DIVERSIFICATION AND ACTIVE MANAGEMENT UNDERPINS OCTODEC’S FY19 RESILIENCE

• Stable 200.9 cents dividend per share, in line with management’s guidance
• 19 non-core assets sold for R213 million, 11 transferred during the period
• Continued balance sheet optimisation and prudent financial management

JSE listed REIT Octodec Investments Limited, today announced its full year results, declaring a stable distribution of 200.9 cents per share, in line with guidance, and representing a marginal 1.2% decrease on the prior year against the prevailing poor economic and consumer environments.

Total rental income grew by R97.1 million or 5.1% compared to the prior year, supported by increased rental income from Sharon’s Place and consolidation of wholly owned subsidiaries. No major development activity was undertaken during the past year and the core portfolio, represented by those properties held since the previous comparable, reflected like-for-like rental income growth of 2.0%. Property costs increased as a result of escalating repairs and maintenance costs. Bad debt write-offs and provisions remained stable whilst administrative costs remained tightly controlled, showing a decrease of 5.3% on the prior year.

Jeffrey Wapnick, Managing Director of Octodec explained: “The persisting weak environment continued to put strain on all our tenants leading to relatively muted growth in our rental income. Against this backdrop, we have continued to position our diversified portfolio to withstand tough trading environments to ensure that we are able to continue to provide shareholders with sustainable value in the long term.

“We have successfully navigated a challenging period through our active management focused on vacancies management, smaller upgrades of existing assets to unlock value and the recycling of capital through the disposal of non-core or underperforming properties.”

Occupancy levels were stable during the period, showing a slight decrease in both total and core vacancies of 17.9% and 11.5% respectively. The most notable reduction was in the industrial sector. Improved occupancy levels at Killarney Mall and Woodmead Value Mart reduced shopping centre vacancies significantly. The Park (previously Elardus Park) experienced slightly higher vacancies while the centre was being upgraded. The upgrade has already resulted in several national tenants signing new leases. While the decision was made not to undertake significant developments, several smaller projects are underway which will improve occupancy levels, enhance the value of the portfolio and contribute to the upliftment of the areas in which Octodec is predominantly invested.

“The disposal of 19 assets during the period valued at R213 million were concluded at premiums to book value. This process validated the quality of our assets and reflect our realistic approach to property valuations. The proceeds from asset sales will be used to pay down debt and support strategic upgrades. We have also continued to strengthen our balance sheet by reducing our exposure to interest rate risk and we are committed to reduce our LTV,” commented Anthony Stein, FD of Octodec.

A total of nineteen properties were sold during the period for a total value of R213 million. Eleven of these properties were transferred during the period for a total consideration of R129.2 million at an average combined exit yield of 5.7% and 2.6% premium to book value. Transfer of the remaining eight properties will take place in the first half of the new financial year for a total consideration of R83.7 million at an average combined exit yield of 12% and 2.7% premium to book value. In addition, Octodec has approved the disposal of five more non-core properties with a carrying value of R125.6 million.

Wapnick concluded: “The way in which we manage Octodec provides us with a high level of control and is based on management’s experience through many cycles over the past 40 years. We continue to position our portfolio to be resilient in nature, underpinned by the diversity of the portfolio, large tenant base, sound operating fundamentals and prudent capital management.”

South Africa’s muted growth outlook is not sufficient to support a meaningful improvement in Octodec’s operating environment in the short term and future distributions are expected to remain in-line with the current period. As previously indicated, any meaningful improvement in the environment should provide the stimulus necessary for Octodec to resume distribution growth.

ENQUIRIES
Instinctif Partners
Gift Dlamini Frederic Cornet
www.octodec.co.za
011 447 3030
082 608 6587 083 307 8286

NOTES TO EDITORS

• Octodec is a Real Estate Investment Trust (“REIT”) listed on the JSE Limited (“JSE”) and invests in the residential, retail, shopping centre, office, industrial property and specialised sectors. Octodec’s portfolio which comprises 285 properties mostly located in the Tshwane and Johannesburg CBDs, is valued at R12.8 billion. Octodec is focussed on and committed to the continued investment into the Johannesburg and Tshwane city centres which offer growth potential.

• Jeffrey Wapnick, the Managing Director of Octodec Investments since 1998, is responsible for the effective management of the company with a strong emphasis on the upgrades and redevelopment of properties. He holds various other directorships of unlisted companies including City Property Administration Proprietary Limited where he is the managing director. He is a member of the risk committee of Octodec Investments Limited.

• The Wapnick family has a long history of experience in the property industry and holds a significant stake in Octodec, aligning their interests with those of other shareholders. Management has played an integral role in the running of the portfolio for over 25 years and therefore has an intimate knowledge of every asset and solid relationships with tenants. City Property as the asset and property manager has been managing Octodec for many years and has a wealth of experience in property management, specifically in the Tshwane and Johannesburg city centres and in the residential sector.

PORTFOLIO OPTIMISATION CONTINUES TO GENERATE LONG TERM VALUE AND UNDERPINS INTERIM FINANCIAL PERFORMANCE

• Distribution of 101.7 cents per share, in line with management’s guidance
• Revenue increased by 5.2%
• 2.2% like for like growth in total rental income supported by residential income growth of 3.9%
• 14 non-core/underperforming assets sold, 6 transferred during the period
• Prudent capital management strategy

Monday, 13 May 2019 – JSE listed REIT Octodec Investments Limited, today announced its half year results, declaring a distribution of 101.7 cents per share for the period.

Total rental income grew by R47.9 million or 5.2% compared to the prior period. The core portfolio, represented by those properties held since the previous comparable period with no major development activity, reflected like-for-like rental income growth of 2.2%, bolstered by a strong contribution from the residential portfolio. Property costs increased compared to the prior period due to higher utility costs and assessment rate charges, and an overall increase in property management costs. Bad debt write-offs and provisions during the period were little changed at 1.3% of total tenant income.

Jeffrey Wapnick, Managing Director of Octodec explained: “The prevailing poor economic environment exacerbated by rising costs and political uncertainty has weighed heavily on public confidence and spending power.

“We have positioned Octodec to withstand tough trading environments and provide shareholders with sustainable value creation. During the period, we focussed on managing vacancies, improving the value of existing assets and recycling capital through the disposal of non-core or underperforming properties. The portfolio was however impacted by pressure on rental income growth as well as an increase in property operating costs and higher finance charges during the period.”

Occupancy levels were stable during the period, showing a slight decrease in both total and core vacancies which were at 17.7% and 11.3% respectively. Sharon’s Place which was completed in phases by 30 June 2018, was 98% occupied as at February 2019 and is expected to deliver strong growth in rental income for the foreseeable future. While no significant developments were undertaken during the period, several smaller projects are underway which will not only improve the occupancy levels and enhance the value of the portfolio, but also contribute to the upliftment of the areas in which Octodec is predominantly invested.

The remaining 50% of two joint ventures, Kempton Place and The Brooklyn, was acquired for a cash consideration of R36.5 million, at an initial yield of 9.5% and became effective 1 November 2018.

A total of fourteen properties were sold during the period. Six of these properties had transferred by period end, for a total consideration of R98.8 million, at an average combined exit yield of 5.1% and 0.7% premium to book value. Transfer of the remaining eight properties for a total consideration of R39.0 million, is expected to take place before the 2019 financial year-end. These properties were sold at an average combined exit yield of 7.3% and a combined premium of 4.4% to book value. “The value that these properties attracted, not only demonstrates the quality of our assets which is enhanced by our prudent approach to maintenance across the portfolio, but also our realistic property valuations,” commented Anthony Stein, FD of Octodec.

The proceeds from asset sales were used to fund our upgrade programme and reduce debt which ended the period at R4,9 billion, with the loan-to-value being 38.3%. Finance costs rose 5.5% to R225.7 million, mainly due to the cost of additional hedging contracts entered into and interest expensed on the completed Sharon’s Place development. The all-in weighted cost of borrowings increased to 9.4% per annum. At period end, 75.5% of debt was fixed, however following the negotiation of further swap contracts, the hedged position increased to 85.5%, further protecting the portfolio from interest rate risk. “In the current economic environment we are approaching our capital management with greater emphases on, ensuring that our balance sheet is not strained but at the same time is optimised through the use of leverage. We are proactively addressing our debt that is expiring and aim to reduce our LTV over time.” added Stein.

Wapnick concluded: “Local market uncertainty continues and no significant improvement in the economy and consumer health is expected in the short to medium term. Octodec’s resilience during such challenging times is underpinned by the diversity of the portfolio, large tenant base, management’s experience and sound operating fundamentals, combined with prudent capital management.

“With the conclusion of the general elections, political risk and uncertainty is expected to settle, restoring some level of confidence. We expect the second half dividend to be slightly less than that of the current period which will result in a decrease in the dividend for the full year. South Africa is expected to achieve low growth for 2019, thereafter, improved conditions should provide the stimulus for Octodec to unlock value and provide shareholders with a growing sustainable distribution.

“Our strategy remains unchanged and we continue to upgrade our property portfolio situated in Gauteng, with a strong emphasis of investing in the residential sector. The disposal of our non-core or underperforming properties will remain a key focus area for the foreseeable future with proceeds being used towards the repayment of borrowings and to upgrade our property portfolio.”

ENQUIRIES
InstinctifPartners 0114473030
Louise Fortuin Gift Dlamini
www.octodec.co.za
071 353 9643 082 608 6587

• Octodec is a Real Estate Investment Trust (“REIT”) listed on the JSE Limited (“JSE”) and invests in the residential, retail, shopping centre, office, industrial property and specialised sectors. Octodec’s portfolio which comprises 294 properties mostly located in the Tshwane and Johannesburg CBDs, is valued at R13 billion. Octodec is focussed on and committed to the continued investment into the Johannesburg and Tshwane city centres which offer growth potential.
• Jeffrey Wapnick, the Managing Director of Octodec Investments since 1998, is responsible for the effective management of the company with a strong emphasis on the upgrades and redevelopment of properties. He holds various other directorships of unlisted companies including City Property Administration Proprietary Limited where he is the managing director. He is a member of the risk committee of Octodec Investments Limited.
• The Wapnick family has a long history of experience in the property industry and holds a significant stake in Octodec, aligning their interests with those of other shareholders. Management has played an integral role in the running of the portfolio for over 25 years and therefore has an intimate knowledge of every asset and solid relationships with tenants. City Property as the asset and property manager has been managing Octodec for many years and has a wealth of experience in property management, specifically in the Tshwane and Johannesburg city centres and in the residential sector.