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OCT
OCT
Octodec - Reviewed Results of the Group for the Year Ended
31 August 2006 and dividend declaration
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")
NOTICE TO LINKED UNITHOLDERS
REVIEWED RESULTS OF THE GROUP FOR THE YEAR ENDED 31 AUGUST 2006
The directors report the reviewed results of the group for the year ended 31
August 2006 set out herein, together with comparisons with the results for the
corresponding year ended 31 August 2005
- Distribution up by 31% to 88,7 cents per linked unit
- Increase in net asset value by 36% to 1125 cents
- Total investments exceed R1,6 billion
CONDENSED CONSOLIDATED INCOME STATEMENT
Reviewed year Restated year
Change to 31 August to 31 August
R"000 % 2006 2005
Revenue 180,584 143,176
- earned on contractual basis 25.4 178,251 142,154
- straight line lease adjustment 2,333 1,022
Operating costs (63,380) (56,281)
Net rental income from properties 117,204 86,895
- earned on contractual basis 33.8 114,871 85,873
- straight line lease adjustment 2,333 1,022
Administrative expenses (8,091) (6,082)
Depreciation (641) (550)
Income before investment income 35.1 108,472 80,263
Investment income 47,741 23,687
Interest received 734 683
Investment income - listed
investments 5,126 3,374
Investment income - associate
- equity earnings 758 1,654
- fair value adjustment/capital
reserves 36,150 14,282
- other 4,973 3,694
Income before finance costs 50.3 156,213 103,950
Finance costs 36.8 (46,923) (34,303)
Income before debenture interest
and capital profits 56.9 109,290 69,647
Capital profit/(loss) on
disposals of investment
properties 377 (15)
Fair value adjustment of
investment properties
- net revaluation 254,194 283,492
- gross revaluation 256,527 284,514
- attributable to straight line
lease adjustment (2,333) (1,022)
Amortisation of deemed debenture
premium 3,566 3,566
Income before debenture interest 3.0 367,427 356,690
Debenture interest 31.0 (69,147) (52,789)
Income before taxation 1.8 298,280 303,901
Taxation charge (72,960) (78,266)
- Deferred taxation (71,725) (76,987)
- Normal taxation (1,235) (1,279)
Income attributable to linked
unitholders 225,320 225,635
Linked units in issue - ("000) 78,345 78,345
Earnings per share - (cents) (0.1) 287.6 288.0
Earnings per linked unit -
(cents) 5.8 375.9 355.4
Distribution per linked unit
(cents)
Dividends 0.44 0.32
Interest 88.26 67.38
Total 31.0 88.70 67.70
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Reviewed year Restated year
to 31 August to 31 August
R"000 2006 2005
Cash flow from operating
activities
Net rental income from properties 106,894 81,701
Adjustment for:
- Depreciation 641 550
- Working capital changes (1,395) 2,235
Cash generated from operations 106,140 84,486
Investment income and interest
received 10,833 5,291
Finance costs (46,923) (34,303)
Taxation paid (702) (2,835)
Distribution to linked unit
holders paid (61,579) (49,042)
Net cash inflow from operating
activities 7,769 3,597
Cash flow from investing
activities
Investing activities (149,237) (135,034)
Proceeds from disposal of
investment properties 757 3,500
Net cash outflow used in
investing activities (148,480) (131,534)
Cash flow from financing
activities 141,544 123,460
Net increase/(decrease) in cash
and cash equivalents 833 (4,477)
Cash and cash equivalents at
beginning of year (4,653) (176)
Cash and cash equivalents at end
of year (3,820) (4,653)
DISTRIBUTABLE EARNINGS
The following additional information is provided and is aimed at disclosing to
the users the basis on which the distributions are calculated.
Year to Year to
Change 31 August 31 August
R"000 % 2006 2005
Revenue
- earned on contractual basis 27.6 178,250 139,694
Operating costs (63,380) (53,821)
Net rental income from properties 33.8 114,870 85,873
Administrative expenses (8,091) (6,082)
Depreciation (641) (550)
Income before investment income 33.9 106,138 79,241
Investment income
- Interest received 734 683
Investment income - associate 7.2 5,731 5,348
Investment income - listed
investments 51.9 5,126 3,374
Distributable income before
finance charges 32.8 117,729 88,646
Finance charges 36.8 (46,923) (34,303)
Distributable income before
taxation 70,806 54,343
Taxation charge (1,235) (1,261)
Unit holders distributable
earnings 31.1 69,571 53,082
Linked units in issue - ("000) 78,345 78,345
Distributable earnings per linked
unit - (cents) 31.1 88.8 67.8
Distribution per linked unit
(cents) 31.0 88.7 67.7
CONDENSED CONSOLIDATED BALANCE SHEET
Reviewed Restated
31 August 31 August
R"000 2006 2005
Assets
Non-current assets 1,695,523 1,239,682
Investment properties 1,505,820 1,136,338
Plant and equipment 2,115 2,124
Investment properties - straight
line lease adjustment 25,986 23,653
Investment - listed securities 83,127 43,577
- associate company 78,475 33,990
Current assets 16,890 17,646
Total assets 1,712,413 1,257,328
Equity and liabilities
Share capital and reserves 669,427 431,631
Share capital and premium 42,225 38,658
Non-distributable reserve 599,156 367,698
Retained profit 28,046 25,275
Non-current liabilities 965,522 758,670
Debentures capital and premium 211,898 215,465
Interest bearing borrowings 557,253 420,726
Deferred tax liability 196,371 122,479
Current liabilities 77,464 67,027
Interest bearing 13,807 10,777
Non-interest bearing 27,642 28,107
Linked unitholders 36,015 28,143
Total equity and liabilities 1,712,413 1,257,328
Linked units in issue ("000) 78,345 78,345
Net asset value per linked unit
(cents) 1125 826
CONDENSED STATEMENT OF CHANGES IN EQUITY
R"000 Share Non- Distribu-
capital Distribu- table
and premium table reserve reserve Total
Balance at 1 September
2004 - before restatment 11,200 129,511 24,187 164,898
Restatement
Reallocation to
debenture premium (9,971) (9,971)
Amortisation of deemed
debenture premium 33,863 33,863
Reallocation of deemed
debenture premium 33,863 (33,863) -
Balance at 1 September
2004 - restated 35,092 129,511 24,187 188,790
Net income attributable
to ordinary shareholders 225,635 225,635
Reallocation of deemed
debenture premium 3,566 (3,566) -
Dividends paid (227) (227)
Adjustment to valuation
of listed investment,
net of deferred Capital
Gains Tax 17,433 17,433
Transfer to non-
distributable reserve
Capital loss on disposal
of investment property (15) 15 -
Fair value adjustment of
investment properties
- associate, net of
deferred tax 14,282 (14,282) -
- investment properties,
net of deferred tax 206,487 (206,487) -
Balances at 1 September
2005 - restated 38,658 367,698 25,275 431,631
Net income attributable
to ordinary shareholders 225,320 225,320
Reallocation of deemed
debenture premium 3,566 (3,566) -
Dividends paid (306) (306)
Adjustment to valuation
of listed investment,
net of deferred Capital
Gains Tax 12,781 12,781
Transfer to non-
distributable reserve
Capital profit on
disposal of investment
property 377 (377) -
Fair value adjustment of
investment properties
- investment properties,
net of deferred tax 182,150 (182,150) -
- associate, net of
deferred tax 36,150 (36,150) -
Balances at 31 August
2006 42,224 599,156 28,046 669,426
RECONCILIATION - EARNINGS PER SHARE
TO HEADLINE EARNINGS PER LINKED UNIT
Reviewed year Restated year
to 31 August to 31 August
Cents 2006 2005
Earnings per share 287.6 288.0
Add: debenture interest per linked unit 88.3 67.3
Earnings per linked unit 375.9 355.3
Profit on disposal of investment
properties (0.5) -
Straight line lease adjustment 3.0 1.3
Fair value adjustments
- associate, net of deferred tax (46.1) (18.2)
- investment properties, net of deferred
tax (236.4) (264.8)
Headline earnings per linked unit 95.9 73.6
NOTES TO THE FINANCIAL STATEMENTS
The group has adopted IFRS for the year ended 31 August 2006, with the date of
transition of 1 September 2004. The results have been prepared and presented in
accordance with IAS 34, Interim Financial Reporting. There has been no impact on
the income statement and balance sheet for prior years due to the adoption of
IFRS. The accounting policies adopted and methods of computation are consistent
with those applied in the financial statements for the year ended 31 August
2005.
The prior year"s retained income, share premium and debenture premium have been
restated to take into account the requirements of Accounting Standards to
allocate the deemed debenture premium on issue of linked units. The debenture
premium is amortised through the income statement over the life of the debenture
and subsequently transferred through the statement of changes in equity to the
share premium account.
The effect of the above change on the prior year"s balance sheet and income
statement is as follows:
Previously
stated Adjustment Restated
R"000 R"000 R"000
Income statement
Income before debenture interest 353,124 3,566 356,690
Income before taxation 300,335 3,566 303,901
Income attributable to linked
unitholders 222,069 3,566 225,635
Balance sheet
Share capital and Reserves 404,173 27,458 431,631
Share capital and premium
Non-current liabilities 786,128 (27,458) 758,670
Debenture capital and premium
Earnings per share (cents) 283.5 4.5 288.0
Earnings per linked unit (cents) 350.8 4.5 355.3
Headline earnings per linked unit
(cents) 69.1 4.5 73.6
Net asset value per linked unit
(cents) 826.0 - 826.0
In order to comply with International Accounting Standard IAS 17, rental income
from leases is recognised on a straight-line basis over the period of the lease.
In order to avoid an overstatement of assets the fair value of investment
properties has been reduced by the cumulative straight-line rental accrual.
Deferred taxation on the fair value adjustment of investment property has been
provided at the company income taxation rate which is currently 29% and not at
the Capital Gains Tax rate of 14.5%, which would be payable if properties were
sold.
Related party: City Property Administration (Proprietary) Limited is responsible
for the property and asset management of the group. Full details of the fees
payable are disclosed in the annual report.
The financial statements have been reviewed by Deloitte & Touche, whose modified
review report is available for inspection at the company"s registered office.
COMMENTS
Review of results
The company has once again produced excellent growth in distributions to linked
unitholders. Rental income and net rental income increased by 25.4% and 33.8%
respectively. The total distribution per linked unit for the year of 88.7 cents
(2005: 67.7 cents) represents an increase of 31% on that paid in the previous
year.
Based on the unit price of R12,00 at 31 August 2006, the total income plus
capital appreciation for the year was 51.5%.
The redevelopment of Killarney Mall Shopping Centre, favourable renewals of
leases, strict expense control as well as extremely favourable trading
conditions have all contributed to the growth in distributable earnings.
The retail portfolio which consists of five quality shopping centres, continued
to enjoy strong growth in earnings due to favourable renewals and contractual
rental escalations.
Property portfolio
Killarney Mall
The redevelopment of Killarney Mall was successfully completed in October 2005
at a cost of R97 million. The mall is anchored by Edgars, Woolworths and Pick "n
Pay, with Edgars occupying 4 300m2 on a 10 year lease.
Elardus Park Shopping Centre
The refurbishment of Elardus Park Shopping Centre was successfully completed
during the year.
Gezina Stad
The recent refurbishment of Gezina Stad has resulted in much improved rentals
and the shopping centre is now well tenanted, with long leases in place.
Anke Properties
Due to the strong demand for these light industrial premises, a further
development of an additional 18 units commenced at a cost of R20 million. The
development is well situated in the industrial area of Silvertondale.
Octodec purchased six properties for an aggregate of R105 million during the
period under review. These purchases include Kyalami Crescent, an industrial
park in Kyalami, Centre Forum which comprises of retail shops situated in the
Pretoria CBD, Fine Art House & Court situated in the Johannesburg CBD and three
light industrial properties situated in Selby and City Deep, Johannesburg.
Octodec took transfer of five of the properties during the period under review.
SEGMENTAL INFORMATION
2006
R"000 Corpo
rate
Indus- Commer- Resi- unallo-
trial Office Retail cial dential cated Total
Revenue 20,940 15,498 100,322 36,397 5,094 2,333 180,584
- earned on
contractual
basis 20,940 15,498 100,322 36,397 5,094 - 178,251
- straight
line lease
adjustment - - - - - 2,333 2,333
Operating
costs (7,317) (5,293) (34,023)(13,760) (2,292) (695) (63,380)
- earned on
contractual
basis (7,317) (5,293) (34,023)(13,760) (2,292) (695) (63,380)
- straight
line lease
adjustment - - - - - - 0
Net rental
income from
properties 13,623 10,205 66,299 22,637 2,802 1,638 117,204
- earned on
contractual
basis 13,623 10,205 66,299 22,637 2,802 (695) 114,871
- straight
line lease
adjustment - - - - - 2,333 2,333
2005
R"000 Corpo
rate
Indus- Commer- Resi- unallo-
trial Office Retail cial dential cated Total
Revenue 15,782 10,572 79,570 27,911 4,525 3,482 143,176
- earned on
Contractual
basis 15,782 11,906 79,570 27,911 4,525 2,460 142,154
- straight
line lease
adjustment - - - - - 1,022 1,022
Operating
costs (6,526) (4,838) (32,550)(10,473) (1,894) 0 (56,281)
- earned on
Contractual
basis (6,526) (4,838) (32,550)(10,473) (1,894) 0 (56,281)
- straight
line lease
adjustment - - - - - - 0
Net rental
income from
properties 9,256 7,068 47,020 17,438 2,631 2,460 86,895
- earned on
contractual
basis 9,256 7,068 47,020 17,438 2,631 2,460 85,873
- straight
line lease
adjustment - - - - - - 1,022
Borrowings
During the year the borrowings increased by R139,6 million, as a result of
acquisitions of investment properties and shares in Premium Properties Limited.
Octodec"s gearing at the year end was 33.8% as against 34.8% in the comparable
period. The company has available facilities of R63 million to fund future cash
flow requirements. Interest rates in respect of 65% of borrowings at 31 August
2006 have been fixed at an average weighted interest rate of 10.5% maturing at
various dates ranging from November 2006 to April 2010. Octodec"s effective cost
of financing is 10.2%.
Revaluation of property portfolio
At each financial year end at least one-third of the property portfolio is
valued on a rotational basis by an external valuer. The external valuers"
valuation was 10% less than the directors" valuation. The directors are
confident that their valuations represent fair market value. The directors"
valuation of the portfolio, taking into account prevailing market rentals,
occupational levels and capitalisation rates increased by R254,2 million,
increasing net asset value by 36.2% after accounting for deferred tax.
Prospects
With the increased concern about the rising levels of inflation, interest rates
look set to increase further. As interest rates increase, the level of growth in
the economy will slow which in turn will slow the growth in distribution.
However with property fundamentals remaining strong, management is optimistic
that the company will continue to grow earnings on par with, if not better than,
the market average.
DECLARATION OF DIVIDEND NO. 33 AND INTEREST PAYMENT ("the distribution")
Notice is hereby given that dividend number 33 of 0.23 cents (2005: 0.18 cents)
per ordinary share together with interest of 45.97 cents per debenture (2005:
35.92 cents), for the period
1 March 2006 to 31 August 2006 has been declared, payable to linked unitholders
recorded in the register on Friday, 17 November 2006. The last date to trade
"CUM" distribution is Friday, 10 November 2006. The units will commence trading
"EX" distribution on Monday, 13 November 2006. Payment date will be Monday, 20
November 2006.
No dematerialisation or rematerialisation of linked unit certificates may take
place between
Monday, 13 November 2006 and Friday, 17 November 2006, both days inclusive.
By order of the Board.
City Property Administration (Proprietary) Limited
19 October 2006
A Wapnick JP Wapnick
(Chairman) (Managing director)
CITY PROPERTY
Property Asset Manager
e-mail address: propworld@cityprop.co.za
website address: www.cityprop.co.za
Member of the
Property Loan Stock Association
Directors
A Wapnick* (Chairman), JP Wapnick* (Managing director),
MJ Holmes, RJ Inggs*, MZ Pollack#, S Wapnick+
* Executive director
o 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 2004 (Pty) Limited
(Reg. No: 2004/003647/07)
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Tel: (011) 370-7700
Fax: (011) 688-7712
Date: 19/10/2006 05:31:46 PM Produced by the JSE SENS Department
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