tax – other                                            7 539                     –                      – 
Once-off reinstatement contribution from tenant                     –                     –                (25 000)
Distributable earnings attributable to equity 
holders                                                       274 137               248 279                510 750 
Represented by:                              
Revenue                                      
– earned on contractual basis                    5.3          897 813               852 417              1 742 871 
Property operating costs                         4.5         (402 130)             (384 930)              (790 529)
Net rental income from properties                6.0          495 683               467 487                952 342 
Administrative costs                             0.5          (37 660)              (37 465)               (71 005)
Operating profit                                 6.5          458 023               430 022                881 337 
Interest income                                                 8 404                 3 294                 10 138 
Share of income from joint ventures                             6 611                 7 708                 14 026 
Distributable profit before finance costs                     473 038               441 024                905 501 
Finance costs                                    3.2         (198 901)             (192 745)              (394 751)
Distributable income before taxation            10.4          274 137               248 279                510 750 
Taxation                                                            –                     –                      – 
Equity holders' distributable earnings                        274 137               248 279                510 750 


Registered address 

CPA House, 101 Du Toit Street, Tshwane, 0002 
PO Box 15, Tshwane, 0001 
Tel: 012 319 8781, Fax: 012 319 8812, E-mail: info@octodec.co.za 

Directors 

Sharon Wapnick (Chairman)1, Jeffrey Wapnick (Managing director)2, 
Anthony Stein (Financial director)2, Derek Cohen3, Gerard Kemp4, 
Myron Pollack1, Pieter Strydom4, 
1 Non-executive director,2 Executive director, 
3 Lead independent director,4 Independent non-executive director 

Company secretary 

City Property Administration Proprietary Limited 
Contact person: Elize Greeff 
CPA House, 101 Du Toit Street, Tshwane, 0002 
PO Box 15, Tshwane, 0001 
Tel: 012 357 1564, E-mail: elizeg@octodec.co.za 

Sponsor 

Java Capital 
Contact person: Tanya de Mendonca 
6A Sandown Valley Crescent, Sandown, Sandton, 2196 
PO Box 2087, Parklands, 2121 
Tel: 011 722 3059, E-mail: 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, E-mail: leon.naidoo@computershare.co.za 

Investor relations 
Instinctif Partners 
Contact person: Louise Fortuin 
The Firs, 302 3rd Floor, Cnr Craddock and Biermann Road, Rosebank, 2196 
Tel: 011 447 3030, E-mail: investorrelations@octodec.co.za 


www.octodec.co.za

2 May 2017

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