annual financial results for the 12 months ended 31 August 2017

Transcription

1 Octodec Head Office Sharon s Place One On Mutual 012 Steyn s Place Creating value beyond financial return annual financial results for the 12 months ended 31 August 2017

2 agenda 1 about us 03 2 overview for the period 06 3 our portfolio performance 10 4 our results Tshwane, Church Square 5 outlook 44 6 questions and answers 48 7 contact details 49 8 appendices Pretoria, Church Square 2

3 2017 One on Mutual completed 1 about us 2014 One on Mutual site preparation 3

4 the Octodec story Listed on the JSE in 1990: REIT status on 1 September 2013 Provided shareholders with an annual compounded return over a five and 10-year period of 12.8% and 9.4% respectively 315 properties (including joint ventures) in portfolio Properties managed by City Property Administration (Pty) Ltd New five-year management contract under negotiation Separate sub-committee formed comprising of non-executive directors Over 40 years property management experience Solid track record of managing residential, retail, office and industrial property 2017 Kerk Street, Johannesburg 1911 Anstey s Building 4

5 the Octodec story our strategy The strategy remains the same Focus on Tshwane and Johannesburg CBDs Continually improving the quality of our portfolio Focus on growing our residential portfolio Continue to focus on the low to mid income LSM 2017 Kerk Street, Johannesburg 1911 Anstey s Building 5

6 2overview for the period 2016 Tshwane, Church Square 1920s Pretoria, Church Square 6

7 overview for the period Dividends of cents per share, for the twelve month period ending 31 August 2017, a 0.8% increase compared to the prior period of cents per share Total property assets value at R12.8 billion, up by R474.2 million NAV up by 0.7% to R29.33 per share Context Residential increasingly competitive Tough economic, political and operating environment Rising costs (finance, utility and assessment rates and operating costs) Council service delivery issues Difficult construction environment Progress Property fundamentals sound Strategic greenfield developments to uplift key Tshwane CBD node Entrance to new market outside the CBD Successful trial of more upmarket offering with One on Mutual trading above expectations Profitable recycling of non-core assets Improved balance sheet Prudent capital management 7

8 overview of Tshwane CBD One on Mutual Sharon s Place Midtown Concentration of investments Increased urbanisation New developments improving node New Tshwane House New Tshwane House GLA of m 2 Housing in excess of staff Sustaining city life: TWO decades of building a city bears fruit Octodec properties Octodec properties developments 8

9 overview of Johannesburg CBD Urban renewal gaining momentum Increasing private sector investment Higher demand for property Local council support Sustaining city life: TWO decades of building a city bears fruit Octodec properties 9

10 29% Residential 8% Industrial 22.2% Offices 4.2% Parking 26.6% High street shops 10% Shopping centres 3our portfolio performance 10

11 portfolio analysis: rental income 31 August 2017 Rental income (%) by geographical location Rental income (%) by sector 40% 35% 30% 25% 20% 15% 10% 5% 0% 2.3 Centurion 4.4 Silverton and surrounding areas 4.8 Tshwane Arcadia 7.3 Hatfield 12.1 Johannesburg and surrounding areas 14.7 Tshwane Other 21.5 Johannesburg CBD 32.9 Tshwane CBD 26.6 (FY16: 28.9) 22.2 (FY16: 19.6) 10.0 (FY16: 9.8) 29.0 (FY16: 29.5) 8.0 (FY16: 8.0) 4.2 (FY16: 4.2) Residential Retail: shops Offices Retail: shopping centres Industrial Parking 11

12 portfolio analysis: GLA 31 August 2017 GLA (%) by geographical location 40% 35% 30% 25% 20% 15% 10% 5% 0% 3.8 Waverley, Gezina, Moot 4.2 Hatfield 4.6 Tshwane, Arcadia 5.9 Tshwane West 7.0 Silverton and surrounding areas 9.1 Tshwane Other 9.1 Johannesburg and surrounding areas 24.9 Johannesburg CBD 31.4 Tshwane CBD GLA (%) by sector 25.3 (FY16: 25.9) 29.3 (FY16: 29.4) 23.7 (FY16: 22.0) 5.5 (FY16: 5.4) 16.2 (FY16: 17.3) Residential Retail: shops Offices Retail: shopping centres Industrial 12

13 residential Portfolio sectors: Rental income (%) Number of properties Number of residential units Johannesburg Tshwane % 66% % 62% Gross lettable area (GLA) m m 2 Rental income R415 million R407 million Growth in rental income year-onyear (like-for-like) 2.5% 5.6% Total vacancies at year end (% of GLA) 12.3% 4.0% Core vacancies (% of GLA) 7.2% 3.6% 29% Rental income Average monthly rentals: R3 400 R3 900 for a bachelor unit (average size 27 m 2 ) R4 100 R4 600 for a one-bedroom unit (average size 43 m 2 ) R5 400 R5 900 for a two-bedroom unit (average size 63 m 2 ) * Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity 2.5% * Growth in rental income 13

14 residential (continued) Portfolio sectors: Rental income (%) Tenant profile analysis, for applications during the year Employed by government 27% of occupants Students 27% of occupants Churn at 45% per annum Average gross salary per application of R Gross salary above R % of occupants Strong demand for residential units Vacancies higher due to: Total vacancies include 400 units at Sharon s Place under development Increased competition in Hatfield and Johannesburg CBD Slower take-up by students impact mainly in Hatfield Affordability a concern in the tough economic environment Bad debts write-offs below 1% reflect strong collection and credit management Ongoing innovation such as roll-out of fibre installation and wifi Response to tough operating environment zero deposit for selective buildings 2.5% * Growth in rental income 29% Rental income 14

15 retail overview - combined Portfolio sectors: Rental income (%) * Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity Gross lettable area (GLA) m m 2 Rental income R523 million R533 million Growth in rental income year-onyear (like-for-like)* Total vacancies at year end (% of GLA) 5.9% 5.5% 9.3% 8.5% Core vacancies (% of GLA) 8.0% 8.5% 36.6% Rental income 5.9% * Growth in rental income 15

16 retail: high street shops Portfolio sectors: Rental income (%) Gross lettable area (GLA) m m 2 Rental income R380 Million R398 Million Rental income growth (like-for-like)* 5.7% 5.4% Total vacancies (% of GLA) 10.3% 9.1% Core vacancies (% of GLA) 8.8% 9.1% High street shops make up 82% of our retail portfolio by GLA and provide 73% of our retail portfolio rental income 69.4% of our high street shops are in Tshwane 30.6% are in Johannesburg Strong demand in well located CBD retail node CBD retail offers more growth opportunities than traditional shopping centres Retailers are demanding larger tenant installations Lower cost structures (common area, security, cleaning) * Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity 26.6% Rental income 5.7% * Growth in rental income 16

17 retail: high street shops (continued) Portfolio sectors: Rental income (%) Top 10 retailers by rentable area Top 10 retailers by rental FY17 Lessee GLA (m 2 ) Lessee Rental (R 000) Shoprite Checkers Shoprite Checkers Pepkor Pepkor Edcon Edcon Bidvest Bidvest Standard Bank Foschini Retail Group Mr Price Group Nedbank Foschini Retail Group Standard Bank AutoZone Mr Price Group Nedbank KFC Cambridge Food FNB Total Total % Rental income 5.7% Growth in rental income 17

18 retail: shopping centres Portfolio sectors: Rental income (%) Gross lettable area (GLA) m m 2 Rental income R143 Million R135 Million Rental income growth (like-for-like) 6.4% 4.7% Total and core vacancies (% of GLA) 4.6% 5.4% We have six high-quality neighbourhood / convenience shopping centres: Johannesburg: Killarney Mall and the Woodmead Value Mart Tshwane: Elardus Park, Waverley Plaza, Gezina City and Blaauw Village (50% held JV) 10% Rental income 6.4% Growth in rental income 18

19 retail: shopping centres (continued) Portfolio sectors: Rental income (%) Elardus Park Shopping Centre Increase in vacancies to 12% In need of an upgrade Woodmead Value Mart No vacancies Rental growth of 10% Killarney Mall Occupancy levels stable Increase in trading density by 5% and net property income Focus on improving tenant mix Waverley Plaza and Gezina No vacancies 10% Rental income 6.4% Growth in rental income 19

20 offices Portfolio sectors: Rental income (%) Let to government (% of total rental income from offices) % 35.7% Other (% of total rental income from offices) 57.8% 64.3% Gross lettable area (GLA) m m 2 Percentage of office space in development / mothballed (opportunities to sell, develop or enter into partnerships) 18.2% 19.4% Rental income R317 Million R269 Million Growth in rental income year-on-year (likefor-like) 8.4% 5.2% Total vacancies at year-end (% of GLA) 33.8% 34.7% Core vacancies at year-end (% of GLA) 15.6% 15.3% * Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity 8.4% * Growth in rental income 22.2% Rental income 20

21 offices (continued) Portfolio sectors: Rental income (%) Offices comprise of Government office space Corporates Smaller units occupied by SME s, occupancy levels stable Upgrading of offices Wits Technikon R16.1m (let effective 1 March 2017) Midtown R17.3m (first phase of renovation) Strong like-for-like growth mainly due to new government lease for m 2 included in results for 12 months (effective 1 March 2016) 22.2% Rental income 8.4% * Growth in rental income 21

22 industrial Portfolio sectors: Rental income (%) GLA in Tshwane m m 2 GLA in Johannesburg m m 2 Total GLA m m 2 Rental Income R115 million R110 million Growth in core rental income year-onyear (like-for-like) Total and core vacancies at year-end (% of GLA) 5.8% 3.3% 12.3% 10.8% * Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity 8% Rental income 5.8% * Growth in rental income 22

23 industrial (continued) Portfolio sectors: Rental income (%) Successful redevelopment of properties demand for upgraded properties Achieving higher rentals after upgrades Upgrade largely tenant driven The Tannery Industrial Park (R12m) improved occupancy and rentals achieved Our competitive advantage Lower cost of occupation in desirable areas 8% Rental income 5.8% * Growth in rental income 23

24 parking Portfolio sectors: Rental income (%) Average monthly residential rentals (per bay) Average monthly commercial rentals (per bay) R380 R650 R360 R600 Rental income R61 million R58 million Growth in core rental income yearon-year (like-for-like)* 4.6% 7.2% Focused strategy to increase the number of parking bays in the CBD, due to high demand Strong demand from government and residential tenants 4.2% Rental income Greater focus on increasing revenue through improved efficiencies * Like-for-like rental income growth, after taking into account occupancy levels, reversions and escalations for the twelve-month period, assuming no major development activity 4.6% Growth in rental income * 24

25 vacancies by sector as at 31 August 2017 % of gross lettable area (by sector) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Total vacancies Core vacancies Total Residential Industrial Retail: Shopping centres High street shops Offices Note: Total vacancies include mothballed properties held for development which offer significant redevelopment, partnership or disposal opportunities. The value of these vacancies will be realised over time. Core vacancies exclude lettable area of properties that are mothballed. 25

26 vacancies Total vacancies in our portfolio as at 31 August 2017 were at 17.7% of our total GLA (2016: 15.6% of our total GLA) Core vacancies were at 10.7% of total GLA (31 August 2016: 9.8%) Core vacancies increased mainly in the residential sector (mainly Hatfield and other strong student nodes) Residential total vacancies include m 2 relating to Sharon s Place, One on Mutual and The Manhattan Mothballed office vacancies of m 2 for future redevelopment, partnerships or disposal opportunities 26

27 lease expiry profile Residential (12 months and less) Gross lettable area m² GLA (%) Monthly contractual rent R 000 Rental income (%) Monthly commercial to 28 February to 28 February to 29 February to 28 February Thereafter Vacancies Total

28 lease expiry profile Octodec s portfolio features a mix of short- to long-term leases with the majority of short-term leases providing for a monthly agreement at expiry, which is typical of the residential market and leases with small to medium sized enterprises Government leases concluded for three-year term on average Residential leases short term leases (12 month contracts providing for a month to month arrangement on expiry) Majority of leases for non-national tenants concluded for 1- to 10-year term National tenants leases concluded for 3- to 10-year term 28

29 recent sales In line with our strategy to dispose of non-core assets, the following properties were sold and transferred during the period under review Total Profit / (loss) Transfer date / consideration on disposal expected Property Location R million R million transfer date Frederika Street Gezina, Tshwane Feb Karkap Gezina, Tshwane Feb Munt Street Waltloo, Tshwane Feb Raschers Johannesburg CBD Nov Paulefko Tshwane CBD Oct Blagil Hatfield, Tshwane 2.1 (0.1) 26 Nov High Court Building and Somerset House Johannesburg CBD 14.5 (0.1) 26 Nov 2016 Fine Art House and Fine Art Court Johannesburg CBD May Valhof Valhalla, Tshwane 9.0 (0.1) May Total Exit yield % The profit on the disposal consideration of R77.8 million amounted to R3.7 million, a premium of 4.8% above revalued book value at 31 August A further 35 non-core properties with a carrying value of R284.3 million have been recommended for disposal by the board. The average carrying value of these properties is R8.1 million. The proceeds from property sales will be used to repay debt, as well as fund the development pipeline. 29

30 capital expenditure greater than R50 million Management recognises the need to improve hurdle rates of returns and has taken a more cautious approach to development roll-outs going forward Property Location Details The Manhattan One on Mutual Sharon s Place Pretoria Midtown Sunninghill, Johannesburg Tshwane CBD Tshwane CBD Tshwane CBD 50% undivided share in residential development 180 units and parking Upmarket residential development of 142 units, m 2 retail and 204 parking bays 400 residential units, 5 660m 2 retail and 289 parking bays Upgrade of 7 133m² office block with 944m² retail and 90 parking bays Total development cost R million Completion date Fully let yield % Loss after interest FY2017 R million 80.9 December February Early residential July retail st phase complete 2 nd phase subject to securing lease Total The impact of the let-up affects results negatively. The loss after interest for the 2017 financial year was at R13.4 million or equivalent to 2.5% of distributable income The construction of the residential development Reinsurance House is in the planning phase, which is situated in the Johannesburg CBD. The total development costs is expected to be R90 million This development will only commence if an acceptable yield is achieved at least 8.5% per annum 30

31 One on Mutual The project was designed to be a more upmarket mixed-use development, attracting midincome tenants working in Tshwane CBD Development cost of: R155m Residential units: 142 Retail: 1 746m 2 (mostly let Pick n Pay and Mugg & Bean) Offices: 443m 2 (not let) Parking bays: 204 One on Mutual Currently over 90% residential occupancy 31

32 sharon s place Tshwane CBD mixed use development Development cost of: R356m Residential units: 400 Retail: 5 660m² Parking bays: Centre Forum 2016 Sharon s Place construction Retail completed in July 2017 Retail leasing progressing well and is almost 100% let with anchor tenants including Shoprite and Clicks Completion of the 400 residential units delayed further, expected completion in early Sharon s Place 32

33 2017 Tshwane, Golden Mile 4our results 1902 Market Place, Pretoria 33

34 achievements Distribution growth per share of 0.8% to cents per share for the twelve month period Like-for-like growth in rental income of 5.3% Net property expense to rental income ratio increased to 30.9% (31 August 2016: 29.6%) Arrears and doubtful debt provisions remain at acceptable levels despite a challenging operating environment Bad debts and movements in doubtful debt provisions as a percentage of rental income 0.9% (31 August 2016: 0.8%) Tenant arrears at 3.9% of gross revenue (3.6% at 31 August 2016) Balance sheet strengthened Loan to value ratio of 37.1% (31 August 2016: 38.3%) Proceeds of R263 million from dividend reinvestment programme Proceeds from disposal of properties of R77 million Rental income Like for like growth 5.3% Distribution growth of 0.8% 34

35 achievements (continued) 0.7% increase in net asset value (NAV) to R29.33 per share Interest rate risk reduced 82.1% hedged through interest rate swap contracts Successful refinance of Domestic Medium Term Note Programme (DMTN) commercial paper notes Four major projects under construction during the period with two successfully completed Some major renovations to existing properties recently completed (Wits Technikon) in JHB CBD Rental income Like for like growth 5.3% Distribution growth of 0.8% 35

36 challenges Tough economic and operating environment Like-for-like growth in rental income of 5.3%, under pressure Rise in costs (finance cost, utilities, assessment rates and repairs and maintenance) Higher interest rates (all-in weighted average cost of funding at 9.2% at 31 August 2017) Core vacancies in portfolio (excludes properties held for redevelopment) at 10.7% (31 August 2016: 9.8%) Dilutionary impact in the short term on distribution growth due to: Let-up phase of new residential developments Major upgrades to properties Properties acquired with vacancies, for redevelopment Council service delivery challenges New development impact 36

37 distributable earnings simplified income statement R 000 % Change Reviewed 31 August 2017 Audited 31 August 2016 Revenue earned on contractual basis 5.4% Like-for-like growth in rental income of 5.3% Operating costs 6.7% ( ) ( ) Increased cost pressures Net rental income from properties 4.2% Administrative costs 9.6% (77 813) (71 005) Increased corporate costs Operating profit 3.8% Interest income Loan advanced to JV partners Share of income from Joint Ventures equity accounted JVs Distributable profit before finance costs Finance costs 3.5% ( ) ( ) Increase in interest rates Shareholder distributable earnings 5.0% Number of shares in issue (000) Dividend per share (cents) % growth in distribution Note: Shareholders will be entitled to elect to reinvest the cash dividend in return for shares

38 condensed consolidated statement of financial position R'000 Reviewed 31 August 2017 Audited 31 August 2016 ASSETS Non-current assets Investment properties properties properties 2017 Plant and equipment Straight-line rental income accrual Tenant installation and lease costs Other financial assets Derivative financial instruments Investment in joint ventures equity accounted JVs - 50% held Current assets Receivables Cash and cash equivalents Non-current assets held for sale Properties recommended for sale at 31 August EQUITY AND LIABILITIES Equity Stated capital Non-distributable reserves Retained earnings Non-current liabilities Interest-bearing borrowings Derivative financial instruments Deferred taxation Current liabilities Interest-bearing borrowings Commercial paper notes, short term bank finance Non-interest bearing borrowings Derivative financial instruments Shares in issue ('000) Net asset value (NAV) per share (cents) Loan to investment value (LTV) ratio (%) 37.1% 38.3% 38

39 cash flow for the year ended 31 August 2017 R' ( ) ( ) ( ) Balance end of year Increase in interest bearing borrowings Acquisition and improvements to investment property Disposal of investment property Issue of new shares Dividend paid Net finance costs Cash generated from operations Balance 1 September

40 capital management funding at 31 August 2017 Prudent management of debt LTV at 37.1% (target maximum of 40%) Interest rate hedging maintain at levels of at least 80% Proactively address expiries of loans and swaps in the 2018 FY Debt capital market issuance R m of total borrowings (currently at 23.1%) Continue to pay down debt through sales of non-core properties Unutilised banking facilities of R625.9 million R 000 Interest rate Total borrowings Banks % DMTN programme % TOTAL BORROWINGS % Cost of swaps 0.2% TOTAL BORROWINGS % Loan to value 37.1% Weighted average cost of borrowings all-in cost, including swaps 9.2% Interest rate hedging percentage of borrowings 82.1% Weighted average term of fixed rate loans/swaps 1.6 years Weighted average term of debt 1.4 years 40

41 funding as at 31 August August 2017 Standard Bank R925m 31 August 2016 Standard Bank R1 025m DMTN programme commercial paper R1 116m DMTN programme commercial paper R755m Nedbank R2 785m Nedbank R2 999m 41

42 interest bearing debt expiry profile as at 31 August 2017 Expiry profile per financial year (Rm and %) Rm % % % 525 Secured loans Corporate paper 6.0% 31 Aug Aug Aug Aug Debt maturing in the next 12 months: Short term borrowings are commercial paper (DMTN programme) of R958m and bank secured loans of R615m To date, R239m of the commercial paper notes have been successfully refinanced for a 12-month term at an all-in cost of 130 bps above JIBAR Debt maturing after 31 August 2017 Higher cost of interest anticipated 42

43 interest rate hedges expiry profile Expiry profile per financial year (Rm and %) Rm % Aug Aug % Aug % Aug 2021 Fixed rate loans R412 million Swaps total of R3.550 billion Average weighted expiry 1.6 years At 31 August 2017, interest rates in respect of 82.1% of borrowings hedged R1.250 billion of swap contracts commenced effective from 3 January 2017 Weighted term 3.6 years All-in weighted cost of 8.11% 43

44 central original site 5outlook central 44

45 outlook Continued lack of business and consumer confidence Increasing competition CBD Johannesburg and Hatfield (residential) Strong operational focus to continue Well-positioned to continue to take advantage of opportunities in the CBDs CBD retail continues to generate strong demand from National and independent tenants Strong demand for affordable and secure, quality residential accommodation Residential developments to significantly uplift the Tshwane CBD node where we have a strategic concentration of assets One on Mutual letting well above expectation Sharon s Place will be ready for occupation in early

46 outlook (continued) Continue to unlock value future development opportunities under discussion Exploring new product offering (Nano units) Consideration of residential opportunities outside of Gauteng - ongoing Project returns will be improved, hurdle yield required of above 8.5% Disposal of non-core or non-performing properties will remain a focus area Forecast Impact on distributions during let-up phase Current forecast growth in distributable income per share No growth for 2018 FY Positive growth in 2019 FY 46

47 investment case Strategy to remain the same and diversify geographically Sustainable model urban renewal and middle-class growth Well-balanced portfolio with significant synergies across sectors in the CBDs Strong development pipeline unlock value of current portfolio (new and redevelopments) Proven track record hands-on approach delivering steady returns Well-positioned to continue to unlock value and navigate the challenging economic environment Steady and sustainable value creation 47

48 2016 Kerk Street Building, Johannesburg 1936 Anstey s Building after modernisation The building before redevelopment questions and answers 48

49 Jeffrey Wapnick Anthony Stein 7contact us Managing Director Tel: Financial Director Tel:

50 8appendices 2017 One on Mutual completed 2015 One on Mutual under construction 50

51 corporate structure 39% Wapnick family & directors 38% Institutional investors 23% Other Top 5 Beneficial institutional shareholders 5.2% Old Mutual Group 4.9% Stanlib 4.8% Government Employees Pension Fund 3.8% Nedbank Group 2.3% Eskom Pension & Provident Fund 51

52 our strategy Offer innovative property investment opportunities that create and deliver long-term sustainable returns by: Building a diversified portfolio in the Tshwane and Johannesburg CBDs and surrounding areas with an exposure to residential, office, retail and industrial sectors Actively promoting urban renewal in the Tshwane and Johannesburg CBDs 1899 Palace of Justice, Pretoria Increase the profitability of our existing portfolio by: Continually improving the quality of our portfolio Enhancing our tenant profile Developing well-located properties 2016 Tshwane (previously Pretoria) 52

53 our strategy (continued) Increase the profitability of our existing portfolio by: Concentration of properties in Tshwane and Johannesburg CBDs, which makes it easier to manage and extract value from our portfolio Pursuing acquisitions that offer strategic value and sustainable yield-enhancing opportunities Focusing on growing our residential portfolio in the medium term Recycling capital from low growth, poor quality assets to high growth, high quality assets Enhancing returns through effective mix of debt and equity to optimise capital structure Management of interest and liquidity risk 1880 Church Street South, Pretoria 2016 Tshwane (previously Pretoria) 53

54 top 10 properties Account for 25.0% of the Octodec investment property portfolio by value Property Location Sector Size (m 2 ) The Fields Hatfield, Tshwane Mixed use Killarney Mall Killarney, Johannesburg Shopping centre Centre Walk Tshwane CBD Mixed use Woodmead Value Mart Woodmead, Johannesburg Shopping centre Kempton Place Kempton Park Mixed use Sharon s Place Tshwane CBD Mixed use Louis Pasteur Medical Tshwane CBD Mixed use Nedbank Plaza Arcadia, Tshwane Mixed use Steyn s Place Tshwane CBD Mixed use Jeff s Place Tshwane CBD Residential