| Fri 21 Oct 2011, 9:30 | | OCT - Octodec Investments Limited and its subsidiaries - Reviewed results of |
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OCT
OCT
OCT - Octodec Investments Limited and its subsidiaries - Reviewed results of
the group for the year ended 31 August 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" or "the group")
Reviewed Results of the Group
for the year ended 31 August 2011
- Distribution of 129,30 cents per linked unit for the year
- Net asset value of 1 798 cents per linked unit
- Total investments of R3,0 billion
Condensed Consolidated Statement of Financial Position
Reviewed Audited Audited
31 August 31 August 31 August
2011 2010 2009
R`000 restated restated
ASSETS
Non-current assets 3 023 244 2 797 736 2 447 723
Investment properties 2 375 719 2 222 810 2 003 782
Property, plant and equipment 44 410 30 476 14 847
Operating lease assets 40 837 36 666 36 484
Listed investment 310 390 266 078 154 039
Investments - equity accounted 251 888 241 706 238 571
Current assets 42 040 45 787 48 507
Total assets 3 065 284 2 843 523 2 496 230
EQUITY AND LIABILITIES
Share capital and reserves 1 242 957 1 268 970 1 122 340
Share capital and premium 90 302 79 633 68 964
Non-distributable reserves 1 106 314 1 143 659 1 009 826
Retained earnings 46 341 45 678 43 550
Non-current liabilities 1 462 887 1 270 256 1 169 944
Debentures and premium 363 024 373 693 384 362
Interest bearing borrowings 962 119 754 635 659 632
Deferred taxation 137 744 141 928 125 950
Current liabilities 359 440 304 297 203 946
Interest bearing borrowings 234 696 191 636 95 260
Non-interest bearing 67 611 54 377 49 419
Linked unitholders 57 133 58 284 59 267
Total equity and liabilities 3 065 284 2 843 523 2 496 230
Linked units in issue (`000) 89 297 89 297 89 297
Net asset value per linked unit (cents) 1 798 1 840 1 687
Net asset value per linked unit (cents)
- before providing for defered tax 1 953 1 998 1 828
Loan to investment value ratio (%) 39,6 33,8 30,8
Condensed Consolidated Statement of Comprehensive Income
Reviewed Audited
year to year to
31 August 31 August
% 2011 2010
R`000 Change restated
Revenue 388 516 333 680
- earned on contractual basis 15,2 384 218 333 498
- straight-line lease adjustment 4 298 182
Operating costs (185 891) (147 180)
Net rental income from properties 202 625 186 500
- earned on contractual basis 6,4 198 327 186 318
- straight-line lease adjustment 4 298 182
Administrative costs (17 594) (15 014)
Depreciation (3 670) (3 165)
Operating profit 7,7 181 361 168 321
Fair value adjustments of investment
properties (22 026) 82 771
- gross fair value adjustment (17 728) 82 953
- attributable to straight-line lease
adjustment (4 298) (182)
Investment income 51 761 48 232
- interest received 1 729 1 388
- listed investment 24 172 19 641
- associate
share of after-tax-profit 8 796 5 522
fair value adjustment/capital reserves 13 160 14 650
interest 3 904 7 031
Finance costs 23,1 (111 346) (90 457)
- interest on borrowings (103 217) (84 395)
- interest capitalised 3 213 -
- fair value adjustments of interest rate
derivatives (11 342) (6 062)
Amortisation of deemed debenture premium 10 669 10 669
Profit on sale of investment property 464 -
Profit before debenture interest 110 883 219 536
Debenture interest (1,1) (114 890) (116 131)
(Loss)/Profit before taxation (4 007) 103 405
Taxation charge 1 130 (8 049)
- deferred taxation 1 305 (7 537)
- normal taxation (175) (512)
Total comprehensive (loss)/income
for the period attributable
to equity holders (2 877) 95 356
Weighted linked units in issue (`000) 89 297 89 297
Linked units in issue (`000) 89 297 89 297
Basic and diluted earnings per share
(cents) (103,0) (3,2) 106,8
Basic and diluted earnings per linked unit
(cents) (47,0) 125,4 236,8
Distribution per linked unit (cents)
Dividends 0,64 0,65
Interest 128,66 130,05
Total (1,1) 129,30 130,70
Condensed Consolidated Statement of Cash Flows
Reviewed Audited
year to year to
31 August 31 August
R`000 2011 2010
CASH FLOW FROM OPERATING ACTIVITIES
Operating profit 177 063 168 140
Adjustment for:
- depreciation 3 670 3 165
- working capital changes 17 031 7 808
Cash generated from operations 197 764 179 113
Investment income 29 805 28 059
Finance costs (100 004) (84 395)
Taxation paid (175) (512)
Distribution to linked unitholders paid (116 622) (117 694)
Net cash inflow/(outflow) from operating activities 10 768 4 571
CASH FLOW FROM INVESTING ACTIVITIES
Investing activities (254 171) (189 755)
Proceeds from disposal of investment properties 4 255 -
Net cash outflow used in investing activities (249 916) (189 755)
CASH FLOW FROM FINANCING ACTIVITIES
Increase in interest bearing borrowings 237 653 189 957
Net cash generated from financing activities 237 653 189 957
NET (DECREASE)/INCREASE IN CASH AND
CASH EQUIVALENTS (1 495) 4 773
Cash and cash equivalents at beginning of year (21 299) (26 072)
Cash and cash equivalents at end of year (22 794) (21 299)
Segmental Information
Analysis by property usage - 2011
R`000 Industrial Office Retail Commercial
Revenue
Rentals and recoveries 53 972 77 987 132 228 89 309
Management fee
Straight-line lease
adjustment 28 (478) 1 815 2 460
Total revenue 54 000 77 509 134 043 91 769
Operating profit 27 707 42 594 63 896 53 848
Assets
Investment properties and
operating leases 346 419 489 850 808 553 605 332
Plant and equipment 702 10 450 27 050 4 737
Other assets
Total assets 347 121 500 300 835 603 610 069
Analysis by property usage -
2010
Revenue
Rentals and recoveries 48 862 71 559 123 762 74 446
Management fee
Straight-line lease
adjustment (273) 1 568 460 (1 515)
Total revenue 48 589 73 127 124 222 72 931
Operating profit 27 415 37 673 71 429 42 522
Assets
Investment properties and
operating leases 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
Analysis by property usage - 2011
Corporate
R`000 Residential unallocated Total
Revenue
Rentals and recoveries 29 124 382 620
Management fee 1 598 1 598
Straight-line lease adjustment 473 4 298
Total revenue 29 597 1 598 388 516
Operating profit 14 580 (21 264) 181 361
Assets
Investment properties and operating
leases 166 402 2 416 556
Plant and equipment 1 471 44 410
Other assets 604 318 604 318
Total assets 167 873 604 318 3 065 284
Analysis by property usage - 2010
Revenue
Rentals and recoveries 13 271 331 900
Management fee 1 598 1 598
Straight-line lease adjustment (58) 182
Total revenue 13 213 1 598 333 680
Operating profit 7 461 (18 179) 168 321
Assets
Investment properties and operating
leases 127 158 2 259 477
Plant and equipment 1 669 30 476
Other assets 553 570 553 570
Total assets 128 827 553 570 2 843 523
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 2011 2010
Revenue
- earned on contractual basis 15,2 384 218 333 498
Operating costs (185 891) (147 180)
Net contractual rental income from
properties 6,4 198 327 186 318
Administrative costs (17 594) (15 014)
Depreciation (3 670) (3 165)
Operating profit 5,3 177 063 168 139
Investment income
- interest received 1 729 1 388
- listed investment 24 172 19 641
- associate 12 700 12 553
Distributable profit before finance costs 6,9 215 664 201 721
Finance costs 18,5 (100 004) (84 395)
Distributable income before taxation (1,4) 115 660 117 326
Taxation charge (175) (512)
Unitholders distributable earnings (1,1) 115 485 116 814
Linked units in issue (`000) 89 297 89 297
Distributable earnings per linked unit
(cents) (1,1) 129,3 130,8
Distribution per linked unit (cents) (1,1) 129,3 130,7
Condensed Consolidated Statement of Changes in Equity
Non-
Share distributable Retained
R`000 capital reserves earnings Total
Balance at 1 September
2009 as previously
reported 68 964 894 375 43 550 1 006 889
Change in accounting
policy 115 451 115 451
Restated balances at 1
September 2009 68 964 1 009 826 43 550 1 122 340
Restated total
comprehensive income for
the year 95 356 95 356
As previously reported 82 923 82 923
Prior year adjustment 12 433 12 433
Transfer to capital -
deemed debenture premium 10 669 (10 669) -
Dividends paid (580) (580)
Adjustment to valuation
of listed investment,
net of deferred tax 51 854 51 854
Restated fair value
adjustments
- investment properties,
net of deferred taxation 71 694 (71 694) -
As previously reported 60 756 (60 756) -
Prior year adjustment 10 938 (10 938) -
- associate, net of
deferred tax 14 650 (14 650) -
As previously reported 13 155 (13 155) -
Prior year adjustment 1 495 (1 495) -
- interest rate
derivatives, net of
deferred tax (4 365) 4 365 -
Balance at 31 August 2010 79 633 1 143 659 45 678 1 268 970
Total comprehensive loss
for the year (2 877) (2 877)
Transfer to capital -
deemed debenture premium 10 669 (10 669) -
Dividends paid (580) (580)
Adjustment to valuation
of listed investment, net
of deferred tax (22 556) (22 556)
Sale of investment
properties 464 (464) -
Fair value adjustments
- investment properties,
net of deferred taxation (20 246) 20 246 -
- associate, net of
deferred tax 13 160 (13 160) -
- interest rate
derivatives, net of
deferred tax (8 167) 8 167 -
Balances at 31 August 2011 90 302 1 106 314 46 341 1 242 957
Reconciliation - Earnings to Distributable Earnings
Reviewed Audited
year to year to
31 August 31 August
R`000 2011 2010
(Losses) / Earnings attributable to equity holders (2 877) 95 356
Amortisation of deemed debenture premium (10 6 69) (10 669)
Profit on sale of investment properties (464) -
Fair value adjustments
- associate, net of deferred tax (13 160) (14 650)
- investment properties, net of deferred tax 20 246 (71 694)
Headline loss before debenture interest (6 924) (1 657)
Debenture interest 114 890 116 131
Headline earnings attributable to linked unitholders 107 966 114 474
Straight-line lease adjustment, net of deferred tax (3 094) (131)
Fair value adjustments of interest rate derivatives,
net of deferred tax 8 167 4 365
Deferred tax adjustments 2 446 (1 894)
Distributable earnings attributable to linked
unitholders 115 485 116 814
Headline earnings per linked unit (cents) 121,4 128,2
Notes to the Financial Statements
Basis of preparation
The condensed consolidated financial information has been prepared in
accordance with the framework, concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the AC 500
standards as issued by the Accounting Practices Board, the information as
required by IAS 34: Interim Financial Reporting, the JSE Listings Requirements
and the requirements of the South African Companies Act.
The accounting policies adopted and methods of computation are consistent with
those applied in the financial statements for the year ended 31 August 2010,
except for the recognition of deferred tax.
Octodec, as well as its associate company, IPS Investments (Pty) Limited
("IPS") has early adopted the amendment to IAS 12 relating to income tax and
which requires entities to apply the Capital Gains Tax ("CGT") rate at which
deferred tax is recognised specifically on the fair value movements on
investment property. Previously a blended tax rate was used with the land
component attracting the CGT rate of 14% and buildings attracting the income
tax rate of 28%. The effect of this change in the accounting policy in prior
years is as follows:
2010 2009
R`000 R`000
Increase in investment in associate 21 113 19 618
Decrease in deferred tax liabilities 106 772 95 833
Increase in reserves (127 885) (115 451)
Net asset value - previously reported 1 696 1 558
Net asset value - restated 1 840 1 687
Related party - City Property Administration (Proprietary) Limited is
responsible for the property and asset management of the group.
Subsequent events - There have been no subsequent events that require
reporting.
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 31
August 2011 amounted to R224,2 million in favour of its associate company,
IPS.
Auditor`s review
The condensed provisional financial information for the year ended 31 August
2011 has been reviewed by the group`s auditors, Deloitte & Touche. The review
was conducted 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 the company`s
registered office. Any reference to future financial performance included in
this announcement, has not been reviewed or reported on by the company`s
auditors.
Comments
Review of results
Trading conditions in the retail property market deteriorated further during
the year as a result of a weakening economy. It has become increasingly
difficult to increase rentals on renewals and new tenants are reluctant to
take on new space. Octodec`s retail portfolio comprises 42,7% of the total
portfolio value and is dominated by smaller retail centres. On aggregate no
growth was achieved in rental income from the retail portfolio.
The total distribution per linked unit for the 12 months of 129,30 cents per
linked unit (2010: 130,70 cents) represents a decrease of 1,1% on that paid in
the previous corresponding period. The interim distribution was 65,00 cents
per linked unit with a final distribution of 64,30 cents. Rental income and
net rental income increased by 15,2% and 6,4%, respectively. The core
portfolio, representing those properties held for the prior comparable 12
months, reflects rental income growth of 3,0%.
Property expenses increased to 48,4% (2011: 44,1%) of revenue which was mainly
attributable to an increase in utilities and assessment rate expenses as well
as repairs and maintenance costs incurred to improve the lettability of
various vacant properties. 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
negatively affected by the increased costs of funding on the interest rate
swaps entered into at a premium to the weighted average floating interest
rates. This was done 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
portfolios by the redevelopment and refurbishment thereof. Various properties
were upgraded during the period at a total cost of R95,2 million. This
included Killarney Mall and Reliance, a complex of industrial units.
The cinema complex and adjacent restaurant area at Killarney Mall were
redeveloped and launched in May 2011. Leases for four new restaurants were
concluded. An upgrade of the office block was also completed and is now
substantially let. The total cost of the upgrade amounted to R48,3 million and
is not expected to be yield enhancing in the short term.
The redevelopment of Dan`s Place 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 five properties were purchased in the
Johannesburg CBD for an aggregate purchase price of R96,9 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 Kempton Place, Ricci`s Place
and Tali`s Place. The residential development situated in Arcadia, Pretoria,
is due for completion in November 2011 at a cost of R41,0 million.
A significant increase in income from IPS is forecast for the next financial
year.
Vacancies in the Octodec portfolio at 31 August 2011 amounted to 16,8% of
total lettable area.
31 August 2011 31 August 2010
% %
Offices 10,3 10,8
Retail - Shops 2,8 2,4
Retail - Shopping Centres 0,3 1,4
Industrial 3,4 3,2
Total 16,8 17,8
The vacant lettable area at Gezina Shopping Centre and at Killarney Mall has
reduced significantly.
A large percentage of the vacancies in the portfolio 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.
Borrowings
During the year the borrowings increased as a result of the acquisition of
properties, the purchase of 4 643 804 Premium shares and development costs
incurred. Octodec`s gearing at the end of the year under review was 39,6% of
the value of its investment portfolio against 33,8% at 31 August 2010.
Interest rates in respect of 62,2% of borrowings at 31 August 2011 have been
hedged at an average annual interest rate of 10,5% maturing at various dates
ranging from May 2013 to October 2018. Details of borrowings are as follows:
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 12,06
Swap maturity
January 2014 15 000 11,99
August 2017 200 000 8,96
September 2017 50 000 9,31
January 2018 50 000 9,43
May 2018 50 000 10,13
August 2018 50 000 9,4
415 000 9,36
Total hedged borrowings 718 250 10,50
Variable rate borrowings 437 086 7,60
Total borrowings 1 155 336 9,50
Revaluation of property portfolio
It is the group`s policy to perform directors` valuations of all the
properties on a six-monthly basis and at year-end. At the year-end one-third
of the properties are valued by external valuers. The decrease in the
directors` valuation of the portfolio by R22 million to R2,46 billion
represents a decrease of 0,9%.
Directorate
Unitholders are referred to the SENS release on 2 September 2011 advising that
Mr Alec Wapnick resigned from the board of Octodec as executive chairman, with
effect from 30 September 2011.
A visionary and exceptional man, during his 55 years in the property industry,
Mr Wapnick created amongst others, Octodec and Premium, which have combined
assets of R7 billion. The Board wishes to express its profound gratitude and
appreciation to the Chairman for his immeasurable contribution to the growth
and development of the company. Mr Wapnick has been a guiding force within the
company, which has benefited from his mentoring leadership and wise counsel.
His passion, integrity, fair and considered approach and his work ethic have
been an example to all with whom he has worked.
Jeffrey Wapnick who has made a tremendous contribution to the growth and
development of Octodec in his capacity as Managing Director of the company
will continue in his current capacity.
Sharon Wapnick, who has been a non-executive director on the board of Octodec
since 1994, and who has a wealth of experience in the property industry
assumed the position of non-executive Chairman with effect from 1 October
2011.
Prospects
The current economic environment, specifically the tightening of consumer
spending is likely to further impact on distribution growth. However as a
result of a major focus on the upgrading of properties, management is
optimistic that Octodec will deliver an increase in distributions in the next
financial year.
Unitholders are advised that the abovementioned forecast has not been reviewed
nor reported on by the company`s auditors.
DECLARATION OF DIVIDEND 43 AND INTEREST PAYMENT ("the distribution")
Notice is hereby given that dividend number 43 of 0,32 cent (2010: 0,33 cent)
per ordinary share together with interest of 63,98 cents per debenture (2010:
65,27 cents), has been declared for the period 1 March 2011 to 31 August 2011,
payable to linked unitholders recorded in the register on Friday, 18 November
2011. The last date to trade "CUM" distribution is Friday, 11 November 2011.
The units will commence trading "EX" distribution on Monday, 14 November 2011.
Payment date will be Monday, 21 November 2011.
No dematerialisation or rematerialisation of linked unit certificates may take
place between Monday, 14 November 2011 and Friday, 18 November 2011, both days
inclusive.
By order of the Board
S WAPNICK J P WAPNICK
Chairman Managing Director
21 October 2011
Directors
S Wapnick (Chairman), J P Wapnick* (Managing), A K Stein* (Financial),
M J Holmes# M Z Pollack#, D P Cohen# *Executive #Independent non-executive
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
(Registration number 2004/003647/07)
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Tel: (011) 370 7700
Fax: (011) 688 7712
City Property
Property Asset Manager
E-mail address: propworld@cityprop.co.za
Website address: www.octodec.co.za
Date: 21/10/2011 09:30:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
