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OCT
OCT
OCT - Octodec Investments Limited and its subsidiaries - Unaudited results of
the Group for the six months ended 28 February 2011
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")
UNAUDITED RESULTS OF THE GROUP
For the six months ended 28 February 2011
HIGHLIGHTS
Distribution of 65,00 cents per linked unit
Net asset value of 1 735 cents
Total investments of R3,0 billion
Consolidated Statement of Financial Position
Unaudited Audited
28 February 31 August
R`000 2011 2010
ASSETS
Non-current assets 2 999 481 2 776 623
Investment properties 2 384 166 2 222 810
Property, plant and equipment 47 624 30 476
Operating lease assets 37 802 36 667
Listed investment 307 386 266 078
Investments - equity accounted 222 503 220 593
Current assets 49 003 45 787
Total assets 3 048 484 2 822 410
EQUITY AND LIABILITIES
Share capital and reserves 1 181 089 1 141 085
Share capital and premium 84 967 79 632
Non-distributable reserves 1 049 625 1 015 773
Retained earnings 46 497 45 680
Non-current liabilities 1 675 909 1 377 028
Debentures and premium 368 359 373 693
Interest bearing borrowings 1 044 090 754 635
Deferred taxation 263 460 248 700
Current liabilities 191 486 304 296
Interest bearing borrowings 68 365 191 636
Non-interest bearing 64 553 54 376
Linked unit holders 58 568 58 284
Total equity and liabilities 3 048 484 2 822 410
Linked units in issue (`000) 89 297 89 297
Net asset value per linked unit (cents) 1 735 1 696
Net asset value per linked unit (cents) - 2 030 1 975
before providing for deferred tax
Loan to investment value ratio (%) 37,1 34,1
Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
six months six months Year to
% 28 February 28 February 31 August
R`000 Change 2011 2010 2010
Revenue 186 074 158 490 333 680
- earned on a 16,0 184 939 159 432 333 498
contractual basis
- straight line lease 1 135 (942) 182
adjustment
Operating costs (88 679) (67 756) (147 180)
Net rental income from 97 395 90 734 186 500
properties
- earned on a 5,0 96 260 91 676 186 318
contractual basis
- straight line lease 1 135 (942) 182
adjustment
Administrative costs (8 504) (7 621) (15 013)
Depreciation (1 896) (1 273) (3 165)
Operating profit 6,3 86 995 81 840 168 322
Fair value adjustments 45 863 59 858 82 771
of investment
properties
Investment income 30 934 29 507 46 737
- interest received 1 149 680 1 388
- listed investment 12 485 8 881 19 641
- associate
- share of after tax 3 604 3 705 5 522
profit
- fair value 10 845 12 720 13 155
adjustment/capital
reserves
- interest 2 851 3 521 7 031
Finance costs (20,2) (32 894) (41 196) (90 457)
- interest on (48 454) (41 196) (84 395)
borrowings
- interest capitalised 593
- fair value 14 967 - (6 062)
adjustments of
interest rate
derivatives
Amortisation of deemed 5 335 5 335 10 669
debenture premium
Profit on sale of - - -
investment property
Profit before 0,7 136 233 135 344 218 042
debenture interest
Debenture interest (0,2) (57 758) (57 847) (116 131)
Profit/(loss) before 78 475 77 497 101 911
taxation
Taxation charge (17 386) (16 719) (18 986)
-Deferred taxation (17 350) (16 498) (18 474)
- Normal taxation (36) (221) (512)
Total comprehensive 61 089 60 778 82 925
income for the period
attributable to equity
holders
Weighted average 89 297 89 297 89 297
linked units in issue
(`000)
Linked units in issue 89 297 89 297 89 297
(`000)
Basic and diluted 0,5 68,4 68,1 92,9
earnings per share
(cents)
Basic and diluted 0,2 133,1 132,8 222,9
earnings per linked
unit (cents)
Distribution per
linked unit (cents)
Dividends 0,32 0,32 0,65
Interest 64,68 64,78 130,05
Total (0,2) 65,00 65,10 130,70
Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
six months six months Year to
28 February 28 February 31 August
R`000 2011 2010 2010
CASH FLOW FROM OPERATING
ACTIVITIES
Net rental income from 85 860 82 782 168 140
properties
Adjustment for:
- depreciation 1 896 1 273 3 165
- working capital changes 25 170 14 917 7 478
Cash generated from operations 112 926 98 972 178 783
Investment income 16 485 13 082 28 060
Finance costs (48 454) (41 196) (84 395)
Taxation paid (36) (221) (512)
Distribution to linked unit (57 768) (59 561) (117 694)
holders paid
Net cash outflow from operating 23 153 11 076 4 242
activities
CASH FLOW FROM INVESTING
ACTIVITIES
Investing activities (186 095) (90 898) (189 425)
Proceeds from disposal of - - -
investment properties
Net cash outflow used in (186 095) (90 898) (189 425)
investing activities
CASH INFLOW FROM FINANCING
ACTIVITIES
Increase in interest bearing 187 804 116 404 189 958
borrowings
Net cash generated from 187 804 116 404 189 958
financing activities
NET INCREASE/(DECREASE) IN CASH 24 862 36 582 4 775
AND CASH EQUIVALENTS
Cash and cash equivalents at (21 297) (26 072) (26 072)
beginning of year
Cash and cash equivalents at 3 565 10 510 (21 297)
end of year
Segmental Information
Analysis by property Industrial Office Retail Commercial
usage
February 2011 R`000 R`000 R`000 R`000
Revenue
Rentals and recoveries 26 509 42 032 63 720 42 501
Straight line operating (79) 129 (34) 1 039
lease adjustment
Total revenue 26 430 42 161 63 686 43 540
Operating profit 14 073 21 417 29 715 24 042
Assets
Investment properties 329 879 524 685 862 626 573 370
(incl operating lease
assets
Plant and equipment 663 11 795 29 517 4 175
Other assets
Total assets 330 542 536 480 892 143 577 545
Corporate
Analysis by property usage Residential unallocated Total
February 2011 R`000 R`000 R`000
Revenue
Rentals and recoveries 10 177 - 184 939
Straight line operating lease 80 - 1 135
adjustment
Total revenue 10 257 - 186 074
Operating profit 5 235 (7 487) 86 995
Assets
Investment properties (incl 131 408 - 2 421 968
operating lease assets
Plant and equipment 1 474 - 47 624
Other assets 578 892 578 892
Total assets 132 882 578 892 3 048 484
Distributable Earnings
The following additional information is provided and is aimed at disclosing to
the users the basis on which the distributions are calculated.
Unaudited Unaudited Audited
six months six months Year to
% 28 February 28 February 31 August
R`000 Change 2011 2010 2010
Revenue
- earned on contractual 16,0 184 939 159 432 333 498
basis
Operating costs (88 679) (67 756) (147 180)
Net rental income from 5,0 96 260 91 676 186 318
properties
Administrative costs (8 504) (7 621) (15 013)
Depreciation (1 896) (1 273) (3 165)
Operating profit 3,7 85 860 82 782 168 140
Investment income
- interest received 1 149 680 1 388
- listed investment 12 485 8 881 19 641
- associate 6 455 7 226 12 553
Distributable profit 6,4 105 949 99 569 201 721
before finance costs
Finance costs 16,2 (47 861) (41 196) (84 395)
Distributable income (0,5) 58 088 58 373 117 326
before taxation
Taxation charge (36) (221) (512)
Unit holders (0,2) 58 052 58 152 116 814
distributable earnings
Linked units in issue 89 297 89 297 89 297
(`000)
Distributable earnings (0,2) 65,0 65,1 130,8
per linked unit (cents)
Distribution per linked (0,2) 65,0 65,1 130,7
unit (cents)
Consolidated Statement of Changes in Equity
Non-distri-
Share butable Retained
R`000 capital reserves earnings Total
Balances at 31 August 68 963 894 373 43 550 1 006 886
2009
Total comprehensive 82 925 82 925
income for the year
Transfer to capital - 10 669 (10 669) -
deemed debenture premium
Dividends paid (580) (580)
Adjustment to valuation 51 854 51 854
of listed investment, net
of deferred tax
Fair value adjustments
- Investment properties, 60 756 (60 756) -
net of deferred taxation
- Interest rate (4 365) 4 365 -
derivatives, net of
deferred taxation
- associate, net of 13 155 (13 155) -
deferred tax
Balances at 31 August 79 632 1 015 773 45 680 1 141 085
2010
Total comprehensive 61 089 61 089
income for the year
Transfer to capital - 5 335 (5 335) -
deemed debenture premium
Dividends paid (295) (295)
Adjustment to valuation (20 790) (20 790)
of listed investment, net
of deferred tax
Fair value adjustments
- Investment properties, 33 021 (33 021) -
net of deferred taxation
- Associate, net of 10 845 (10 845) -
deferred tax
- Interest rate 10 776 (10 776) -
derivatives, net of
deferred tax
Balances at 28 February 84 967 1 049 625 46 497 1 181 089
2011
Reconciliation - Earnings to Distributable Earnings
Unaudited Unaudited Audited
six months six months Year to
28 February 28 February 31 August
R`000 2011 2010 2010
Earnings attributable to equity 86 327 60 778 82 925
holders
Amortisation of deemed (5 335) (5 335) (10 669)
debenture premium
Profit on sale of investment - - -
properties
Fair value adjustments
- associate, net of deferred (36 083) (12 720) (13 155)
tax
- investment properties, net of (33 021) (43 098) (60 756)
deferred tax
Headline earnings before 11 888 (375) (1 655)
debenture interest
Debenture interest 57 758 57 847 116 131
Headline earnings attributable 69 646 57 472 114 476
to linked unit holders
Straight line lease adjustment (817) 678 (131)
Fair value adjustments of (10 777) - 4 365
interest rate derivatives, net
of deferred tax
Deferred taxation adjustments - - (1 894)
Distributable earnings 58 052 58 150 116 816
attributable to linked unit
holders
Headline earnings per linked 78,0 64,4 128,2
unit (cents)
Notes to the Financial Statements
The unaudited condensed consolidated financial statements have been prepared in
accordance with requirements of the Companies Act 61 of 1973, as amended. The
results have been prepared and presented in accordance with International
Accounting Standards IAS34, Interim Financial Reporting and the Listings
Requirements of the JSE Limited. The accounting policies adopted and methods of
computation are consistent with those applied in the financial statements for
the year ended 31 August 2010.
Related party - City Property Administration (Proprietary) Limited i s
responsible for the property and asset management of the group.
Subsequent events - There have been no subsequent events that require reporting.
Contingent liability - The company has issued guarantees of R1 690 000 and R582
000 to the Tshwane Metropolitan Municipality and City Power - Johannesburg
respectively for the provision of services to its subsidiaries. The company has
provided a suretyship to Nedbank Property Finance, which at 28 February 2011
amounted to R224,2 million in favour of its associate company, IPS Investments
(Pty) Limited.
Independent review by external auditors - These condensed consolidated financial
statements have not been reviewed by or audited by our auditors, Deloitte and
Touche.
Comments
Review of results
The total distribution per linked unit for the six months of 65,00 cents (2010:
65,10 cents) represents a decrease of 0,2% on that paid in the previous
corresponding period. Rental income and net rental income increased by 16% and
5,0% respectively. The core portfolio, representing those properties held for
the prior comparable six months, reflects rental income growth of 2%.
The challenging trading conditions continued during the period resulting in a
slow take up of vacant space and as a result exerted further downward pressure
on rentals.
Property expenses increased to 48,0% (2010: 42,5%) of revenue which was mainly
attributable to an increase in utilities and assessment rate expenses as well as
repairs and maintenance costs. Although our leases allow for the recovery of the
increased utilities and assessment rates from tenants, this does impact
negatively on the new rentals on expiry of leases. Distributable income was
positively impacted by the reduction in the prime interest rate during the
period. However this was offset by the increased costs of funding on the
interest rate swaps entered into at a premium to the weighted average floating
interest rates, in order to fix interest rates in a low interest rate
environment.
Property portfolio
Octodec continued to unlock the value of its Johannesburg and Pretoria CBD
portfolios by the redevelopment and refurbishment thereof. Various properties
were upgraded during the period at a total cost of R41,8 million. This included
Killarney Mall and Reliance, a complex of industrial units. The cinema complex
and adjacent restaurant area at Killarney Mall has been redeveloped and will be
launched in May 2011. Leases for the four new restaurants have been concluded.
The total cost of the upgrade amounts to R33,8 million and is not expected to be
yield enhancing in the short term. An upgrade of the office block was also
completed at a cost of R4,8 million which is now substantially let.
The redevelopment of Rand Central in the Johannesburg CBD commenced during the
period. This residential development is expected to cost R45 million and will
create 143 residential units. It is anticipated that the project will be
completed by March 2012 and yield a return of 9,9% once fully let.
During the period under review four properties were purchased in the
Johannesburg CBD for an aggregate purchase price of R90,2 million. The average
initial yield amounts to 10,0%.
As anticipated the performance of IPS was negatively impacted by the phased take
up of its mixed-use residential developments. A significant increase in income
from IPS is forecast for the next financial year of IPS.
Details of some of these IPS developments are:
Effective Vacancy
shareholding Date Total (%) at
interest of cost 28 February
Property (%) completion Location R`m 2011
Kempton Place 20 October Kempton
(mixed use) 2010 Park R282,5 48,4
Ricci`s Place 40 November Johannesburg
(mixed use) 2009 CBD R96,9 7,3
Tali`s Place 40 July Johannesburg
(mixed use) 2010 CBD R106,0 55,9
Beatrix Place 40 July Arcadia, Not yet
(residential) 2011 Pretoria R45,9 completed
Vacancies of the Octodec portfolio at 28 February 2011 amounted to 17,8% of
total lettable area.
28 February 2011 31 August 2010
R`000 R`000
Offices (%) 9,2 9,4
Retail - Shops (%) 2,9 2,4
Retail - Shopping Centres (%) 1,3 1,4
Commercial (%) 0,6 1,4
Industrial (%) 3,8 3,2
TOTAL (%) 17,8 17,8
The vacant retail space is largely attributable to vacancies at Gezina Shopping
Centre, the vacancies at Killarney Mall having reduced significantly. A large
percentage of the vacancies are in respect of properties acquired with large
vacancies and where little or no consideration was paid for the vacant space. As
the opportunities arise the potential of these vacancies is being realised.
Octodec continues to pursue investment and redevelopment opportunities that will
enhance the overall quality of the portfolio.
Gearing
Nominal Interest
R`000 amount rate %
Fixed rate borrowings expiry
May 2013 53 250 12,72
November 2013 75 000 11,92
April 2018 100 000 12,06
October 2018 75 000 11,72
303 250 12,11
Swap maturity
August 2017 200 000 8,96
September 2017 50 000 9,31
January 2018 50 000 9,43
300 000 9,23
Total hedged borrowings 603 250 10,67
Variable rate borrowings 509 205 7,7
Total borrowings 1 112 455 9,3
Borrowings
During the period borrowings increased by R187,8 million, as a result of the
acquisition of properties, the purchase of 4 343 804 Premium shares and
development costs incurred. Octodec`s gearing at the end of the period under
review was 37,1% of the value of its portfolio against 34,1% at 31 August 2010.
The group remains financially sound with facilities available to fund future
cash flow requirements.
Interest rates in respect of 53,7% of borrowings at 28 February 2011 have been
fixed at an average interest rate of 9,3% maturing at various dates ranging from
November 2013 to May 2018.
Revaluation of property portfolio
At each financial year end at least one-third of the property portfolio is
valued on a rotational basis by external valuers, while at the interim stage
directors` valuations are performed by applying market related yields. The
directors` valuation of the portfolio increased by R45,9 million, which gives
rise to a net asset value of 1 735 cents per unit.
Prospects
Challenging market conditions have influenced the demand for space, causing a
slower take up of vacancies with new tenants reluctant to take on new space.
Although the local economy has emerged from a recession, it is anticipated that
the growth in the economy will remain subdued in the short to medium term.
The board believes that distributable earnings for the second six month period
will be on a par with, if not better than the distributable earnings reported
for the six months ended 28 February 2011.
Unit holders are advised that the above mentioned information has not been
reviewed nor reported on by the company`s auditors.
DECLARATION OF DIVIDEND 42 AND INTEREST PAYMENT ("the distribution")
Notice is hereby given that dividend number 42 of 0,32 cents (2010: 0,32 cents)
per ordinary share together with interest of 64,68 cents per debenture (2010:
64,78 cents), has been declared for the period 1 September 2010 to 28 February
2011, payable to linked unit holders recorded in the register on Friday, 20 May
2011. The last date to trade cum distribution is Thursday, 12 May 2011. The
units will commence trading ex distribution on Friday, 13 May 2011. The payment
date will be Monday, 23 May 2011.
No dematerialisation or rematerialisation of linked unit certificates may take
place between Friday, 13 May 2011 and Friday, 20 May 2011, both days inclusive.
By order of the board.
A WAPNICK JP WAPNICK
(Chairman) (Managing Director)
21 April 2011
Directors
A Wapnick* (Chairman), JP Wapnick* (Managing Director)
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 77 00
Fax: (011) 688 7712
Property Asset Manager
e-mail address: propworld@cityprop.co.za
website address: www.octodec.co.za
Date: 26/04/2011 14:00:02 Produced by the JSE SENS Department.
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