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OCT
OCT
OCT - Octodec - Reviewed preliminary results of the group for the year ended 31
August 2010
Octodec Investments Limited and its subsidiaries
(Incorporated in the Republic of South Africa)
(Registration number 1956/002868/06)
Share code: OCT ISIN: ZAE000005104
("Octodec" or "the company")
REVIEWED PRELIMINARY RESULTS OF THE GROUP
For the year ended 31 August 2010
HIGHLIGHTS
Distribution up by 1,4% to 130,7 cents per linked unit
Net asset value of 1 696 cents
Total investments exceed R2,7 billion
Abridged Consolidated Statement of Financial Position
Reviewed Audited
31 August 31 August
R`000 2010 2009
ASSETS
Non-current assets 2 776 623 2 428 105
Investment properties 2 222 810 2 003 782
Property, plant and equipment 30 476 14 847
Operating lease assets 36 667 36 484
Listed investment 266 078 154 039
Investments - equity accounted 220 594 218 953
Current assets 45 787 48 507
Total assets 2 822 410 2 476 612
EQUITY AND LIABILITIES
Share capital and reserves 1 141 086 1 006 889
Share capital and premium 79 633 68 964
Non-distributable reserves 1 015 774 894 375
Retained earnings 45 679 43 550
Non-current liabilities 1 377 028 1 265 777
Debentures and premium 373 693 384 362
Interest bearing borrowings 754 635 659 632
Deferred taxation 248 700 221 783
Current liabilities 304 296 203 946
Interest bearing borrowings 191 636 95 260
Non-interest bearing 54 376 49 419
Linked unit holders 58 284 59 267
Total equity and liabilities 2 822 410 2 476 612
Linked units in issue (`000) 89 297 89 297
Net asset value per linked unit (cents) 1 696 1 558
Net asset value per linked unit (cents) - 1 975 1 806
before providing for deferred tax
Loan to investment value ratio (%) 34,1 31,1
Abridged Consolidated Statement of Comprehensive Income
Reviewed Audited
Year to Year to
% 31 August 31 August
R`000 Change 2010 2009
Revenue 333 680 321 824
- earned on a contractual basis 7,1 333 498 311 447
- straight line lease adjustment 182 10 377
Operating costs (147 180) (130 275)
Net rental income from properties 186 500 191 549
- earned on a contractual basis 2,8 186 318 181 172
- straight line lease adjustment 182 10 377
Administrative costs (15 013) (11 536)
Depreciation (3 165) (1 307)
Operating profit (5,8) 168 322 178 706
Fair value adjustments of investment 82 771 (98 324)
properties
- gross fair value adjustment 82 953 (87 947)
- attributable to straight line (182) (10 377)
lease adjustment
Investment income 46 736 64 493
- interest received 1 388 1 446
- listed investment 19 641 13 262
- associate share of after tax 5 522 3 635
profit
fair value adjustment/capital 13 155 36 902
reserves
interest 7 031 9 248
Finance costs 12,9 (90 457) (80 132)
- interest on borrowings (84 395) (80 132)
- fair value adjustments of interest (6 062) -
rate derivatives
Amortisation of deemed debenture 10 669 10 669
premium
Profit on sale of investment - 1 534
property
Profit before debenture interest 218 041 76 946
Debenture interest 1,4 (116 131) (114 533)
Profit/(loss) before taxation 101 910 (37 587)
Taxation charge (18 986) 29 475
- Deferred taxation (18 474) 30 142
- Normal taxation (512) (667)
Total comprehensive income/(loss) 82 923 (8 112)
for the period attributable to
equity holders
Weighted linked units in issue 89 297 89 297
(`000)
Linked units in issue (`000) 89 297 89 297
Basic and diluted earnings per share 1 92,9 (9,1)
(cents) 122,2
Basic and diluted earnings per 87,0 222,9 119,2
linked unit (cents)
Distribution per linked unit (cents)
Dividends 0,65 0,64
Interest 130,05 128,26
Total 1,4 130,70 128,90
Abridged Consolidated Statement of Cash Flows
Reviewed Audited
Year to Year to
31 August 31 August
R`000 2010 2009
CASH FLOW FROM OPERATING ACTIVITIES
Net rental income from properties 168 140 168 328
Adjustment for:
- depreciation 3 165 1 307
- working capital changes 7 478 (12 980)
Cash generated from operations 178 783 156 655
Investment income 28 059 23 966
Finance costs (84 395) (80 132)
Taxation paid (512) (667)
Distribution to linked unit holders paid (117 694) (110 015)
Net cash outflow from operating activities 4 241 (10 193)
CASH FLOW FROM INVESTING ACTIVITIES
Investing activities (189 425) (89 452)
Proceeds from disposal of investment - 12 600
properties
Net cash outflow used in investing (189 425) (76 852)
activities
CASH INFLOW FROM FINANCING
ACTIVITIES
Increase in interest bearing borrowings 189 958 71 610
Net cash generated from financing activities 189 958 71 610
NET INCREASE/(DECREASE) IN CASH AND CASH 4 774 (15 435)
EQUIVALENTS
Cash and cash equivalents at beginning of (26 072) (10 637)
year
Cash and cash equivalents at end of year (21 298) (26 072)
Distributable Earnings
The following additional information is provided and is aimed at disclosing to
the users the basis on which the distributions are calculated.
Reviewed Audited
Year to Year to
% 31 August 31 August
R`000 Change 2010 2009
Revenue
- earned on contractual basis 7,1 333 498 311 447
Operating costs (147 180) (130 275)
Net rental income from properties 2,8 186 318 181 172
Administrative costs (15 013) (11 536)
Depreciation (3 165) (1 307)
Operating profit (0,1) 168 140 168 329
Investment income
- interest received 1 388 1 446
- listed investment 19 641 13 262
- associate 12 553 12 883
Distributable profit before finance 3,0 201 721 195 919
costs
Finance costs 5,3 (84 395) (80 132)
Distributable income before taxation 1,3 117 326 115 787
Taxation charge (512) (667)
Unit holders distributable earnings 1,5 116 814 115 120
Linked units in issue (`000) 89 297 89 297
Distributable earnings per linked 1,5 130,8 128,9
unit (cents)
Distribution per linked unit (cents) 1,4 130,7 128,9
Abridged Consolidated Statement of Changes in Equity
Non-
distri-
Share butable Retained
R`000 capital reserves earnings Total
Balance at 1 September 2008 58 295 920 703 35 851 1 014 849
Total comprehensive loss for (8 112) (8 112)
the year
Transfer to capital - deemed 10 669 (10 669) -
debenture premium
Dividends paid (545) (545)
Adjustment to valuation of 697 697
listed investment, net of
deferred tax
Profit on sale of investment 1 534 (1 534) -
properties
Fair value adjustments
- Investment properties, net (65 461) 65 461 -
of deferred taxation
- associate, net of deferred 36 902 (36 902) -
tax
Balances at 31 August 2009 68 964 894 375 43 550 1 006 889
Total comprehensive income 82 923 82 923
for the year
Transfer to capital - deemed 10 669 (10 669) -
debenture premium
Dividends paid (580) (580)
Adjustment to valuation of 51 854 51 854
listed investment, net of
deferred tax
Fair value adjustments
- Investment properties, net 60 756 (60 756) -
of deferred taxation
- associate, net of deferred 13 155 (13 155) -
tax
- interest rate derivatives, (4 365) 4 365 -
net of deferred tax
Balances at 31 August 2010 79 633 1 015 774 45 679 1 141 086
Notes to the Financial Statements
The condensed consolidated financial statements have been prepared in accordance
with International Accounting Standards IAS 34, Interim Financial Reporting, the
listing requirements of the JSE Limited and the requirements of the Companies
Act 61 of 1973, as amended. The accounting policies adopted and methods of
computation are consistent with those applied in the financial statements for
the year ended 31 August 2009.
Related party - City Property Administration (Proprietary) Limited is
responsible for the property and asset management of the group.
Contingent liability - The company has issued guarantees of R1,7 million and
R0,6 million 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, which at 31
August 2010 amounted to R219,0 million in favour of its associate company, IPS
Investments (Pty) Limited ("IPS").
Independent review by external auditors - These condensed consolidated financial
statements have been reviewed by our auditors Deloitte & Touche, whose
unmodified review report is available for inspection at the company`s registered
office.
Reconciliation - Earnings to Distributable Earnings
Reviewed Audited
Year to Year to
31 August 31 August
R`000 2010 2009
Earnings/(losses) attributable to equity 82 923 (8 112)
holders
Amortisation of deemed debenture premium (10 669) (10 669)
Profit on sale of investment properties - (1 534)
Fair value adjustments
- associate, net of deferred tax (13 155) (36 902)
- investment properties, net of deferred tax (60 756) 65 461
Headline (loss)/earnings before debenture (1 657) 8 244
interest
Debenture interest 116 131 114 533
Headline earnings attributable to linked unit 114 475 122 777
holders
Straight line lease adjustment net of (131) (7 472)
deferred tax
Fair value adjustments of interest rate 4 365 -
derivatives net of deferred tax
Deferred taxation adjustments (1 894) (185)
Distributable earnings attributable to linked 116 814 115 120
unit holders
Headline earnings per linked unit (cents) 128,2 137,5
Gearing
R`000 Nominal amount Interest rate %
Fixed rate borrowings expiry
November 2010 47 827 11,04
May 2013 53 250 12,72
November 2013 75 000 11,92
April 2018 100 000 12,06
October 2018 75 000 11,72
351 077 11,89
Swap maturity
August 2017 200 000 9,18
Total hedged borrowings 551 077 10,91
Variable rate borrowings 367 513 8,50
Total borrowings 918 590 9,90
Fair value adjustments on interest rate 6 062
derivatives
Total gearing 924 652
Segmental Information
R`000 Industrial Office Retail Commercial
Analysis by property
usage - 2010
Revenue
Rentals and recoveries 48 862 71 559 123 762 74 446
Management fee
Straight-line lease 273 (1 568) (460) 1 515
adjustment
Total revenue 49 135 69 991 123 302 75 961
Net rental income from 27 415 37 673 71 429 42 522
properties
Assets
Investment properties 318 046 456 564 824 921 532 788
Plant and equipment 460 8 199 16 475 3 673
Other assets
Total assets 318 506 464 763 841 396 536 461
Net rental income from
properties
Analysis by property
usage - 2009
Revenue
Rentals and recoveries 45 147 61 606 131 204 62 988
Management fee
Straight-line lease 422 7 518 1 325 1 022
adjustment
Total revenue 45 569 69 124 132 529 64 010
Net rental income from 27 474 40 373 66 840 34 215
properties
Assets
Investment properties 299 494 396 376 825 640 460 890
Plant and equipment 118 4 991 5 348 3 457
Other assets
Total assets 299 612 401 367 830 988 464 347
Corporate
R`000 Residential unallocated Total
Analysis by property
usage - 2010
Revenue
Rentals and recoveries 13 271 331 900
Management fee 1 598 1 598
Straight-line lease 58 (182)
adjustment
Total revenue 13 329 1 598 333 316
Net rental income from 7 461 (18 178) 168 322
properties
Assets
Investment properties 127 158 2 259 477
Plant and equipment 1 669 30 476
Other assets 532 457 532 457
Total assets 128 827 532 457 2 822 410
Net rental income from
properties
Analysis by property
usage - 2009
Revenue
Rentals and recoveries 8 904 309 849
Management fee 1 598 1 598
Straight-line lease 90 10 377
adjustment
Total revenue 8 994 1 598 321 824
Net rental income from 3 763 6 041 178 706
properties
Assets
Investment properties 57 866 2 040 266
Plant and equipment 933 14 847
Other assets 421 499 421 499
Total assets 58 799 421 499 2 476 612
Comments
Review of results
Trading conditions in the retail property market deteriorated further during the
period as a result of a weakening economy. It has become increasingly more
difficult to increase rentals on renewals and new tenants are reluctant to take
on new space.
Rental income and net rental income increased by 7,1% and 2,8% respectively. The
operating cost ratio increased to 44,1% (2009: 41,8%) mainly due to the
increased costs of repairs and maintenance during the year. Octodec paid an
interim distribution of 65,10 cents per linked unit. The total distribution per
linked unit for the year of 130,70 cents (2009: 128,90 cents) represents an
increase of 1,4% on that paid in the previous corresponding period.
The core portfolio, representing those properties held for 12 comparable months,
reflects rental income growth of 2%. Octodec`s retail portfolio comprises 43% of
the total property portfolio value and is dominated by smaller retail centres.
As a result of challenging market conditions, no growth was achieved in rental
income from the retail portfolio.
During the year five properties were acquired and transferred. These include
McCarthy in Midrand, McCarthy in Arcadia as well as Castle Mansions and Record
House which are situated in the Johannesburg CBD. The total purchase price
amounted to R114,3 million. A further three Johannesburg CBD properties were
acquired but not yet transferred at year end, for a total amount of R53,3
million.
Various properties were upgraded during the year at a total cost of R37,5
million. These included CCMA House in the Benoni CBD, Killarney Mall and Klamson
House.
Vacancies at 31 August 2010 amounted to 17,2% of total lettable area.
Further details are set out below:
31 August 2010 31 August 2009
Offices (%) 9,3 9,6
Retail (%) 1,7 2,0
Commercial (%) 3,8 3,8
Industrial (%) 3,2 5,3
TOTAL (%) 18,0 20,7
A large percentage of the vacancies is in respect of properties recently
acquired or undergoing redevelopment or refurbishment. The vacant retail space
is largely attributable to smaller line shops. Industrial vacancies have
decreased, however the rentals achieved have not recorded any growth.
Arrears at 31 August 2010 amounted to R21,2 million (31 August 2009: R21,5
million) against which a provision for doubtful debts of R6,5 million (31 August
2009: R4,6 million) has been raised.
The performance of IPS was impacted by the anticipated phased take up of
residential units at the mixed-use developments Kempton Place and Ricci`s Place.
Ricci`s Place was completed in November 2009 and phases I and II of the Kempton
development were completed in October 2009 and October 2010 respectively. The
residential component of Kempton Place is currently 54% let.
During the period, Octodec increased its holding in Premium Properties Limited
to 16 987 658 million linked units (2009: 13 326 674 linked units) or 13,1%
(2009: 10,2%).
Borrowings
During the period the borrowings increased by R190,2 million as a result of the
purchase of properties and development and upgrade costs incurred. Octodec`s
gearing at the end of the year under review was 34,1% of the total value of the
portfolio as against 31,1% at 31 August 2009. The group remains financially
sound with facilities available to fund future cash flow requirements.
Interest rates in respect of 59,7% of borrowings at 31 August 2010 have been
fixed maturing at various dates ranging from November 2010 to October 2018.
Octodec`s current all inclusive interest rate is 9,9%.
Revaluation of property portfolio
The directors have valued the property portfolio by applying market related
yields. At each financial year end at least one-third of the property portfolio
is valued on a rotational basis by an external valuer. The directors` valuation
of the portfolio increased by R82,8 million, which gives rise to a net asset
value of 1 696 cents per unit, an increase of 8,9% on the prior comparative
period.
Prospects
The current economic environment has influenced the demand for space, causing a
slower take up of vacancies and slowing rental growth. Despite this, the board
believes that distributable earnings for the next financial year should show
positive growth.
Unit holders are advised that the abovementioned information has not been
reviewed or reported on by the Company`s auditors.
DECLARATION OF DIVIDEND 41 AND INTEREST PAYMENT
("the distribution")
Notice is hereby given that dividend number 41 of 0,33 cents (2009: 0,33 cents)
per ordinary share together with interest of 65,27 cents per debenture (2009:
66,37 cents), has been declared for the period 1 March 2010 to 31 August 2010,
payable to linked unit holders recorded in the register on Friday, 19 November
2010. The last date to trade "cum" distribution is Friday, 12 November 2010. The
units will commence trading "ex" distribution on Monday, 15 November 2010.
Payment date will be Monday, 22 November 2010.
No dematerialisation or rematerialisation of linked unit certificates may take
place between Monday, 15 November 2010 and Friday, 19 November 2010, both days
inclusive.
By order of the board.
A WAPNICK JP WAPNICK
(Chairman) (Managing Director)
21 October 2010
Directors
A Wapnick* (Chairman)
JP Wapnick* (Managing)
AK Stein* (Financial)
MJ Holmes
MZ Pollack
S Wapnick+
DP Cohen
* Executive director
Independent non-executive director
+ Non-executive director
Registered Office
CPA House,
101 Du Toit Street, Pretoria, 0002.
PO Box 15, Pretoria, 0001
Tel: (012) 319 8811
Fax: (012) 319 8812
Transfer Secretaries
Computershare Investor Services (Proprietary) Limited
(Reg. No: 2004/003647/07)
70 Marshall Street, Johannesburg, 2001.
PO Box 61051, Marshalltown, 2107
Tel: (011) 370 7700
Fax: (011) 688 7712
Property Asset Manager
e-mail address: propworld@cityprop.co.za
website address: www.octodec.co.za
Date: 21/10/2010 12:30:29 Produced by the JSE SENS Department.
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